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Summary of Significant Accounting Policies
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2.1 Basis of Financial Statements presentation
The accompanying financial statements have been prepared in accordance with the generally accepted accounting principles in the Philippines under the historical cost convention. The accounting policies have been consistently applied by the Cooperative and are consistent with those used in the previous year, except for the adoption of new accounting standards.
2.2 Adoption of new and revised standards
The Accounting Standards Council (ASC) approved the issuance of new and revised accounting standards that are based on the revised International Accounting Standards (IAS)and the new International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Boards (IASB). The new standards are effectivefor annual period beginning on or after January 1, 2005, although earlier application is encouraged. The ASC hasrenamed the Standards that it is issued to correspond better with issuance of the IASB. These new standards have been renamed Philippine Accounting Standards (PAS) to correspond to the adopted IAS while the Philippine Financial Reporting Standards (PFRS) to correspond to the adopted IFRS. Previously, Standards issued by the ASC were designated as Statement of Financial Accounting Standards (SFAS).
The following are the Standards that are applicable to the Cooperative:
• PAS 1, Presentation of Financial Statements, provides a framework within an entity asses how to present fairly the effects of transactions and other events; provides the base criteria for classifying liabilities as current or non-current, prohibits the presentation of income from operating activities and extraordinary items as separate line items in the statements of income expenses; and specifies the disclosures about key sources of estimation, uncertainty and judgments that management has made in the process of applying the entity’s accounting principles. It also requires changes in the presentation of minority interest in the balance sheets and statements of income and expenses.
• PAS 7, Cash Flows Statements, requires the provision of information about the historical changes in cash and cash equivalents of an entity by means of cash flow statement which classifies cash flows during period from operating, investing and financing activities.
• PAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, remove the concept of fundamental error and the allowed alternative to retrospective restatement to correct prior period errors. It defines material omissions or misstatements, and describe how to apply the concept of materiality when accounting policies and correcting errors.
• PAS 10, Events after the Balance Sheet Date, which prescribes when the Cooperative should adjust its financial statements, were authorized for issue and about events after the balance sheet date. This Standard also requires the Cooperative not to prepare its financial statements on a going concern basis if events after the balance sheet date indicate that the going concern assumption is not appropriate.
• PAS 16, Property, Plant and Equipment, provides additional guidance and clarification on recognition and measurement of items of property, plant and equipment with the cost that is significant in relation to the total cost of the item shall be depreciated separately.
• PAS 18, Revenue, prescribes the accounting treatment of revenue arising from certain types of transaction and events. The primary issue for accounting for revenue is determining when to recognize revenue. Revenue is recognized when it is probable that the future economic benefits will flow to the entity and these benefits can be measured reliably. It also determines the circumstances in which these criteria will be met and, therefore, revenue will be recognized. It also provides practical guidance on the application of these criteria.
• PAS 19, Employee Benefits, prescribes the accounting and disclosure for employee benefits. The Standard requires an entity to recognize a liability when an employee has provided service in exchange for employee benefits to be paid in the future; and an expense when the entity consumes the economic benefit arising from service provided by an employee in exchange foremployee benefits.
• PAS 24, Related Party Disclosures, provides additional guidance and clarify in the scope of the standard, the definition and the disclosures of related parties. It also requires disclosure of the compensation of key management personnel by benefit type.
• PAS 36, Impairment of Assets prescribes the procedure that an entity applies to ensure that its assets are carried at no more than its recoverable amount; requires recognition of impairment losses and reversal of this; and prescribe disclosures.
• PAS 37, Provisions, Contingent Liabilities and Contingent Assets, ensures that appropriate recognition criteria and measurement bases are applied to provisions, contingent liabilities and contingent assets and that sufficient information is disclosed in the notes to the financial statementsto enable users to understand their nature, timing and amount.
• PFRS 1, First Time Adoption of PFRS, sets out the procedures that an entity must follow when it adopts PFRS for the first time as the basis for preparing its general purpose financial statements. It provides the guidance on the accounting policies, reporting periods, recognition, derecognition, reclassification and measurementof assets and liabilities. The standard set out optional and mandatory exemptions from the general restatement and measurement principles of assets and liabilities, guidance and clarification on recognition and measurement of items of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately. It furtherprovides each part of an item of property, plant and equipment with a cost of the item shall be depreciated separately.
