Acc for public sector ch 1-6 (3)_compressed.pdf

Public finance is a type of finance which concerned on public as the whole of the country lik ethiopia.

1. Course Title: Accounting for Public sector
and civil society

3. Introduction
Thereareorganizationswhoseobjectisnottomakeprofit.theseN-F-P
organizationsaccounttheirresources&financialactivitiesunder
differentaccountingsystem.Everyorganizationwantstobesuccessful.
“Success”mustbedefinedintermsofgoals.Thenitneedssomemeans
tomeasureitsresultsagainstitsgoals.
Measuringsuccessisoftenthoughtofintermsofeffectiveness(achieving
thegoalatthehighestlevel)andefficiency(achievingthegoal
throughusingtheleastamountofresources).

4. Cont….
Forprofitseekingorganizations(F.P.)whoseobjectiveistomakeprofit,both
efficiencyandeffectivenesscaneasilybemeasuredwithf/s.
Therearecertainlynonfinancialcriteriatojudgesuccesslikequalitativeor
quantitativemeasures.Butregardlessofwhatothermeasuresare
employed,ultimatelyeffectivenesswillbemeasuredbytheincome
statement.
Efficiencyisevaluatedbytheexpensesectionoftheincomestatement.
Ifexpensesarelessthanrevenueandtheorganizationhasearnedan
“acceptable”profit,thenwecansayitissuccessfulinefficiency.

5. Cont….
Wecanthereforesaythattheobjectiveoftheincomestatementisto
demonstrateboththeeffectivenessandefficiencyoftheorganization.
Fornot-for-profitorganizations(N-F-P)however,theseobjectivesarenot
asuseful.Withoutagoodmeasureofeffectiveness,measurementof
efficiencybecomealmostmeaningless.
Thepubliccanthenholdthepersonaccountablefortheproperuseofthe
resources.Thismeansthattheincomestatementisonlylimitedtouse
injudgingeffectiveness.

6. Cont….
BoththenatureofN-F-POrgn.&theobjectivesoftheirfinancial
reportinghavegivenrisetoaparticularaccountingmethod,i.e.theuseof
“fundaccounting”.Itisveryimportanttounderstandthemeaningoffund
inthiscontext.innormalconversation“fund”meanssimply,aresource
ofmoney.
Thatisnotthemeaning“fund”hasinFundAccounting.Infund
accounting,“fund”meansadistinctentitywithinalargerentity.Aseparate
journalentryledgerwillbekeptandseparateF/swillbekeptforeachfund

7. Classification of not-for-profit organizations
Generally,organizationscouldbeclassifiedeitherbasedontheir
1.Objectives 2.Ownership
Objectives:a.Commercial/forprofitorganizations-emphasizeonthe
makingofprofitb.Noncommercial/not–for–profitorganizations-
whichdonotgiveemphasisonthemakingofprofit.
2.Ownership:a)Non-governmental(Privateorganizations)–operating
forthebenefitofanindividualproprietororagroupofpartners
a.Governmentalorganizati.–operatedforthebenefitofsocietyasaWhole.

8. Cont….
Anonprofit(not-forprofit)organizationisalegalaccountingentitythatis
operatedforthebenefitofsocietyasawholeratherthanforthebenefit
ofanindividualproprietororagroupofpartnersorshareholders.
Thus,theconceptofnetincomeisnotmeaningfulfornon-profit
organization.Anon-profitorganizationstrivesonlytoobtainrevenue
&supportsufficienttocovesitsexpenses.Non-profitorganizations
compriseasignificantsegmentofthecountry’seconomy.

9. Distinguish Characteristics Of Governmental Units & Non-
profit Entities
Forallthesimilaritiesanddifferencesinthemechanicsofaccountingand
managementofresources,thereareverysignificantresourcesinwhatthe
twotypesoforganizationsdoandhowtheyoperate.
Fromthestandpointofthemanagementofresources,forprofitandnot
forprofitorganizationsaresimilardifferentways.Forexampleboth
usethesametypeofresourcesascash,fixedassetpersonnel,etc...,both
needgoodinformationfordecisionmaking,andbothneedtoexercise
carefulcontroloftheresourcesthattheyhave.

10. Cont….
Bothshouldimplyaccountingformsandothertypesofcontrolstorestrict
onuseofassets&captureinformation,doubleentryaccountingtorecord
andclassifythatinformation,employingjournalsandledgers,andthen
usethosejournalsandledgersasabasistoproducefinancialreports.
Despitethewiderangeinsizeandscopeofgovernance,similarity&
differencesastheaccountingtreatmentascomparedtobusiness
organizations,Governmentalunitsandothernon-profitorganizations
wouldhavethefollowingcommoncharacteristics.

11. Cont….
Organizationtoservethesociety(citizens):Thebasicprincipleof
governmentalphilosophyisthatgovernmentalunitsexisttoservethe
citizenssubjecttotheirjurisdictions.
Generalabsenceofprofitmotive:Withfewexceptions,governmental
unitsrenderservicestothecitizenrywithouttheobjectiveofprofiting
fromthoseservices.Businessenterprisesaremotivatedtoearnprofit.
Societyasaprincipalsourceofrevenue:Aswithgovernmentalunits,
mostnon-profitorganizationdependonthegeneralpopulationfora
substantialportionoftheirsupport.

12. Cont….
CitizenrycontributionsaremostlyinvoluntaryTaxes.Citizen’s
contributiontonon-profitorganizationsisvoluntarydonations.
Thereisnocomparablesourceforbusinessenterprise.Taxisan
involuntarycontributionfromthesocietytothegovernment.based
upontheirassessment,taxescouldbeclassifiedinto:
I)Selfassessedtaxes:-taxes,whichareassessedanddeclaredbythetax
payere.g.Incometax,valueaddedtax
II)Governmentassessedtaxes:-

13. Cont….
Itisaxesdeterminedandleviedbythegovernmentalauthorities.e.g.
propertytax,customsduty,ExciseTax.
Importanceofbudget:Governmentalaccountingsystemsaswehave
seenareemployedbygovernmentresources.Thegovernmentcan
thenholdthepersonaccountablefortheresources.Thismeansthat
budgetbecomehighlyimportantingovernmentalentities.
Non-profitorganizationsmayemployobjectbudget,programming
budgetorperformancebudget.

14. Cont….
Stewardshipforresources:Aprimaryresponsibilityofgovernmental
unitsinfinancialreportingistodemonstrateadequatestewardship
forresourcesprovidedbyitscitizenry.Non-profitorganizationshavea
comparableresponsibilitytotheirdonorsbutnottothesameextentas
governmentalunits

15. Sources of financial reporting standards for Governmental and NFP
Accountingandfinancialreportingstandardsforstateandlocal
governmentalunitsareestablishedbythegovernmentalaccounting
standardsboard(GASB).Accountingandfinancialreportingstandards
forprofitseekingbusinessareestablishedbythefinancialaccounting
standardsboard(FASB).
TheGASBandtheFASBareparallelbodiesundertheoversightofthe
FinancialAccountingFoundation.theyarereferredtoas“independent
standardsettingboards”intheprivatesector.

16. Cont….
BeforethecreationoftheGASB&FASB,financialreportingstandards
weresetbygroupssponsoredbyprofessionalorganizations.Before1934
inUS,therewasnogovernmentalaccountingstandard.
Butby1934,toovercomethisconfusion&scandalspeciallyin
municipalityaccounting,theMunicipalFinanceOfficersAssociation
(MFOA)formed,theNationalCommitteeonMunicipalityAccounting
(NCMA)toassureaccountingstandardformunicipalities.

17. Cont….
Byexpandingitsscope,theNCMAin1949wasreorganizedasNational
CommitteeonGovernmentalAccounting(NCGA)toestablish
accountingstandardsforstatesandlocalgovernmentalunits.In
1974,thecommitteewasagainreorganizedasacouncilandformedthe
NationalCouncilofGovernmentalAccounting(NCGA).
In1984thecouncilwasagainreorganizedasaboardparalleltoFASBand
wasrenamedasGovernmentalAccountingStandardsBoard
(GASB).

18. Cont….
AccordinglytheGASBhastheresponsibilityforestablishingaccounting&
financialreportingstandardsfornotforprofitorganizationswhose
financialstatementsmaybecombinedwiththefinancialstatementsof
stateandlocalgovernmentalreportingentities,orwhichare
consideredgovernmentallyowned.TheFASBhastheresponsibilityfor
establishingaccountingandfinancialreportingstandardsfornon-
governmentalnon-forprofitorganizations.
Butnow,IPSASisadoptedforN-F.-Pandgovernmentalorganization.

19. What are IPSAS & IFRS?
IPSAS:standsforInternationalPublicSectorAccountingStandards
areasetofaccountingstandardsissuedbytheIPSASBforuseby
publicsectorentitiesaroundtheworldinthepreparationofF/S.
IPSASarefinancialreportingstandardsforusebypublicsector
entities&theyareforpublicsectorequivalentofInternational
FinancialReportingRtandards(IFRS),whichapplytoprivatesector
companiesanddevelopedbytheInternationalAccountingStandards
Board(IASB).AsofJanuary2016theIPSASBhadissued39IPSAS.

20. Cont….
IFRS:StandsforInternationalFinancialReportingStandardsarea
setofaccountingrulesforthefinancialstatementsofpublic
companiesthatareintendedtomakethemconsistent,transparent,
andeasilycomparablearoundtheworld.Itwasalsocreatedtobring
consistencyandintegritytoaccountingstandardsandpractices,
regardlessofthecompanyorthecountry.
IFRSareissuedbytheInternationalAccountingStandardsBoard
(IASB).

21. IPSAS versus IFRS
1.Scope:IPSASappliesto:Internationalorganization,publicsectors
(National&localgovernment,othergovernmentandcommission).
IFRSappliestogovernmentbusinessentitiesandprivatesectors.
2.Basisofaccounting:IPSASfollowaccrualsorcashbasisof
accountingwhileIFRSfollowaccrualbasisofaccounting.
3.Revenue:IPSAS19recodeitonthetitleofrevenuefromexchange
transactionanditincludesrevenuefromordinaryactivityandgain.

22. Cont….
WhileIFRSonIAS18recordonthetitleofrevenueanditonly
includerevenuefromordinaryactivity.
SeparateconsolidatedFinancialstatement
IPSASAllowsentitytouseequitymethodtoaccountforcontrolled
entitiesintheseparatefinancialstatementofcontrollingentities
whileIFRSusethecostmethod.
Lease:BothIPSAS&IFRSclassifiedleaseasoperatingleaseor
financelease

23. Cont….

24. The Conceptual Framework for Public Sector Accounting [IPSASB]
DEFINITONOFFRAMEWORK –Thebasicstructureofsomething:asetof
ideasorfactsthatprovidesupportforsomething.
•CONCEPTUAL FRAMEWORK -Itdescribestheobjective&theconcepts
forgeneralpurposeforsomething.Itisatheoreticalstructureofassumptions,
principles,andrulesthatholdstogethertheideascomprisingabroadconcept.
TheFrameworkofIPSASBisstructuredintowiththefollowingtopic:
1:RoleandAuthorityoftheConceptualFramework;2:ObjectivesandUsersof
GeneralPurposeFinancialReporting;3:QualitativeCharacteristics;4:Reporting
Entity;5:ElementsinFinancialStatements;6:RecognitioninFinancial
Statements;7:MeasurementofAssets&LiabilitiesinFinancialStatements;8:
PresentationofInformationinGeneralPurposeF/S.

25. ObjectivesandUsersofGeneralPurposeFinancialReporting;
Objectives:1.Theobjectivesoffinancialreportingbypublicsectorentitiesare
toprovideinformationabouttheentitythatisusefultousersofGPFRsfor
accountabilitypurposesandfordecision-makingpurposes.
2.Financialreportingisnotanendinitself.Itspurposeistoprovide
informationusefultousersofGPFRs.Theobjectivesoffinancialreportingare
thereforedeterminedbyreferencetotheusersofGPFRs&theirinformationneeds.
Users:i)Governments,ii)Otherpublicsectorentities,iii)Taxpayers,iv)
Donors,v)Lenders.

26. Qualitative Characteristics
The qualitative characteristics of information are the followings:
Relevance:Financialandnon-financialinformationisrelevantifitiscapableof
makingadifferenceinachievingtheobjectivesoffinancialreporting.
FaithfulRepresentation:Tobeuseful,informationmustbeafaithful
representationoftheeconomic&otherphenomenathatitpurportstorepresent.
Comparability:Comparabilityisthequalityofinformationthatenablesusersto
identifysimilaritiesin,anddifferencesbetween,twosetsofphenomena.
Verifiability:Verifiabilityisthequalityofinformationthathelpsassureusersthat
informationinGPFRsfaithfullyrepresentstheeconomicandotherphenomena
thatitpurportstorepresent.othersare:Materialityandcost-benefit.

27. Elements in Financial Statements
(a)Property,plant,andequipment;
(b)Investmentproperty;(c)Intangibleassets;
(d)Financialassets(excludingamountsshownunder(e),(g),(h)&(i));
(e)Investmentsaccountedforusingtheequitymethod;
(f)Inventories;
(g)Recoverablesfromnon-exchangetransactions(taxesandtransfers);
(h)Receivablesfromexchangetransactions;
(i)Cashandcashequivalents;

28. Cont….
(j)Taxesandtransferspayable;
(k)Payablesunderexchangetransactions;
(l)Provisions;
(m)Financialliabilities(excludingamountsshownunder(j),(k),and(l));
(n)Minorityinterest,presentedwithinnetassets/equity;and
(o)Netassets/equityattributabletoownersofthecontrollingentity.

29. Cont….
PresentationofInformationinGeneralPurposeFinancialStatements
PresentationisdefinedintheFrameworkas“theselection,locationand
organizationofinformationthatisreportedintheGPFRs”.Itfocusesonthe
comprehensivescopeoffinancialreporting,anddescribestheconcepts
applicabletofinancialstatementsingreaterdetail.
ReportingEntity:Apublicsectorentityisanentitythatraiseseconomic
resourcesfrom,oronbehalfof,constituentsand/oruseseconomicresources
toundertakeactivitiesforthebenefitof,oronbehalfof,thoseconstituents,
andwhoseservicerecipientsorresourceprovidersaredependentontheGPFRs
oftheentityforinformationforaccountabilityordecision-makingpurposes

30. Fundamental concepts Recognition, measurement, and disclosure concepts
Recognition:isdescribedastheprocessofincorporatingandincluding
amountsshownonthefaceoftheappropriatefinancialstatement.
Anitemthatisrecognizedisonethatmeetsthedefinitionofan
elementandcanbemeasuredinawaythatachievesthequalitative
characteristicsprovidedforintheFramework.
Measurement:istheprocessisofassigningamonetaryvaluetothe
itemforthefinancialstatements.Assigningamonetaryvaluetoa
transactionrequirestheselectionofanappropriatemeasurementbasis.

31. Cont….
Anditensuringthatthemeasurementissufficientlyrelevantand
faithfullyrepresentativeoftheitem.Theobjectiveistoselectthose
measurementbasesthatmostfairlyreflectthecostofservices,
operationalcapacity&financialcapacityoftheentityinamannerthatis
usefulinholdingtheentitytoaccount,&fordecision-makingpurposes”.
Disclosureconceptisanaccountingprinciplethatrequires
managementtoreportallrelevantinformationaboutthecompany’s
operationstocreditorsandinvestorsinthefinancialstatementsand
footnotes.

33. Principles of accounting
&
Financial reporting
of
Governmental Entities

34. Objectives
Aftergoingthroughthisunit:youshouldbeableto:
Explainallgovernmentalaccountingprinciples
Understandtheconceptoffundaccountingsystem
applied
Identifythefunds,theircommonaccounting
characterandthefinancialactivitiesandresources
theyaccount

35. Statement of the principles
Accounting&ReportingCapabilities(Principle#1)
Agovernmentaccountingsystemmustmakeitpossible
both:
(a)Topresentfairly&withfulldisclosurethefinancial
operationofthefunds&accountgroupsofthe
governmentalunitinconformitywithInternational
publicsectorsAccountingstandards
(b)Todetermine&demonstratecompliancewith
finance-relatedlegalandcontractualprovisions.

36. Cont….
a.AdherencetoIPSASisessentialtoansweringareasonable
degreeofcomparabilityamongthegeneral-purpose
financialreportsofstateandlocalgovernmentalunits.
b.Sometimesthelegalrequirementsmightbecontraryto
IPSAS,GAAPorIFRS;
Forinstance,governmentalentitiesmayrequiretokeepbooks
withasingleentryledger,oritmayrequiretokeepall
accountonastrictlycashbasis.Inthesecasessincethelegal
requirementsarecontrarytoGAAP/IFRSfinancial
statements&reportspreparedincompliancewithstatelaws
arecomplied.

