Province of Davao Del Sur

Republic of the Philippines

PROVINCE OF DAVAO DEL SUR

MUNICIPALITY OF MAGSAYSAY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CY – 2015

Note 1 GENERAL/AGENCY PROFILE

1.1 CREATION

The Municipality of Magsaysay was created on June 17, 1967 by virtue of

Republic Act No. 1902.Pursuant to Republic Act 7160, otherwise known as Local Government Code of 1991, like other Local Government Units, enjoys total autonomy in managing, deciding and planning its own administrative, fiscal and development affairs in conformity with the national government thrust for sustainable social and economic growth.It is presently classified as 2nd class municipality as per Memo Circular No. 01-M(28)-08, issued by Bureau of Local Government Finance under the Department of Finance.The municipality is basically agricultural land called as the “Rice Granary of the Province”, comprising of 22 barangays is managed by the Local Chief executive, Hon. Arthur D. Davin, CE in cooperation with Vice Mayor Donnabel Joy F. Mejia and the members of the SangguniangBayan. .

Its operation focused on the improvement of fiscal management, promotion of government productivity and efficiency in the delivery of basic services, peace and order, bolsters and upholds Leadership, Efficacy, Righteousness, Vanguard, Integrity, Courtesy and Equality.

With the Vibrant Leadership of Mayor Arthur D. Davin and with the support of his legislative body, several projects in the National and Local Agencies were implemented. Financial Assistance from the National agencies as well as from provincial government greatly helped the majority of the populace who depend in farming. The management also introduce another farming techniques in order to meet the persistent demand of their generation to other succeeding generation, thus producing organic rice called “Mag Rice” as well as organic vegetables.

The Municipality maintained three funds namely, General Fund, Special Education Fund and Trust Fund. Each fund is maintained by having separate books of accounts and all sources for each fund is deposited in separate bank accounts at Land Bank of the Philippines Bansalan Branch and the Development Bank of the Philippines, Digos Branch, Digos City.

1.2 Development Thrust and Priorities for Budget Year 2015

The total Annual Budget for CY 2015 is outlined by the following sectoral allocation to wit: (CY 2014 Executive Annual Budget of the Municipal Government of Magsaysay)

Sector / Amount / % Against Total
General Public Services
Economic Services
Health, Nutrition, Population Programs
Social Security, Social Services & Welfare
Other Vital Purposes:
Labor and Employment
Education, Culture, Sports and Manpower
Development
Housing and Community Development
Development Fund
Mun.Disaster Risk Reduction & Mgt. Fund
Miscellaneous Personnel Benefit Fund / P99,736,540.59
23,444,970.31
9,593,003.00
7,157,866.02
1,567,443.00
890,425.08
446,783.00
22,669,207.00
5,913,000.00
4,132,620.00 / 56.813
13.355
5.465
4.077
.893
.507
.255
12.913
3.368
2.354
Total / P175,551,858.00 / 100%

The budget of expenditures was allocated into four (4) major sectors: the General Public Services; Economic Services; Health, Nutrition, Population Programs; and Social Security; Social Services & Welfare and the six (6) Other Vital Purposes: the Labor and Employment; Education, Culture, Sports and Manpower Development; Housing and Community Development; Development Fund; Municipal Disaster Risk Reduction & Mgt.; and Miscellaneous Personnel Benefit Fund.

The General Public Services gets the highest share of the budget in the amount of P99,736,540.59.00, which represents 56.813% of the total annual general fund budget intended for expenditures which are mandatory for the existence of the local government unit, its respective departments, divisions and sections. This sector also provides frontline services to the transacting public with regard to public documents. In relation thereto, this sector wraps up all executive, legislative and judiciary services, planning and general research and other overall fiscal services.

The Economic Services ranks second with the amount of P 23,444,970.31or13.355% of the total annual budget. This sector plays an important role in the society since it measures the society’s interaction with regard to economic activities. Basic services which are vital for human survival like food, shelter, and clothing encompass the Economic Services. Agriculture Office, and Economic Enterprise Office directly involved with food security while Engineering and Environment Officesare offices closely engaged in shelter and safety living.

