ZAMBOANGA CITY WATER DISTRICT

ZAMBOANGA CITY

NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Zamboanga City Water District follows the Commercial Practices Manual for
Water Districts prescribed by the Local Water Utilities Administration. Its chart of accounts
provide for the use of accrual method of accounting wherein revenues are recorded in the
period which service is given and expenses are recorded in the period in which the benefits
are received. In addition the following are the more significant policies of the District:

UTILITY PLANT IN SERVICE

Utility plant, property and equipment are carried at cost less the accumulated
depreciation. Depreciation is computed using the straight-line method.

The cost of maintenance and repairs is charged to income as incurred; significant

renewals and betterments are capitalized.

MATERIALS AND SUPPLIES

Materials and supplies are valued at cost using the weighted average method.

2. CASH AND CASH EQUIVALENTS

Cash and Equivalents Account is Cash on hand and in bank consisting of the following:

Cash and Cash Equivalents

A. Cash in Bank 625,550,149.08
B. Special Deposits 37,358,481.67
C. Working Fund 1,064,245.08
Total 663,972,875.83

A. Cash in Bank are various Savings and Checking Accounts which are used in the
daily operations of the District. As of 2014, Land Bank (LB) checking account is the
primary checking account in which payments for daily operations are drawn while the
other accounts serve as Collecting agents for the payment of water bills of ZCWD
Customers, except for Cash in Bank – Savings LB which is maintained for payment of
the District’s loan account with the same bank. Breakdown is as follows:

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 ZAMBOANGA CITY WATER DISTRICT
ZAMBOANGA CITY

NOTES TO FINANCIAL STATEMENTS

Cash in Bank
Cash in Bank - Savings LB 190,730,962.69
Cash in Bank - ATM BPI 14,055,869.62
Cash in Bank - Amanah Bank 1,176,787.26
Cash in Bank - BPI (Checking Account) (97,101.96)
Cash in Bank - DBP (Checking Account) 96,453.20
Cash in Bank - Amanah (Checking Account) 25,000.00
Cash in Bank - Veterans (Checking Account) 324,660.62
Cash in Bank - One Network Bank -Ayala 3,053,028.66
Cash in Bank - One Network Bank-Sangali 705,216.18
Cash in Bank - Land Bank (Checking Account) 164,709,425.45
Cash in Bank -DBP (Current Account) 436,930.70
Cash in Bank - DBP (Remittances Account) 15,000,000.00
Cash in Bank - BPI (Savings Holdout Account) 235,332,916.66
Total 625,550,149.08

B. Special Deposits are Time Deposits which are set aside for various purposes
enumerated below:
Special Deposits
DBP - Joint Savings Account 4,326,368.12
LBP - Time Deposits from Loan Proceeds 5,930,978.84

LBP - Time Deposits 21,344,242.72

LBP -Year End Benefits 1,117,388.11

LBP - Equity Project Funding 4,639,503.88
Total 37,358,481.67

C. Working Fund are revolving funds held by accountable officers for petty cash
expenses of different units of the District.

3. ACCOUNTS RECEIVABLE
Accounts Receivable is classified into three (3) categories.

A. Accounts Receivable – Customers

This account is used to record receivables from Customers billed monthly due to
their water consumption and applicable surcharges, sewer services, loans, and
imposition of fees for assessments on illegal connections. Detailed schedule is as
follows:

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 ZAMBOANGA CITY WATER DISTRICT
ZAMBOANGA CITY

NOTES TO FINANCIAL STATEMENTS

Accounts Receivable - Customers

Accounts Receivable - Water 75,461,418.10
Accounts Receivable - Sewer 1,618,366.66
Accounts Receivable - Surcharge 11,323,430.46
Accounts Receivable - Penalty 3,896,502.39
Accounts Receivable - Maintenance Fee 12,499.00
Total 92,312,216.61
3,740,487
Less: Allowance for Bad Debts .78
Net Accounts Receivable - Customers 88,571,728.83

B. Accounts Receivable – City Government

This account is used to record receivables due from the City Government billed
monthly due to their water consumption. Their account is booked separately since they
have an extended due date for collection and because of the materiality of their account.
Breakdown is as follows:

Accounts Receivable - City Government

Accounts Receivable - Water 8,925,415.58
Accounts Receivable - Sewer 880,845.01
Accounts Receivable - Surcharge 4,754,426.37
Total 14,560,686.96

TOTAL ACCOUNTS RECEIVABLE AS OF DECEMBER 31, 2016

Accounts Receivable – Customers (net) 88,571,728.83
Accounts Receivable - City Government 14,560,686.96
Total 103,132,415.79
AGING ACCOUNTS RECEIVABLE
Maintenance Penalty-
Period Water Sewer Surcharge Fee
TOTAL
Illegal*
26,861 224 1,307,
28,393,312.59
1 to 60 Days ,793.21 ,359.75 159.63

