Government Accounting

&
Accounting for non-profit organizations

BY: ZEUS VERNON B. MILLAN

 Inventories

Learning Objectives
1. Account for inventories by a
government entity.

2. Describe the procedures in the

receipt and disposition of
inventories by a government
entity.
 Definition
Inventories are assets:
a. In the form of materials or supplies to be
consumed in the production process
(examples: materials and supplies awaiting
use in the production process);

b. In the form of materials or supplies to be

consumed or distributed in the rendering of
services (examples: office supplies,
ammunition, maintenance materials);
 Definition
c. Held for sale or distribution in the ordinary
course of operations (examples:
merchandise purchased by an entity and
held for resale, or land and other property
held for sale, agricultural produce); or

d. In the process of production for sale or

distribution (examples: goods purchased or
produced for distribution to other parties
for no charge or for a nominal charge like
educational books produced by a health
authority for donation to schools).
Inventories of a government
entity
a. Inventory Held for Sale (e.g.,
medicines for sale in government
pharmacies)
b. Inventory Held for Distribution (e.g.,
rice and other welfare goods held for
distribution)
c. Inventory Held for Manufacturing
(e.g., raw materials, work-in-process)
Inventories of a government
entity
d. Inventory Held for Consumption
(e.g., office supplies inventory)
e. Semi-Expendable Property – consists
of machinery, equipment, furniture
and fixtures and similar items that
are not capitalized as PPE because
their costs are below the ₱50,000
capitalization threshold for PPE.
 Measurement

 Inventories are initially

measured at cost.
Measurement of Cost
 Cost comprises the following:
a. Purchase cost, excluding trade discounts.
b. Direct costs incurred in bringing the asset
to its intended location and condition.
 Cost excludes the following:
a. Abnormal amounts of wasted materials,
labor, and production overhead;
b. Selling costs; and
c. Administrative overheads
 Measurement
 Inventories are subsequently
measured at the:
a. Lower of Cost and Net
realizable value – for goods held
for sale; and
b. Lower of Cost and Current
replacement cost – for goods held
for distribution.
Measurement of NRV and
CRP
 Net Realizable Value (NRV) is
estimated selling price less estimated
costs of completion and estimated
selling/disposal costs.

 Current replacement cost is the

cost the entity would incur to acquire
the asset on the reporting date.
 Cost Formulas
 Specific identification – used for
items that are not ordinarily
interchangeable and those that are
segregated for specific projects.
 Weighted average cost – used for
large numbers of items of inventory
that are ordinarily interchangeable.
This shall be applied under a
perpetual inventory system.
Recognition as an
Expense
The carrying amount of an inventory is
recognized as expense in the period it is:
a. Sold;
b. Distributed;
c. Exchanged;
d. Consumed; or
e. Written down to its NRV or Current
replacement cost (only the portion of the
carrying amount in excess of the NRV or CRC
is recognized as expense).
 Journal entries – Initial
recognition
Inventory Held for Sale Inventory Held for Distribution
Merchandise Inventory xxx Welfare Goods for Distribution xxx
Accounts Payable xxx Accounts Payable xxx

Inventory Held for Inventory Held for Consumption

Manufacturing
Raw Materials Inventory xxx Office Supplies Inventory xxx
Accounts Payable xxx Accounts Payable xxx

Semi-Expandable Property
Semi-Expendable Machinery xxx
Accounts Payable xxx
 Disclosure and
Presentation
The financial statements shall disclose:
a. The accounting policies adopted in measuring
inventories, including the cost formula used;
b. The total carrying amount of inventories and
the carrying amount in classifications
appropriate to the entity;
c. The carrying amount of inventories carried at
fair value less costs to sell;
d. The amount of inventories recognized as an
expense during the period;
 Disclosure and
Presentation
e. The amount of any write-down of inventories
recognized as an expense in the period;
f. The amount of any reversal of any write-down
that is recognized in the statement of financial
performance in the period;
g. The circumstances or events, such as changed
economic circumstances, that led to the reversal
of a write-down of inventories; and
h. The carrying amount of inventories pledged as
security for liabilities.(par. 47, IPSAS 12)
Inventory Accounting
System
The Inventory Accounting System consists of
monitoring, controlling, and recording the
acquisition and disposal of inventory.

Inventory Accounting Sub-Systems. The sub-

systems for inventory accounting are as follows:
a. Receipt, Inspection, Acceptance and Recording
Deliveries of Inventory Items
b. Requisition and Issue of Inventory Items
c. Transfer and/or Disposal of Inventory Items
Receipt and Disposition of
Inventories
 Requisition
1. End users prepare the Purchase
Request (PR) form.

2. Purchasing Unit prepares the Purchase

Order (PO).

(Note: A canvass from at least 3 suppliers

is required for purchases amounting to
₱1,000 and above.)
Receipt and Disposition of
Inventories
 Receipt
3. Property/Supply Division prepares
the Inspection and Acceptance
Report (IAR) and forwards it to the
Property Inspector.
4. Property Inspector inspects the
delivered items and fills up the IAR.
5. The Property/Supply Division
records accepted deliveries in the
Stock Card (SC).
Receipt and Disposition of
Inventories
 Receipt
6. The Accounting Division records
accepted deliveries in the books of
accounts and in the Supplies
Ledger Card (SLC).
7. The Property/Supply Division
prepares the Disbursement
Voucher (DV) then forwards it,
together with the supporting
documents, to the Accounting
Division for processing of payment.
Receipt and Disposition of
Inventories
 Disposition
8. End users prepare the Requisition and
Issue Slip (RIS) to request for the
issuance of inventory.
9. The Property/Supply Division prepares the
Report of Supplies and Materials
Issued (RSMI). The Stock Card is updated
using the RSMI.
10. The Accounting Division uses the RSMI for
recording in the books of accounts and
updating of the Stock Ledger Card.
Receipt and Disposition of
Inventories
 Other documents
 Waste Materials Report – used to report wasted
materials, such as destroyed spare parts and other
spoilages.
 Report on the Physical Count of Inventories – used
in reporting the results of physical counts.
 Report of Accountability for Accountable Forms –
used to report the movement and status of
accountable forms.
 Inventory Custodian Slip – prepared when issuing
semi-expendable property.
APPLICATION OF
CONCEPTS