The Heath, Nutrition and Population Programs with an appropriated amount of P9,593,003.00or5.465% of the total annual general fund budget is set aside for health-related programs and activities comprising various medical, dental nutrition, population management services and others which are contributory to a sound and healthy state of living.

The fourth major sector is the Social Security, Social Services & Welfare in the amount of P7,157,866.02or4.077% of the annual budget. This sector is also specifically geared towards securing the welfare of the less fortunate residents of this city, introduction to education of our toddlers through Day Care Program, provide for rehabilitation and assistance for the physically and socially handicapped and persons with disabilities, distressed and displaced individuals and families and down to the concerns of the aged citizenry.

The four (6) other vital purposes such as: Labor and Employment consist ofan amount of P1,567,443.00or.893% of the total annual budget. This is used for public employment service like summer job, skills registry profiling for job matching, skills training on vocational technical skills like welding and establishment of training center at Bliss, Poblacion

The Education, Culture, Sports and Manpower Development consist of an amount of P890,425.08 or .507% of the total annual budget. This is used for Scholarship Program among deserving secondary students and scholarship of Midwifery Course with the end in view of having 1 stay in midwife in every barangay. It is also used for institutionalization of municipal tribal council & creation of municipal tribal office with corresponding budget and providing one seat in the SangguniangBayan as IPMR Representative. It is used to provide sports equipment in the barangay, and provide skills training among the unprivileged and out of school youth.

The Housing and Community Development consist of an amount of P446,783.00 or .255% of the total budget. This is used to purchase land to be utilized as barangay site located in BarangayMaibo. It is also used for community development program like radio broadcast and information disseminations on good organic agricultural practices, planting calendar, conduct sitio/barangay consultations, moral recovery program and paglilingkodabotkamay.

The Local Development Fund consist and amount of P22,669,207.00 or 12.913% of the total annual budget. This is used to finance local projects and LGU counterpart for projects funded by various National Government Agencies.

The Municipal Disaster Risk Reduction and Management Fund (MDMRRMF) in the amount of P5,913,000.00or3.368% of the total annual consolidated budget The passage of RA 10121 directed all LGUs to immediately respond and comply with the new law providing 70% of the CDRRMF or an amount of P4,139,100 to be readily made available for Mitigating Fund and 30% equivalent to P1,773,900.00 for Quick Response Fund or Stand by Fund for relief and recovery programs or rescue operations.

Lastly, the Miscellaneous Personnel Benefit Fund (MPBF) contained an amount of

P4,132,620.00or2.354% of the total expenditures. Under the MPBF, Pensions/Retirement

Benefits and Terminal Leave Benefits were taken into consideration, for those municipal

employees who opted orchose to leave with joy and contentment serving the public.

1.3 Fund Composition

The three funds maintained by the Municipal Government of Magsaysay are as follows:

1. General Fund (GF) - fund that every local government unit shall maintain which shall be used to account such monies and resources as may be received by and disbursed from the local treasury. The General Fund shall consist of monies and resources of the local government which are available for the payment of expenditures, obligations or purposes not specifically declared by law as accruing and chargeable to, or payable from, any other fund. [Sec. 308 of the Local Government Code of 1991 (RA No. 7160)]

The General Fund has four Special Accounts namely:

1.General Fund Proper

2.20% Development Fund

3.Market & Slaughterhouse Operation

4.Motor Poll Operation

Economic Enterprise Operated

The SangguniangBayan passed an Ordinance which covers the economic enterprises to be operated and managed by the Municipal Government of Magsaysay, namely: Market Slaughterhouse and Motor Poll Operation.

b. Special Education Fund (SEF) - consists of the respective shares of provinces, cities, municipalities, and barangays in the proceeds of the additional tax on real property. The proceeds from the additional one percent (1%) tax on real property accruing to the Special Education Fund shall be automatically released to the local school boards: provided, however, That the proceeds shall be allocated for the operation and maintenance of public schools, construction and repair of school buildings, facilities and equipmenteducational research, purchase of books and periodicals, sports development as determined and approved by the local school board. [Sec. 272 & 309A of the Local Government of 1991 (RA No. 7160)]

