MINISTRY OF FINANCE

MINISTRY OF BUDGET
COMMISSION ON AUDIT

JOINT CIRCULAR NO. 1-82

January 4, 1982

FOR : Heads/Managers, Comptrollers, Corporate Accountants of Government-Owned

and/or Controlled Corporations and Other Public Corporate Bodies, Corporate
Auditors and All Others Concerned

SUBJECT : Policy Guidelines and Procedures in Accounting and Reporting for the Subsidy
Contributions, Equity Investments of the National Government, and Income and
Other Receipts of Government-Owned and/or Controlled Corporations

1.0 Purpose

1.1 To implement Section 18 of Executive Order No. 518, better known as the
"Government Corporate Budget Executive Order of 1979" which prescribes that
"The budget and accounting process of government-owned or controlled
corporations shall be expressed in terms of the obligational authority and/or the
cash budget concept, or as otherwise provided under budget and accounting
laws".

1.2 To prescribe accounting procedures in recording the subsidy, equity, income and
other receipts of the government corporations in conformity with the Standard
Government Chart of Accounts (SGCA) provided in COA Circular No. 78-92
dated November 14, 1978, as amended.

2.0 Coverage

2.1 Proper accounting treatment and recording process in taking up the following
items in the books of accounts of the government corporations and/or the Bureau
of the Treasury:

2.1.1 Subsidy Contribution

2.1.2 Equity Investment
2.1.3 Income from Operations, and
2.1.4 Other Receipts

2.2 Reporting procedures to monitor the financial and non- financial data needed by
the fiscal authorities of the government, particularly the Ministry of the Budget
and the Commission on Audit, to determine the government corporations that still
require continuous subsidy, to appraise the results of corporate operations and to
evaluate the capital structure of government corporations receiving equity
investments.

3.0 Applicability
 3.1 As a general policy, the guidelines and procedures provided in this circular shall
apply to government corporations using government and commercial accounting
systems.

4.0 Definition of Terms

For the purpose of this joint circular, the following definition of terms are provided:

4.1 Government-Owned and/or controlled corporations - corporations created by law

as agencies of the State for narrow and limited purposes, either owned wholly by
the State or wherein the Government is a majority stockholder, in cases of stock
corporations, or otherwise, agencies so created where no stocks are issued but
whose affairs are conducted by a duly constituted board and which perform
proprietary functions. This term shall include all corporations, including financial
institutions, owned or controlled by the National Government performing
government and/or proprietary functions but excluding state universities and
colleges.

4.2 Subsidy - amount contributed to government-owned and/or controlled

corporations from the General Fund to cover current operating expenditures that
are not supported by corporate revenues or government grants to private
producers not as payment for goods and services but for purposes of stabilizing
prices and providing incentives to production, or to corporations performing
quasi- commercial functions where the government has imposed a ceiling on the
prices/rates of goods/services.

4.3 Equity - amount received by government-owned and/or controlled corporations

as payment of capital subscription and generally capital investment of the
national government or any government agency including government-owned
and/or controlled corporation in said corporations which forms part of their total
capitalization.

4.4 Corporate Fund - embraces the total resources and income of the corporation
resulting from the regular operations and activities including those derived in the
exercise of its corporate functions.

4.5 Corporate Depository Account 501 - fund maintained at the National Treasury
intended for the subsidy contribution or equity investment of the national
government to government-owned and/or controlled corporations.

4.6 Government Accounting System - encompasses the processes of analyzing,

recording, classifying, summarizing and communicating all transactions involving
the receipt and disposition of government funds and property, and interpreting
the results thereof.

4.7 Commercial Accounting System - encompasses all the processes of recording,

classifying and summarizing in a significant manner and in terms of money,
transactions and events which are, in part at least, of a financial character and
interpreting/reporting the financial condition and results of operations in terms of
 profits or losses for the use/information of management and other interested
parties.

4.8 Obligation Accounting - a set of accounting procedures reflecting allotments,

application or charging of allotments, the payment of obligations and the
associated concepts of unobligated allotment, unliquidated obligations and
unexpanded allotment and such other items that are prerequisite to the full
knowledge of the status of allotments.

4.9 Subsidy Control Register - a subsidiary record used in recording and segregating
by item of expenditures the obligations pertaining to the subsidy received from
the national government to facilitate the monitoring of financial data and the
preparation of reports to fiscal authorities of the government.

4.10 Authorized Capital Stock - the capitalization which a corporation is legally

authorized to issue.

4.11 Unissued Capital Stock - the amount of capital stock

4.12 Subscribed Capital Stock - the shares of stock for which subscriptions have been
received but for which stock certificates have not been issued.

4.13 Subscription - the contract to acquire shares of stock usually in the original
issuance of stock by a corporation.

4.14 Paid-in Capital - the amount received in payment for subscription to capital stock
corresponding to its par or stated value.