37. Cont….
InsomegovernmentalunitshoweverUndersuch
circumstanceswherethelawsrequiretofollowpractices
notconsistentwithaccountingprinciples,
Governmentalunitsmaypreparetwosetsoffinancial
statements.
1.Onesetincompliancewithlegalrequirements,
2.OnesetinconformitywithAccountingprinciples

38. Fund Accounting System (Fund defined) (principle # 2)
Governmentalaccountingsystemsshouldbeorganized&
operatedonafundbasis.
“Afundisdefinedasafiscal&accountingentitywitha
selfbalancingsetofaccountsrecordingcash&other
financialresources,togetherwithallrelatedliabilities&
residualequitiesandbalances,&changestherein,which
aresegregatedforthepurposeofcarryingon
specifiesactivitesorattainingcertainobjectivesin
accordancewithspecialregulations,restrictionsor
limitations.”

39. Cont….
ThewordFUNDisgivenspecialdefinitionasitrelatestoFund
Accounting.ThenarrowdefinitionofFundasusedinordinary
conversationisa“resourceofmoney”.Howeverinthis
courseitisgiventhespecialdefinitionabove.Ithaskeyphrases
indicatingthefollowingpoints;
Itisbyitselfisanentity
Havingitsownaccountingexistenceand
Aselfbalancingsetofbooks(doubleentrysystem).
Theestablishmentofthefundwillattainaspecificobjective
andwillhaveregulations,restrictionsorlimitations.

40. Cont….
Example:Toillustratetheconceptoffund,wecan
considertheministryofeducationthatoperateson
severalcolleges.AlthoughallarepartoftheMinistryasa
wholeeachoneistreatedasafund.
Eachcollegewillbegivenmoneythatisspecificallyfor
itsoperations,isnottobemixedupwithother
institutions.Thereforeeachcollegewillkeepitsownset
ofbooks,andissueitsownFinancialReports,
irrespectiveoftheperformanceofotherindividual
institutionsortheministryasawhole.

41. Types of Funds (Principle # 3)
There are seven types of funds, which are subdivided into three
categories:
I. GOVERNMENTAL FUNDS
1.TheGeneralFund-toaccountforallfinancialresources
exceptthoserequiredtobeaccountedforinanotherfunds.
2.SpecialRevenueFunds-toaccountsfortheproceedsof
specificrevenuesources(otherthanexpendabletrustsor
formajorcapitalprojects)thatarelegallyrestrictedto
expenditureforspecificpurposes.

42. Cont….
Anexampleofaspecialrevenuefundmightbe“TheUnityand
safetyofthemotherlandtax”thatwascollectedduringtheDerg
regime.Itwasraisedspecificallyforthearmedforces.
3.CapitalProjectFund-toaccountforfinancialresourcestobe
usedfortheacquisitionorconstructionofmajorcapital
facilities(otherthemthosefinancedbyproprietary&trustsfunds).
AnexampleofCapitalProjectsFundscouldbetheconstructionof
newbuildingforthecitygovernmentAdministration.
4.DebtServiceFunds-Itisfortheaccumulationofresourcesfor
&thepaymentofgenerallongtermdebtprincipal&interest

43. Cont….
II. PROPRIETARY FUNDS
5.EnterpriseFunds-toaccountsforoperationswherethegoverning
bodyhasdecidedthatperiodicdeterminationsofreveriesearned,
expensesincurredand/ornetincomeisappropriateforcapital
maintenance,publicpolicy,managementcontrol,accountability,or
otherpurposes
Example:waterfund,Airportfund,Naturalgasfund……
6.InternalServiceFunds-toaccountforthefinancingofgoodsor
servicesprovidedbyonedepartmentoragencytotheanother
departmentoragencyofthegovernmentalunit,ortotheother
governmentalunitsonacostreimbursementbasis.

44. Cont….
AsharedgarageisacommonexampleofanInternalService
Fundingovernmentministryoffices.thegaragewouldrepair
alltheministries`vehiclesregardlessofwhichproject,offices
orfundsusesthem
III.FIDUCIARYFUNDS
7.TrustAndAgencyFunds-Toaccountforassetsheldby
governmentalunitinatrusteecapacityorasanagentfor
individualprivateorganizations,othergovernmentalunits&or
funds.Theseinclude:Expandabletrustfunds,Non-expendabletrust
funds,PensiontrustfundsandAgencyfunds.

45. Number of Funds (Principle # 4)
Governmentalunitsshouldestablishesandmaintainthose
fundsrequirebylaw&soundfinancialadministration.
onlytheminimumnumberoffundsinconsistentwithlegal
andoperatingrequirementsshouldbeestablished,however
sinceunnecessaryfundsresultininflexibility,undue
complexity&inefficientfinancialadministration.
ThesevenfundtypesaretobeusedifneededbyGovernmental
unittodemonstratecompliancewithlegalrequirementsorif
neededtofacilitatesoundfinancialadministration.

46. Accounting for fixed assets & long-term liabilities (Principle #5)
AcleardistinctionshouldbemadebetweenFundfixedassets
&generalfixedassets&Fundlong-termliabilities&
Generallong-termdebt.
A.Fixedassetsthatrelatedtospecificpropertyfunds&
trustfundsshouldbeaccountedforthroughthosefunds.All
otherfixedassetsofgovernmentalunitsshouldbeaccountedfor
throughthegeneralfixedassetaccountgroup.
Generalfixedassetsincludeland,buildings,improvements
otherthanbuildings,car&equipment'susedbyactivities
accountedbythefourfundtypesclassifiedas“governmental
funds”.

47. Cont….
B.Longtermliabilitiesofproprietaryfunds&trustsfund
shouldbeaccountedforthroughthosefunds.Allother
unmaturedgenerallong-termliabilitiesofgovernmentalunit
includingspecialassessmentsdebtforwhichthegovernmentis
obligatedinsomemannershouldbeaccountedforthroughthe
generallong-termdebtaccountgroup.

48. Valuation of Fixed Assets (PRINCIPLE # 6)
Fixedassetsshouldbeaccountedforatcost,orifthecost
isnotpracticallydeterminable,atestimatedcost,
donatedfixedassetsshouldberecordedattheir
estimatedfairvalueatthetimereceived.

49. Deprecation of Fixed Assets (PRINCIPLE # 7)
a.Deprecationofgeneralfixedassetsshouldnotberecorded
intheaccountsofgovernmentalfunds.Deprecationof
generalfixedassetsmayberecordedincostaccounting
systemsorcalculatedforcostfindinganalysis;&
accumulateddeprecationmayberecordedinthe
GeneralFixedAssetAccountgroup.
b.Deprecationoffixedassetsaccountedforinaproprietary
fundsshouldberecordedinaccountsofgovernmental
funds.deprecationalsorecognizedinthosetrustfunds
whereexpenses,netincome&/orcapitalmaintenanceare
measured.

50. Basis of Accounting (PRINCIPLE # 8)
TheModifiedAccrualoraccrualbasisofaccountingas
appropriateshouldbeutilizedinmeasuringfinancialposition
&operatingresults.
a.Governmentalfundrevenues&expendituresshouldbe
recognizedonthemodifiedaccrualbasis.Revenuesshould
berecognizedintheaccountinginwhichtheybecome
available&measurable.expendituresshouldberecognized
intheaccountingperiodinwhichthefundliabilityis
incurred,ifmeasurable.

51. Cont….
b.Proprietaryfundrevenues&expensesshouldbe
recognizedontheaccrualbasis.
c.Fiduciaryfundsrevenueandexpensesorexpenditures(as
appropriate)shouldberecognizedonthebasisconsistent
withthefund’saccountingmeasurementobjective.
d.Transfersoffinancialresourcesamongfundsshouldbe
recognizedinallfundsaffectedintheperiodinwhichthe
inter-fundreceivables&payable(s)arise

52. Budget and Budgetary Accounting (Principle # 9)
Budgetingistheprocessofallocatingofresourcetomeet
unlimiteddemandsanditiskeyelementsoflegislative
controlovergovernmentalunits.
1.Anannualbudget(s)shouldbeadaptedbyevery
governmentalunits.
2.Theaccountingsystemshouldprovidethebasisfor
appropriatebudgetarycontrol.
3.Budgetarycomparisonsshouldbeincludedinthe
appropriatefinancialstatement&schedulesfor
governmentalunitsfunds,

53. Importance of budget
Budget is importance for the government because of:
1.ReallocationofResources:Throughthebudgetarypolicy,
Governmentaimstoreallocateresourcesinaccordancewiththe
economic(profitmaximization)andsocial(publicwelfare)
prioritiesofthecountry.
2.Reducinginequalitiesinincomeandwealth:.Itwillreduce
incomeoftherichandraisestandardoflivingofthepoor,thus
reducinginequalitiesinthedistributionofincome.
3.EconomicStability:Governmentbudgetisusedtoprevent
businessfluctuationsofinflationordeflationtoachievethe
objectiveofeconomicstability

54. Cont….
4.ManagementofPublicEnterprises:Budgetispreparedwith
theobjectiveofmakingvariousprovisionsformanagingsuch
enterprisesandprovidingthosefinancialhelp.
5.EconomicGrowth:Ithelpstomobilisesufficientresources
forinvestmentinthepublicsector.
6.Reducingregionaldisparities:Thegovernmentbudgetaims
toreduceregionaldisparitiesthroughitstaxationand
expenditurepolicyforencouragingsettingupofproduction
unitsineconomicallybackwardregions.

55. Classification of budget
Agovernmentbudgetisanannualfinancialstatement
whichoutlinestheestimatedgovernmentexpenditure
andexpectedgovernmentreceiptsorrevenuesforthe
forthcomingfiscalyear.Dependingonthefeasibilityof
theseestimates,budgetsareofthreetypes
Balancedbudget
Surplusbudgetand
Deficit budget.

56. Cont….
1.BalancedBudget:Agovernmentbudgetissaidtobea
balancedbudgetiftheestimatedgovernmentexpenditureis
equaltoexpectedgovernmentreceiptsinaparticular
financialyear.Advocatedbymanyclassicaleconomists,this
typeofbudgetisbasedontheprincipleof“livingwithinmeans.”
Theybelievedthegovernment’sexpenditureshouldnotexceed
theirrevenue.
Thoughanidealapproachtoachieveabalancedeconomyand
maintainfiscaldiscipline,abalancedbudgetdoesnotensure
financialstabilityattimesofeconomicdepressionor
deflation.

57. Cont….
Theoretically,it’seasytobalancetheestimatedexpenditure&
anticipatedrevenuesbutwhenitcomestopractical
implementation,suchbalanceishardtoachieve.
2.SurplusBudget:Agovernmentbudgetissaidtobeasurplus
budgetiftheexpectedgovernmentrevenuesexceedtheestimated
governmentexpenditureinaparticularfinancialyear.Thismeans
thatthegovernment’searningsfromtaxesleviedaregreaterthan
theamountthegovernmentspendsonpublicwelfare.
Asurplusbudgetdenotesthefinancialaffluenceofacountry.It
implementedattimesofinflationtoreduceaggregatedemand.

58. Cont….
3.DEFICITBUDGET:Agovernmentbudgetissaidtobeadeficit
budgetiftheestimatedgovernmentexpenditureexceedsthe
expectedgovernmentrevenueinaparticularfinancialyear.
Thistypeofbudgetisbestsuitedfordevelopingeconomies,
suchasIndia.Especiallyhelpfulattimesofrecession,adeficit
budgethelpsgenerateadditionaldemandandboosttherateof
economicgrowth.
Here, the government incurs the excessive expenditure to
improve the employment rate.

59. Cont….
Thisresultsinanincreaseindemandforgoodsandservices
whichhelpsinrevivingtheeconomy.
Thegovernmentcoversthisamountthroughpublicborrowings
(byissuinggovernmentbonds)orbywithdrawingfromits
accumulatedreservesurplus.
Helpsinaddressingpublicconcernssuchasunemployment
attimesofeconomicrecession.Anditenablesthe
government to spend on publicwelfare.

60. Cont….
Thisresultsinanincreaseindemandforgoodsandservices
whichhelpsinrevivingtheeconomy.
Thegovernmentcoversthisamountthroughpublicborrowings
(byissuinggovernmentbonds)orbywithdrawingfromits
accumulatedreservesurplus.
Helpsinaddressingpublicconcernssuchasunemployment
attimesofeconomicrecession.Anditenablesthe
government to spend on publicwelfare.

61. Approaches to budgeting
Various budgeting models continue to be commonly used
and fall predominantly into the following categories:
(1) line-item, or "traditional," budgeting;
(2) performance budgeting;
(3) program and planning ("program") budgeting;
(4) zero-based budgeting (ZBB);
(5) site-based budgeting; and
(6) outcome-focused budgeting.

62. Cont….
Line-ItemBudgeting:Itisstillthemostwidelyusedapproach
inmanyorganizations,includingschools,becauseofits
simplicityanditscontrolorientation.Itisreferredtoasthe
"historical"approachbecauseadministratorsandchief
executivesoftenbasetheirexpenditurerequestsonhistorical
expenditureandrevenuedata.
Oneimportantaspectofline-itembudgetingisthatitoffers
flexibilityintheamountofcontrolestablishedovertheuse
ofresources,dependingonthelevelofexpendituredetail(e.g.,
fund,function,object)incorporatedintothedocument.

64. Cont….
Itofferssimplicityandeaseofpreparation.
Althoughthisapproachofferssubstantialadvantages,critics
haveidentifiedseveralshortcomingsthatmaymakeit
inappropriateforcertainorganizationalenvironments.
Themostseverecriticismisthatlineitembudgetingpresents
littleusefulinformationtodecisionmakersonthe
functionsandactivitiesoforganizationalunits.Because
thisbudgetpresentsproposedexpenditureamountsonlyby
category,thejustificationsforsuchexpendituresarenot
explicitandareoftennotintuitive.

65. Cont….
PerformanceBudgeting:Adifferentfocusisseenin
performancebudgetingmodels.Inastrictperformance
budgetingenvironment,budgetedexpendituresarebased
onastandardcostofinputsmultipliedbythenumber
ofunitsofanactivityexpectedtobeprovidedina
timeperiod.
Althoughthisstrictapproachmaybeusefulforcertain
typesofoperations,manyorganizationsrequirea
moreflexibleapproach.

66. Cont….
ProgramandPlanning(Program)Budgeting:Program
budgetingreferstoavarietyofdifferentbudgetingsystems
thatbaseexpendituresprimarilyonprogramsofworkand
secondarilyonobjects.Itisconsideredatransitionalform
betweentraditionalline-itemandperformanceapproaches,
sometimesreferredtoasmodifiedprogrambudgeting.
Incontrasttootherapproaches,afullprogrambudgetbases
expendituressolelyonprogramsofworkregardlessofobjects
ororganizationalunits.Programbudgetingisflexibleenough
tobeappliedinavarietyofways,dependingon
organizationalneedsandadministrativecapabilities.

67. Cont….
Zero-BasedBudgeting(ZBB):ThebasictenetofZBBisthat
programactivitiesandservicesmustbejustifiedannually
duringthebudgetdevelopmentprocess.Thebudgetis
preparedbydividingallofagovernment'soperationsinto
decisionunitsatrelativelylowlevelsoftheorganization.
Individualdecisionunitsarethenaggregatedintodecision
packagesonthebasisofprogramactivities,programgoals,
organizationalunits,andsoforth.
Costsofgoodsorservicesareattachedtoeachdecisionpackage
onthebasisofthelevelofproductionorservicetobeprovided
toproducedefinedoutputsoroutcomes.Decisionunitsare
thenrankedbytheirimportanceinreaching
organizationalgoalsandobjectives.

70. Cont….
Site-BasedBudgeting:Site-basedbudgetingiswidely
consideredthemostpracticalforbudgetingwithinthe
schooldistrictenvironmentbecauseitprovidesgreater
controlandreportingofschool-leveldata.Thisapproach
(whichmaybeusedincombinationwithanyofthefour
discussedabove)emphasizesthedecentralizationof
budgetarydecisionmaking.
Site-basedbudgetingplaceslocalmanagersandotherstaffat
thecenterofthebudgetpreparationprocess,makingthem
responsibleforboththepreparationandthemaintenance
ofthebudget.

71. Cont….
Outcome-FocusedBudgeting:Consistentwiththe
evaluationobjective,governmentbudgetingisbecoming
increasinglyoutcomefocused.Fiscalausterity,coupledwith
intensecompetitionforresources,hasprecipitatedaneffortto
ensureamoreeffectiveuseofresourcesatalllevelsof
government.
Outcome-focusedbudgetingisthepracticeoflinkingthe
allocationofresourcestotheproductionofoutcomes.The
objectiveistoallocategovernment'sresourcestothoseservice
providersorprogramsthatusethemmosteffectively.

72. Financial Reporting (Principal # 10)
1.Appropriateinterimfinancialstatements&reportsof
financialposition,operatingresults&otherpertinent
informationshouldbepreparedtofacilitatemanagement
controloffinancialoperations,legislativeoversight&
wherenecessaryordesiredforexternalreportingpurpose.
2.Acomprehensiveannualfinancialreportcoveringall
funds&accountgropesofthegovernmentalunitincluding
appropriatecombined,combining&individualfund
statements,notestotheF.S,schedules,narrativeexplanations
&statisticaltablesshouldbeprepared&published.