5,502 135 604,

6,243,097.48
61 to 180 Days ,436.21 ,692.98 968.29

3,403 305 512, 4,222,0

181 to 1 Year ,789.48 ,331.75 963.92 85.15

More Than 1 Year 48,618 1,833 13,652, 3,896,502.39 12,499.00 68,014,408.35

,814.78 ,827.19 764.99

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 ZAMBOANGA CITY WATER DISTRICT
ZAMBOANGA CITY

NOTES TO FINANCIAL STATEMENTS

TOTAL 84,386,833.68 2,499,211.67 16,077,856.83 3,896,502.39 12,499.00 106,872,903.57

Less: Allowance for Bad Debts

Net Accounts Receivable
*Accounts are currently under reconciliation between Accounting Records and EDP database.

C. Accounts Receivable – Others

This account is used to record receivables due from accounts of District employees,
COA disallowances, and interest receivable on loans to concessionaires broken down as
follows:
Accounts Receivable - Others
Accounts Receivable - Others (60,539.39)
Allowance for Bad Debts (285,095.38)
Net Accounts Receivable - Others (345,634.77)

Allowance for Doubtful Accounts was adjusted as of December 31, 2013 in accordance
with the percentages below:

Bad Debts Percentage Table

1-60 days 1%
61-180 days 2%
181 - 1 year 3%
More than 1 year 5%

4. ADVANCES TO OFFICERS AND EMPLOYEES

This account is used to record cash advances of the District’s employees for various
purposes, i.e. travel expenses, seminar fees, etc. Schedule is attached as Annex A.

5. MATERIALS SUPPLIES INVENTORY

This account is used to record supplies which are used in the normal operations of the
District, e.g. office supplies, janitorial supplies, materials used in water connections and repair,
etc., which are held in inventory.

NO. PARTICULARS AMOUNT

5,745,180.06
131-1 OFFICE SUPPLIES
1,120,978.44
131-2 GAS, OIL, & LUBRICANTS
31,348,524.09
131-3 WATER METER SUPPLY
(16,946.33)
131-3A WATER METER SUPPLY

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 ZAMBOANGA CITY WATER DISTRICT
ZAMBOANGA CITY

NOTES TO FINANCIAL STATEMENTS

(2,873.40)
131-3A-1 WATER METER INSERTS
5,776,207.75
131-4 CHEMICALS
55,006,438.61
131-5 CONSTRUCTION MATERIALS
4,615,103.86
131-6 CONSTRUCTION MATERIALS (PROJECTS)
33,996.35
131-7 TOOLS. SHOP. GARAGE EQUIPMENT
5,157,680.95
131-8 WATER METER SPAREPARTS
10,311,109.14
131-9 MOTOR VEHICLE SPAREPARTS & TIRES
344,668.28
131-10 HACKSAW BLADE
(51,148.52)
131-12 JANITORIAL SUPPLIES
2,650.00
131-14 EMPTY DRUMS
157,558.80
131-15 SPAREPARTS- BACKHOE
32,994.53
131-16 CEMENT
119,582,122.61
TOTAL
886,80
0.00
Less: Allowance for Obsolescence

118,695,322.61
Net Inventory

6. PRE-PAYMENTS
This account records payments of bonds, fees, insurances, etc. to various agencies which
are paid on an annual basis and amortized monthly as the appropriate expenses are deemed
incurred. A detailed schedule is attached as Annex B.

7. OTHER ASSET-PHILFINANCE

Other Asset-Philfinance 315,000

Less: Allowance for Probable Loss 315,000
Net Balance -

This account constitutes an investment in Philfinance which eventually went bankrupt.

As per prior audit recommendation conducted by SGV, a provision for an allowance on
probable loss equal to the entire amount of the investment was made.

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 ZAMBOANGA CITY WATER DISTRICT
ZAMBOANGA CITY

NOTES TO FINANCIAL STATEMENTS

8. UTILITY PLANT IN SERVICE (UPS)

This account consists of the following :

PARTICULAR 2014 2013

Intangible Plant P 15,285,465 P 15,179,465
Land and Land Rights 58,456,320 54,803,682
Source of Supply Plant 86,963,237 86,963,237
Pumping Plant 51,710,831 51,495,431
Water Treatment Plant 123,292,326 117,193,342
Transmission and Distribution Plant 315,973,549 302,750,633
General Plant 202,586,754 187,508,449
Undistributed Items - 5,514
Total P 854,268,481 P 815,899,753
Less: Accumulated Depreciation 391,626,790 360,960,801
TOTAL P 462,641,691 P 454,938,952

9. CONSTRUCTION WORK IN PROGRESS

This account consists of ongoing infrastructure and capital improvement projects being
undertaken by the District. Attached herewith are Annex C which breaks down total projects
ongoing as of 2014 and Annex D for ongoing projects started prior 2014.