4.15 Paid-in Surplus - the amount received in excess of the par value or stated value
of the share of capital stock.

4.16 Revenue - are additions to current assets such as cash which do not increase
the liabilities or reserves of the corporations.

4.17 Receipts - include all classes of cash received from all sources for a given
period.

4.18 Income - all revenues and receipts which are collected or have accrued to the
corporation in payment for labor and services rendered.

5.0 General Policy Guidelines

5.1 The operating budgets of government corporations shall be submitted to the

Ministry of the Budget in accordance with Corporate Budget Circular No. 1 dated
December 2, 1978, as amended, and the corresponding Budget Call issued for
the year under review.

5.2 Allotments for subsidy contributions shall be released through the Bureau of the
Treasury (BTR) for the current operating expenditures of the recipient
government corporations and shall be treated as non operating income of such
corporation.
 5.3 Equity investments shall be released through the BTR and shall be treated as
investment of the government in the capitalization of the recipient government
corporations and accordingly, shall be recorded as capital contribution in the
books of account of such corporation.

5.4 The funds released by national government for subsidy contributions/equity

investments shall be controlled and maintained at the National Treasury under
Corporate Depository Account 501. However, the amount to be transferred to the
respective Corporate Depository Account 501 shall be subject to the availability
of cash in the National Treasury. Fund Codes shall be assigned and issued by
the National Accounting Office, Ministry of the Budget, upon written request by
the government corporations.

5.5 The appropriations for subsidy and equity presented in the General
Appropriations Act as part of the total funding allocations of the Ministries
wherein the government corporations are attached, shall be properly segregated
in the execution phase of the budget process. The allotments appropriated shall
be released by issuing appropriate Advices of Allotment and Notices of Cash
Disbursement Ceiling and shall not be included in the comprehensive releases
intended for the Ministries of the government.

5.6 The income and other receipts of the government corporations shall be
recognized in the books of accounts when earned or at the time they accrue and
shall be classified as follows:

5.6.1 Income

a. Income from Purely Business Operations

b. Income from Regulatory Functions
c. Others/Miscellaneous Income

5.6.2 Other Receipts

a. Subscriptions to Capital Stock

b. Contributions/Donations from Private Sector

5.7 The Standard Government Chart of Accounts (SGCA) prescribed by the COA
shall be followed by government corporations for uniform presentation and facility
in monitoring of financial data. However, due to some industry peculiarities
inherent in the nature of corporate operations, the use of some accounts not
appearing in the SGCA may be allowed with the approval of the Commission on
Audit.

5.8 Government corporations receiving subsidy and/or equity contributions from the
national government shall submit periodic financial statements and accountability
reports to provide financial management information in appraising the results of
their operations and for a national resource budget.

6.0 Accounting Procedures

6.1 Subsidy Contributions and Equity Investments

6.1.1 Bureau of the Treasury

a. Based on the Advice of Allotment and Notice of Cash

Disbursement Ceiling the BTR- Miscellaneous shall draw a journal
voucher to take up in the General Journal the subsidy/equity
contributions released by the Ministry of the Budget as subsidy
allotment for the current operating expenses/equity investments
for the capitalization of the recipient corporations. In case of
releases for equity investment a corollary entry shall be made to
take up the investment of the national government in such
corporations.

b. The BTR-National Cash Accounting Division (NCAD) shall draw a

responding journal voucher to reflect the subsidy/equity released
and transferred to the Corporate Depository Account 501 of
recipient corporations.

Illustrative journal entries are shown from Annexes "A" to "D".

6.1.2 Government-owned and/or Controlled Corporations

a. Based on the journal voucher furnished by the Bureau of the

Treasury giving notice of the release of subsidy/equity
contributions and the subsequent transfer made to the Corporate
Depository Account 501, recipient corporations shall draw a
journal voucher to record the same in the General Journal.

b. The subsidy contribution received shall be treated as income of

the recipient corporations while receipt of equity contributions shall
be recorded as capitalization of the corporations concerned.

c. The subsidy or equity contributions shall be withdrawn separately

by the corporations thru the issuance of Treasury Warrant Type
"B" with appropriate explanation that such disbursement shall be
drawn against the subsidy or equity contributed by the national
government, subject to the actual cash available in the National
Treasury.

d. Corporations using Government Accounting System shall adopt

the concept of obligation accounting. The details of the
accounting entries to be recorded in the books of accounts are
illustrated in Annex "A" (Subsidy) and Annex "C" (Equity).

e. Corporations using Commercial Accounting System shall be

governed by the generally accepted accounting concepts and
principles usually practiced by any going-concern business
enterprises operating for profit. In addition to the commonly used
 subsidiary ledgers a separate ledger known as Subsidy Control
Register (SCR) required in Corporate Budget Circular No. 2 shall
be maintained to serve as side record for the subsidy received.
Sample journal entries are illustrated in Annex "B" (Subsidy) and
Annex "D" (Equity).

