Trakia Journal of Sciences, Vol. 17, Suppl. 1, pp 524-529, 2019 Copyright © 2019 Trakia University Available online at: http://www.uni-sz.bg ISSN 1313-7069 (print) ISSN 1313-3551 (online) doi:10.15547/tjs.2019.s.01.083

THEORETICAL ANALYSIS OF DEPRECIATION IN MUNICIPALITIES (GNOSIOLOGY, ONTOLOGY AND EPISTEMOLOGY)

D. Velikov*

Department of Finance and Management, Plovdiv University "Paisii Hilendarski", Plovdiv, Bulgaria

ABSTRACT The amortization charge leads to an improvement in the quality of accountability and public finance statistics. Accounting analysis is part of the information function of accounting. The aim of the publication is to analyze depreciation in municipalities and to propose a synthesis of properties and a summary of common features, trends and laws. The ontological nature of depreciation in accounting science presents the main problems solved by accounting for depreciation. Epistemological coverage of depreciation covers its origin, scope and peculiarities. The research methods are analysis and synthesis, comparison, analogy, modeling, systematization and summary, comparative and group accounting analysis. The results obtained are presented in tabular form. The conclusion is that by switching from a smaller range of the signage coverage of the unit to the depreciation in municipalities, we are targeting a wider range of sign coverage, pointing out the qualities of the different categories of depreciation in the municipalities as an internal definition and an external manifestation.

Key words: depreciation, theoretical analysis, accounting, public sector, category, quality.

INTRODUCTION expression of the systematic distribution of the The accrual of depreciation in the public sector depreciable value of the asset over its last life. leads to an improvement in the quality of The subject of the survey is the normative accountability and public finance statistics. The requirements for accruing the depreciation in need for accrual of depreciation as a regular the municipalities and its subject - accrual and reporting process is driven by the demand for accounting of the depreciation in the public sustainability in the public systems. Difficulties sector. in the public sector accounting system arise from accounting treatment and the very nature The origin of the word depreciation comes from of the concept of "public good". A typical the Latin word mortus - dead. The concept of example of the difficulties faced by the amortization is associated with a lack of accounting science in the public sector is the functionality for the property. In accounting, development of an informative model in depreciation means decreasing the asset's asset municipalities to account for the depreciation value also means 'denial of death' (1) through and recovery of fixed assets. For municipalities, the reimbursement of the asset from the the transfer of parts of fixed assets by accumulated amortization. Depreciation is rescheduling their estimated useful life - as an associated with the consumption of fixed assets expense, in the cost price of the product is an and, as a result, their depletion, which leads to a ______decrease in their value. "In accounting terms, Correspondence to: Diyan Velikov Velikov, amortization reflects the depreciation of fixed Department of Finance and Management, Plovdiv assets, accounting for the wastage of fixed University "Paisii Hilendarski", Plovdiv, 24 Tsar capital. "(2) In this sense, under depreciation," Asen Str, Tel .: +359 878 529847, e-mail: we mean "immortalization" of fixed assets [email protected] through the ability to recover, to be replaced by

