MUNICIPALITY

NOTES TO FINANCIAL STATEMENT

DECEMBER 31, 2017

A. General Information/Agency Profile

The Financial Statement of Municipality X was authorized for issue on March 30, 2017, signed
by Mrs. Roda Santos, the Chief Accountant of Municipality X.

Municipality X was established in 1996 and located in Pampanga. Its principal activities are
waste management, health and emergency services, and other public services.

B. Statement of Compliance and Basis of Preparation of Financial Statements.

The financial statement have been prepared in accordance with and comply with the Philippine
Public Sector Accounting Standards (PPSAS) issued by the Constitution on Audit per COA Resolution
No. 2014-003 dated January 24, 2015.

The financial statements have been prepared on the basis of historical cost, unless stated
otherwise. The Statement of Cash Flows is prepared using the Indirect Method.

C. Summary of Significant Accounting Policies.

3.1 Basis of Accounting

The financial statement is prepared on an accrual basis in accordance with the PPSAS.

3.2 Cash and Cash Equivalents

Cash and cash equivalent comprise of cash on hand and cash in bank, and deposits on
current account.

3.3 Inventories
Inventory is measured at cost upon initial recognition. To the extent that inventory was
received through non-exchange transaction (for no cost or for a nominal cost), the cost of the
inventory is its fair value at the date of acquisition.

3.4 Property, Plant and Equipment

Recognition and Measurement

An item is recognized as property, plant, and equipment (PPE) if it meets the following
characteristics and recognition criteria as a PPE.

The characteristics of PPE are as follows:

 Tangible items;
 Are held for use in the production or supply of goods or services, for rental to others, or
for administrative purposes; and
 Are expected to be used during more than one reporting period.

An item of PPE is recognized as an asset if;

 It is probable that future economic benefits or service potential associated with the item
will flow to the entity; and
 The cost or fair value of the item can be measured reliably.

An item recognized as PPE is measured at cost. Cost includes the following;

 Its purchase price, including import duties and non-refundable purchase taxes, after
deducting trade discount and rebates;
 Expenditure that is directly attribute to the acquisition of the items; and
 Initial estimate of the costs of dismantling and removing the item and restoring the site on
which it is located, the obligation for which an entity incurs either when the item is
acquired, or as a consequence of having used the item during a particular period for
purposes other than to produce inventories during that period.
 After recognition, all PPE are stated at cost less accumulated depreciation and impairment losses.
All other repair and maintenance costs are recognized as expense is surplus or deficit as incurred.

Depreciation

Each part of an item of property, plant, and equipment with a cost that is significant in relation to
the total cost of the item is depreciated separately.

The depreciation charge for each period is recognized as expense unless it is included in the cost
of another asset. Depreciation of an asset begins when it is available for use such as when it is in the
location and condition necessary for it to be capable of operating in the manner intended by management.

The straight line method of depreciation is adopted unless another method is more appropriate for
agency operation.

Impairment

An asset’s carrying amount is written down to its recoverable amount, or recoverable service
amount, if the asset’s carrying amount is greater than its estimated recoverable service amount.

Derecognition

Municipality X derecognizes items of property, plant and equipment and/or any significant part of
an asset upon disposal or when no future economic benefits or service potential is expected from its
continuing use. Any gain or loss arising on derognition of the asset (calculated as the difference between
the net disposal proceeds and the carrying amount of the asset) is included in the surplus or deficit when
the asset is derecognized.

3.5 Intangible Assets

Recognition and Measurement

Intangible assets are recognized when the items are identifiable non-monetary assets without
physical substances; it is probable that the expected future economic benefits or service potential that are
attributable to the assets will flow to the entity; and the cost or fair value of the assets can be measured
reliably.

Intangible assets acquired separately are initially recognized at cost.

The useful life of the intangible assets is assessed as either finite of indefinite. Intangible assets
with a finite life are amortized over its useful life. An intangible asset with indefinite useful lives was not
be amortized.

Intangible assets with an indefinite useful life or an intangible asset not yet available for use were
assessed for impairment whenever there is an indication that the asset may be impaired.

