Findings No.2 COA Annual Audit Report 2004

July 28, 2008

2. Accumulated Depreciation for the city’s various Property, Plant and Equipment as of December 31, 2004 is understated by P1,696,988.67, thus, overstating the assets and income accounts in the books.

Section 4, of the NGAS manual provided that in computing for depreciation, the straight-line method shall be used. A residual value equivalent to ten percent (10%) of the cost shall be set-up and charging shall start on the second month after purchase/completion of the property. COA Circular No. 2003-007 also provided for the different estimated useful lives of the various assets.

As of December 2004, the city’s property, plant and equipment totaled P335,518,166.31, of which P286,875,408.08 are depreciable. More than eight percent (8%) of depreciable assets or P29,841,973.24 were acquired from the period 2002 to 2004. The recorded accumulated depreciation was P2,119,499.67 only.

Audit of accumulated depreciation per books disclosed that it is understated by P1,696,988.67:

Property, Plant and EquipmentAcquisition Cost (2002-2004)DepreciationDifferencePer BooksPer AuditLand ImprovementsP52,578.69-0-11,456.0411,456.04Buildings13,942,790.94-0-383,426.75383,426.75Office Equipment, Furniture and Fixtures

7,484,649.65

634,673.80

2,026,127.76

1,391,453.96Machinery and Equipment4,030,547.96594,038.00596,702.342,664.34Transportation Equipment3,309,986.00565,216.73672,785.72107,568.99Other Property, Plant and Equipment1,021,420.00325,571.14125,989.73(199,581.41)TOTALP29,841,973.242,119,499.673,816,488.341,696,988.67

Verification showed that the difference was due to: a.) non-computation of depreciation on land improvements and buildings, and b.) incorrect computation of depreciation expense on the other depreciable assets. (Annex 3)

The City Accountant who is mandated to comply with the prescribed accounting procedures did not provide for the correct depreciation expense of the assets it acquired since 2002. She failed to consider the new life expectancy of assets as provided in COA Circular 2003-007 and COA Circular Letter No. 2004-003.

This resulted to overstatement of assets and income in the books.

Recommendation

Require the City Accountant to compute for the correct depreciation expense of its assets acquired since 2002. Use the estimated useful life of the property as provided in COA Circular No. 2003-007 dated December 11, 2003. Adjustment in the computation of monthly depreciation should be made in current and subsequent monthly depreciation expense as illustrated in COA Circular Letter No. 2004-003 dated October 4, 2004. A journal entry must be drawn to update/correct accumulated depreciation expense for the period.

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Written by admin · Filed Under Commission on Audit, Tangub City