The Monetary Board approved on 2 March 2006 the amendments to Circular No. 494 dated 20 September 2005 on the revised accounting treatment of appraisal increment and real and other properties acquired (ROPA) to align the same with the provisions of the Philippine Financial Reporting Standards (PFRS) and Philippine Accounting Standards (PAS).
The approved amendments to Circular No. 494 provide that appraisal increment arising from other cases approved by the Monetary Board shall not be reversed or written-off, which is similar to the accounting treatment of appraisal increment arising from mergers and acquisition.
Under Circular No. 494, the BSP adopted the cost model in accounting for bank/financial institution premises, furniture, fixture and equipment, which prescribes that the assets be carried at cost less any accumulated depreciation and any accumulated impairment losses. In this regard, the said Circular required financial institutions to reverse or write-off all outstanding appraisal increment in order to determine the depreciated cost of the assets before the revaluation, except appraisal increments arising from mergers and acquisitions.
In view that there are other cases where the Monetary Board has approved booking of appraisal increment related to the reorganization of the financial institutions, it was deemed appropriate to likewise exempt said appraisal increment from the required reversal or write-off.
The amended guidelines likewise require the retroactive application of the provisions of Circular No. 494 on the accounting treatment for ROPA on all outstanding properties acquired not only as of 1 January 2005 and thereafter but also before 1 January 2005. The said amendment to the transitional provisions of Circular No. 494 fully aligns the accounting treatment for ROPA with the provisions of PFRS/PAS.
Further, the approved amendments prescribe the timing of booking of acquired properties in settlement of loans through foreclosure or dation in payment under the ROPA account as follows: (i) on the date of the entry of judgment in case of judicial foreclosure;(ii) on the date of notarization of the Sheriff’s Certificate in case of extra-judicial foreclosure; and (iii) on the date of notarization of the Deed of Dacion in case of dation in payment (dacion en pago). This provision is consistent with the Implementing Rules and Regulation of the Special Purpose Vehicle Act of 2002 (Republic Act No. 9182), which defines when a property is deemed acquired.