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VELIKOV D. something equally. "(3) Waste of fixed assets comparison, analogy, modeling, systematization leads to a reduction in their value. The reasons and generalization are also used. In addition to for this are mainly two: wear and tear caused by the general science method, the accounting their use in the labor process and aging, which analysis method is also used, which is a method contributes the emergence of new, more of investigating the interdependencies within sophisticated assets, whose use in the enterprise and between accounting entities. The turns out to be economically more comparative and structural methods were used advantageous. Waste is an objective process of as methods of accounting analysis. Through the loss of consumer properties when using the normative approach, priority is given to the asset. "For this reason, it is perceived that the deductive-hypothetical beginning, in which the value of tangible fixed assets included in the deductive approach is the content and the group of depreciable assets should be carried inductive - the form of control. The starting forward by deferring their estimated useful life point is the transition from general and essential as an expense in the cost of the product circumstances to judgment for the proposed produced in the enterprise by the living human categories in accounting with objective labor. "(4) specificity. The contribution of the categorical amortization accounting study is reflected in the The postulates that "... there are different generation of new and confirmatory facts about approaches to developing accounting theory, the the effect of accounting for amortization in the main among which are a descriptive approach, public sector. On the basis of the described an empirical approach and a normative categories of depreciation in municipalities approach." (5) enable philosophical research on through the positive approach, we give the gnosiology, ontology and epistemology to be inductive and hypothetical direction of the used in the study of depreciation. Application analysis by examining their application in the find the normative and positive approach in accounting practice by synthesis of properties accounting. "In the normative approach, and generalization of common features, researchers are focused on what accounting data tendencies and laws where the inductive and indicators are required to be presented to approach is the content and the deductive - the consumers and in this context seek the most form of control. appropriate reporting of business operations ..." (6) When applying the positive approach, Gnosiology of depreciation requires prior researchers "... attempt to discover and explain clarification of the ontological nature of the actual relationships and relationships based depreciation in accounting science and its on empirical observations and inductive concepts applied to studiy the processes. This is conclusions. "(7) The proposed model shown in achieved by clarifying the essence of the main Table 1 was originally uses the normative categories in accounting and their derivative approach in accounting. On the basis of the categories. The latter are the controllable satisfied public needs presented as starting and parameters in the amortization plan and prime categories, a categorical study has been amortization policy. Considering depreciation in done and the derived categories are specified by municipalities we need to clarify the essence of inductive conclusions. In support of our source categories in municipalities as part of the assertions about the use of the positive public sector and their derivative categories. approach, we can turn to the traditions of the Ontology is defined as "a part of philosophy descriptive approach in accounting, which that uses the basic principles, principles, grownds the inductive conclusions. "The structure, and laws of being." (9) The ontology accounting theory developed on its basis of depreciation defines it as a process of clarifies the essence of the accounting and systematical allocation of the depreciable value analytical work done. The inductive way of as a monetary expression of wastage of fixed knowledge is applied. It consists of making assets and as a process, through which the observations for the accounting practice and enterprise maintains its property and justifies formulating general conclusions and inferences. the renovation of fixed assets. Epistemology "(8) The methods of analysis and synthesis, (from the Greek Episteme - Knowledge, Logos