3.6 Changes in Accounting Policies and Estiamtes

Municipality X recognizes the effects of changes in accounting policy retrospectively. The effects
of change in accounting policy were applied prospectively if retrospective application is impractical.

Municipality X recognizes the effects of changes in accounting estimates prospectively by

including in surplus of deficit.

Municipality X correct material prior period errors retrospectively in the first set of financial
statements authorized for issue after their discovery by:

 Restating the comparative amounts for prior period(s) presented in which the error
occurred; or
 If the error occurred before the earliest prior period presented, restating the opening
balances of assets, liabilities and net assets/equity for the earliest prior period presented.

3.7 Revenue from Non-Exchange Transaction

 Recognition and Measurement of Assets from Non-Exchange Transaction

An inflow of resources from a non-exchange transaction, other than services in-kind, that meets
the definition of an asset were recognized as an asset if the following criteria were met;

 It is probable that the future economic benefits or service potential associated with the
asset will flow to the entity; and
 The fair value of the asset can be measured reliably.
An asset acquired through a non-exchange transaction is initially measured at its fair value as at
the date of acquisition.

Recognition Revenue from Non-Exchange Transaction

An inflow of resources from a non-exchange transaction recognized as an asset is recognized as

revenue, except to the extent that a liability is also recognized in respect of the same inflow.

As Municipality satisfies a present obligation recognized as a liability in respect of an inflow of

resources from a non-exchange transaction recognized as an asset, it reduces the carrying amount of the
liability recognized and recognizes an amount of revenue equal to that reduction.

Measurement of Revenue from Non-exchange Transaction.

Revenue from non-exchange transactions is measured at the amount of the increase in net assets
recognized by the entity unless a corresponding liability is recognized.

Measurement of Liabilities on Initial Recognition from Non-Exchange Transactions

The amount recognized as a liability in a non-exchange transaction is the best estimate of the
amount required to settle the present obligation at the reporting date.

3.8 Revenue from Exchange Transaction

Measurement of Revenue

Revenue was measured at the fair value of the consideration received or receivable.
Note 1
Tax Revenue

Real Property Tax Income 75,000.00

Total 75,000.00

Note 2
Shares, Grants and Donations

Internal Revenue Allotment 200,000.00

Total 200,000.00

Note 3
Personnel Services

Salaries and Wages 10,000.00

PERA 1,000.00
Life and Retirement Contributions Premium 10.00
PAG IBIG Contributions Premium 10.00
PHILHEALTH Contributions Premium 10.00

Total 11,030.00

Note 4
Maintenance and Other Operating Expenses

Travelling 5,500.00

Training and Seminar 1,000.00

Scholarship 7,000.00

Electricity 2,000.00

Telephone 3,000.00

Rent 36,000.00

Office Supplies 2,028.80

Postage and Stamp Courier 14.40

Total 56,543.20

Note 5
Financial Expenses

Interest 4,000.00

Bank Charges 5,000.00

Total 9,000.00

Note 6
Non-Cash Expenses

Depreciation – Building 50,400.00

Depreciation - Info and Comm Tech Equipment 57,600.00

Depreciation - Office Equipment
 14,400.00

Total 122,400.00

Note 7
Financial Assistance and Subsidy

Subsidy From National Government 22,000.00

Total 22,000.00

Note 8
Losses

Loss of Assets 10,000.00

Total 10,000.00

Note 9
Cash and Cash Equivalents

Cash Agency/Treasury Deposit 500.00

Cash Agency/Treasury Deposit, Trust 20,000.00

Cash in Bank - Local Currency Account 1,766,000.00

Petty Cash Fund 10,000.00

Cash Disbursing Officer (10,000.00)

Total Cash and Cash Equivalents 1,786,500.00

Note 10
Inventories

Office Inventories 1,000.00

Other Materials and Supplies Inventory 1,000.00

Total 2,000.00

Note 11
Property Plant and Equipment

Buildings 993,600.00

Accumulated Depeciation - Building (50,400.00)

Office Equipment 147,000.00

Accumulated Depeciation - Office Equipment (14,400.00)

Info and Comm Tech Equipment 576,000.00

Accumulated Depreciation - Info and Comm Tech Equipment (57,600.00)

