PROPERTY AND EQUIPMENT POLICIES AND PROCEDURES

I. Introduction

A.) Property and Equipment (P&E)

P&E is the term used to refer to tangible long-term assets used in the day-to-day operations
of Solutions Exchange, Inc. (SXI). P&E represents the land and buildings where the Solutions
Exchange, Inc.s (SXIs) business is operated and the equipment used to deliver services to
the client. The assets reside on the statement of financial position of SXI and through
depreciation, the cost of the assets (except land) are spread evenly over the periods they
benefit.
This document provides policies and procedures with regard to property and equipment to
property and equipment owned by Solutions Exchange, Inc.
Property and equipment may be acquired through purchases, loans or donations from
external organizations and individuals.

B.) Responsibility for Safeguarding SXIs Assets

The primary responsibility for properly accounting for and safeguarding SXIs assets lies with
the Finance Resources Centre. Finance Resources Centre is responsible to:
1. Ensure that all departments adhere to SXIs and the Republic of the Philippines
property standards.

2. Maintain SXIs asset recordkeeping system which includes the condominium unit and
its improvements, computer equipment, computer software, furniture and fixtures,
office equipment, and transportation equipment.

3. Ensure that annual physical inventories are completed by all departments and that the
recordkeeping system is regularly updated with all changes including acquisitions and
retirements.

The Finance Resources Centre develops and administers specific policies and procedures
regarding acquisition and disposal of P&E. A Lapsing Schedule is kept and updated for each
class of property and equipment. Lapsing schedules are worksheets containing specific
accounting data about fixed assets such as the original purchase cost, accumulated
depreciation, additions, sales of assets, and so on.

II. POLICIES
CATEGORIES OF PROPERTY AND EQUIPMENT

SXIs property, plant and equipment incorporate the following:

ACCOUNT NAME CODE

 Condominium Unit 1601
Condominium Improvements 1602
Computer Equipment 1605
Computer Software 1610
Furniture and Fixtures 1620
Office Equipment 1615
Transportation Equipment 1621

RECOGNITION OF PROPERTY AND EQUIPMENT

Property and equipment are classified as assets of SXI and are recognized in the statement
of financial position in determining the overall position for the financial year. In accordance
with Section 17 of PFRS for SMEs by the FRSC, plant and equipment will only be recognized
in the statement of financial position when it is probable that the future economic benefits
associated with the asset flows to the entity, and the cost of the asset can be measured
reliably.

A.) Initial Measurement

An item of property, and equipment should initially be recorded at cost. Cost includes all costs
necessary to bring the asset to working condition for its intended use. This would include not
only its original purchase price but also costs of site preparation, delivery and handling,
installation, related professional fees for architects and engineers, and the estimated cost of
dismantling and removing the asset and restoring the site.

If payment for an item of property, plant, and equipment is deferred, interest at a market rate
must be recognized or imputed.

If an asset is acquired in exchange for another asset (whether similar or dissimilar in nature),
the cost will be measured at the fair value unless (a) the exchange transaction lacks
commercial substance or (b) the fair value of neither the asset received nor the asset given
up is reliably measurable. If the acquired item is not measured at fair value, its cost is
measured at the carrying amount of the asset given up.

B.) Recognition Thresholds

All capital expenditures worth more than or equal to Php5,000.00 must be capitalized.
Minimum asset recognition thresholds apply to all purchases of property, and equipment. The
minimum asset recognition threshold is exclusive of VAT.

B.1) Computer Parts and Other Peripherals

Computer parts and peripherals worth more than or equal to Php5,000.00 should be
capitalized and the cost should be added to the Net Book Value (NBV) of the asset
being upgraded. The cost of the computer parts and peripherals should be depreciated
over the remaining useful life of the asset. But if the asset is already fully depreciated, it
is assumed that the life of the asset is extended and the cost shall be depreciated over
the new estimated remaining useful life (3 years).

When computer parts or peripherals are bought in bulk and the price has exceeded
 Php5,000.00, individual prices of the items must be checked before capitalization. For
example, SXI bought 10 HDMI cables, 2 keyboards and a monitor for Php10,000.00.
Upon inspection, the prices per piece of HDMI cables, keyboards and monitors are
Php240.00, Php850.00, Php5,900.00 respectively. Therefore, only the monitor should
be capitalized.

All computer parts and peripherals worth less than Php 5,000.00 are expensed
outright.

B.2) Repairs and Maintenance

Repairs and maintenance costs worth more than or equal to Php5,000.00 should be
capitalized and added to the Net Book Value (NBV) of the asset being repaired. The
repairs and maintenance cost should be depreciated over the remaining useful life of
the asset. But if the asset is already fully depreciated, it is assumed that the life of the
asset is extended and the cost shall be depreciated over the new estimated remaining
useful life (3 years).