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VELIKOV D. - Teaching) is a philosophical discipline that accountant works with certain categories. The "observer the stages, the forms and the ralations category is "a notion in the science that of the knowledge process as well as criteria for expresses the most general and most essential authenticity and truthfulness . "(10) The properties and relations between objects and epistemological analysis of the characteristics of phenomena" (14), "... a basic division by (types, depreciation brings to our attention the path forms) predicates." (15) In the current study we from the theory to the practice and requires use a combination of categories which extends consideration of the legal, economic and social their significant coverage assuming certain aspects of the relevant categories used in the qualities and properties. The communicative public environment. Epistemological nature and meaning of the notions in the description of depreciation includes its origin, auditing and municipal management accounts scope and features. If gnosiology reveals the highlights the depreciation as "... an abstractive relationship object-subject or, how the accounting-legal category." (16) M. Velkov knowledge of the object is realized, defines the accounting categories as "financial epistemology reveals the relationship "object- accounting" (17) and analizes their meanings as knowledge" ie. what is the knowledge about the "... components not only of the financial structure and features. management but the general management of the enterprises, acquiring their universal Gnosiology "studies the sources, possibilities character"(18), and emphasizes their role as "... and means of scientific knowledge; theory of universal" structural elements "which are the knowledge "(11) and is" ... a category of root of accounting ... "(19) philosophy and the name of its second level - as a theory of knowledge or a knowledge of The cause and effect of depreciation, which knowledge. "(12) It examines the process of results in the resilience of certain properties and knowledge according to the attitude of the phenomena to certain pairs of joint notions subject of knowledge (the researcher) toward concepts or categories is carried out by the subject of knowledge (the subject being observing the depreciation objects, represented studied) that is the categorical opposition by parameters such as amortization period, "subject-object". The gnosiologic meaning of amortization amount and others subdivided into depreciation expands the consepts of its categories. Through a critical judgment, using ontological nature. Accepting the subjective the terms introduced by Immanuel Kant (1724- judgement the researcher offers to the 1804) a priori and apostate, analytical and administrator solutions for the epistemological synthetic (judgment), a rational position can be subject - the qualities of accounting for assumed for the use of empirical observations depreciation in municipalities. The obtained and (on the basis of past experience) forming frame for amortization is the gnosiological "... synthetic a priori judgments. "(20) contribution to understanding of how to manage the acquired knowledge.Starting from the The "amortization" activity in municipalities is internal ralations an external effects is derived carried out through social and economic concerning the actual state of individual processes in the public sector. Therefore, the amortization parameters in the municipalities. principle of building its categorical system is Taking into account the hierarchical based on the initial and main categories of the subordination financing of the municipal budget sociology and economy in the public sector and with respect to the state budget and the role of their derivatives. "The difference between the the Ministry of Finance as the controlling initial and the main category is that the first one authority receiving and managing the financial determines the substance of social reality, and resources, we should note that the latter has the second one expresses its forms." (21) constant managerial impact on the municipality The accounting basis for reporting amortization in and "... keeping the technological flow of the municipalities is grounded on the normative management processes ... "(13) the budget requirements for amortization in the public sector financing is a management system to the set out in a number of official papers such as the managed system of the municipality. The State Financial Statistics Manual (GFS2001), the

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VELIKOV D. United Nations System of Accounts (SNA93) The in structures keeping the public order and safety, European System of National Accounts (ESA 95), health, education, and other structures and in their the Accountancy Act, the National accounting activities "... it would be necessary to use the standard (NAS) 4 Depreciation, the NAS 16 Fixed replacement value as a substitute for the purposes Assets, the NAS 38 Intangible assets, Chart of of financial reporting." (24) The replacement accounts of the budget organizations, Treasury value requires an asset value input to be accounted Department of the Ministry of Finance DDS for depending on the service potential of its use. It №20/2004, DDS №14/2013 and DDS №05/2016, is not influenced by market factors and in case of Accounting policy and Amortization policy of a provisioned or expected decrease of the capacity Municipality. needed the replacement value also decreases. Improvement in accounting of revaluation and In order to consider the achievements of impairment can be achieved by diferentiating into standardization accounting, we also take into Section 6 "Cost Accounts" a set of accounting account the provisions of the International Public records 68 "Negative revaluation accounts". Sector Accounting Standards (IPSAS) developed Improvement of revaluation accounting by by the International Federation of Accountants applying the positive approach in accounting can (22) The accounting basis for the amortization be achieved by directly taking into account the charge in organizations applied IPSAS’ increase in disposable capital in a newly created documentation consists of IPSAS 17 Property, revaluation reserve account in Group 10 plant and equipment, IPSAS 21 Impairment of "Available capital" in Chart of accounts of the non - cash assets, IPSAS 26 Impairment of cash budget organizations. This view is supported by generating assets and IPSAS 31 Intangible assets. the IPSAS 17 philosophy, according to which the revaluation surplus is recognized as a gain or loss By preserving the material and moral qualities of (increase or decrease in net assets) at restoration assets, depreciation contributes for the sustainable of a decrease from revaluation of the same asset functioning of the organization. Depreciation is previously recognized as a gain or loss (increase - carried out through five processes – allocation of decrease in net assets). We consider that there is a the depreciation value, accounting assesment, need to overcome the restriction for expenditure (expence), wear and revenue (income) correspondence between the accounts from group of the asset potential value. Unlike private, budget 60 "Costs by Economic Elements" and Group 65 organizations consume national income, they do "Expenditures for Acquisition of Assets, Current not create a national income what is specific for and Major renovation by economic way" and the revenues of the budget organizations are their formation of prime cost through the operational - target formulation. This revenue represents a calculation accounts from the group 61 deduction from the profit of economic operators in "Expenditure on activity" through inclusion in favor of the State, which finances the activity of Chart of accounts of the budget organizations. budget organizations for specific activities and This will allow the accomplishment of a correct business operations. In results, through the calculation and improvement of the acomplished categorical analysis we obtained competitiveness of the public sector. In view of classification of depreciation in municipalities the intended purpose and the manner of formation shown in Table 1. of the depreciation values, it may be reasonable to A methodological contribution from the form the depreciation fund from the budget categorical survey is found in the appraisal of the organizations in the accounts 241 and 242 of the amortization requirements for the public sector. Chart of accounts of the budget organizations. We The conclusion that can be drawn is that the believe it is appropriate to include a classification methods of assessing assets in the public sector in National accounting standard 36 "Impairment need to be improved. The calculation of value in of Assets" that separetes the setting of non - use is complex because of the fact that assets financial fixed assets as cash generating and non - engaged in cash generating activities often include cash assets. We consider that a National cash flows that are secured in common with other accounting standard “Segment Reporting ” should assets. "(23) Complying the public objectives be developed with a public sector application. assests that support the performance of activities are often used even though they do not directly bring to any income. Such are the assets available