Figures for 2012)

c. Trust Fund (TF) - consists of private and public monies which have officially come into the possession of the local government or of a local government official as trustee, agent, or administrator, or which have been received as guaranty for the fulfillment of some obligation. A Trust Fund shall only be used for the specific purpose for which it was created or for which it came into the possession of the local government unit. [Sec. 309B of The Local Government Code of 1991 (RA No. 7160)]

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.1 Adoption of New Accounting standards

The following accounting standards and interpretations to existing standards that have been published by the International Public Sector Accounting Standards Board (IPSASB) and adopted by the Philippine Public Sector Accounting Standards Board (PPSASB) which became effective for accounting periods beginning on or after January 1, 2015 were adopted by the Municipal Government of Magsaysay:

PPSAS 1 Presentation of Financial Statements

PPSAS 2 Cash Flow Statements

PPSAS 3 Accounting Policies, Changes in Accounting Estimates and Errors

PPSAS 9 Revenue from Exchange Transactions

PPSAS 12 Inventories

PPSAS 13 Leases

PPSAS 14 Events after the Reporting Date

PPSAS 17 Property, Plant and Equipment

PPSAS 19 Provisions, Contingent Liabilities and Contingent Assets

PPSAS 20 Related Party Disclosures

PPSAS 28 Financial Instruments: Presentation

PPSAS 29 Financial Instruments: Recognition and Measurement

PPSAS 30 Financial Instruments: Disclosures

These new standards and interpretations prescribe new accounting measurement and disclosure requirement applicable to the Municipal Government of Magsaysay. When applicable, the adoption of the new standards was made in accordance with the transitional provisions of the standards, otherwise the adoption of the new standards is accounted for as change in accounting policy under PPSAS 3 “Accounting Policies, Changes in Accounting Estimates and Errors.”

The effects of these new standards and interpretations on the Municipal Government of Magsaysay accounting policies and on the amounts disclosed in the financial statements are summarized as follows:

PPSAS 1, “Presentation of Financial Statements,” provides different terminology for the financial statements. The most significant examples are the use of “statement of financial position” and “statement of financial performance.” The equivalent terms used in prior years are “balance sheet” and “income statement,” respectively. The Standard sets out the components of financial statements and minimum requirements for disclosure on the face of the statement of financial position and the statement of financial performance, as well as for the presentation of changes in net assets/equity. It is also describes further items that may be presented either on the face of the relevant financial statements or in the notes.

PPSAS 2, “Cash Flow Statement,” requires the provision of information about the historical changes in cash and cash equivalents by means of a cash flow statement which classifies cash flows during the period from operating, investing and financing activities.

PPSAS 3, “Accounting Policies, Changes in Accounting Estimates and Errors,” defines material omissions and misstatements and describes how to apply the concept of materiality when applying accounting policies and correcting errors. The most significant change in accounting estimate for this period is the change in residual value of all classes of PPE from 10% to 5% of the cost.

PPSAS 9, “Revenue from Exchange Transactions,” prescribes the identification, measurement and disclosure of revenues derived from exchange transactions. Relevant exchange transactions of the Agency comprises of the sale of goods and the rendition of education services/instruction.

PPSAS 12, “Inventories,” sets out the accounting treatment for the coast of inventories to be recognized as an asset and carried forward until the related revenues are recognized. The standard also provides guidance on the determination of the cost and its subsequent recognition as an expense, including ay write-down to net realizable value. The weighted average method is adopted for items that are not specifically identifiable.

PPSAS 13, “Leases,” prescribes the appropriate policies and disclosures to apply in relation to finance and operating leases, and how they are presented in the financial statements.

PPSAS 14, “Events After the Reporting Date,” prescribes the circumstances in which adjustments for events after the reporting period are required, and the relevant disclosures. The reporting date is set every end of the calendar year while the date on which the financial statements are authorized for issue is the date of approval by the Chief Executive/Head of Agency or authorized representative.