10. OTHER ASSETS (UNSERVICEABLE)

This account consists of Unserviceable Properties which were inventoried and reclassified
accordingly for fair presentation of the financial statements which will eventually be dropped
from the book of accounts after inspection which is in keeping with Item p, Section 4 and
Section 143, Volumes I and III of the NGAS Manual, respectively and Sec. 79 of PD 1445 as
per COA AOM No. 2014-01(2013). Breakdown is as follows:

ACCOUNT
ACCOUNT NAME TOTAL
NO.
332 WATER TREATMENT EQUIPMENT 499,398
372 OFFICE FURNITURE & EQUIPMENT 7,826,572
373 TRANSPORTATION EQUIPMENT 1,138,751
375 LABORATORY EQUIPMENT 1,159,144
376 COMMUNICATIONS EQUIPMENT 2,326,753
377 POWER OPERATED EQUIPMENT 722,843
378 TOOLS,SHOP & GARAGE EQUIPT. 1,450,891
379 OTHER GENERAL PLANT 777,814
390 OTHER TANGIBLE PROPERTY 5,514
TOTAL 15,907,680

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 ZAMBOANGA CITY WATER DISTRICT
ZAMBOANGA CITY

NOTES TO FINANCIAL STATEMENTS

11. DEFERRED DEBITS/ASSETS

This account consists of a) deposits to utility companies; b) payments of deposits,
bonds and funds to various agencies for various purposes; c) advance payments to suppliers, i.e
15% mobilization fee, and d) other accounts which are to be closed to other accounts, all of
which are subject to either liquidation or refund. Breakdown is attached as Annex E.

12. VOUCHERS PAYABLE

This account lists the payables of the District to various entities and persons whose
claims remain outstanding as of the close of the year.

13. CUSTOMERS’ DEPOSIT

This account is used to record the one (1) month minimum water charge deposit for
every customer’s account/s paid every water connection application. Said deposit is refunded
only upon permanent disconnection of the customer’s water connection and without arrears.

14. SUPPLIER’S DEPOSIT/RESTORATION

This account is used to record the customer’s deposit for water connections with
concrete cutting and breaking of roads which may be needed upon connection and subsequent
disconnection for its restoration as required by the Department of Public Works and Highways
(DPWH).

15. OTHER CURRENT AND ACCRUED LIABILITY

This account is used to record short-term liabilities maturing within the year mainly
composed of a) current portion, interest and related fees pertaining to long-term debt; b) bid
and performance bonds due to Suppliers; c) various remittances withheld from employees; d)
employees’ leave credit liability; and others. Detailed schedule is attached as Annex F.

16. LOANS PAYABLE

The District currently has contracted a total credit facility of P1.3 Billion with the Land
Bank of the Philippines (LBP) with the following interest rates:
A. For the P300 Million loan facility, interest rate is fixed at 4.75% per annum
for the first two (2) years and to be repriced semi-annually thereafter based
on prevailing market rates.
B. For the P1 Billion loan facility, interest rate is fixed at 4% per annum for the
1st four (4) years, to be repriced yearly thereafter, based on applicable
benchmark rate plus minimum spread of 1% but not lower than 5% per
annum.
Of the above facility, five (5) term loans have been released in 2013 and 2014. Specific
terms and purposes have been enumerated below:

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 ZAMBOANGA CITY WATER DISTRICT
ZAMBOANGA CITY

NOTES TO FINANCIAL STATEMENTS

Term Loan 1 released in December 2, 2013 was used for the buy-out the existing loans
of the District in 2013 plus the corresponding processing fees broken down as follows:
1. Development Bank of the Philippines (DBP) Loan 101,127,750
2. Security Bank (SB) Loan 86,965,845
3. LBP documentary stamps, handling fees and commitment fees 2,380,932
TOTAL 190,474,526
Loan is payable in thirty-two (32) equal quarterly amortizations to start at the end of the
st
1 quarter from the date of initial drawdown with no grace period on the principal;

Term Loan 2 was released in three (3) tranches with the following breakdown which
will be used to finance the replacement/rehabilitation of old pipelines and other civil works:
12-Mar-14 27,900,000
Term Loan 2 14-Jul-14 29,262,000
15-Dec-14 4,217,000
Total 61,379,000
It is payable for twenty-eight (28) equal quarterly amortizations to start at the end of the
5th quarter from the date of initial release with four (4) quarters grace period on the principal.