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VELIKOV D. Table 1. Depart- Social Sciences ment Cate- Derivative Internal Output Categories Qualities External Efect gory Categories Definitiveness Defense, Defense, Laws, Security, Internal Order, Competitivenes, Pensions, Grants, Production and Public Sector Legislation, Social Affairs, Subsi-dies, Compen- Distribution Financing Taxes sations Decentralization, local self-govern- Localization, ment and local Defense, Financing, Municipality Credit, activities administration, Competitivenes, functions costs and revenues Social, Taxation of local authorities Legality, Part of the state Financing Budget Achieving goals expediency budget Non- Sustainability, Competitiveness - High access, Public clean Growth, Security, Justice, Competitiveness awareness, welfare Satisfied Needs, Food, Drugs Inclusion - delivery control Breathing Exclusion Exclusion, Right to choose indivisibility and Public mixed Movement, Cable TV, cine-ma, consumer and uncompetitive welfare tourism, leisure streets, sidewalks supplier consumption Derivative Internal Main categories Qualities External effect categories definition Allocation of the depreciation value, Depreciation, accounting Stores the value distribution, Depreciation Corrective assesment, over time renewal expenditure, wear and revenue of the asset potential value Owned assets of Depreciable the enterprise Inventory book, Owned assets Control assets rather than the inventory number owner Usability as Expiration date Applicable intended, Time to use Place to use and useful life utility Refunds Difference between Distribution Qualities needed for initial and residual Amortized cost Distributability basis activities state Instrument norm, Distribution Depreciation rate Standardization Controllability percentage Expenses for the Amortization Objectivity Methodology Value period quota Withdrawal from Significant Net book value minus Residual value Net value use value liquidation costs Accountancy Historical cost, Entry value Book value Historical cost cost revalued amount Net book value Current value Carrying value Adjustmen Net value is accounted for Observeable, Replacement of a Replacement The potential for use depending on Input value current asset value of the asset the entity Recovery useful life and potential Difference between Recoverable Recovery of the economic Output net asset value and value benefit of the value in use asset 528 Trakia Journal of Sciences, Vol. 17, Suppl. 1, 2019