73. Cont….

74. International Public Sector
Accounting Standards [IPSAS]

75. Activities of Government
Thefollowingmattersaresomeoftheactivityofthegovernment.
1.EnactingandEnforcingLaws:itistheprimeresponsibilityof
theGovernmentofeachcountry.Thisisbecauselawsand
regulationsonlyenablethebusinessestofunctionsmoothly.
2.MaintainingLawandOrder:protectingpersonsandproperty
isanotherresponsibilityoftheGovernmentofthecountry.It
wouldbeimpossibletocarryonbusinessintheabsenceofa
peacefulatmosphere.
3.3.ProvidingMonetarySystem:TheGovernmenthasto
providemonetarysystemsothatbusinesstransactionscanbe
effected.

76. Cont….
Further,itisalsotheresponsibilityoftheGovernmenttoregulate
moneyandcredit,andprotectthemoneyvalueofthecurrencyin
termsofothercurrencies.
4.BalancedRegionalDevelopmentandGrowth:Itisthe
responsibilityoftheGovernmenttomakesurethattherearebalanced
regionaldevelopmentsandgrowth.
5.ProvisionofBasicInfrastructure:Governmentshouldprovide
basicinfrastructuralfacilitiessuchastransportation,power,finance,
trainedpersonnelandcivicamenities,whichareindispensablefor
theeffectivefunctioningofbusinessconcerns.

77. Cont….
6.SupplyofInformation:Governmentsisresponsibleto
provideinformation,whichisusefultobusinessmenwhich
relatestoeconomicandbusinessactivity,specificlinesof
business,scientificandtechnologicaldevelopments.
7.AssistancetoSmall-scaleIndustries:Governmentprovide
therequiredfacilitiesandencouragethedevelopmentofsmall-
scaleindustriestoovercometheproblemfacedbythem.
8.TransferofTechnology:Governmentisresponsibleto
transfertoprivateindustrieswhateverdiscoveriesaremadeby
theGovernment–ownedResearchInstitutionssothatthey
canbeusedforcommercialproduction.

78. Cont….
9.ConductingInspections:Governmentresponsibletoinspect
theprivatebusinessconcernsinordertomakesurethatthey
producequalityproducts,andalsotopreventtheproductionand
saleofsub-standardgoods.
10.IncentivestoHomeIndustries:Itistheresponsibilityofthe
Governmenttoencouragethedevelopmentofhomeindustries
byprovidingthemvariousincentivesandsubsidies.

79. Cont….
Summarystatementofprinciples

80. IPSAS 1—PRESENTATION OF FINANCIAL STATEMENTS
Objectives:TheobjectiveofthisStandardistoprescribe
themannerinwhichgeneralpurposefinancialstatements
shouldbepresentedtoensurecomparabilitybothwiththe
entity’sfinancialstatementsofpreviousperiodsandwith
thefinancialstatementsofotherentities.
Scope:ThisStandardshallbeappliedtoallgeneralpurpose
financialstatementspreparedandpresentedunderthe
accrualbasisofaccountinginaccordancewithIPSASs.

81. Definitions
Accrualbasis:meansabasisofaccountingunderwhich
transactionsandothereventsarerecognizedwhentheyoccur
(andnotonlywhencashoritsequivalentisreceivedorpaid).
Assets:areresourcescontrolledbyanentityasaresultof
pasteventsandfromwhichfutureeconomicbenefitsor
servicepotentialareexpectedtoflowtotheentity.
Contributionsfromowners:meansfutureeconomic
benefitsorservicepotentialthathasbeencontributedtothe
entitybypartiesexternaltotheentity,otherthanthose
thatresultinliabilitiesoftheentity

82. Cont….
Distributionstoownersmeansfutureeconomicbenefitsorservice
potentialdistributedbytheentitytoallorsomeofitsowners,
Aneconomicentityisacontrollingentity&itscontrolledentities.
Expenses:aredecreasesineconomicbenefitsorservicepotential
duringthereportingperiodintheformofoutflowsor
consumptionofassetsorincurrencesofliabilitiesthatresultin
decreasesinnetassets/equity,otherthanthoserelatingto
distributionstoowners.
Revenue:isthegrossinflowofeconomicbenefitsorservice
potentialduringthereportingperiodwhenthoseinflows
resultinanincreaseinnetassets/equity,otherthan
increasesrelatingtocontributionsfromowners.

83. Cont….
Liabilities:arepresentobligationsoftheentityarisingfrompast
events,thesettlementofwhichisexpectedtoresultinan
outflowfromtheentityofresourcesembodyingeconomicbenefits
orservicepotential.
Material:Omissionsormisstatementsofitemsarematerialiftheycould,
individuallyorcollectively,influencethedecisionsorassessmentsof
usersmadeonthebasisofthefinancialstatements.
Netassets/equity:istheresidualinterestintheassetsofthe
entityafterdeductingallitsliabilities.
Impracticable:Itiswhentheentitycannotapplyitaftermaking
everyreasonableefforttodoso.

84. Purpose of Financial Statements
Theobjectivesofgeneralpurposefinancialreportinginthe
publicsectorshouldbetoprovideinformationusefulfor
decisionmaking,andtodemonstratetheaccountabilityof
theentityfortheresourcesentrustedtoit,by:
Providinginformationaboutthesources,allocation,&usesof
resources;
Providinginformationabouthowtheentityfinancedits
activities
Providinginformationthatisusefulinevaluatingtheentity’s
abilitytofinanceitsactivitiesandtomeetitsliabilities

85. Cont….
Providinginformationaboutthefinancialconditionofthe
entityandchangesinit;
Providingaggregateinformationusefulinevaluatingthe
entity’performanceintermsofservicecosts,efficiency,and
accomplishments

86. Components of Financial Statements
A complete set of financial statements comprises:
(a) A statement of financial position;
(b) A statement of financial performance;
(c) A statement of changes in net assets/equity;
(d) A cash flow statement;
(e) When the entity makes publicly available its approved budget,
a comparison of budget and actual amounts
(f) Notes, comprising a summary of significant accounting policies
(g) Comparative information in respect of the preceedingperiod

87. IPSAS 2—CASH FLOW STATEMENTS
Objective:Thecashflowstatementidentifies(a)thesourcesof
cashinflows,(b)theitemsonwhichcashwasexpendedduringthe
reportingperiod,and(c)thecashbalanceasatthereportingdate.
Scope:Anentitythatpreparesandpresentsfinancialstatements
undertheaccrualbasisofaccountingshallprepareacashflow
statementinaccordancewiththerequirementsofthisStandard
Informationaboutcashflowsmaybeusefulto(a)assessingthe
entity’scashflows,(b)assessingtheentity’scompliancewith
legislationandregulations(includingauthorizedbudgetswhere
appropriate),and(c)makingdecisionsaboutwhethertoprovide
resourcesto,orenterintotransactionswith,anentity.

88. Definitions
Cashcomprisescashonhandanddemanddeposits.
Cashequivalents:areshort-term,highlyliquidinvestmentsthatare
readilyconvertibletoknownamountsofcashandwhichare
subjecttoaninsignificantriskofchangesinvalue.
Cashflowsareinflowsandoutflowsofcashandcashequivalents.
Control:Anentitycontrolsanotherentitywhentheentityis
exposed,orhasrights,tovariablebenefitsfromitsinvolvement
withtheotherentityandhastheabilitytoaffectthenatureor
amountofthosebenefitsthroughitspowerovertheotherentity.
Financingactivitiesareactivitiesthatresultinchangesinthesize
andcompositionofthecontributedcapitalandborrowingsofthe
entity.

89. Cont….
Investingactivitiesaretheacquisitionanddisposaloflong-
termassetsandotherinvestmentsnotincludedincash
equivalents.
Operatingactivitiesaretheactivitiesoftheentitythatarenot
investingorfinancingactivities.
Reportingdatemeansthedateofthelastdayofthereporting
periodtowhichthefinancialstatementsrelate.
TermsdefinedinotherIPSASsareusedinthisStandardwith
thesamemeaningasinthoseStandards,

90. Operating Activities
Cashflowsfromoperatingactivitiesareprimarilyderivedfromthe
principalcash-generatingactivitiesoftheentity.Examplesare:
(a)Cashreceiptsfromtaxes,levies,andfines;(b)Cashreceiptsfromcharges
forgoodsandservicesprovidedbytheentity;(c)Cashreceiptsfromgrantsor
transfers,(d)Cashreceiptsfromroyalties,fees,commissions,andother
revenue;(da)Cashpaymentstobeneficiariesofsocialbenefitschemes;(e)
Cashpaymentstootherpublicsectorentitiestofinancetheiroperations,(f)
Cashpaymentstosuppliersforgoodsandservices;(g)Cashpaymentsto
andonbehalfofemployees;(i)Cashpaymentsoflocalpropertytaxesor
incometaxesinnormalactivity,(j)Cashreceiptsandpaymentsfrom
contractsheldfordealingortradingpurposes;(k)Cashreceiptsorpayments
fromdiscontinuingoperations;and(l)Cashreceiptsorpaymentsinrelationto
litigationsettlements.

91. Investing Activities
.Examplesofcashflowsarisingfrominvestingactivitiesare:
(a)Cashpaymentstoacquireproperty,plant,andequipment,intangibles,andother
long-termassets.Thesepaymentsincludethoserelatingtocapitalizeddevelopment
costsandself-constructedproperty,plant,andequipment;(b)Cashreceiptsfrom
salesofproperty,plant,andequipment,intangibles,andotherlong-termassets;(c)
cashpaymentstoacquireequityordebtinstrumentsofotherentitiesand
interestsinjointventures(otherthanpaymentsortradingpurposes);(d)Cash
receiptsfromsalesofequityordebtinstrumentsofotherentitiesandinterestsinjoint
ventures(otherthanreceiptsthoseheldfordealingortradingpurposes);(e)Cash
advancesandloansmadetootherparties,(f)Cashreceiptsfromtherepaymentof
advancesandloansmadetootherparties;(g)Cashpaymentsforfutures
contracts,forwardcontracts,optioncontracts,andswapcontracts,exceptheldfor
dealingortradingpurposes,orthepaymentsareclassifiedasfinancingactivities;and
(h)Cashreceiptsfromfuturescontracts,forwardcontracts,optioncontracts,and
swapcontracts,

92. Financing Activities
Theseparatedisclosureofcashflowsarisingfromfinancing
activitiesisimportant,becauseitisusefulinpredictingclaims
onfuturecashflowsbyprovidersofcapitaltotheentity.
Examplesofcashflowsarisingfromfinancingactivitiesare:
(a)Cashproceedsfromissuingdebentures,loans,notes,
bonds,mortgages,andothershortorlong-termborrowings;
(b)Cashrepaymentsofamountsborrowed;and
(c)Cashpaymentsbyalesseeforthereductionofthe
outstandingliabilityrelatingtoafinancelease.

93. IPSAS 3—ACCOUNTING POLICIES, CHANGES IN
ACCOUNTING ESTIMATES AND ERRORS
Objective:TheobjectiveofthisStandardistoprescribethe
criteriaforselectingandchangingaccountingpolicies,
togetherwiththe(a)accountingtreatmentanddisclosure
ofchangesinaccountingpolicies,(b)changesinaccounting
estimates,and(c)thecorrectionsoferrors.
Scope:ThisStandardshallbeappliedinselectingandapplying
accountingpolicies,andaccountingforchangesinaccounting
policies,changesinaccountingestimates,andcorrections
ofpriorperioderrors.

94. Definitions
Accountingpoliciesarethespecificprinciples,bases,
conventions,rules,andpracticesappliedbyanentityinpreparing
andpresentingfinancialstatements.
Achangeinaccountingestimateisanadjustmentofthecarrying
amountofanassetoraliability,thatresultsfromtheassessmentof
thepresentstatusof,andexpectedfuturebenefitsand
obligationsassociatedwith,assetsandliabilities.
Priorperioderrorsareomissionsfrom,andmisstatementsin,the
entity’sfinancialstatementsforoneormorepriorperiodsarising
fromafailuretouse,ormisuseof,faithfullyrepresentative
information

95. Cont….
Retrospectiverestatementiscorrectingtherecognition,
measurement,&disclosureofamountsofelementsoffinancial
statementsasifapriorperioderrorhadneveroccurred.
ConsistencyofAccountingPolicies:Anentityshallselect
andapplyitsaccountingpoliciesconsistentlyforsimilar
transactions,otherevents,andconditions,unlessanIPSAS
specificallyrequiresorpermitscategorizationofitemsfor
whichdifferentpoliciesmaybeappropriate.

96. IPSAS 4―THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES
Objective.Anentitymaycarryonforeignactivitiesintwoways.It
mayhavetransactionsinforeigncurrenciesoritmayhave
foreignoperations.Inaddition,anentitymaypresentitsfinancial
statementsinaforeigncurrency.
TheobjectiveofthisStandardistoprescribehowtoincludeforeign
currencytransactionsandforeignoperationsinthefinancial
statementsofanentity,andhowtotranslatefinancialstatements
intoapresentationcurrency.
The principal issues are (a) which exchange rate(s) to use, and (b)
how to report the effects of changes in exchange rates in the financial
statements.

97. Cont….
Scope:Anentitythatpreparesandpresentsfinancialstatements
undertheaccrualbasisofaccountingshallapplythisStandard:
(a)Inaccountingfortransactionsandbalancesinforeigncurrencies,
exceptforthosederivativetransactionsandbalancesthatare
withinthescopeofIPSAS41,FinancialInstruments;
(b)Intranslatingthefinancialperformanceandfinancialpositionof
foreignoperationsthatareincludedinthefinancialstatementsofthe
entitybyconsolidation,orbytheequitymethod;and
(c)Intranslatinganentity’sfinancialperformanceandfinancial
positionintoapresentationcurrency.

98. Definitions
Closingrateisthespotexchangerateatthereportingdate.
Exchangedifferenceisthedifferenceresultingfromtranslating
agivennumberofunitsofonecurrencyintoanother
currencyatdifferentexchangerates.
Exchangerateistheratioofexchangefortwocurrencies.
Foreigncurrencyisacurrencyotherthanthefunctional
currencyoftheentity.
Foreignoperationisanentitythatisacontrolledentity,
associate,jointarrangement,orbranchofareportingentity,
theactivitiesofwhicharebasedorconductedinacountry
orcurrencyotherthanthoseofthereportingentity.

99. Cont….
Functionalcurrencyisthecurrencyoftheprimaryeconomic
environmentinwhichtheentityoperates.
Monetaryitemsareunitsofcurrencyheldandassetsandliabilities
tobereceivedorpaidinafixedordeterminablenumberofunitsof
currency.
Netinvestmentinaforeignoperationistheamountofthe
reportingentity’sinterestinthenetassets/equityofthatoperation.
Presentationcurrencyisthecurrencyinwhichthefinancial
statementsarepresented.
Spotexchangerateistheexchangerateforimmediatedelivery.

100. Cont….
FunctionalCurrency:Theprimaryeconomicenvironmentinwhichan
entityoperatesisnormallytheoneinwhichitprimarilygenerates
andexpendscash.Anentityconsidersthefollowingfactorsin
determiningitsfunctionalcurrency:(a)Thecurrency:
(i)Thatrevenueisraisedfrom,suchastaxes,grants,andfines;
(ii)Thatmainlyinfluencessalespricesforgoodsandservicesand
(iii)Ofthecountrywhosecompetitiveforcesandregulations
mainlydeterminethesalepricesofitsgoodsandservices.
(b)Thecurrencythatmainlyinfluenceslabor,material,andothercosts
ofprovidinggoodsandservices

101. IPSAS 5—BORROWING COSTS
Objective:ThisStandardprescribestheaccountingtreatment
forborrowingcosts.ThisStandardgenerallyrequiresthe
immediateexpensingofborrowingcosts.However,the
Standardpermits,asanallowedalternativetreatment,the
capitalizationofborrowingcoststhataredirectly
attributabletotheacquisition,construction,orproductionofa
qualifyingasset.
Scope:ThisStandardshallbeappliedinaccountingfor
borrowingcosts.

102. Definitions
Borrowingcostsareinterestandotherexpensesincurredby
anentityinconnectionwiththeborrowingoffunds.
Qualifyingassetisanassetthatnecessarilytakesasubstantial
periodoftimetogetreadyforitsintendeduseorsale.Borrowing
costsmayinclude:
(a)Interestexpensecalculatedusingtheeffectiveinterest
methodasdescribedinIPSAS41,FinancialInstruments;
(b)Financechargesinrespectoffinanceleasesandservice
concessionarrangements;and
(e)Exchangedifferencesarisingfromforeigncurrency
borrowings,totheextentthattheyareregardedasanadjustmentto
interestcosts.