Term Loans 3, 4 and 5, all released last November 20, 2014 totaling to two hundred
million (P200M), will be used for a) mobilization of the construction of Bulk Water Supply
Transmission and Distribution Mains, b) initial investment for construction of Sewerage
Treatment Facility Plant, and c) other rehabilitation works. It is payable in eighteen (18) years,
inclusive of two (2)-year grace period on the principal, with equal quarterly amortizations to
start at the end of the 9th quarter.
As of December 31, 2014 outstanding balance of the initial drawdowns of the P1.3B
LBP Loan totals to P 428,044,210.

17. RETENTION OF CONTRACT PAYMENTS

Section 62 of the Revised Implementing Rules and Regulations of the RA 9184
provides that in order to assure that manufacturing defects shall be corrected by the supplier, a
warranty security shall be required from the contract awardee for a minimum period of three
(3) months, in the case of Expendable Supplies, or a minimum period of one (1) year, in the
case of Non-expendable Supplies, after acceptance by the procuring entity of the delivered
supplies.
The obligation for the warranty shall be covered by either retention money in an
amount equivalent to at least ten percent (10%) of every progress payment, or a special bank
guarantee equivalent to at least ten percent (10%) of the total contract price.
Hence, this account records the above retention money withheld from Supplier wherein
which a refund is to be made upon the request of the Supplier at the expiry of the required
retention period. Detailed schedule is attached as Annex G.

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 ZAMBOANGA CITY WATER DISTRICT
ZAMBOANGA CITY

NOTES TO FINANCIAL STATEMENTS

18. OTHER DEFERRED CREDITS

This account lists various unclassified accounts which have yet to be reconciled and/or
reclassified to their proper accounts. Breakdown is attached as Annex H.

19. OTHER LONG-TERM DEBT – INCOME TAX

This debt amounting to P19,435,094 as of December 31, 2014 represents income tax
deficiency assessed by BIR RO IX for the year 2003 paid on a staggered basis for 60 equal
monthly installments of P413,512.64 which started last January 2014.

20. CAPITAL

Breakdown of Capital account is as follows:

2014 2013
Capital Cont’n-Gov’t & LWUA P 23,008,368 P 23,008,368
Unappropriated Retained Earnings (20.1) 731,006,121 632,317,907
Appropriated Retained Earnings (20.2) 53,066,593 53,066,593
Donated Capital 56,777,150 56,777,150
Total P 863,858,232 P 765,170,018

20.1 Unappropriated retained Earnings

Beginning Balance P 632,317,907

Add (Deduct)
Prior Period Adjustments (33,164,212)
Net Income-2014 131,852,426
Ending Balance P 731,006,121

20.2 Appropriated Retained Earnings

The balance of appropriated retained earnings amounting to P 53,066,593.00 represents

reserves for debt service, operation and maintenance as well as for capital improvements
provided by setting up 10% of yearly gross revenues up to 1994 only.

21. JOINT VENTURE FOR BULK WATER SUPPLY

The District and the PrimeWater Infrastructure Corporation (PWIC) signed the Joint
Venture Agreement last March 31, 2014 for the design, financing, construction and
operation of a 50 million liters per day (MLD) Bulk Water Supply by the PWIC under the

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 ZAMBOANGA CITY WATER DISTRICT
ZAMBOANGA CITY

NOTES TO FINANCIAL STATEMENTS

2008 NEDA Guidelines and Procedures for Entering into Joint venture Agreements
between Government and Private Entities.
The P645M project includes a water treatment facility, transmission lines, water
reservoir, and electro-magnetic bulk meter among others. PWIC is given two (2) years to
complete the facilities, hence, said supply contract is expected to commence in 2016 and
will last for 40 years until the turn-over of the facilities to ZCWD thereafter. Supply for the
first 2 years will be at 30 MLD while delivery for years three (3) to forty (40) will be at 50
MLD. Base rate will start at P12.25/cu.m with P1.00 increment until year ten (10) and
adjusted based on inflation rate thereafter.
ZCWD’s counterpart will be the construction of the receiving transmission lines for the
water supply which procurement and subsequent construction shall have to begin in 2015.

22. SUBSEQUENT EVENTS

Joint Venture for Non-Revenue Water Reduction Program

A Certificate of Successful Negotiation was already signed between ZCWD and Manila
Water Company, Inc (MWCI) for the creation of Zamboanga Water Company, Inc, a joint
venture company formed for the implementation of Network Restoration and Non-Revenue
Water Reduction Program for ZCWD’s water distribution system.
The 10-yr project aims to reduce the District’s NRW loss by 10.27M cu.m at the end of
Year 5 with maintenance phase from years 6-10. A performance fee of P11.00/cu.m of
volume recovered will be paid in addition to a fixed fee of sixteen million (P16M) per year.
JV Agreement is expected be signed in January 20a and immediate implementation of
the project will start on the same year.

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