Depreciation Accountability, Accumulation of Depreciation Accountability expense comparability value Accrued Accumulated Potential Corrective Depreciation fund amortization value qualities Subsequent Understated or Revaluation increase Corrective Revaluation measurement, inflated balance or decrease measurement value Excess of the Subsequent carrying amount measurement, Loss from holding Adjustment, loss Impairment over the accounting the asset recoverable assesment, amount Accounting in the Budget Management Responsibility to the Accountability public sector accounting responsibility financing budget

CONCLUSION The proposed model of gnosiological knowledge 10. Ibid, last visited on 02.05.2019. offers the opportunity to standardize the 11. Ibid, last visited on 02.05.2019. procedural vision of the cognitive process of the 12. Arnaudov, I., Nikolay Hristov, Stefan depreciation and form a technological foundation Michev, A Short Dictionary of the with gnosiologyical significance in the Humanitarian Knowledge, Litavra, Sofia., contemporary research process. The scope of 1994, p. 39. observations is widered starting from smaller 13. Hristov, S., Organization of Management and coverage, taking into account the amortization in Design of Construction Management municipalities, keeping the unity between form Systems, ed. Georgi Bakalov, Varna, 1982, p. and content in the research and targeting a broad 20. coverage of the issue, pointing out the qualities 14. Dictionary of Bulgarian Language, Institute of the different categories of depreciation in for Bulgarian Language, Bulgarian Academy municipalities as internal definition and external of Sciences, AI "Prof. Marin Drinov ", effect. Glossary of Bulgarian language, last visited on 02.05.2019. ACKNOWLEDGEMENT 15. Polikarov, A., Philosophical Odyssey, AI I would like to thank Assoc. Prof. Nikolay "Prof. Marin Drinov ", Sofia, 1999, p. 50. Penev, PhD presenting this paper at the 16. Svrakov A., B. Brezoeva, B. Kostov, V. conference, which I was hindered from attending. Filipov, M. Tzvetanova, N. Rizov, Accounting: 2018, Trud and Law, Sofia, REFERENCES 2018, p. 344. 1. Svrakov A., B. Brezoeva, B. Kostov, V. 17. Velkov, M., Commentary on the Application Filipov, M. Tsvetanova, N. Rizov, of International Accounting Standards, "APIS Accounting: 2018, Trud and Law, Sofia, - Romil Kolev", Sofia, 2002, p. 37. 2018, pp. 602-603. 18. Ibid, p. 37. 2. Bonev, G., Depreciation of Fixed Assets, 19. Ibid, p. 38. Informa-Intellect, Sofia, 1996, p. 9. 20. Polikarov, A., Philosophical Odyssey, AI 3. bid, p. 10. "Prof. Marin Drinov ", Sofia, 1999, p. 170. 4. Dushanov, I., M. Dimitrov, Company 21. Bliznakov, Petko, Introduction to Sociology, Accounting Course, Trakia M, Sofia, 2016, p. Varna Free University, Varna, 1996, p. 66. 130. 22. www.ifac.org (2019) Handbook of 5. Trifonov, T., Theory of Accounting, International Public Sector Accounting Stopanstvo, Sofia, 1997, p. 42. Pronouncements, 2018, IFAC, Volume 1, p. 6. Georgieva, D., The Applicable Base of Public 106 - 107. [online] Available at: Sector Accounting, Economic Thought https://www.ifac.org/system/files/publications Magazine, Sofia, 2016, p. 5, p. 51. /files/IPSASB-HandBook-2018-Volume- 7. Ibid, p. 51. 1.pdf [Посетен на 26.04.2019]. 8. Trifonov, T., Theory of Accounting, 23. Ibid, p. 118. [Посетен на 26.04.2019]. Stopanstvo, Sofia, 1997, p. 43. 24. Ibid, p. 118. [Посетен на 26.04.2019]. 9. Dictionary of Bulgarian Language, Institute for Bulgarian Language, Bulgarian Academy of Sciences, AI "Prof. Marin Drinov ", Glossary of Bulgarian language, last visited on 02.05.2019.

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