COA Circular No. 2022-004 — Guidelines on increasing the capitalization threshold (for PPEs) from 15,000.00 to P50,000.00

Purpose

COA Circular No. 2022-004 was issued by the Commission on Audit (COA) to provide guidelines on the implementation of Section 23 of the General Provisions of Republic Act (RA) No. 11639 also known as the General Appropriations Act (GAA) for Fiscal Year (FY) 2022 relative to the increase in the capitalization threshold from 15,000.00 to P50,000.00.

Applicability

This Circular is applicable to the following government sectors:

💡 National Government Agencies (NGAs)

💡 Local Government Units (LGUs)

💡 Government Corporations (GCs)

Important Points/Provisions

💡 Tangible items which meet the definition and recognition criteria of PPE but cost is below Fifty Thousand Pesos (P50,000.00) shall be accounted in the books of accounts of the agencies as semi-expendable property. The threshold shall be applied on an individual asset or per item basis.

💡 The increase in the capitalization threshold from P15,000.00 to P50,000.00 shall be considered as a change in accounting policy and shall be applied
retrospectively. It means that the new capitalization threshold of P50,000.00 shall be applied for all tangible items purchased in calendar year (CY) 2022 onwards and in the prior years.

💡 A change in accounting policy requires retrospective application. The entity shall adjust the opening balance of each affected component of net assets/equity for the earliest period presented, and the other comparative amounts disclosed for each prior period presented as if the new accounting policy had always been applied. It means that the entity shall restate the amounts for prior period/s in the comparative financial statements to reflect the change in accounting policy.

💡 For issued tangible items acquired prior to CY 2022 with amounts from P15,000.00 to below P50,000.00 previously classified as PPE, the carrying amount shall be expensed or charged to the following accounts, as
applicable:

• Accumulated Surplus/(Deficit) for NGAs and GCs classified as Non-Commercial Public Sector Entities;
• Retained Earnings/(Deficit) for GCs classified as Commercial Public Sector Entities; or
• Prior Period Adjustment and Government Equity for LGUs

💡 Consequently, the corresponding accumulated depreciation and accumulated impairment loss of the subject assets shall be closed in the books of accounts.

💡 To strengthen controls over the semi-expendable properties, new forms, registries and reports were prescribed in the Circular (see Item Nos. 4.7.1 to 4.7.10 of the Circular).

💡 The agency shall determine/provide the estimated useful life of each semi-expendable property, subject to post-audit of the COA auditors concerned.

💡 The agency is in the best position to estimate the useful life of their semi-expendable property.

💡 The agency shall also issue an updated policy/memorandum determining/providing the estimated useful life, as necessary.

💡 The following were provided in the Circular as guide, but agencies may follow other estimated useful life, as they deemed more appropriate:

• Semi-Expendable Machinery and Equipment – 5 to 15 years
• Semi-Expendable Furniture, Fixtures and Books – 2 to 15 years

💡 Semi-expendable property shall be covered by the policies of International Public Sector Accounting Standard (IPSAS) 12-Inventories. Hence, they are not subject to depreciation but subject to impairment.

💡 The Circular also provides procedures for the Supply/Property Units of agencies on the proper monitoring and reporting of semi-expendable properties and property, plant and equipment.

More details

To learn more about the guidelines on the capitalization threshold, download or print COA Circular No. 2022-004 from the COA’s website.