Advances to Contractor 11,750.00

Construction In Progress - Building 7,000.00

 Total 1,612,950.00

Note 12
Intangible Asset

IT Software 1,500.00

Total 1,500.00

Note 13
Financial Liabilities

Accounts Payable 26,500.00

Total 26,500.00

Note 14
InterAgency Payable

Due to BIR 1,100.00

Due to NGA's 1,000.00

Total 2,100.00

Note 15
Trust Liabilities

Guaranty/Security Deposits Payable 4,100.00

Total 4,100.00

Note 16
Non - Current Financial Liabilities

Loans Payable - Domestic 400,000.00

Total 400,000.00
 MUNICIPALITY X

Statement of Financial Performance

December 31, 2017

Note

Revenue

Tax Revenue 1 75,000.00

Shares, Grants, and Donations 2 200,000.00

Total Revenue 275,000.00

Current Operating Expenses

Personnel Services 3 11,030.00

Maintenance and Other Operating Expenses 4 56,543.20

Financial Expenses 5 9,000.00

Non-Cash Expenses 6 122,400.00

Total Current Operating Expenses 198,973.20

Surplus (Deficit) From Current Operations 76,026.80

Financial Assistance and Subsidy 7 22,000.00

Losses 8 10,000.00

Donations 600,000.00

Surplus (Deficit) for the Period (511,973.20)

 MUNICIPALITY X
Statement of Changes in Net Assets/Equity
December 31, 2017

Balances, January 1, 2017 1,782,223.20

Grants From NGA's 900,000.00
Foreign Grants 800,000.00
Accumulated Surplus/Deficit (511,973.20)
Balances, December 31, 2017 2,970,250.00
 MUNICIPALITY X
Statement of Cash Flows
December 31, 2017

Cash Flows From Operating Activities

Net Income (511,973.20)
Depreciation 122,400.00
Increase in Office Supplies Inventory 1,000.00
Increase in Materials and Supplies Inventory 1,000.00
Increase in Accounts Payable 26,500.00
Increase in Due to BIR 1,100.00
Increase in Due to NGA's 1,000.00
Net Cash Flows Provided by Operating Activities (362,973.20)

Cash Flows From Investing Activities

Cash Receipt
Guaranty/Security Deposits/Retentions 4,100.00
Total 4,100.00

Cash Disbursements
Advances to Contractor 11,750.00
Purchase Office Equipment 3,000.00
Purchase IT Software 1,500.00
Payment for Construction of Building 7,000.00
Total 23,250.00

Net Cash Flows Provided by Investing Activities (19,150.00)

Cash Flows From Financing Activities

Cash Receipt
Loans-Domestic 400,000.00
Grant From NGA's 900,000.00
Foreign Grant 800,000.00
Total 2,100,000.00

Net Cash Flows Provided by Financing Activities 2,100,000.00

Net Changes in Cash and Cash Equivalents 1,717,876.80

Cash and Cash Equivalents, Beginning Balance 68,623.20
Cash and Cash Equivalents, December 31 1,786,500.00
 MUNICIPALITY X
Statement of Financial Position
December 31, 2017

ASSETS

Note
Current Assets
Cash and Cash Equivalents 9 1,786,500.00
Inventories 10 2,000.00

Total Current Assets 1,788,500.00

Non-Current Assets
Property, Plant and
Equipment 11 1,612,950.00
Intangible Assets 12 1,500.00

Total Non-Current Assets 1,614,450.00

TOTAL ASSETS
3,402,950.00

LIABILITIES AND EQUITY

Current Liabilities
Financial Liabilities 13 26,500.00
Interagency Payables 14 2,100.00
Trust Liabilities 15 4,100.00

Total Current Liabilities 32,700.00

Non-Current Liabilities
Long Term Financial
Liability 16 400,000.00

Total Non-Current Liabilities 400,000.00

TOTAL LIABILITIES 432,700.00

Net Assets/Equity
Government Equity 2,970,250.00
TOTAL EQUITY 2,970,250.00

TOTAL LIABILITIES AND

EQUITY 3,402,950.00