Repairs and maintenance costs worth less than Php5,000.00 are considered minor
repairs and are expensed outright.

C.) Measurement Subsequent to Initial Recognition

The asset is carried at cost less accumulated depreciation and impairment.

ACQUISITION OF PROPERTY AND EQUIPMENT

The acquisition of all property and equipment must be in accordance with SXIs Procurement
Policy, Principles and Procedure and with appropriate approval by the Director of the FRC.

A.) Journal Entry to Record Acquisition

For example, SXI purchased a laptop from ABC Company worth Php11,200.00 Vat Inclusive.
The entry to record acquisition is as follows:

Account Name Subsidiary Name DR CR

Computer Equipment ABC Company 10,000.00

VAT Input ABC Company 1,200.00
Expanded WH Tax Expanded WH Tax 1% 100.00
Cash in Bank 11,100.00

B.) Group Purchases

The term group purchases refer to the purchase of multiple individual items that in aggregate
are considered a single asset system.
All parts for personal computers including monitor, keyboard, docking station, etc., are
considered to be one piece of equipment and charged to Computer Equipment (Code
1605). When upgrades such as additional memory and extra drives are purchased at the
same time as the computer, they are also capitalized. Printers purchased at the same time
as a computer are charged to Office Equipment (Code 1615).

Application software that is not installed, but purchased at the same time as the equipment
(i.e., Microsoft Office), is generally not considered part of the cost of the equipment and
should be charged to Computer Software (Code 1610).

Operating software already installed on laptops upon purchase is part of the cost of the
equipment. It is charged to Computer Equipment (Code 1605).

When an extended warranty is purchased, it is charged to repairs and maintenance

(SubCode 3916). Warranties are not capitalized.

Furniture sets purchased are capitalized in aggregate.

DEPRECIATION OF PROPERTY AND EQUIPMENT

Depreciation is the process of allocating the cost of an asset in equal amounts to each period
(month) expected to benefit from its use. Depreciation and amortization commences once the
property or equipment is available for use. Depreciation starts on the first day of the month
following the month of acquisition. For example, a laptop is expected to have a useful life
of 3 years. Therefore a laptop purchased on October 7, 2016 would be depreciated
(expensed) over 36 periods beginning November 1, 2016. While a laptop purchased on
October 26, 2016 would also be depreciated starting November 1, 2016.

A. ) Depreciation Method

Depreciation is calculated on a straight-line basis over the estimated useful life of the
property and equipment as follows:

CODE ACCOUNT NAME YEARS

1601 Condominium Unit 15
1602 Condominium Improvements 5
1620 Furniture and Fixtures 5
1615 Office Equipment 5
1621 Transportation Equipment 5
1605 Computer Equipment 3
1610 Computer Software 3
The estimated useful lives, and depreciation & amortization method are reviewed at least
annually to ensure that the period and method of depreciation and amortization are consistent
with the expected pattern of economic benefits from items of property and equipment.

At the end of an asset's useful life, its net book value (NBV) would be -0- (NBV = acquisition
cost accumulated depreciation). However, as long as the computer is still in use, it would
remain on SXI's Records and Statement of Financial Position.

B. ) Allocation of Depreciation Expense

Depreciation expense (except for cars, computers and software) is allocated based on the
number of employees of each department. While the depreciation expenses of Computer
Equipment, Computer Software, Transportation Equipment are charged directly to the users
department (e.g., depreciation of a laptop used by the Controller is charged to the FRC).
Depreciation expense must be allocated/charged to the following departments:

CODE DEPARTMENT
4000 Software Production Centre (SPC)
4100 Infrastructure and Research Centre (IRC)
4150 Information and Technology Support Centre (ITSC)
4200 Sales Revenue Centre (SRC)
4400 Finance Resource Centre (FRC)
4405 Human Resource Centre (HRC)
4500 Quality Assurance & Training Centre (QATC)
4600 Project Management Centre (PMC)
4650 Technical Training Centre (TTC)
4700 Business and Product Centre (BPC)
4800 Customer Support & Technology Centre (CSTC)

C. ) Journal Entry for Depreciation

Depreciation is recorded and posted to the general ledger at the end of each month.

