Agreement Reforming and Adding the Rules for the Registration and Valuation of Assets

DOF: 04/07/2024

AGREEMENT by which the Rules for the Registration and Valuation of Assets are reformed and added.

A logo appears at the margin, stating: National Council for Accounting Harmonization.

The

National Council for Accounting Harmonization,

based on

articles

6,

7,

9

and

14

of the

General Law of Governmental Accounting,

approved the following:

Agreement

by which the Rules for the Registration and Valuation of Assets are reformed and added.

CONSIDERING

That on December 31, 2008, the General Law of Governmental Accounting (LGCG) was published in the Official Gazette of the Federation, which has as its object establishing the general criteria that will govern Governmental Accounting and the issuance of financial information by public entities, with the aim of achieving their adequate harmonization, to facilitate the registration and auditing of assets, liabilities, income, and expenses by public entities, and, in general, to contribute to measuring the effectiveness, economy, and efficiency of public expenditure and income.

That within this framework and in compliance with its functions, the National Council for Accounting Harmonization (CONAC) published in the Official Gazette of the Federation (DOF) on December 11, 2023, the Agreement by which the Rules for the Registration and Valuation of Assets are issued.

That it is convenient to carry out reforms and additions to the Rules for the Registration and Valuation of Assets, so that the financial information is consistent with the regulations issued by CONAC and complies with the objectives of the LGCG.

Therefore, the National Council for Accounting Harmonization approved the following:

Agreement by which the Rules for the Registration and Valuation of Assets are reformed and added.

SINGLE ARTICLE. The "Rules for the Registration and Valuation of Assets" are reformed and added in Section IX. Specific Criteria, numeral 2.- Inventories and Warehouses, adding A. Inventories, in which criteria are incorporated for the identification and recognition of inventories, as well as the general measurement methods for them, moving the current A. Physical Inventory and B. Warehouses to be classified as B. Physical Inventory and C. Warehouses.

In B. Physical Inventory, a second paragraph is added and the order of the subsequent paragraphs is moved; and in C. Warehouses, the first and second paragraphs are modified and the third paragraph is repealed.

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INDEX

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I.- OBJECTIVE

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II.- SCOPE

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III.- LEGAL AND TECHNICAL FRAMEWORK

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IV.- BASIC ELEMENTS OF FINANCIAL STATEMENTS

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V. RECOGNITION IN FINANCIAL STATEMENTS

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VI. VALUATION OF ASSETS AND LIABILITIES

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VII. EFFECTS OF INFLATION

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VIII. CHANGES IN ACCOUNTING ESTIMATES, ACCOUNTING POLICIES AND CORRECTION OF ERRORS

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IX.- SPECIFIC CRITERIA

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2.- Inventories and Warehouses

A. Inventories

They are assets:

• Materials or supplies, to be consumed in the production process;
• Held for sale or distribution, in the ordinary course of operations; or
• In the process of production for sale or distribution.

This classification is consistent with the Chart of Accounts established in the Governmental Accounting Manual.

The foregoing is independent of the treatment of Non-Circulating Asset inventories, which must comply with what is provided in section VI. VALUATION OF ASSETS AND LIABILITIES.

Additionally, inventories include materials and supplies awaiting use in the productive process and goods acquired or produced to be distributed to third parties, without consideration or for a symbolic consideration.

In the public sector, inventories have a greater relationship with the provision of services than with goods acquired and stored for resale or with those produced for sale; the latter are more related to the objectives of public entities in the para-state sector.

Inventories in the public sector may include, among others:

• Consumable and maintenance materials;
• Spare parts for plant or equipment;
• Supplies for the provision of public services;
• Inventories to carry out public and national security activities; and
• Land or properties held for sale.

o Measurement of inventories

Inventories shall be measured at acquisition cost or fair value.

When inventories are acquired through a transaction without consideration, their cost shall be measured at their fair value on the date of acquisition.

Acquisition Costs

The acquisition cost of inventories shall include: the purchase price, import duties and other taxes (other than those that the public entity will subsequently recover from the tax authorities, including Value Added Tax, in those cases where it is not creditable), transportation, storage and handling costs, insurance and all other costs and expenses directly attributable to the acquisition of finished goods, materials and services in which they have been incurred to give them their current condition and location.

Discounts, bonuses and rebates on purchases and any other similar items must be deducted when determining the acquisition cost.

Production Costs

They shall include those costs directly related to production units, such as direct labor and indirect costs, variable or fixed, in which they have been incurred to transform materials into finished products.

Fixed indirect costs are those that remain relatively constant, regardless of the volume of production.

Variable indirect costs are all those costs that vary directly, or almost directly, with the volume of production, such as indirect materials and indirect labor.

The production cost cannot be determined by defining a specific methodology that is applicable to all public entities; therefore, when required, they must carry out the determination of said methodology taking into account their structure, characteristics and nature of the activities they carry out.

In all cases, it is necessary to quantify the effect of special circumstances that should not affect the production cost, but should be recognized directly in results.

o Inventory Costing

Acquisition Cost

It is the amount paid in cash or equivalents for an asset or service at the time of its acquisition, in accordance with the section Measurement of Inventories.

Standard Cost

Standard cost is determined in advance considering normal levels of utilization of raw materials, materials, labor and manufacturing expenses, efficiency and utilization of installed production capacity.