103. Cont….
QualifyingAssets:Examplesofqualifyingassetsareoffice
buildings,hospitals,infrastructureassetssuchasroads,
bridgesandpowergenerationfacilities,andinventoriesthat
requireasubstantialperiodoftimetobringthemtoacondition
readyforuseorsale.
Otherinvestments,andthoseassetsthatareroutinelyproduced
overashortperiodoftime,arenotqualifyingassets.Assets
thatarereadyfortheirintendeduseorsalewhenacquiredalso
arenotqualifyingassets.
Borrowingcostsshallberecognizedasanexpenseintheperiod
inwhichtheyareincurred.Thefinancialstatementsshall
disclosetheaccountingpolicyadoptedforborrowingcosts.

104. (IPSAS) 6, Consolidated and Separate Financial Statements
InternationalPublicSectorAccountingStandard(IPSAS)6,
ConsolidatedandSeparateFinancialStatementshasbeen
supersededbyIPSAS34,SeparateFinancialStatementsand
IPSAS35,ConsolidatedFinancialStatements.
TheseStandardsapplyforannualfinancialstatementscovering
periodsbeginningonorafterJanuary1,2017.AsaresultIPSAS
6isnolongerapplicableandhasbeenremoved.
IPSAS6:requiresallcontrollingentitiestoprepare
consolidatedfinancialstatements,whichconsolidateall
controlledentitiesonaline-by-linebasis.

105. IPSAS 7 Investments in Associates
IPSAS7InvestmentsinAssociatesrequiresallsuch
investmentstobeaccountedforintheconsolidatedfinancial
statementsusingtheequitymethodofaccounting.

106. IPSAS 8 Interests in Joint Ventures
InternationalPublicSectorAccountingStandard(IPSAS)8,
InterestsinJointVentureshasbeensupersededbyIPSAS37,
JointArrangements.ThisStandardsapplyforannualfinancial
statementscoveringperiodsbeginningonorafterJanuary1,
2017.AsaresultIPSAS8isnolongerapplicableandhas
beenremoved.
IPSAS8InterestsinJointVenturesrequiresproportionate
consolidationtobeadoptedasthebenchmarktreatment,and
theequitymethodofaccountingasanallowedalternativeto
accountforjointventures

107. IPSAS 9—REVENUE FROM EXCHANGE TRANSACTIONS
Objective:TheobjectiveofthisStandardistoprescribethe
accountingtreatmentofrevenuearisingfromexchange
transactionsandevents.Theprimaryissueinaccountingfor
revenueisdeterminingwhentorecognizerevenue.Revenueis
recognizedwhenitisprobablethat(a)futureeconomic
benefitsorservicepotentialwillflowtotheentity,and(b)
thesebenefitscanbemeasuredreliably.
ThisStandardidentifiesthecircumstancesinwhichthese
criteriawillbemetand,therefore,revenuewillberecognized.
Italsoprovidespracticalguidanceontheapplicationofthese
criteria.

108. Cont….
Scope:Anentitythatpreparesandpresentsfinancial
statementsundertheaccrualbasisofaccountingshallapply
thisStandardinaccountingforrevenuearisingfromthe
followingexchangetransactionsandevents:
(a)Therenderingofservices;
(b)Thesaleofgoods;and
(c)Theusebyothersofentityassetsyieldinginterest,royalties,
anddividendsorsimilardistributions.

109. Cont….
ThisStandarddoesnotdealwithrevenuearisingfromnon-exchange
transactions.
Anexchangetransactionisoneinwhichtheentityreceivesassetsor
services,orhasliabilitiesextinguished,anddirectlygivesapproximately
equalvalue(primarilyintheformofgoods,services,oruseofassets)to
theotherpartyinexchange.Examplesofexchangetransactionsinclude:
Informationthatisreliableisfreefrommaterialerrorandbias,and
canbedependedonbyuserstofaithfullyrepresentthatwhichit
purportstorepresentorcouldreasonablybeexpectedtorepresent.
ParagraphBC16ofIPSAS1discussesthetransitionalapproachtothe
explanationofreliability.

110. Cont….
(a)Thepurchaseorsaleofgoodsorservices;or
(b)Theleaseofproperty,plant,andequipmentatmarketrates.
Examplesofnon-exchangetransactionsincluderevenuefrom
theuseofsovereignpowers(forexample,directandindirect
taxes,duties,andfines),grants,anddonations.
Therenderingofservicestypicallyinvolvestheperformance
bytheentityofanagreedtaskoveranagreedperiodoftime.
ThisStandarddoesnotdealwithrevenuesarisingfrom:
(a)Leaseagreements(seeIPSAS13,Leases);
(b)Dividendsorsimilardistributionsarisingfrominvestments

111. IPSAS10—FINANCIALREPORTINGINHYPERINFLATIONARY ECONOMIES
Objective፡Istoprescribetheaccountingtreatmentinthe
consolidatedandindividualfinancialstatementsofanentity
whosefunctionalcurrencyisthecurrencyofahyperinflationary
economy.TheStandardalsospecifiestheaccountingtreatment
wheretheeconomyceasestobehyperinflationary.
Scope፡Anentitythatpreparesandpresentsfinancialstatements
undertheaccrualbasisofaccountingshallapplythisStandardto
thefinancialstatements,includingtheconsolidatedfinancial
statements,ofanyentitywhosefunctionalcurrencyisthe
currencyofahyperinflationaryeconomy.Inahyperinflationary
economy,reportingofoperatingresultsandfinancialpositionin
thelocalcurrencywithoutrestatementisnotuseful.

112. Definitions
Hyper Inflation: Interest rates, wages, and prices are linked to a
price index and The cumulative inflation rate over three years is
approaching, or exceeds, 100%.
Carryingamountofanassetistheamountatwhichanassetis
recognizedinthestatementoffinancialposition,after
deductinganyaccumulateddepreciationandaccumulated
impairmentlossesthereon.
Carryingamountofaliabilityistheamountatwhichaliabilityis
recognizedinthestatementoffinancialposition.
Non-monetaryitemsareitemsthatarenotmonetaryitems.
TermsdefinedinotherIPSASsareusedinthisStandardwiththe
samemeaningasinthoseStandards,andarereproducedinthe
GlossaryofDefinedTermspublishedseparately.

113. IPSAS 11—CONSTRUCTION CONTRACTS
Objective:TheobjectiveofthisStandardistoprescribethe
accountingtreatmentofcostsandrevenueassociatedwith
constructioncontracts.TheStandard:
I.Identifiesthearrangementsthataretobeclassifiedas
constructioncontracts;
II.Providesguidanceonthetypesofconstructioncontractsthatcan
ariseinthepublicsector;and
III.Specifiesthebasisforrecognitionanddisclosureofcontract
expensesand,ifrelevant,contractrevenues.
Becauseofthenatureoftheactivityundertakeninconstruction
contracts,thedateatwhichthecontractactivityisenteredinto
andthedatewhentheactivityiscompletedusuallyfallintodifferent
reportingperiods.

114. Cont….
Inmanyjurisdictions,constructioncontractsenteredintoby
publicsectorentitieswillnotspecifyanamountofcontract
revenue.Rather,fundingtosupporttheconstructionactivity
willbeprovidedbyanappropriationorsimilarallocationof
generalgovernmentrevenue,orbyaidorgrantfunds.
Scope:Acontractorthatpreparesandpresentsfinancial
statementsundertheaccrualbasisofaccountingshall
applythisStandardinaccountingforconstructionContracts.

115. Definitions
Constructioncontractisacontract,orasimilarbindingarrangement,
specificallynegotiatedfortheconstructionofanassetora
combinationofassetsthatarecloselyinterrelatedorinterdependentin
termsoftheirdesign,technology,andfunctionortheirultimatepurpose
oruse.
Contractorisanentitythatperformsconstructionworkpursuanttoa
constructioncontract.
Costplusorcost-basedcontractisaconstructioncontractinwhichthe
contractorisreimbursedforallowableorotherwisedefinedcosts
and,inthecaseofacommerciallybasedcontract,anadditional
percentageofthesecostsorafixedfee,ifany.

116. Cont….
Fixedpricecontract:isaconstructioncontractinwhichthe
contractoragreestoafixedcontractprice,orafixedrateper
unitofoutput,whichinsomecasesissubjecttocost
escalationclauses.ForthepurposesofthisStandard,
constructioncontractsinclude:
(a)Contractsfortherenderingofservicesthataredirectly
relatedtotheconstructionoftheasset,forexample,thoseforthe
servicesofprojectmanagersandarchitects;and
(b)Contractsforthedestructionorrestorationofassets,andthe
restorationoftheenvironmentfollowingthedemolitionof
assets.

117. Cont….
Acontractor:isanentitythatentersintoacontracttobuild
structures,constructfacilities,producegoods,orrender
servicestothespecificationsofanotherentity.Theterm
“contractor”includesageneralorprimecontractor,asubcontractor
toageneralcontractor,oraconstructionmanager
Contract Revenue: Contract revenue shall comprise:
(a) The initial amount of revenue agreed in the contract; and
(b) Variations in contract work, claims, and incentive payments to the
extent that:
(i) It is probable that they will result in revenue; and
(ii) They are capable of being reliably
1
measured.

118. IPSAS 12—INVENTORIES
Objective:TheobjectiveofthisStandardistoprescribe
theaccountingtreatmentforinventories.Aprimaryissue
inaccountingforinventoriesistheamountofcosttobe
recognizedasanassetandcarriedforwarduntilthe
relatedrevenuesarerecognized.
ThisStandardprovidesguidanceonthedeterminationof
costanditssubsequentrecognitionasanexpense,
includinganywrite-downtonetrealizablevalue.Italso
providesguidanceonthecostformulasthatareusedto
assigncoststoinventories.

119. Scope:
Anentitythatpreparesandpresentsfinancialstatementsunderthe
accrualbasisofaccountingshallapplythisStandardinaccounting
forallInventoriesexcept:
(a)Work-in-progressarisingunderconstructioncontracts,including
directlyrelatedservicecontracts(seeIPSAS11,ConstructionContracts);
(b)Financialinstruments(seeIPSAS28,FinancialInstruments:
PresentationandIPSAS41,FinancialInstruments);
(c)Biologicalassetsrelatedtoagriculturalactivityandagricultural
produceatthepointofharvest(seeIPSAS27,Agriculture);and
(d)Work-in-progressofservicestobeprovidedfornoornominal
considerationdirectlyinreturnfromtherecipients.

120. Definitions
Currentreplacementcostisthecosttheentitywouldincurto
acquiretheassetonthereportingdate.Inventoriesareassets:
(a)Intheformofmaterialsorsuppliestobeconsumedinthe
productionprocess;(b)Intheformofmaterialsorsuppliestobe
consumedordistributedintherenderingofservices;
(c)Heldforsaleordistributionintheordinarycourseof
operations;or(d)Intheprocessofproductionforsaleor
distribution.
Netrealizablevalue:istheestimatedsellingpriceinthe
ordinarycourseofoperations,lesstheestimatedcostsof
completionandtheestimatedcostsnecessarytomakethesale,
exchange,ordistribution.

121. IPSAS 13—LEASES
Objective:TheobjectiveofthisStandardistoprescribe,for
lesseesandlessors,theappropriateaccountingpolicies
anddisclosurestoapplyinrelationtofinanceandoperating
leases.
Scope:Anentitythatpreparesandpresentsfinancial
statementsundertheaccrualbasisofaccountingshallapply
thisStandardinaccountingforallleasesotherthan:
(a)Leasestoexplorefororuseminerals,oil,naturalgas,
andsimilarnon-regenerativeresources;and
(b)Licensingagreementsforsuchitemsasmotionpicture
films,videorecordings,plays,manuscripts,patents,and
copyrights.

122. Definitions
Thecommencementoftheleasetermisthedatefromwhich
thelesseeisentitledtoexerciseitsrighttousetheleased
asset.Itisthedateofinitialrecognitionofthelease(i.e.,the
recognitionoftheassets,liabilities,revenue,orexpenses
resultingfromthelease,asappropriate).
Contingentrentisthatportionoftheleasepaymentsthatis
notfixedinamount,butisbasedonthefutureamountofa
factorthatchangesotherthanwiththepassageoftime(e.g.,
percentageoffuturesales,amountoffutureuse,futureprice
indices,futuremarketratesofinterest).

123. Cont….
Economiclifeiseither:(a) Theperiodoverwhichan
assetisexpectedtoyieldeconomicbenefitsorservicepotential
tooneormoreusers;or(b)Thenumberofproductionor
similarunitsexpectedtobeobtainedfromtheassetbyone
ormoreusers.
A finance leaseis a lease that transfers substantially all the risks
and rewards incidental to ownership of an asset. Title may or
may not eventually be transferred.
Grossinvestmentintheleaseistheaggregateof:(a)The
minimumleasepaymentsreceivablebythelessorundera
financelease;and(b)Anyunguaranteedresidualvalue
accruingtothelessor.

124. IPSAS 14—EVENTS AFTER THE REPORTING DATE
Objective:TheobjectiveofthisStandardistoprescribe:
(a)Whenanentityshouldadjustitsfinancialstatementsfor
eventsafterthereportingdate;and
(b)Thedisclosuresthatanentityshouldgiveaboutthedate
whenthefinancialstatementswereauthorizedfor
issue,andabouteventsafterthereportingdate.
Scope:Anentitythatpreparesandpresentsfinancial
statementsundertheaccrualbasisofaccountingshallapply
thisStandardintheaccountingfor,anddisclosureof,events
afterthereportingdate.

125. Definitions
Events after the reporting dateare those events, both favorable
and unfavorable, that occur between the reporting date and the
date when the financial statements are authorized for issue.
Two types of events can be identified:
(a) Those that provide evidence of conditions that existed at the
reporting date (adjusting events after the reporting date); and
(b)Those that are indicative of conditions that arose after the
reporting date (non-adjusting events after the reporting ate).

126. (IPSAS) 15, Financial Instruments: Disclosureand Presentation
InternationalPublicSectorAccountingStandard
(IPSAS)15,FinancialInstruments:Disclosureand
PresentationhasbeensupersededbyIPSAS28,Financial
Instruments:Presentation;IPSAS29,Financial
Instruments:RecognitionandMeasurement;andIPSAS
30,FinancialInstruments:Disclosures.
TheseStandardsapplyforannualfinancialstatements
coveringperiodsbeginningonorafterJanuary1,2013.Asa
resultIPSAS15isnolongerapplicableandhasbeen
removed.

127. IPSAS 16—INVESTMENT PROPERTY
Objective:TheobjectiveofthisStandardistoprescribethe
accountingtreatmentforinvestmentpropertyandrelated
disclosurerequirements.
Scope:Anentitythatpreparesandpresentsfinancial
statementsundertheaccrualbasisofaccountingshallapply
thisStandardinaccountingforinvestmentproperty.
ThisStandarddoesnotapplyto:(a)Biologicalassetsrelatedto
agriculturalactivity(seeIPSAS27,AgricultureandIPSAS17,
Property,Plant,andEquipment);and(b)Mineralrightsand
mineralreservessuchasoil,naturalgas,andsimilarnon-
regenerativeresources.

128. Cont….
Leases,including:
(a)Classificationofleasesasfinanceleasesoroperating
leases;
(b)Recognitionofleaserevenuefrominvestmentproperty(see
alsoIPSAS9,RevenuefromExchangeTransactions);
(c)Measurementinalessee’sfinancialstatementsofproperty
interestsheldunderaleaseaccountedforasanoperatinglease;
(d)Measurementinalessor’sfinancialstatementsofitsnet
Investmentinafinancelease;
(e)Accountingforsaleandleasebacktransactions;and
(f)Disclosureaboutfinanceleasesandoperatingleases.

129. Definitions
Carryingamount(forthepurposeofthisStandard)isthe
amountatwhichanassetisrecognizedinthestatementof
financialposition.
Costistheamountofcashorcashequivalentspaidorthe
fairvalueofotherconsiderationgiventoacquireanasset
atthetimeofitsacquisitionorconstruction.
Investmentpropertyisproperty(landorabuilding-or
partofabuilding-orboth)heldtoearnrentalsorfor
capitalappreciation,orboth,ratherthanfor:

130. Cont….
(a)Useintheproductionorsupplyofgoodsorservices,
orforadministrativepurposes;or
(b)Saleintheordinarycourseofoperations.
Owner-occupiedpropertyispropertyheld(bytheowner
orbythelesseeunderafinancelease)foruseinthe
productionorsupplyofgoodsorservices,orfor
administrativepurposes.

131. IPSAS 17—PROPERTY, PLANT, AND EQUIPMENT
Objective:TheobjectiveofthisStandardistoprescribethe
accountingtreatmentforproperty,plant,andequipmentso
thatusersoffinancialstatementscandiscerninformation
aboutanentity’sinvestmentinitsproperty,plant,and
equipmentandthechangesinsuchinvestment.
Theprincipalissuesinaccountingforproperty,plant,and
equipmentare(a)therecognitionoftheassets,(b)the
determinationoftheircarryingamounts,and(c)the
depreciationchargesandimpairmentlossestoberecognized
inrelationtothem.