PPSAS 17, “Property, Plant and Equipment,” prescribes the accounting treatment for property, plant and equipment and related disclosure requirements. The cost model is adopted for all classes of PPE. Depreciation is computed for the month if the PPE is available for use on or before the 15th of the month. However, if the PPE is available for use after the 15th of the month, depreciation is for the succeeding month. The straight line method of depreciation is adopted with asset’s estimated useful life using the Schedule prepared by the Commission on Audit (COA).

PPSAS 19, “Provisions, Contingent Liabilities and Contingent Assets,” ensures that appropriate recognition criteria and measurement basis are applied to provisions, contingent liabilities and contingent assets and that sufficient information is disclosed in the notes to financial statements to enable users to understand their nature, timing and amount.

PPSAS 20, “Related Party Disclosures,” provides guidance and clarity in the scope of the standard, the definitions and the disclosures for related parties. It requires disclosures of the compensation of key management personnel.

PPSAS 28, “Financial Instruments: Presentation,” establishes principles for presenting financial instruments as liabilities or net assets/equity, and for offsetting financial assets and financial liabilities. The Standard complements the principles for recognizing and measuring financial assets and financial liabilities in PPSAS 29, “Financial Instruments: Recognition and Measurements,” and for disclosing information about in PPSAS 30, “Financial Instruments: Disclosures.”

PPSAS 29, “Financial Instruments: Recognition and Measurement,” prescribes the accounting principles for recognizing and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. The standard complements the principles for presenting information about financial instruments in PPSAS 28, “Financial Instruments: Presentation,” and for disclosing information about them in PPSAS 30, Financial Instruments: “Disclosures.”

PPSAS 30, “Financial Instruments: Disclosures,” requires the provision of disclosure in the financial statements that enable users to evaluate: (a) the significance of financial instruments for the entity’s financial position and performance; and (b) the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the end of the reporting period, and how the entity manages those risks. The standard complements the principles for presenting, recognizing and measuring financial assets and financial liabilities in PPSAS 28, “Financial Instruments: Presentation,” and PPSAS 29, “Financial Instruments: Recognition and Measurement.”

The adoption of the above standards and interpretations did not have any significant effect on the Municipal Government of Magsaysay financial statements, and did not result in restatement of prior year’s financial statements. These, however require additional disclosures on the Municipal Government of Magsaysay financial statements.

3.Summary of Significant Accounting Policies

3.1Basis of Preparation

The financial statements have been prepared in accordance with the Philippine Public Sector Accounting Standards (PPSAS),as amended per COA Circular No. 2015-009 dated December 1, 2015.

Basis of Recording

1. Accrual Accounting-

A modified accrual basis of accounting is used. Under this method, all expenses shall be recognized when incurred. Income shall be on accrual basis (e.g. Share from Internal Revenue Collections) except for transactions where accrual basis is impractical (e.g. Market Fees) or when other methods may be required by law. (Sec. 04 of Manual on the New Government Accounting System for Local Government Accounting System for Local Government Units, Vol. 1)

Modified accrual method of accounting is used for real property taxes. At the beginning of the year, Real Property Tax Receivable and Special Education Tax Receivable are established. This is in view of the need to record in the books not mere income estimates from real property taxes but actual receivables from said taxes. However, to avoid appropriating uncollected revenues which might result in huge cash overdraft, the same is credited to Deferred Real Property Tax Income/ Deferred Special Education Tax Income. Real Property Tax Income/ Special Education Tax Income shall be recognized upon receipts of collection. (Sec. 19 of Manual on the New Government Accounting System for Local Government Units, Vol. 1)

Cash Basis of Accounting shall be used for all other taxes, fees, charges and other revenues. (Sec. 19 of Manual on the New Government Accounting System for Local Government Units, Vol. 1)

1. One Fund Concept-

Thissystem adopts the one fund concept. Separate fund accounting shall be done only when specifically required by law or by a donor agency or when otherwise necessitated by circumstances subject to prior approval of the Commission. As required under Sections 308, 309 and 310 of the Local Government Code, separate books shall be maintained for the General Fund, Special Education Fund and Trust Fund.(Sec. 04 of Manual on the New Government Accounting System for Local Government Accounting System for Local Government Units, Vol. 1)