Standard cost may be used for convenience provided that the result of applying it approximates the cost incurred; it must be reviewed periodically and adjusted to the extent that it differs substantially from the cost determined through another methodology.

Retailers

Inventories are valued at the selling prices of the items that make them up, reduced by the differential or profit expected to be obtained, which can also be expressed as a percentage, by dividing the differential or profit by the selling price.

By differential or profit, the amount of the selling price assigned to an item minus its acquisition cost must be understood.

Identified Costs

The cost of inventories of items that are not usually interchangeable with each other, as well as goods produced and segregated for specific projects, shall be determined through the specific identification of their individual costs.

This treatment is appropriate for items that are segregated for a specific project, without taking into account whether those items were purchased or produced by the public entity.

First In, First Out (FIFO)

In the determination of cost through First In, First Out (FIFO), it is presumed that the first items to enter the warehouse or production are the first to leave; therefore, the inventory remaining at the end of the period will be the most recently produced or acquired.

Average Costs

The cost of each item shall be determined from the average of the cost of similar items at the beginning of the period and the cost of similar items acquired or produced during the same period.

The average can be calculated periodically or as new items enter the inventory, whether acquired or produced.

o Distribution of goods without consideration or with symbolic consideration

A public entity may maintain inventories to be distributed to third parties, without consideration or for a symbolic consideration.

In these cases, the future economic benefits or service potential of the inventories, for the purposes of presenting financial information, are reflected by the amount that the public entity would need to pay to obtain the economic benefits or service potential if this were necessary to achieve its objectives.

When the economic benefits or service potential cannot be acquired in the market, it will be necessary to make an estimate of the replacement cost.

For its part, when the inventory is transferred to the public entity through a transaction without consideration, the cost of the inventory is its fair value on the date it is acquired.

When inventories are sold, exchanged or distributed, their book value shall be recognized in results in the period in which the corresponding income is recorded.

If there is no related income, the expense shall be recognized when the goods are distributed.

The foregoing, without prejudice to what is provided in section E. Option to Capitalize Movable and Intangible Assets.

When federal, state and municipal para-state entities, due to the performance of their activities, require implementing a cost system, in accordance with article 9, fraction III, of the LGCG, they will use the cost system in terms of the Income Tax Law, for which the public entity will use the technical bases associated with Inventory Costing, based on professional judgment and the most reliable evidence available at the time the operations are carried out, which must be approved by the competent authority in the matter.

B. Physical Inventory

Physical Inventory is the periodic verification of the stock available to public entities and shall be carried out at least once a year, preferably at the end of the fiscal year, and will serve as the basis for integrating the following Books:

...

Additionally, books of inventories of work in process and finished products may be incorporated.

...

C. Warehouses

It represents the value of the stock of materials and supplies for consumption for the performance of the activities of the public entity; likewise, warehouses are considered as the place or physical space destined to deposit, store, preserve and safeguard a large number of articles, pieces, tools, machinery, equipment, products or merchandise, which allows establishing adequate safeguards to protect inventories from damage or unauthorized theft.

Warehouses must be initially recorded at their acquisition cost, which shall include the purchase price, including import duties and other taxes (that are not recoverable), transportation, storage and other directly applicable expenses, including amounts derived from Value Added Tax (VAT) in those cases where it is not creditable.

TRANSITORY PROVISIONS

FIRST.- This Agreement shall enter into force the day following its publication in the Official Gazette of the Federation and shall have mandatory effect starting January 1, 2025.

SECOND.- The Federative Entities, in compliance with what is provided by article 7, second paragraph, of the General Law of Governmental Accounting, shall publish this Agreement in their official written and electronic dissemination media, within a period of 30 business days following the publication of the present in the Official Gazette of the Federation.

THIRD.- In terms of article 15 of the General Law of Governmental Accounting, the Technical Secretary shall keep a record on an Internet page of the acts that the public entities of the federative entities, municipalities and territorial demarcations of the City of Mexico carry out to adopt the decisions of the Council.

For such purposes, the Accounting Harmonization Councils of the Federative Entities shall send to the Technical Secretariat the information related to such acts to the electronic address conac_sriotecnico@hacienda.gob.mx, within a period of 15 business days counted from the conclusion of the deadline established in the previous transitory provision.

In Mexico City, at twelve o'clock on June 21, two thousand twenty-four, based on articles 11 of the General Law of Governmental Accounting; 8 fraction IV and 23 fraction IX of the Internal Regulations of the Secretariat of Finance and Public Credit and rule 20 of the Operation Rules of the National Council for Accounting Harmonization, the Head of the Governmental Accounting Unit of the Undersecretariat of Expenditures of the Secretariat of Finance and Public Credit, in my capacity as Technical Secretary of the National Council for Accounting Harmonization,

HEREBY STATE AND CERTIFY that the document consisting of 5 useful pages, initialed and collated, corresponds to the text of the Agreement by which the Rules for the Registration and Valuation of Assets are reformed and added, approved by the National Council for Accounting Harmonization, which was made available to the members of said Council in its second session held, under first call, on June 13 of this year, a situation that is certified for the corresponding legal effects. - The Technical Secretary of the National Council for Accounting Harmonization, L.C.P. Juan Torres García. -

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