132. Cont….
Scope:Anentitythatpreparesandpresentsfinancial
statementsundertheaccrualbasisofaccountingshallapply
thisStandardinaccountingforproperty,plant,andequipment,
except:
(a) When a different accounting treatment has been adopted in
accordance with another IPSAS; and
(b) In respect of heritage assets.
However,thedisclosurerequirementsofparagraphs88,89,
and92applytothoseheritageassetsthatarerecognized.

133. Cont….
This Standard applies to property, plant, and equipment
including:
(a)Weapons systems;
(b) Infrastructure assets; and
(c)Service concession arrangement assets after initial
recognition and measurement in accordance with IPSAS 32,
Service Concession Arrangements: Grantor.

134. IPSAS 19—PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT
ASSETS
Objective:TheobjectiveofthisStandardisto(a)define
provisions,contingentliabilities,andcontingentassets,
and(b)identifythecircumstancesinwhichprovisions
shouldberecognized,howtheyshouldbemeasured,and
thedisclosuresthatshouldbemadeaboutthem.
TheStandardalsorequiresthatcertaininformationbe
disclosedaboutcontingentliabilitiesandcontingent
assetsinthenotestothefinancialstatements,toenable
userstounderstandtheirnature,timing,andamount.

135. Cont….
Scope:Anentitythatpreparesandpresentsfinancial
statementsundertheaccrualbasisofaccountingshallapply
thisStandardinaccountingforprovisions,Contingent
liabilities,andcontingentassets,except:
(a)SocialbenefitswithinthescopeofIPSAS42;
(b)ThosecoveredbyanotherIPSAS;
(c)Thosearisinginrelationtoincometaxesorincometax
equivalents;and
(d)Thosearisingfromemployeebenefits,exceptemployee
terminationbenefitsthatariseasaresultofarestructuring,
asdealtwithinthisStandard.

136. IPSAS 20—RELATED PARTY DISCLOSURES
Objective:TheobjectiveofthisStandardistorequirethe
disclosureoftheexistenceofrelatedpartyrelationshipswhere
controlexists,andthedisclosureofinformationabout
transactionsbetweentheentityanditsrelatedpartiesin
certaincircumstances.
Thisinformationisrequiredforaccountabilitypurposes,
andtofacilitateabetterunderstandingofthe
financialpositionandperformanceofthereporting
entity.Theprincipalissuesindisclosinginformation
aboutrelatedpartiesare

137. Cont….
(a)identifyingwhichpartiescontrolorsignificantly
influencethereportingentity,and
(b)determiningwhatinformationshouldbedisclosed
abouttransactionswiththoseparties.
Scope:Anentitythatpreparesandpresentsfinancial
statementsundertheaccrualbasisofaccountingshall
applythisStandardindisclosinginformationabout
relatedpartyrelationshipsandcertaintransactionswith
relatedparties.

138. IPSAS 21—IMPAIRMENT OF NON-CASH-GENERATING ASSETS
Objective:TheobjectiveofthisStandardistoprescribethe
proceduresthatanentityappliestodeterminewhetheranon-
cash-generatingassetisimpaired,andtoensurethat
impairmentlossesarerecognized.ThisStandardalsospecifies
whenanentitywouldreverseanimpairmentloss,and
prescribesdisclosures
Scope:Anentitythatpreparesandpresentsfinancial
statementsundertheaccrualbasisofaccountingshallapply
thisStandardinaccountingforimpairmentofnon-cash-
generatingassets,except:

139. Cont….
(a)Inventories(seeIPSAS12,Inventories);
(b)Assetsarisingfromconstructioncontracts (see
IPSAS11,ConstructionContracts);
(c)FinancialassetsthatareincludedinthescopeofIPSAS41,
FinancialInstruments;
(d)Investmentpropertythatismeasuredusingthefairvalue
model(seeIPSAS16,InvestmentProperty);

140. IPSAS 22—disclosure Of Financial Information About The
General Government Sector
Objective:TheobjectiveofthisStandardistoprescribe
disclosurerequirementsforgovernmentsthatelecttopresent
informationaboutthegeneralgovernmentsector(GGS)
intheirconsolidatedfinancialstatements.
ThedisclosureofappropriateinformationabouttheGGSofa
governmentcanenhancethetransparencyoffinancial
reports,andprovideforabetterunderstandingofthe
relationshipbetweenthemarketandnon-marketactivitiesof
thegovernment,andbetweenfinancialstatementsand
statisticalbasesoffinancialreporting.

141. IPSAS 23—REVENUE FROM NON -EXCHANGE TRANSACTIONS
(TAXES AND TRANSFERS)
Objective:TheobjectiveofthisStandardistoprescriberequirements
forthefinancialreportingofrevenuearisingfromnon-exchange
transactions,otherthannon-exchangetransactionsthatgiveriseto
apublicsectorcombination.ThisStandarddealswithissuesthat
needtobeconsideredinrecognizingandmeasuringrevenue
fromnon-exchangetransactions.
Scope:Anentitythatpreparesandpresentsfinancialstatements
undertheaccrualbasisofaccountingshallapplythisStandardin
accountingforrevenuefromnon-exchangetransactionssuchas:
Taxes;andTransfers(whethercashornoncash),includinggrants,
debtforgiveness,fines,bequests,gifts,donations,goodsand
servicesin-kind.

142. Definitions
Conditionsontransferredassetsarestipulationsthat
specifythatthefutureeconomicbenefitsorservicepotential
embodiedintheassetisrequiredtobeconsumedbythe
recipientasspecifiedorfutureeconomicbenefitsor
servicepotentialmustbereturnedtothetransferor.
Controlofanassetariseswhentheentitycanuseor
otherwisebenefitfromtheassetinpursuitofitsobjectives,
andcanexcludeorotherwiseregulatetheaccessofothersto
thatbenefit.
Expensespaidthroughthetaxsystemareamountsthatare
availabletobeneficiariesregardlessofwhetherornottheypay
taxes.

143. Cont….
Finesareeconomicbenefitsorservicepotentialreceivedor
receivablebypublicsectorentities,asdeterminedbyacourtor
otherlawenforcementbody,asaconsequenceofthebreachof
lawsorregulations.
Transfersareinflowsoffutureeconomicbenefitsorservice
potentialfromnon-exchangetransactions,otherthantaxes.
Taxesareeconomicbenefitsorservicepotentialcompulsorily
paidorpayabletopublicsectorentities,inaccordancewithlaws
and/orregulations

144. IPSAS 24—PRESENTATION OF BUDGET INFORMATION IN
FINANCIAL STATEMENTS
Objective:ThisStandardrequiresacomparisonof
budgetamountsandtheactualamountsarising
fromexecutionofthebudgettobeincludedinthe
financialstatementsofentitiesthatarerequiredto,or
electto,makepubliclyavailabletheirapprovedbudget(s),
andforwhichtheyare,therefore,heldpublicly
accountable.
ThisStandardalsorequiresdisclosureofanexplanation
ofthereasonsformaterialdifferencesbetweenthe
budgetandactualamounts.

145. Cont….
CompliancewiththerequirementsofthisStandardwill
ensurethatpublicsectorentitiesdischargetheir
accountabilityobligationsandenhancethetransparencyof
theirfinancialstatementsbydemonstrating
(a)compliancewiththeapprovedbudget(s)forwhichthey
areheldpubliclyaccountableand
(b)wherethebudget(s)andthefinancialstatementsare
preparedonthesamebasis,theirfinancialperformancein
achievingthebudgetedresults.

146. INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARD (IPSAS) 25
InternationalPublicSectorAccountingStandard(IPSAS)
25,EmployeeBenefitshasbeensupersededbyIPSAS39,
EmployeeBenefits.ThisStandardappliesforannual
financialstatementscoveringperiodsbeginningonor
afterJanuary1,2018.AsaresultIPSAS25isnolonger
applicableandhasbeenremoved.

147. IPSAS 26―IMPAIRMENT OF CASH -GENERATING ASSETS
Objective:TheobjectiveofthisStandardistoprescribethe
proceduresthatanentityappliestodeterminewhethera
cash-generatingassetisimpaired,andtoensurethat
impairmentlossesarerecognized.ThisStandardalsospecifies
whenanentityshouldreverseanimpairmentloss,and
prescribesdisclosures.
Scope:Anentitythatpreparesandpresentsfinancial
statementsundertheaccrualbasisofaccountingshallapply
thisStandardinaccountingfortheimpairmentofcash-
generatingassets,

148. IPSAS 27―AGRICULTURE
Objective:TheobjectiveofthisStandardistoprescribethe
accountingtreatmentanddisclosuresforagriculturalactivity.
Scope:Anentitythatpreparesandpresentsfinancial
statementsundertheaccrualbasisofaccountingshallapply
thisStandardforthefollowingwhentheyrelatetoagricultural
activity:
(a)Biologicalassets,exceptforbearerplants;and
(b)Agriculturalproduceatthepointofharvest.

149. Cont….
This Standard does not apply to:
(a)Landrelatedtoagriculturalactivity(seeIPSAS16,
InvestmentPropertyandIPSAS17,Property,Plant,and
Equipment);
(b)Bearerplantsrelatedtoagriculturalactivity(seeIPSAS17).
However,thisStandardappliestotheproduceonthosebearer
plants.
(c)Intangibleassetsrelatedtoagriculturalactivity
(seeIPSAS31,IntangibleAssets);and
(d)Biologicalassetsheldfortheprovisionorsupplyofservices.

150. Cont….
Biological assets Agricultural produce Products that are the result
of processing after harvest
Sheep Wool Yarn,carpet
Treesinatimberplantation
forest
Felledtrees Logs,lumber
Dairycattle Milk Cheese
Pigs Carcass Sausages,curedhams
Cottonplants Harvestedcotton Thread,clothing
Sugarcane Harvestedcane Sugar
Tobaccoplants Pickedleaves Curedtobacco
Teabushes Pickedleaves Tea
Grapevines Pickedgrapes Wine
Fruittrees Pickedfruit Processedfruit
OilPalms Pickedfruit PalmOil
Rubbertrees Harvestedlatex Rubberproducts

151. Definitions
Agriculturalactivityisthemanagementbyanentityofthe
biologicaltransformationandharvestofbiologicalassetsfor:
1.Sale;
2.Distributionatnochargeorforanominalcharge;or
3.Conversionintoagriculturalproduceorintoadditional
biologicalassets
Agriculturalproduceistheharvestedproduceoftheentity’s
biologicalassets.
Abiologicalassetisalivinganimalorplant.

152. Cont….
Biologicaltransformationcomprisestheprocessesof
growth,degeneration,production,andprocreationthat
causequalitativeorquantitativechangesinabiological
asset.
Agroupofbiologicalassetsisanaggregationofsimilar
livinganimalsorplants.
Harvestisthedetachmentofproducefromabiological
assetorthecessationofabiologicalasset’slifeprocesses.

153. Cont….
Abearerplantisalivingplantthat:
(a)Isusedintheproductionandsupplyofagricultural
produce;
(b)Isexpectedtobearproduceformorethanoneperiod;
(c)Hasaremotelikelihoodofbeingsoldasagricultural
produce,exceptforincidentalscrapsales.

154. IPSAS 28—FINANCIAL INSTRUMENTS: PRESENTATION
Objective:TheobjectiveofthisStandardistoestablish
principlesforpresentingfinancialinstrumentsasliabilitiesor
netassets/equityandforoffsettingfinancialassetsand
financialliabilities.
Itappliestotheclassificationoffinancialinstruments,
fromtheperspectiveoftheissuer,intofinancialassets,
financialliabilitiesandequityinstruments;the
classificationofrelatedinterest,dividendsorsimilar
distributions,lossesandgains;andthecircumstancesinwhich
financialassetsandfinancialliabilitiesshouldbeoffset.

155. IPSAS 29—FINANCIAL INSTRUMENTS: RECOGNITION AND
MEASUREMENT
ThisStandardshallbeappliedbyallentitiestoall
financialinstrumentswithinthescopeofIPSAS41,
FinancialInstrumentsif,andtotheextentthat:
(a)IPSAS41permitsthehedgeaccounting
requirementsofthisStandardtobeapplied;and
(b)Thefinancialinstrumentispartofahedging
relationshipthatqualifiesforhedgeaccountingin
accordancewiththisStandard.

156. IPSAS 30—FINANCIAL INSTRUMENTS: DISCLOSURES
Objective:TheobjectiveofthisStandardistorequireentities
toprovidedisclosuresintheirfinancialstatementsthat
enableuserstoevaluate:
(a)Thesignificanceoffinancialinstrumentsfortheentity’s
financialpositionandperformance;and
(b)Thenatureandextentofrisksarisingfromfinancial
instrumentstowhichtheentityisexposedduringtheperiodand
attheendofthereportingperiod,andhowtheentitymanages
thoserisks.

157. IPSAS 31—INTANGIBLE ASSETS
Objective:TheobjectiveofthisStandardistoprescribe
theaccountingtreatmentforintangibleassetsthatarenot
dealtwithspecificallyinanotherStandard.ThisStandard
requiresanentitytorecognizeanintangibleassetif,and
onlyif,specifiedcriteriaaremet.
TheStandardalsospecifieshowtomeasurethecarrying
amountofintangibleassets,andrequiresspecified
disclosuresaboutintangibleassets.

158. IPSAS 32—SERVICE CONCESSION ARRANGEMENTS:
GRANTOR
Objective:TheobjectiveofthisStandardistoprescribe
theaccountingforserviceconcessionarrangementsbythe
grantor,apublicsectorentity.
Anentitythatpreparesandpresentsfinancialstatements
undertheaccrualbasisofaccountingshallapplythis
Standardinaccountingforserviceconcession
arrangements.

159. IPSAS 33—FIRST-TIME ADOPTION OF ACCRUAL BASIS INTERNATIONAL
PUBLIC SECTOR ACCOUNTING STANDARDS (IPSASS)
TheobjectiveofthisStandardistoprovideguidancetoafirst-
timeadopterthatpreparesandpresentsfinancialstatements
followingtheadoptionofaccrualbasisIPSASs,inorderto
presenthighqualityinformation:
(a)Thatprovidestransparentreportingaboutafirst-time
adopter’stransitiontoaccrualbasisIPSASs;
(b)Thatprovidesasuitablestartingpointforaccountingin
accordancewithaccrualbasisIPSASsirrespectiveofthebasisof
accountingthefirst-timeadopterhasusedpriortothedateof
adoption;and(c)Wherethebenefitsareexpectedtoexceedthecosts.

160. IPSAS 34—SEPARATE FINANCIAL STATEMENTS
Objective:TheobjectiveofthisStandardistoprescribe
theaccountinganddisclosurerequirementsfor
investmentsincontrolledentities,jointventuresand
associateswhenanentitypreparesseparatefinancial
statements.

161. IPSAS 35—CONSOLIDATED FINANCIAL STATEMENTS
Objective:TheobjectiveofthisStandardistoestablish
principlesforthepresentationandpreparationof
consolidatedfinancialstatementswhenanentity
controlsoneormoreotherentities.

162. IPSAS 36—investments in associates and joint ventures
Objective:TheobjectiveofthisStandardistoprescribethe
accountingforinvestmentsinassociatesandjointventuresand
tosetouttherequirementsfortheapplicationoftheequity
methodwhenaccountingforinvestmentsinassociatesandjoint
ventures.
Scope:Anentitythatpreparesandpresentsfinancialstatements
undertheaccrualbasisofaccountingshallapplythisStandard
inaccountingforinvestmentsinassociatesandjointventures.
ThisStandardshallbeappliedbyallentitiesthatareinvestors
withsignificantinfluenceover,orjointcontrolof,aninvestee
wheretheinvestmentleadstotheholdingofaquantifiable
ownershipinterest.

163. Definitions
Anassociateisanentityoverwhichtheinvestorhassignificant
influence.
Bindingarrangement:ForthepurposesofthisStandard,abinding
arrangementisanarrangementthatconfersenforceablerights
andobligationsonthepartiestoitasifitwereintheformofa
contract.Itincludesrightsfromcontractsorotherlegalrights.
Consolidatedfinancialstatementsarethefinancialstatementsof
aneconomicentityinwhichassets,liabilities,netassets/equity,
revenue,expensesandcashflowsofthecontrollingentityandits
controlledentitiesarepresentedasasingleeconomicentity.
Ajointarrangementisanarrangementofwhichtwoormore
partieshavejointcontrol.

164. Con’d
Jointcontrolistheagreedsharingofcontrolofanarrangementbywayof
abindingarrangement,whichexistsonlywhendecisionsaboutthe
relevantactivitiesrequiretheunanimousconsentofthepartiessharing
control.
Ajointventureisajointarrangementwherebythepartiesthathavejoint
controlofthearrangementhaverightstothenetassetsofthe
arrangement.
Ajointventurerisapartytoajointventurethathasjointcontrolofthat
jointventure.
Significantinfluenceisthepowertoparticipateinthefinancialand
operatingpolicydecisionsofanotherentitybutisnotcontrolorjoint
controlofthosepolicies.