6.2 Income from Operations

6.2.1 All receipts, except the subsidy contributions and equity investments to
government corporations, shall be supported by pre-numbered official
receipts.

6.2.2 All collections shall be remitted daily to the cashier for deposit with
authorized government depository banks. In no case shall collections be
used directly for payment of expenditure.

6.2.3 All receipts from business operations, regulatory functions and other
income from miscellaneous sources shall be credited to income account.
Sub-accounts shall be indicated for each type/ nature of income.

Sample journal entries to record the income/receipt of government corporations

are illustrated in Annex "E".

6.3 Other Receipts

6.3.1 Other receipts of government corporations shall be collected and

deposited in consonance with sub-paragraph numbers 6.2.1 and 6.2.2,
above.

6.3.2 Subscription to capital stock shall be recorded by using either of the

following methods:

a) Ledger Entry Method commonly known as the Memorandum Entry Method.

b) Journal Entry Method

In the first method, the total capitalization of the corporation shall be

entered/posted in the General Journal and General Ledger by means of a
memorandum entry. Whereas in the second method a journal entry shall be
drawn to record the transaction by debiting Unissued Capital Stock and crediting
Authorized Capital Stock.

The shares of stock may be subscribed at par value or above par value in case
of a stock corporation, or it may be subscribed at stated value or above stated
value in case of a non- stock corporation. The premium or excess of the selling
price over the par value or stated value shall be credited to Paid-in Surplus
account.

Sample journal entries to record the subscription are illustrated in Annex "F".
 6.3.3 Contribution or donations from private sector shall be treated as part of
the Donated Surplus account. Likewise, sub-accounts shall be indicated to
determine each type/nature of contribution/donation.

Sample journal entries to record these types of receipts are illustrated in Annex "G".

7.0 Reporting Requirements

7.1 Subsidy Contributions and Equity Investments

7.1.1 Bureau of the Treasury

a. To monitor continuously the funds released and transferred for subsidy

contributions and equity investments of the national government to
government corporations, a quarterly Status Report of the Corporate
Depository Account 501 shall be prepared by the Bureau of the Treasury
using the prescribed formats in Annexes "H" and "I".

b. Each report shall be prepared in five (5) copies to be submitted on or

before the 10th day of the month following them end of the quarter for
distribution as follows:

Original and
one (1) copy - NAO, Ministry of the Budget
one (1) copy - NCAD, Bureau of the Treasury
one (1) copy - Corporate Audit Office, COA
one (1) copy - Accountancy Office, COA

7.1.2 Government-owned and/or Controlled Corporations

a. Subsidized corporations shall submit to the Ministry of the Budget

(NAO) the pertinent accountability reports as required under BC
Nos. 204, 263 and NBC 324.

b. Corporations receiving equity contributions shall submit to the

Ministry of the Budget (NAO) the financial reports, as required
under BC No. 276.

c. Pursuant to Section 24 of Executive Order No. 518 all

corporations including financial institutions receiving subsidy and
equity contributions shall submit a separate annual report of
financial performance in terms of work and financial results to
facilitate the overall evaluation of the physical and financial
performance of corporations. The report shall include information
on corporate solvency, liquidity and profitability and the status of
capital projects being undertaken. Reports pertaining to a given
fiscal/calendar year shall be submitted on or before March 31 of
the following year to the Ministry of the Budget (NAO). Income
and Other Receipts

7.2 Income and Other Receipts

 7.2.1 The income and other receipts of government corporations shall be
reported in accordance with Budget Circular No. 276 dated September
30, 1977.

7.2.2 The quarterly Profit and Loss Statement shall reflect the following income
classification:

a. Income from Purely Business Operations

b. Income from Regulatory Functions
c. Others/Miscellaneous Income

8.0 Responsibilities of the Commission on Audit

8.1 The corporate auditors shall see to it that all journal vouchers are submitted to
his office for pre-audit purposes.

8.2 Disbursement by treasury warrants or commercial checks shall be countersigned

by the corporate auditors only in cases where the disbursements are subject to
pre- audit as required under COA General Circular No. 76-26 dated April 6, 1976,
as amended.

8.3 The corporate auditor shall reconcile with the Accountancy Office, COA, all
records pertaining to the release of Subsidy Contributions and Equity
Investments.

9.0 Repealing clause

The provisions of all circulars, instructions and orders which are inconsistent with the
provisions of this joint circular are hereby rescinded or modified accordingly.

10.0 Effectivity

This joint circular shall take effect immediately.

(SGD.) CESAR E. A. VIRATA

Prime Minister
and
Minister of Finance

(SGD.) MANUEL S. ALBA (SGD.) FRANCISCO S. TANTUICO, JR.

Minister of the Budget Acting Chairman
Commission on Audit