1. Depreciation Condominium

Account Name Subsidiary Name DR CR

Software Production Centre Dep. Condo. Unit xxx

Infrastructure and Research Centre Dep. Condo. Unit xxx
Information and Technology Support Centre Dep. Condo. Unit xxx
 Sales Revenue Centre Dep. Condo. Unit xxx
Finance Resource Centre Dep. Condo. Unit xxx
Human Resource Centre Dep. Condo. Unit xxx
Quality Assurance and Training Centre Dep. Condo. Unit xxx
Project Management Centre Dep. Condo. Unit xxx
Technical Training Centre Dep. Condo. Unit xxx
Business and Product Centre Dep. Condo. Unit xxx
Customer Support and Technology Centre Dep. Condo. Unit xxx
Accumulated Depreciation Condo. Unit xxx
Software Production Centre Dep. Condo. Improv. xxx
Infrastructure and Research Centre Dep. Condo. Improv. xxx
Information and Technology Support Centre Dep. Condo. Improv. xxx
Sales Revenue Centre Dep. Condo. Improv. xxx
Finance Resource Centre Dep. Condo. Improv. xxx
Human Resource Centre Dep. Condo. Improv. xxx
Quality Assurance and Training Centre Dep. Condo. Improv. xxx
Project Management Centre Dep. Condo. Improv. xxx
Technical Training Centre Dep. Condo. Improv. xxx
Business and Product Centre Dep. Condo. Improv. xxx
Customer Support and Technology Centre Dep. Condo. Improv. xxx
Accumulated Depreciation Condo. Improv. xxx

2. Depreciation PPE

Account Name Subsidiary Name DR CR

Software Production Centre Dep. Comp. Equip. xxx
Infrastructure and Research Centre Dep. Comp. Equip. xxx
Information and Technology Support Centre Dep. Comp. Equip. xxx
Quality Assurance and Training Centre Dep. Comp. Equip. xxx
Project Management Centre Dep. Comp. Equip. xxx
Technical Training Centre Dep. Comp. Equip. xxx
Business and Product Centre Dep. Comp. Equip. xxx
Customer Support and Technology Centre Dep. Comp. Equip. xxx
Accumulated Depreciation Comp. Equip. xxx
Software Production Centre Dep. Comp. Software xxx
Infrastructure and Research Centre Dep. Comp. Software xxx
Information and Technology Support Centre Dep. Comp. Software xxx
Quality Assurance and Training Centre Dep. Comp. Software xxx
Project Management Centre Dep. Comp. Software xxx
Technical Training Centre Dep. Comp. Software xxx
Business and Product Centre Dep. Comp. Software xxx
Customer Support and Technology Centre Dep. Comp. Software xxx
Accumulated Depreciation Comp. Software xxx
Software Production Centre Dep. Office Equip. xxx
Infrastructure and Research Centre Dep. Office Equip. xxx
Information and Technology Support Centre Dep. Office Equip. xxx
Quality Assurance and Training Centre Dep. Office Equip. xxx
Project Management Centre Dep. Office Equip. xxx
Technical Training Centre Dep. Office Equip. xxx
Business and Product Centre Dep. Office Equip. xxx
Customer Support and Technology Centre Dep. Office Equip. xxx
Accumulated Depreciation Office Equip. xxx
Software Production Centre Dep. Furniture & Fix. xxx
Infrastructure and Research Centre Dep. Furniture & Fix. xxx
Information and Technology Support Centre Dep. Furniture & Fix. xxx
Quality Assurance and Training Centre Dep. Furniture & Fix. xxx
 Project Management Centre Dep. Furniture & Fix. xxx
Technical Training Centre Dep. Furniture & Fix. xxx
Business and Product Centre Dep. Furniture & Fix. xxx
Customer Support and Technology Centre Dep. Furniture & Fix. xxx
Accumulated Depreciation Furniture & Fix. xxx
Software Production Centre Dep. Transp. Equip. xxx
Infrastructure and Research Centre Dep. Transp. Equip. xxx
Information and Technology Support Centre Dep. Transp. Equip. xxx
Quality Assurance and Training Centre Dep. Transp. Equip. xxx
Project Management Centre Dep. Transp. Equip. xxx
Technical Training Centre Dep. Transp. Equip. xxx
Business and Product Centre Dep. Transp. Equip. xxx
Customer Support and Technology Centre Dep. Transp. Equip. xxx
Accumulated Depreciation Transp. Equip. xxx

ASSET IMPAIRMENT

At each reporting date, property and equipment are reviewed to determine whether there is
any indication that assets have suffered an impairment loss. If there is an indication of
possible impairment, the recoverable amount of any affected asset (or group of related
assets) is estimated and compared with its carrying amount. If estimated recoverable amount
is lower, the carrying amount is reduced to its estimated recoverable amount, and an
impairment loss is recognized immediately in the statement of comprehensive income

If an impairment loss subsequently reverses, the carrying amount (or group of related assets)
is increased to the revised estimate and recoverable amount, but not in excess of the amount
that would have been determined had no impairment loss been recognized for the asset (or
group of related assets) in prior years. A reversal of an impairment loss is recognized
immediately in the statement of comprehensive income.