165. IPSAS 37—JOINT ARRANGEMENTS
Objective:TheobjectiveofthisStandardistoestablishprinciplesfor
financialreportingbyentitiesthathaveaninterestinarrangements
thatarecontrolledjointly(i.e.,jointarrangements).
Scope:Anentitythatpreparesandpresentsfinancialstatements
undertheaccrualbasisofaccountingshallapplythisStandardin
determiningthetypeofjointarrangementinwhichitisinvolvedand
inaccountingfortherightsandobligationsofthejointarrangement.
Bindingarrangement:ForthepurposesofthisStandard,abinding
arrangementisanarrangementthatconfersenforceablerightsand
obligationsonthepartiestoitasifitwereintheformofacontract.It
includesrightsfromcontractsorotherlegalrights.

166. Definitions
Ajointarrangementisanarrangementofwhichtwoormoreparties
havejointcontrol.
Jointcontrolistheagreedsharingofcontrolofanarrangementbyway
ofabindingarrangement,whichexistsonlywhendecisionsaboutthe
relevantactivitiesrequiretheunanimousconsentofthepartiessharing
control.
Ajointoperationisajointarrangementwherebythepartiesthathave
jointcontrolofthearrangementhaverightstotheassets,and
obligationsfortheliabilities,relatingtothearrangement.
Ajointoperatorisapartytoajointoperationthathasjointcontrolof
thatjointoperation.

167. IPSAS 38—DISCLOSURE OF INTERESTS IN OTHER ENTITIES
Objective:TheobjectiveofthisStandardistorequireanentitytodisclose
informationthatenablesusersofitsfinancialstatementstoevaluate:
(a) Thenatureof,andrisksassociatedwith,itsinterestsin
controlledentities,unconsolidatedcontrolledentities,jointarrangements
andassociatesand(b)Theeffectsofthoseinterestsonitsfinancial
position,financialperformanceandcashflows.
Scope:Anentitythatpreparesandpresentsfinancialstatementsunder
theaccrualbasisofaccountingshallapplythisStandardindisclosing
informationaboutitsinterestsincontrolledentities,unconsolidated
controlledentities,jointarrangementsandassociates.

168. Cont’d
ThisStandardshallbeappliedbyanentitythathasaninterestin
anyofthefollowing:
(a) Controlledentities;
(b)Jointarrangements(i.e.,jointoperationsorjointventures);
(c)Associates;or
d)Structuredentitiesthatarenotconsolidated.
ThisStandarddoesnotapplyto:(a)Post-employmentbenefitplansor
otherlong-termemployeebenefitplanstowhichIPSAS39,Employee
Benefitsapplies.(b)Anentity’sseparatefinancialstatementstowhich
IPSAS34,SeparateFinancialStatements,

169. IPSAS 39—EMPLOYEE BENEFITS
Objective:TheobjectiveofthisStandardistoprescribetheaccounting
anddisclosureforemployeebenefits.Thestandardrequiresanentity
torecognize:
(a)Aliabilitywhenanemployeehasprovidedserviceinexchangefor
employeebenefitstobepaidinthefuture;and
(b)Anexpensewhentheentityconsumestheeconomicbenefitsor
servicepotentialarisingfromserviceprovidedbyanemployeein
exchange foremployeebenefits.
Scope:ThisStandardshallbeappliedbyanemployerinaccountingfor
allemployeebenefits,exceptshare-basedtransactions.

170. Cont’d
Employeebenefitsareallformsofconsiderationgivenbyanentityin
exchangeforservicerenderedbyemployeesorfortheterminationof
employment.
Short-termemployeebenefitsareemployeebenefits(other than
terminationbenefits)thatareduetobesettledwhollybeforetwelvemonths
aftertheendofthereportingperiodinwhichtheemployeesrenderthe
relatedservice.
Post-employmentbenefitsareemployeebenefits(otherthantermination
benefitsandshort-termemployeebenefits)thatarepayableafterthe
completionofemployment.
Otherlong-termemployeebenefitsareallemployeebenefitsotherthan
short-termemployeebenefits,post-employmentbenefitsandtermination
benefits.

171. IPSAS 40—PUBLIC SECTOR COMBINATIONS
Objective:TheobjectiveofthisStandardistoimprovethe
relevance,faithfulrepresentativenessandcomparabilityofthe
informationthatareportingentityprovidesinitsfinancial
statementsaboutapublicsectorcombinationanditseffects.
Scope:Anentitythatpreparesandpresentsfinancialstatements
undertheaccrualbasisofaccountingshallapplythisStandardin
accountingforpublicsectorcombinations.
ThisStandardappliestoatransactionorothereventthatmeets
thedefinitionofapublicsectorcombination.ThisStandard
doesnotapplyto:Theaccountingfortheformationofajoint
arrangementinthefinancialstatementsofthejoint
arrangementitself.

172. IPSAS 41—FINANCIAL INSTRUMENTS
Objective:Istoestablishprinciplesforthefinancialreportingof
financialassetsandfinancialliabilitiesthatwillpresentrelevant
andusefulinformationtousersoffinancialstatementsfortheir
assessmentoftheamounts,timinganduncertaintyofanentity’sfuture
cashflows.
Scope:ThisStandardshallbeappliedbyallentitiestoalltypesof
financialinstrumentsexcept:(a)Thoseinterestsincontrolled
entities,associatesandjointventuresthatareaccountedforin
accordancewiththeirstandards.(B)Rightsandobligationsunder
leasestowhichIPSAS13,Leasesapplies

173. IPSAS 42—SOCIAL BENEFITS
Objective:TheobjectiveofthisStandardistoimprovethe
relevance,faithfulrepresentativenessandcomparabilityofthe
informationthatareportingentityprovidesinitsfinancial
statementsaboutsocialbenefitsasdefinedinthisStandard.
Scope:Anentitythatpreparesandpresentsfinancialstatements
undertheaccrualbasisofaccountingshallapplythisStandard
inaccountingforsocialbenefits.

174. Definitions
Socialbenefitsarecashtransfersprovidedto:
(a)Specificindividualsand/orhouseholdswhomeeteligibilitycriteria;
(b)Mitigatetheeffectofsocialrisks;and
(c)Addresstheneedsofsocietyasawhole.
Socialrisksareeventsorcircumstancesthat:
(a)Relatetothecharacteristicsofindividualsand/orhouseholds-for
example,age,health,povertyandemploymentstatus;and
(b)Mayadverselyaffectthewelfareofindividualsand/or
households,eitherbyimposingadditionaldemandsontheirresourcesor
byreducingtheirincome.

175. Cont’d

176. Chapter Four
Budgeting & Performance Reporting

177. What is budgeting?
Budgetingcanbedefinedastheprocessofpreparingabudget,
whichsetsestimationsforrevenuesandexpensesforfutureperiods.
Itisamechanismforallocatingresourcestogoalsand
objectivesofanentityandisrelatedtothestrategicplan.
Thebudgetisthefinancialstatementpreparedinordertoforecast
theexpendituresandrevenuesforthebudgetaryperiodandto
beusedbymanagersandpolicymakersindecision-makingand
accountabilityprocesses.
Thebudgetcanreferto1year(annualbudget)ormorethan1year
(multiyearbudget).Inanycase,theprocessofpreparingthebudget
takesplaceduringthemonthsbeforetheyearitreferstosothatit
canbeusedbythebeginningofthefiscalyear.

178. Budgeting in the Public Sector
GovernmentBudget:Itissimplytheplansofgovernmentforthe
forthcomingyearexpressedinmonetaryterms.
Itcanbedefinedasacomprehensiveplanexpressedinfinancial
termsbywhichanoperatingprogrammeiseffectedforagiven
periodforthepurposeofattainingagivenobjective.
Itembodiesanestimateofproposedexpenditureforagivenperiod
andproposedmeansoffinancingthem.
Itaprocessforsystematicallyrelatingtheexpendituretothe
accomplishmentofobjectives

179. Classification of budget
Budgets classified according to 4 bases; Based on Time; Based on
Condition; Based on Functions; and Based on Flexibility.
1. Based on time factor:
Budgets can be classified into two types; Long-term Budget, and Short-
term Budget.
Long-term Budget : This budget is related to the planning operations of
an organization for a period of 5 to 10 years. The long-term budget may be
adversely affected due to unpredictable factors. Therefore, from a control
point of view, the long-term budget should be supplemented by short-
term budgets.
Example: Research and Development Budget, Capital Expenditure Budget, etc.

180. Cont’d
Short-termBudget:Thisbudgetisdrawnusuallyforoneyear.
Sometimesabudgetmaybepreparedforashorterperiod(likemonthly
budget,quarterlybudget,etc.).Shorttermbudgetsarepreparedin
detailandthesebudgetshelptoexercisecontroloverday-to-day
operations.
2.BasedonCondition:Basedonconditionsprevailing,abudgetcanbe
classifiedinto2types;BasicBudget,andCurrentBudget.
BasicBudget:Abudgetthatisestablishedforuseasunalteredovera
longperiodiscalledBasicBudget.
Thisbudgetdoesnottakeintoconsiderationchangesoccurringfromthe
externalenvironmentwhicharebeyondthecontrolofmanagement.This
budgetismoreusefulfortop-levelmanagementforformulatingpolicies.

181. Cont’d
CurrentBudget:Abudgetthatisestablishedforuseoverashortperiodandis
relatedtothecurrentconditionsiscalledtheCurrentBudget.Thisbudgetis
adjustedtothecurrentconditionsprevailinginthebusiness.
3.BasedonFunctions:Basedonactivitiesorfunctionsofabusiness,budgetscan
beclassifiedinto2typesMasterBudget,andFunctionalBudgets.
MasterBudget:ThefinalintegrationofallfunctionalbudgetsbytheBudget
OfficerprovidestheMasterBudget.Whenfunctionalbudgetshavebeen
completed,theBudgetOfficerpreparestheMasterBudget.Itisthesummary
budgetincorporatingitscomponentfunctionalbudgets,whichisfinally
approved,adoptedandemployed.
MasterBudgetshowstheoperatingprofitofthebusinessforthebudgetperiod
andbudgetedbalancesheetatitsclose.ThisBudgetportraystheoverallplanfor
thebudgetperiodanditconsistsofseveralseparatebutinterdependent
budgets.

182. Cont’d
FunctionalBudgets:FunctionalBudgetsrelatetofunctionsofthe
businesssuchasproductsalesetc.Inotherwords,FunctionalBudgets
arepreparedinrespectofvariousfunctionsperformedinabusiness.
FunctionalBudgetswhicharecommonlyfoundinabusinessconcernare;
SalesBudget;ProductionBudget;MaterialBudget;LaborBudget;
ProductionOverheadBudget;AdministrationOverheadBudget;Selling&
DistributionOverheadBudget;PlantUtilizationBudget;CashBudget,
Research&DevelopmentBudgetandmore.
4. Based on Flexibility: Based on flexibility budgets can be classified into
two types; Fixed Budget, and Flexible Budget.
Fixed Budget (or Static Budget): Fixed Budget is a budget which is
designed to remain unchanged irrespective of the level of activity attained.

183. Cont’d
ThistypeofbudgetismostsuitedforFixedexpenses,whichhaveno
relationtothevolumeofoutput.Fixed-Budgetisineffectiveasa
toolforcostcontrol.FixedBudgetisbasedontheassumptionthat
thevolumeofoutputandsalescanbeanticipatedwithafair
degreeofaccuracy.
FlexibleBudget(orSlidingScaleBudget):FlexibleBudgetisa
budgetwhichisdesignedtochangebythelevelofactivity
attained.Thisbudgetrecognizesthedifferenceinbehavior
betweenfixedandvariablecostsaboutfluctuationsinoutput.It
servesasausefultoolforcontrollingcosts.Itismorerealistic,
practicalandusefulthanFixedBudget.
Aflexiblebudgetthatcanbeusedtoestimatewhatcostsshouldbe
foranylevelofactivitywithinaspecifiedrange.Aflexible
budgetshowswhatcostsshouldbeforvariouslevelsofactivity.

184. Approaches to budgeting
Various budgeting models continue to be commonly used and
fall predominantly into the following categories:
(1) line-item, or "traditional," budgeting;
(2) Performance budgeting;
(3) Program and planning ("program") budgeting;
(4) Zero-based budgeting (ZBB);
(5) Site-based budgeting; and
(6) Outcome-focused budgeting.

185. BudgetsandOutturnReporting(IPSAS24)

186. PRESENTATION OF BUDGET INFORMATION
(IPSAS 24)
Credibility Professionalism AccountAbility

187. Presentation of Budget
Information (IPSAS 24)
Required disclosures
Comparison of budget and actual amounts
Material differences; Assets and liabilities
Practical Implementation challenges
Questions & Answers

188. Required Disclosures IPSAS 24
•Publicentitiesarerequiredbylawtomakepublictheirapproved
budgetswhileothersfreelyopttodosotoenhancetheirpublic
accountabilityandtransparency.
•Apublicentitywhichmakespublicitsapprovedbudgetisrequiredby
IPSAS1and24topresentacomparisonof(originalorfinal)budget
amountandactualamountinitsprimaryfinancialstatements
•Provideanote,anexplanationofmaterialdifferencesbetweenthe
budgetandactualamounts,unlesssuchexplanationisincludedinother
documentsissuedwiththefinancialstatementsandacrossreferencetothose
documentsismadeinthenotestotheF/statements.

189. Required Disclosures IPSAS 24
FiscalTransparencyisamajorcontributortothecauseofgood
governance. It leads to an informed public debate on the design and
results of fiscal policy and makes governments more accountable for
the implementation of fiscal policy
Fiscal transparency requires disclosure of more than just budget (and
actual) figures.
It also requires disclosure of information on the macroeconomic
assumptions behind budget figures F/statements.

190. Required Disclosures IPSAS 24
•The IMF Code of Good Practices on Fiscal Transparency recommends
four key objectives:
The roles and responsibilities in government should be clear
The public should be provided with full information on past, current
and projected fiscal activity of government in a timely manner
Budget preparation, execution and reporting should be undertaken in
an open manner; and
Fiscal information should attain widely acceptable standards of data
quality and be subject to independent assurances of integrity

191. IPSAS 24 Definitions
Annual Budget -approved budget for one year. It does not
include published forward estimates or projections for periods
beyond the budget period
Appropriation-isanauthorizationgrantedbytheNational
Assemblytoallocatefundsforpurposesspecifiedbythe
legislatureorsimilarauthority
Approvedbudget-theexpenditureauthorityderivedfrom
laws,appropriationbills,governmentordinancesandother
decisionsrelatedtotheanticipatedrevenueorreceiptsforthe
budgetaryperiod

192. IPSAS 24
Definitions
Originalbudget-istheinitialapprovedbudgetforthe
budgetperiod
FinalBudget-istheoriginalbudgetadjustedforallreserves,carry
overamounts,transfers,allocations,supplementalappropriations,and
otherauthorizedlegislativeorsimilarauthoritychangesapplicableto
thebudgetperiod.

193. IPSAS 24
Budget and Actual Amounts
Anentityshallpresentacomparisonofthebudgetamountseither
asaseparateadditionalfinancialstatementorasadditionalbudget
columnsinthefinancialstatements
Anentityshallpresentacomparisonofbudgetandactualamountsas
additionalbudgetcolumnsintheprimaryfinancialstatementsonly
wherethefinancialstatementsandthebudgetarepreparedona
comparablebasis

194. IPSAS 24
Budget and Actual Amounts
•Reconciliationofactualamountsoncomparativebudgetbasis
andactualamountsinthefinancialstatements.
•Where the financial statements and the budget are not prepared on a
comparable basis, the actual amounts presented on a comparable basis
to the budget shall be:
Iftheaccrualbasisisadoptedforthebudget,reconciled
tototalrevenues,totalexpensesandnetoperating,investingand
financingcashflowsinthefinancialstatements,or

195. IPSAS 24
Budget and Actual Amounts
Ifabasisotherthantheaccrualbasisisadoptedforthebudget,the
majortotalspresentedinthestatementofbudgetandactual
comparisonwillbereconciledtonetoperating,investingand
financingcashflowsinthefinancialstatementsoperating,investing
andfinancingcashflowsinthefinancialstatements.
Thereconciliationshallbedisclosedaspartofthestatementof
comparisonofbudgetandactualamountsorinthenotestothe
financialstatements.

196. IPSAS 24
Budget and Actual Amounts
All comparisons of budget and actual amounts shall be
presented oncomparable basis to the budget
Disclosure of comparable information in respect of
previous period in accordance with the requirements of
the standard is not required.

197. IPSAS 24
Budget and Actual Amounts
The use of a columnar format for the financial statements, with
separate columns for budgeted amounts, actual amounts and for any
variances from the budget or appropriation
Astatementbytheresponsiblepersonforthepreparationofthe
financialstatementsthatthebudgetedamountshavenotbeen
exceeded
Whereanybudgetedamountsorappropriationshavebeen
exceeded,orexpensesincurredwithoutappropriationorauthority,
detailsmaybedisclosedbywayofanotetotherelevantiteminthe
financialstatements.