• Except for PAS 16, 19 and 36, and PFRS1, the adoption of the revised PAS and new PFRS listed above will not result in substantial changes to the Cooperative’s accounting policies.
• The Cooperative has adopted and applied the following Philippine Accounting Standards.
- PAS 1 Presentation of Financial Statements
- PAS 7 Cash Flow Statements
- PAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
- PAS 10 Events after the Balance Sheet Date
- PAS 18 Revenue
- PAS 24 Related Party Disclosure
- PAS 37 Provision, Contingent Liabilities and Contingent Assets
The accounting policies and practices of the cooperative conform to the generally accounting principles. The more significant accounting policies and practices are summarized below to facilitate the understanding of data presented in the financial statements.
Adoption of Standard Chart of Accounts
The Cooperative adopted the Standard Chart of Accounts (SCAS) as mandated by the Cooperative Development Authority (CDA), which became effective for financial statements covering the calendar years beginning January 1, 2003. The adoption of this policy did not result in the restatement of prior year’s financial statements.
Management's Use of Judgements and Estimates
The financial statements are prepared in conformity with the above-mentioned accounting principles accepted in the Philippines, which require management to make estimates, and assumptions that affect the amounts reportedin the financial statements and accompanying notes. Those estimates and assumptions used in the financial statements are based on management’s evaluation of relevant facts and circumstances as of date of the financial statements. Actual results could differ from such estimates.
The key estimates/assumptions concerning the future that have a significant risk of causing a materialadjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
Estimates Useful Lives
The useful life of each of the Cooperative’s property or equipment is estimated based on the period over which the asset is expected to be available for use. Such estimation is based on a collective assessment of industry practice, internal technical evaluation and experience with similar assets. The estimated useful life of each asset is reviewed periodically and updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the assets. It is possible; however, the future results of operations could be materially affected by changes in the amounts and timing of recorded expenses brought about by changes in the factors mentioned above.
Functional and Presentation Currency
Items included in the Cooperative’s financial statements are measured using the currency of the primary economic environment in which the entity operates the “functional currency”. The financial statements are presented in Philippine Peso, which is the Cooperative’s functional and presentation currency.
The cooperative follows the generally accepted accounting principles and reporting practices applicable to the cooperative industry.
Cash and Cash Equivalent
Cash on hand and in bank includes highly liquid assets. For the purpose of the statement of cash flows, cash includes cash on hand; cash in bank, checks and other items.
Receivables are stated at the outstanding principal balance, reduced by allowance for doubtful accounts.
Allowance for doubtful accounts is established for estimated losses on receivables.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and any impairment in value. The cost of an asset comprises its purchase price and directly attributable cost of bringing the asset to working condition for its intended use, expenditures for additions, improvement and renewal are capitalized; expenditures for repairs and maintenance are charged to expense as incurred. When assets are old, retired or otherwise disposed of, their cost and related accumulated depreciation are removed from the accounts and resulting gain or loss is reflected income for the period.
Depreciation is computed using the straight-line method over the estimated useful lives of the properties.
CATEGORY ESTIMATED USEFUL LIFE IN YEARS Building & Improvements 50 years Furniture & Fixtures 1-3 years Office Equipment 1-3 years Transportation Equipment 3-5 years
Impairment of Assets
The carrying amounts of the Cooperative’s non-current assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated.
An impairment loss is recognized whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount.
Under the Bureau of Internal Revenue Memorandum Circular no. 48-49, and cooperative dealing and transacting with members and non-members and with accumulated reserves and surplus of not more than ten million (P10M) are exempt from all taxes of whatever name and nature of their transactions with members, among other. For cooperatives with accumulated reserves and undivided net saving of more than P10M, exemption of income tax shall be for a period of 10 years reckoned from the date of its registration with the Cooperative Development Authority (CDA).
As of December 31, 2009, the cooperative is exempt from income tax.