RETIREMENTS AND DISPOSALS (DERECOGNITION)

An item of property and equipment is derecognized upon disposal or when no further future
economic benefits are expected from its use or disposal. Any gain or loss arising on
derecognition of the property and equipment (calculated as the difference between the net
disposal proceeds and the carrying amount of the property and equipment.

A. ) Journal Entry to Record Disposal

A.1) Loss on Disposal

For example, a laptop from the FRC was disposed. The laptop was purchased from ABC
Company and still has a remaining life of 1 year. The entry to record disposal is:

Account Name Subsidiary Name DR CR

Accumulated Dep. Comp. Equip. xxx
Finance Resources Centre Loss on Disposal of Fixed Assets xxx
Computer Equipment ABC Company xxx
A.2) Gain on Disposal
For example, a laptop from the FRC was sold for cash. The laptop was purchased from ABC
Company and is already fully depreciated. The entry to record disposal is:

Account Name Subsidiary Name DR CR

Cash in Bank xxx
Accumulated Dep. Comp. Equip. xxx
Finance Resources Centre Gain on Disposal of Fixed Assets xxx
Computer Equipment ABC Company xxx

When an asset is retired (i.e., removed from service), it must be removed from the
companys general ledger. Departments are expected to be prudent and to exercise good
judgment when retiring an asset, especially one that may still have a remaining book value.
Disposing of an asset that is not fully depreciated will result in a loss to SXI that must be
recorded on the statement of comprehensive income.

The Finance Resources Centre periodically reviews asset retirement records. Departments
with significant retirements that result in a loss to the SXI (i.e., NBV does not equal -0- and
the remaining balance must be written off) will be contacted to ensure that management is
aware of the retirements and that they were appropriate.

TAGGING OF PROPERTY
One unique property tag number is assigned to each specific piece of capital property. Once
that number is assigned, it remains on record until deleted, and it is never assigned again.
The property number that is assigned for each piece of property is noted on the
corresponding payment authorization before the authorization and invoices are taken to FRC
to be paid. No invoices for capital property will be paid until reviewed by Property
Management personnel.

Untaggable Property

Property which, due to structure, shape, or precision, cannot be tagged should be marked in
some other easily identifiable manner. Whenever possible the property number will still be
identified on the item by some means such as decal, indelible ink, paint, or electric engraver.
The unused property tag is taped to the file copies in the FRC when it is filed.

Missing Tags or Untagged Items

It is possible that an item's original tag is missing or that it was not initially tagged. The
department should note sufficient information such as description and serial number so that a
research of property records can determine if the item needs to be tagged or retagged.

Asset Tag Coding

Format: xx0000-000-000-xxx

1.) Class of Asset

CODE ASSET CLASS

CU Condominium Unit

CI Condominium Improvements

CE Computer Equipment
 CS Computer Software

OE Office Equipment

FF Furniture and Fixtures

TE Transportation Equipment

2.) Year of Acquisition

3.) Subclass of Asset

CONDOMINIUM UNIT

CODE LOCATION

117 17th floor of Trident Tower

CONDOMINIUM IMPROVEMENTS

CODE LOCATION

117 17th floor of Trident Tower

COMPUTER EQUIPMENT
 CODE CLASSIFICATION

010 Laptop

020 Server

030 Desktop

040 Hard disks, Processors and External Hard drive

150 Others

COMPUTER SOFTWARE

CODE CLASSIFICATION

010 MS Office and Windows

020 Antivirus

030 Accounting and Payroll Systems

040 Developer Programs

050 Photoshop and Web Design

150 Others
OFFICE EQUIPMENT

CODE CLASSIFICATION

010 Printers, Photocopying Machines, Typewriters and

Scanners

020 Projectors, TV and Sound System

030 Pantry Appliances

040 Air Conditioners and Compressors

050 Door Access and Security System

060 Phones and Tablets

070 Cleaning Equipment

080 Communications

150 Others

FURNITURE AND FIXTURES

 CODE CLASSIFICATION

010 Cabinets, lockers, shelves

020 Whiteboards and Screens

030 Sofa

040 Stool

050 Visitors Chair

060 Swivel Chair

070 Tables/Desks

080 Glass Window and Blinds

090 Lifetime Chairs

150 Others

TRANSPORTATION EQUIPMENT

CODE CLASSIFICATION

010 Sedan
 020 SUV

4.) Serial Number

5.) Initials of the Department where the asset belongs to

CODE DEPARTMENT
SPC Software Production Centre
IRC Infrastructure and Research Centre
ITS Information and Technology Support Centre
SRC Sales Revenue Centre
FRC Finance Resource Centre
HRC Human Resource Centre
QAT Quality Assurance & Training Centre
PMC Project Management Centre
TTC Technical Training Centre
BPC Business and Product Centre
CST Customer Support & Technology Centre
SXI No Department