198. Required Disclosures
IPSAS 24
Disclosures of Budgetary Basis, Period and Scope
Discloseinnotestothefinancialstatements,information
aboutthebasisofpreparationofthefinancialstatementsandthe
significantaccountingpoliciesadopted
Discloseinnotestothefinancialstatementstheperiodofthe
approvedbudget.Entitiesmayapprovebudgetsforanannualperiod
orformulti-yearperiods,
Identifyinnotestothefinancialstatementstheentitiesincludedin
theapprovedbudget(controlledbyGovernment)

199. EXAMPLE: STATEMENT OF COMPARISON OF BUDGET AND ACTUAL AMOUNT
For Government X for the Year Ended June 30, 2016
Budget Approved on the Cash Basis -Classification of Payments by Functions
Actual Original
(in thousands of currency units) AmountsFinal BudgetBudgetDifference
CASH INFLOWS
Taxation X X X X
Aid agreements
International agencies X X X X
Other grants and aid X X X X
Proceeds: borrowing X X X X
Proceeds: disposal of plant and equipment X X X X
Trading activities X X X X
Other receipts X X X X
Total receipts X X X X
CASH OUTFLOWS
Health (X) (X) (X) (X)
Education (X) (X) (X) (X)
Public order/safety (X) (X) (X) (X)
Social protection (X) (X) (X) (X)
Defence (X) (X) (X) (X)
Housing and community amenities (X) (X) (X) (X)
Recreational, cultural and religion (X) (X) (X) (X)
Economic affairs (X) (X) (X) (X)
Other (X) (X) (X) (X)
Total payments (X) (X) (X) (X)
NET CASH FLOWS (X) (X) (X) (X)

200. PRACTICAL IMPLEMENTATION
CHALLENGES -IPSAS 24
Disclosures on differences between Original and Final Budget
-reasons for policy shifts, natural disaster, other unforeseen
eventsshould be issued as notes before, with or at the same
time with Financial Statements
Link Budget information to service achievements in other
documents and reference is required in the Financial statements

201. PRACTICAL IMPLEMENTATION
CHALLENGES -IPSAS 24
IdentificationofEntitiesincludedintheApprovedBudgetas
inPara31,35&45DisclosureofComparativeBudget
Informationisnotrequired-P52
AggregationofBudgetInformationinlinewithChartof
AccountsorlegislativebodyapprovalforComparisonand
oversight
Dual Recording for Budget Basisand Financial Statements
Basis if Similar Basis is not applied

202. PRACTICAL IMPLEMENTATION
CHALLENGES -IPSAS 24
Loans and Borrowings are only disclosed if they pass through
National Treasury
Grants given Directly to implementing Agencies are not
disclosed in Financial Statements
Assistance received in-kind should be valued and reflected in
the Financial Statements

203. PRACTICAL IMPLEMENTATION
CHALLENGES -IPSAS 24
IT hardware and software Development to automate the
process of including budget information
Training and Retraining of Accounting Personnel
Integrated Coordination for shared solutions across entities
and locations
Change Management during the transitional period of
implementation

206. •Todistinguishthegeneralfundadversely,itcanbesaidthatthe
generalfundshouldaccountforallfinancialresourcesforwhicha
separatefundisnotrequired.Allgovernmentalentitieshavea
generalfund(GF).
•Althoughitmaybecalledtheoperatingfund,thegeneralfundwill
existaslongastheentityexists.Agovernmentalentitywillhave
onlyonegeneralfund.
•Thegeneralfundofastateorlocalgovernmentunitistheentitythat
accountsforalltheassets&resourcesusedforfinancingthe
generaladministrationoftheunit&thetraditionalservices
providedtothepeople.
General Fund

207. •Specialrevenuefund(SRF)incontrasttoGFareusedtoaccount
forresources,whicharecollectedforaspecifiedpurpose.
•Whenagovernmentalunitavailingitselfofthatsourcemaycreate
aSpecialRevenueFundinordertobeabletodemonstratethatall
revenuefromthesourcewasusedforthespecifiedpropose.
•Statetaxesondieselfuelthatisrequiredtobeusedonlyforroad
maintenance,taxonhotelroomstobeusedtoimprovetourist
facilities,trafficviolationfinesareexamplesofgovernmentalunits
revenuesthatmaybeaccountedforinaseparatespecialrevenue
fund.
•
Special Revenue Fund

208. •Thegeneralfundshouldaccountforallfinancingsourcesfor
whichaseparatefundisnotrequired.Specialrevenuefundsare
necessarywhentheyarerequiredbylaworcontract.A
governmentalentitywillhaveseveralspecialrevenuefundsatany
time&thesefundsareopened&closedaccordingtoneed.
•Thegeneralfundsandthespecialrevenuefundshavedifferent
purposes,buttheyarebothrevenuefunds,andtheaccounting
andreportingprocedureisthesameforboth.Theyaresimilar
inthatalloralmostalloftheirresourcesareexpendedeachyear.
Theyarethenfilledup(replenished)againforthenextyear.
COMPARISON

209. •Fixedassetsarenotcapitalizedineitherfund.Theirpurchaseis
consideredasexpenditure,thesameasforsalariesorutilities.
•Thearithmeticdifferencebetweentheamountoffinancialresources
andtheamountofliabilitiesrecordedinthefundisfundequity.
•Residentsofthegovernmentalunithavenolegalclaimonanyexcess
ofliquidassetsovercurrentliabilities.Theportionofequityavailable
forappropriationisdisclosedinanaccountcalledFundBalance.
•Generalfunds&specialrevenuefundsaccountforfinancialactivates
duringafiscalyearinaccountsclassifiedasRevenues,Other
FinancingSources,Expenditures&OtherFinancingUses
ACCOUNTING CHARACTERISTICS

210. •Revenue:-istheincreaseinthefundfinancialresourcesotherthan
frominterfundtransfers&debtissueproceeds.
•Otherfinancingsources-areclassifiedasanincreaseinthefund
financialresourcesasaresultofoperatingtransfersintoafundand
debtissueproceedsreceivedbyafund.
•Expenditureisdefinedasdecreaseinfundfinancialresources
otherthanthroughinterfundtransfers,operatingtransfersoutofa
fundanddebtissueproceedsareclassifiedasotherfinancinguses.
•OtherFinancinguses-adecreaseinthefundfinancialresources
asaresultofoperatingtransfersoutofafund.
CONT’D

211. •Budgetingistheprocessofallocatingscarceresourcesto
unlimiteddemandsbudgetinghasagreatroleingovernmental
accountingthaninprofitmakingbusiness.Budgetingisakeyelements
oflegislativecontrolovergovernmentalunits.
•Thetwoclassificationsofbudgetforgovernmentalunitsarethesame
asthoseforbusinessenterprises.Annualbudgetsandlongtermor
capitalbudgets.Annualbudgesareusedbythesefundsasa
managerialplanning&controldeviceratherthanasalegislative
controltool.
•Therearethreegeneralledgercontrolaccountsareneededtoprovidebudgetary
control;EstimatedRevenue,AppropriationsandEncumbrances
BUDGET & BUDGETARY ACCOUNTS

212. •EstimatedRevenues–resourcesexpectedtobereceived
•Appropriations–isbothanauthorizationtospendandlimitationof
spending.
•Encumbrances–Purchaseorders(P.O.)ingovernmentalentitieshave
thefunctionofkeepingtrackofcomingexpendituressothatthe
budgetisnotexceeded.thisisdonebyactuallyrecordingtheP.Oin
theledgeraccountasanEncumbrance
•Allthethreemustbesupportedbysubsidiaryledgeraccounts
whateverdetailisrequiredbylaworbysoundfinancialadministration.
CONT’D

213. •Atthebeginningofthebudgetperiod,estimatedrevenuecontrol
accountisdebitedforthetotalamountofrevenuesexpectedtobe
recognizedasprovidedintherevenuesbudgetandthelimitationof
spendingorauthorizedexpenditureswillberecordedwithacreditin
theappropriationscontrolaccount.
•Theentrytorecordthebudgetissimple.Itisnormallydoneonthe
firstdayofthefiscalyear.Estimatedrevenueisdebited,
Appropriationsiscredited,andfundbalanceisdebitedor
creditedforthedifference.Appropriationcouldbefurther
subdivided-bymonthorotherperiods;thissubdivisionsarecalled
Allotments.
Recording the Budget

214. •Recordingencumbrancehelpstheonemanagingthefinancestoknow
thatmoneyhasbeencommittedtosomepurposeandisnolonger
availableforexpenditure.Thereisoftenadelaybetweenplacingthe
purchaseorderandreceivingthegoodsordered.
•Toensurethatoutstandingpurchaseordersarenotoverlookedinthe
ongoingcommitmentofresources,purchaseordersarerecordedin
theEncumbranceaccount.
•Anencumbrancediffersfromanexpenditureinthatthe
encumbranceisanestimateofliabilitytobeincurredwhile
expenditureisanactualliabilitywhichhasbeenincurred.
CONT’D

215. •Example-whenapurchaseordersforgoodsorservicesisissuedtoa
supplierbyoneofthosefunds:
Encumbrance 150,000
FundBalanceReservedforEncumbrances150,000
•Whenthesuppliersinvoicefortheorderedmerchandiseorservicesis
receivedbythegovernmentalunit,
: Expenditures 180,500
Voucherspayable 180,500
FundBalancereservedforEncumbrances 150,000
Encumbrances 150,000
=Toreverseencumbranceforpurchaseorder
CONT’D

216. ACCOUNTING FOR GENERAL FUND AND SPECIAL REVENUE FUND
Assets
Cash....................................................................1,600,000
Inventoryofsupplies............................................400,000
TotalAssets 2,000,000
LiabilitiesandFundBalance
Voucherspayable.................................................800,000
Fundbalance:
Reservedforencumbrance 400,000
Unreservedandundesignated800,000 1,200,000
Totalliabilitiesandfundbalance 2,000,000
Illustration BelowistheBalanceSheetoftownofXGeneralfundonJune30,year5and
theannualbudgetsadoptedfortheyearendedJune30,year6.TownofXGeneralFund
BalanceSheetJune30,year5

217. Cont’d
-Generalpropertytaxes.......................... 7,000,000
-Licensesandpermits.......................... 400,000
-Chargesforservices ......................... 500,000
-Finesandforfits ...............................300,000
-Miscellaneousrevenues........................ 200,000 8,400,000
Estimatedotherfinancingsources(transferfromEF) 100,000
Appropriation:
-Generalgovernment ..........................4,700,000
-Publicsafety........................................1,900,000
-Healthandwelfare............................1,100,000
-Cultureandrecreation...........................400,000
8,100,000
Estimatedotherfinancinguses(transfertoDSF) 100,000
Belowaretheapprovedbudgetbythetowncouncilforthefiscalyear
endedonJune30,year6.Estimatedrevenues:

218. •ThejournalentrytorecordtheannualbudgetforthetownofXGeneral
fundonJuly1,year5wasasfollows:
•Ananalysisofeachoftheledgeraccountsintheforgoingjournal
entryfollows:
EstimatedRevenuesandEstimatedOtherfinancingSourcesledger
accountmaybeconsideredPseudoAssetcontrollingaccountsbecause
theyreflectresourcesexpectedtobereceivedbytheGeneralFund
duringthefiscalyear.
CONT’D
Estimatedrevenues 8,400,000
Estimatedotherfinancingsources 100,000
Appropriations 8,100,000
Estimatedotherfinancinguses 100,000
Budgetaryfundbalance 300,000

219. •TheseaccountsareNotactualassetsbecausetheydonotfitthe
accountingdefinitionofanAssetasaprobableeconomicbenefit
obtainedorcontrolledbyaparticularentityasaresultofpast
transactionsorevents.
TheEstimatedotherFinancingsourceledgeraccountsincludes
thebudgetedamountsofsuchnonRevenueitemsasproceedsfrom
thedisposalofplantassetsandoperatingtransfersfromotherfunds.
•TheAppropriationsandEstimatedOtherFinancingUsesLedger
AccountmaybeconsideredPseudoLiabilitycontrollingaccounts
becausetheyreflectthelegislativebody’scommitmenttoexpend
GeneralfundresourcesasauthorizedintheAnnualBudget.
CONT’D

220. •Theseaccountsarenotgenuineliabilitiesbecausetheydonotfit
thedefinitionofaliabilityasaprobablefuturesacrificeof
economicbenefitsarisingfrompresentobligationofaparticularentity
totransferassetstoprovideservicestootherentitiesinthefutureasa
resultofpasttransactionsorevents.
TheEstimatedOtherFinancingUsesaccountsincludebudgeted
amountofoperatingtransfersouttootherfunds,whicharenot
expenditures.
TheBudgetaryFundBalanceLedgerAccount,asitstitleimplies
isanaccountthatbalancesthedebitandcreditentriestoaccountsof
abudgetjournalentry.
CONT’D

221. EstimatedRevenues Appropriations
ESTIMATEDREVENUES VSAPPROPRIATIONS
-Taxes -Generalgovernment
-Licensesandpermits -Publicsafety
-Intergovernmentalrevenues -Publicworks
Charges for Services- Health and Welfare
Fines and Forfeits -Culture -recreation
Miscellaneous -Conservation of natural resources
-Debtservice
Intergovernmental expenditures
Miscellaneous

222. •TheEncumbranceisamemorandummethodforassuringthattotal
expendituresforafiscalyeardonotexceedappropriations.Theencumbrance
techniqueisusedinaccountingforgovernmentalunitshaveno
counterpartinaccountingforbusinessenterprises.
•Assumethatinadditiontothebudgetillustratedearlier,thetownofX
generalfundhadthefollowingsummarizedtransactionandeventsfor
thefiscalyearendedJune30,19x6
1.Propertytaxeswerebilledintheamountof7,200,000ofwhich
140,000wasofdoubtfulcollectability.
ENCUMBRANCES & BUDGETARY CONTROL

223. Propertytaxreceivable-current 7,200,000
Allowanceforuncollectiblescurrenttaxes 140,000
Revenue 7,060,000
2.Atotalof6,500,000amountofPropertytaxwerecollectedandatotal
of1,020,000Amountofcashfromotherrevenuesourceslikelicenses
andpermits,finesandforfeits,Mcellaneoussourceswerealsocollected.
Cash 7,520,000
Propertytaxesreceivable-current6,500,000
Revenue 1,020,000
=Torecordcollectionofpropertytaxesandotherrevenuesfortheyear.
CONT’D

224. 3. Property tax in the amount of 130,000 were uncollectibles.
Allowance for uncollectable current taxes 130,000
Propertytaxesreceivable-current130,000
4.Purchaseordersfornonrecurringexpenditureswereissuedtooutside
suppliersinthetotalamountof3,600,000.
Encumbrances 3,600,000
FundBalancereservedforEncumbrances3,600,000
=Torecordpurchaseordersfornon-recurringexpendituresissued
duringtheyear.
CONT’D

225. 6.Billingsforservicesandsuppliesreceivedfromenterprisefundandinternal
servicefundtotaled300,000and200,000respectively.
7.Cashpaymentsonvoucherspayabletotaled7,700,000.Cashpaymenttothe
EnterprisefundandtheInternalservicefundwere250,000and140,000
respectively.
CONT’D
Expenditures 500,000
Payable(Due)toEnterprisefund 300,000
Payable(Due)toInternalServicefund 200,000
Voucherspayable 7,700,000
PayabletoEnterprisefund 250,000
PayabletoInternalservicefund 140,000
Cash 8,090,000
=Torecordpaymentofliabilitiesduringtheyear

226. 5.Expendituresfortheyeartotaled7,600,000ofwhich900,000applied
totheacquisitionsofsuppliesand3,500,000appliedtothepurchase
ordersinthetotalamountof3,600,000issuedduringtheyear.(assume
consumptionmethod).
Expenditures 6,700,000
Inventory of supplies900,000
Voucherspayable7,600,000
=Torecordexpendituresfortheyear.
Fund Balance reserved for Encumbrance 3,500,000
Encumbrance 3,500,000
=Toreverseencumbrancesapplicabletovoucheredexpenditures
CONT’D

227. 8.ThetownofXgeneralfundmadeanoperatingtransferof110,000to
thedebtserviceFundforthematuredprincipalandinterests.
Otherfinancinguses110,000
Cash 110,000
=Torecordtransfertodebtservicefundformaturingprincipaland
interestonGeneralobligationserialbond.
Explanation-Theotherfinancingusesledgeraccountisdebitedbecause
thepaymenttothedebtservicefundisanoperatingtransferratherthan
quasi-externaltransaction.
CONT’D

228. •Thedistinguishingfeatureofaspecialrevenuefundisthatitsrevenues
areobtainedprimarilyfromtaxandnon-taxsourcesnotdirectly
relatedtoservicesrenderedorfacilitiesprovidedforuse.
•Separatespecialrevenuefundsareestablishedbygovernmentalunits
asmandatedbylegislativeenactments.,toaccountforthereceipts
andexpendituresassociatedwithspecializedrevenuesourcesthatare
earmarkedbylaworregulationtofinancespecifiedgovernmental
operations.
•Ledgeraccounttitles,budgetaryprocessesandfinancialstatements
foraspecialrevenuefundsaresimilartothoseofGeneralfunds.
ACCOUNTING FORSPECIALREVENUEFUNDS

229. •AssumethatonJuly1,year6,ThetowncouncilofthetownofX
authorizedtheestablishmentofaspecialRevenueFund-itsfirst
suchfund-toaccountforSpecialAssessmentagainstcertain
residentsoftheneighboringvillageofY.Becausethepropertytax
revenueofthetownofX,whichamongotherservicesfinancedstreet
cleaningandstreetlightmaintenanceforresidentsofthetownonly,
couldnotbeusedforsuchserviceselsewhere,thetowncouncil
authorizedspecialassessmenttofinancecomparableservicesfor
therequestingresidentsofthevillageofY.
ILLUSTRATION

230. Thetowncounciladoptedabudgetforthespecialrevenuefundfor
theyearendingJune30year7,providingforestimatedrevenues(from
thespecialAssessments)of800,000andappropriationsforreimbursement
totheGeneralfundforexpendituresmadebythatfundfortheservices
providedtothevillageofYresidents)of750,000.
•FollowingareadditionaltransactionsoreventsofthetownofX
specialrevenuefundfortheyearendingJune30year7.
1.OnJuly1,year6,thetownrecordedtheadoptedbudgetinthe
books.
2.SpecialAssessmentstaxtotaling820,000wereleviedwhicharetobe
paidinfullinsixtydays.
CONT’D

231. 3.CashReceiptsfromSpecialAssessmentTaxesof820,00were
collectedinfull.
4.Ofthecashreceipts,630,000wasinvestedinTreasurybillswithface
amountof650,000.ThetreasurybillsmatureonJune30year7andwere
redeemedinfullonthatdate.
5.BillingsfromthetownofXGeneralfund,requesting
reimbursementofexpendituresofthatfund,totaled760,000;ofthat
amount,620,000waspaidtotheGeneralFundbyjune30,year7.
6.OnJune30,year7,thetowncouncilofthetownofxdesignatedthe
fundbalanceoftheSpecialrevenuefund(80,000)forreimbursement
oftheGeneralFundduringtheyearendingJune30,year8.
CONT’D

232. Required:recordjournalentries
1.TorecordtheannualadoptedbudgetforfiscalyearendingJune30
year7.
2.Torecordspecialassessmentsbilled,allofwhichareestimatedto
becollectable
3.Torecordcollectionofspecialassessmenttaxinfullduringtheyear.
4.Torecordacquisitionof630,000faceamountsoftreasurybills
5.TorecordreceiptsofcashformaturedU.Streasurybills.
6.Torecordbillingsfromgeneralfundforreimbursementofexpenditures
forstreetcleaningandstreetlightmaintenanceforresidentsofthe
villageofY
CONT’D

233. 7.Torecordspaymentsofgeneralfundduringtheyear.
8.TodesignatetheentirefundbalanceforreimbursementofGeneral
FundduringtheyearendingJune30year8.
9.Toclosebudgetaryledgeraccounts.
10.Tocloserevenueandexpendituresledgeraccount
CONT’D

234. ClassificationofAppropriationsandExpenditures
•Theterm,appropriationsandexpenditure,bothhavetodowith
resources,whichareusedbyagovernmentalentity.
•Thebudgetedappropriationsareoftencalledestimated
expenditures,andtheappropriationbudgetiscalledexpenditure
budget.
•AccordingtoGASB’sPrinciples,Expendituresshouldbeclassifiedby:
-Fund,Functionorprogram,Organizationunit,Activity,Characterand
Object
TERMINOLOGY & CLASSIFICATIONFORGOVERNMENTAL FUND
BUDGETSANDACCOUNTS

235. •ClassificationbyFund:Theprimaryclassificationofgovernmental
expeditionisbyfund,sincefundsarethebasicsfiscal&accounting
entityofgovernmentalunit.Eg.G,FSRFCPF,DSF.
•ClassificationbyFunctionorprogram:Functionreferstowhatisdone
programmereferstothemeansbywhichitisdone.
E.g.TheG.F.may–havethefollowingprogrammesorfunctions.General
Governmental,-Publicsafety,-Health&welfare,Culture&recreation
Classificationbyorganizationunit:Tocarryoutthebroadfunctionsor
programmes,responsibilityisdividedtosmallerunitsordepartments.
Thishelpswithaffixingspecificaccountability.E.g.-Policedept,Firedept,
PublicworksdeptandParks&recreationdept
CONT’D

236. •Forexample,withinthepolicedept,activitiessuchasthefollowingmay
beperformed.Crimecontrolby--FootpatrolandCarPatrol.Traffic
controlby–Traffic.
Classificationbycharacter:Thisclassificationhastodowiththe
expenditureitselfthanthedepartmentorfundinwhichitisincurred.the
characterofanexpenditureiseither.
•Currentexpenditure–meanttobenefitthecurrentperiodonly.
•Capitalexpenditure–benefitsthecurrentperiodplusotherperiodsthe
future.
•Debtserviceexpend–includespaymentofinterestordebt&payment
ofdebtprincipal
CONT’D

237. Classificationbyobject:Objectofexpenditureisthethingforwhich
theexpenditurewasmade.Itismainlyaconcernofcurrentperiod
expenditures.E.g.Personalservices,Otherservices&charges,
Supplies,Capitaloutlays
Classification of Estimated Revenues & Revenues
•Revenuesaredefined,asallincreasesinfundnetAssetsexcept
thosearisingfrominterfundtransfersandfromproceedsof
long-termdebit.Agovernmentalunitandthefundsthereof,may
raiserevenueonlyfromsourcesavailabletothembylaw.
CONT’D

238. Theprimaryclassificationofgovernmentalrevenuesisbyfund.Within
eachfund,themajorclassificationis,bysource.Majorrevenuesource
classesare:-
•Taxes
•Licenses&permits:BusinessandnonBusiness
•Intergovernmentalrevenues:includeGrants,Entitlements&SharedRevenues.
•Chargesforservices:courtcosts,specialparkingmeters.
•Fines&forfeits
•Miscellaneousrevenues
CONT’D

239. CONT’D

241. •Thepreviousunitindicatesthatlonglivedassetssuchasoffice
equipment,governmentvehiclesandotherrelativelyminoritems
maybeacquiredbyagovernmentalunitbyexpendituresof
appropriationsofthegeneralfundoroneormoreofitsspecial
Revenuefunds.
•Long-livedassetsusedbyactivitiesaccountedforbyagovernmental
fundtypesarecalledgeneralfixedassets.AcquisitionsofGeneral
FixedAssetsthatrequiremajoramountsofmoneyordinarilycannot
befinancedfromgeneralfundorspecialrevenuefundappropriations.
CONT’D

242. •Majoracquisitionsofgeneralfixedassetsarecommonlyfinancedby
issuanceoflongtermdebttoberepaidfromtaxrevenues,orby
specialassessmentsagainstpropertydeemedtobeparticularlybenefited
bythelonglivedasset.
•Othersourcesfinancingtheacquisitionsoflonglivedassetsinclude
grantsfromothergovernmentalunits,transfersfromotherfunds,gifts
fromindividualororganizationsorbyacombinationofseveralof
thesesources.
•Ifmoneyreceivedfromthesesourcesisrestricted,legallyormorallyto
theacquisitionorconstructionofspecifiedcapitalassets,itis
recommendedthatacapitalprojectsfundbecreatedtoaccountfor
theseresourcestobeusedformajorconstructionoracquisitionprojects.
CONT’D

243. •CapitalProjectsFunds(CPF)accountforfinancialresourcestobe
usedfortheacquisitionorconstructionofmajorcapitalfacilities
(otherthanthosefinancedbyproprietaryfunds&trustfunds).
•ExamplesofmajorcapitalfacilitiesareAdministrationBuildings,Civic
Centersandlibrariesetc.thesefundsdonotaccountforthe
acquisitionofsmallerfixedassets,suchas
vehicles,machinery&officeequipmentwhicharenormallybudgeted
for&recordedasexpendituresinthegeneralfund.
•Itisalsopossiblethataconstructionprojectcouldsimplyhavea
subsidiaryledgerwithintheGeneralFund,ratherthanitsown
distinctfund.
GENERAL OUTLINE OF CAPITAL PROJECTS FUND

244. •TheexistenceoftheCapitalprojectsfund,asanyotherfundwill
dependonthelegalrequirementsandtheneedforgoodfinancial
management.
•Virtuallyall-governmentalbuildingsareconstructedbythe
governmentalunit&aremostlyfinancedbybondofferings.
•Incommercialaccounting,alltheactivities(theconstructionofthe
building,thesubsequentcapitalization&accountingforthebuilding&
theservicingofthedebtincurredtofinancetheconstructionofthe
buildingisaccountedusingonegeneralledger.
•Ingovernmental,fourgeneralledgersareused,ofwhichtwoare
funds&twoareaccountgroups.
CONT’D

245. Example:IssuanceofbondsforBr 500,000forconstructionofbuilding
•CapitalProjectsFund(CPF)-receivescashfrombondofferings&usescash
toconstructfixedassets.
•GeneralLongTermDebtAccountGroup(GLTDAG)-accountsformatured
GeneralLongTermDebt,atthematuritydate,theliabilityistransferredtoaDSF.
PF
Cash 500,000
OFSBondproceeds 500,000
•GFAAG–accountsforfixedassetsduring&afterconstruction.Construct
newbuilding C.P.F
Expenditures 500,000
Cash 500,000
CONT’D

246. GFAAG
Building 500,000
InvestmentinF.A–CPF500,000
•D.S.F.–servicesGLTD,makingbothinterest&principalpaymentsusing
moneyobtainedfromtaxleviesonoperatingtransfersfromGeneralFund.
Bondmatures-----DSF
Expenditures 500,000
Bondspayable500,000
*OperatingtransfermadefromGF.------DSF
Bondspayable 500,000
Cash 500,000
CONT’D

247. •C.P.Fareusuallyestablishedonaproject-by-projectbasis,because
legalrequirementsmayvaryfromoneprojecttoanother.Sothe
existenceoftheC.P.Fasanyotherfundwilldependonthelegal
requirement&theneedforgoodfinancialmanagement.
•ThefocusoftheCPFistheentirelifeoftheproject.Itisby
definitionanexpendablefund,andallitsresourcesareexpectedto
beusedup.
•However,CPFsdonothavethesameyear-by-yearfocusastheG.F
becauseofthemulti-yearfocusofCPFs,someaccountantsprefer
nottocloseaCPFannually,butothersdo.
ESTABLISHMENT &OPERATION

248. •Thedecisiontouseornottousebudgetaryaccountsis
influencedbyfactorssuchas.
1.ThenumberofprojectsintheC.P.F
2.TheamountofdetailintheC.P.Fbudget
3.Theuseofanannualbudget(ratherthanaprojectlifebudget)in
theCPF
CONT’D

249. Capitalprojectsprojectobviouslyneedlargeamountoffinancing.
Typicallysourceoffinancinginclude;
•Longtermdebitissueproceeds
•Grantsfromothergovernmentalunits
•Transfersfromotherfundswithinthegovernmentalentity
•Interestincomefromtemporaryinvestments.
•Giftsfromindividualsorfoundations
•Specialtaxesor;
•Acombinationofmorethanoneofthose
FINANCINGACAPITALPROJECT

250. •Accomplishmentofcapitalacquisitionorconstructionprojectmay
bebroughtaboutinoneormoreofthefollowingways:
1.Outrightpurchasefromfundcash
2.Byconstruction,utilizingthegovernmentalunitsownforce
3.Byconstruction,utilizingtheservicesofprivatecontractors
4.Bycapitalleaseagreement.
Means of Acquisition

251. CostsIncluded
•AllexpendituresforgettingtheprojectreadyareputintheCPF,
includingarchitectfees,transportcosts,damagesetc….usually
majorcapitalfacilitiesareconstructedbycontractedlabor.
Constructioncostsincurredarechargedtoexpenditures.
•Atthecompletionoftheprojectthecostofthefacilityisrecorded
asafixedassetintheGFAAG.
•Untilthenanycostsincurredareshownasconstructionworkin
progressintheGFAAG.
CONT’D

252. •itisacommonpracticetowithholdaportionofthecontractors
remunerationuntilfinalinspection&acceptancehavecomeabout.
Thewithheldportionisnormallyacontractualpercentageofthe
amountdueoneachsegmentofthecontract.
•Thisistopreventthecontractorfromdoingapoorqualitywork,
speciallyinarushtofinishattheend.Basicallytheentitywillpaypart
ofthefinalsum,thenhaveitsownengineerscomeandinspectthe
contractorswork.ifthecontractorsworkpassestheinspection,the
balanceoftheamountowedispaid.iftheengineerfindspoorquality
orundonework,thecontractormustthencorrecttheproblembefore
thefinalretainedsumispaidthisamountwithheldbythe
governmentalentityisknownasretainedpercentage.
RETAINEDPERCENTAGES

253. •anencumbranceaccountishighlyrecommended&isvery
necessaryincaseofmultiplesubcontractorsforaproject.Because
ofthis,anencumbranceaccountingproceduresaloneareusually
deemedsufficientforcontrolpurposes.Sorecordingofthebudget
inthegeneralledgermightnotbenecessary.
•Incapitalprojectsfund,Encumbranceisalsorecordedbythesame
amountinwhichtheconstructioncontractagreementismade
betweenthegovernmentalunitandthecontractorandalsointhe
samemannerasthatofthegeneralandspecialrevenuefundwhen
itemsareorderedthroughpurchaseorders.
ENCUMBRANCES

254. IssuanceofBondsataPremium
•Bondpremiumsarisebecauseofadjustmentstotheinterestrates.The
bondindentureagreementsusuallyspecifythatanybondpremiumisto
beset-asideintherelatedDSF.Thisisdesirablebecauseitremainsthe
incentivetospendmoreonaprojectthanisauthorizedmerelybyraising
additionalcashbyincreasingtheinterestrateintheCPF.Therearetwo
waysofaccountingthebondproceedsandtheassociatedpremium.
•TheproceedincludingthepremiumcouldberecordedintheCPF
asOFS-Bondproceeds Cash 110,000
OFS-Bondproceeds110,000
BONDPREMIUMS,DISCOUNTANDACCRUEDINTERESTONBONDSSOLD

255. •Or,onlytheparvalueofthebondisconsideredasOFSoftheCPF
Cash 110,000
OFS-bondproceed100,000
DuetoDSF10,000
•InthefirstcasethetransferofthepremiumtotheDSFisreportedasan
OperatingTransferOutintheCPFandanOperatingTransferIninthe
DSF.
C.P.F O.F.U-operatingtransferout10,000
Cash 10,000
DSF: Cash 10,000
OFS–operatingtransferin 10,000
CONT’D

256. •Whereasinthesecondcase,thebondpremiumisaccountedasa
liabilityoftheCPFbecauseitmustberemittedtotheDSF.
IssuanceofBondsataDiscount
•Bonddiscountarerarebecausethestatedtheinterestrateisusuallyset
enoughsethighenoughsothatnodiscountsmayresult.
•Ifadiscountdoesresult,theoreticallythereshouldbeatransferfrom
therelatedDSFtotheCPFtocovertheshortfall.Inpracticesucha
transfermaynotbepossiblebecausemoneymaynotbeavailablein
therelatedDSForbecauseoflegalrestraints.Insuchcase,theproject
maybecurtailedortheshortagemaybecoveredbyanoperating
transferfromtheGF.
CONT’D

257. •Allthemoneynecessarytopayforthecapitalprojectisusuallyraised
neartheinceptionoftheproject,butcontractorsarepaidaswork
progresses.Excesscash,thereforemaybetemporarilyinvestedinhigh
qualityinterestbearingsecurities.
•Interestratespayablebythegovernmentalunitongenerallongterm
debthavebeenlowerthaninterestratesthegovernmentalunitscanearn
ontemporaryinvestmentsofhighqualitysuchasTreasurybillsand
notes,Banknotes,BankCertificatesofdepositandgovernmentbonds
withshortmaturities.consequently,thereisconsiderableattractiontothe
practiceofsellingbondsassoonaspossibleaftercapitalprojectislegally
authorized,andinvestingtheproceedstoearnanetinterestincome.
INVESTMENTS

258. •IfinterestincomeisavailabletotheCPF,itshouldberecognized
ontheaccrualbasisasacredittorevenues.
•IfitwillbecollectedbytheCPFbutmustbetransferred,thecredit
fortheincomeearnedshouldbeDuetootherfunds.
•IftheinterestwillbecollectedbytheDSForotherfundthatwill
recognizeitasRevenue,noentrybytheCPFisnecessary.
CONT’D

259. ACCOUNTING FORCAPITALPROJECTSFUND

260. CONT’D

261. CONT’D

262. CONT’D

263. CONT’D

264. CONT’D

265. CONT’D

266. CONT’D