- 10 Marks
PSAF – L2 – Q10.2 – International public sector accounting standards
Question
The Office of Business Registry has successfully acquired a new technology that will transform the landscape of business registration in the Republic of Zamara and make the Republic of Zamara a preferred destination for business.
The cost of the technology is GHc375 million. Professional advisers charged GHc5 million for providing advice in the acquisition of the technology which was estimated to have a useful life of 20 years effective from 1 January 2023.
Delay for the construction of the supporting infrastructure meant that the new technology could not be deployed until 1 January 2024.
Required:
Show extracts of the financial statements of the Office of Business Registry for the years ending 31st December 2023 and 2024.
Answer
To prepare the relevant extracts of the financial statements for the Office of the Business Registry for the years ending 31st December 2023 and 2024, we need to account for the acquisition and deployment of the new technology in accordance with IPSAS standards. The information available is summarised below:
- Cost of technology: GHc375 million.
- Professional adviser costs: GHc5 million.
- Total initial capitalised cost: GHc375 million + GHc5 million = GHc380
- Useful life: 20 years, effective from 1 January 2023.
- Deployment date: 1 January 2024 (technology was not used in 2023).
- Depreciation method: Straight-line basis.
Treatment of the new technology:
Since the technology was not deployed in 2023 due to construction delays, it cannot be amortised or depreciated. However, the total cost of acquiring the technology and professional advice (GHc380 million) should be capitalised as an intangible asset or property, plant, and equipment (depending on classification).
No depreciation will be recorded for the year 2023 because the asset was not in use. However, the capitalised cost will appear in the statement of financial position under non-current assets.
From January 2024, the technology is deployed and begins to be used.
Therefore, depreciation or amortisation will be recognised over its useful life (20 years) from this point onwards. The depreciation to be charged is GHc19 million, which is 380 million divided by 20 years.
The financial statements extracts are as follows:
Statement of financial position (extract) as at 31 December 2024
| Non-current asset | 2023 GHc’000 | 2024 GHc’000 |
|---|---|---|
| Technology | 380,000 | 380,000 |
| Accumulated depreciation | 19,000 | |
| Carrying amount | 380,000 | 361,000 |
Statement of financial performance (extract) for the year ended 31st December
| Expenses | 2023 GHc’000 | 2024 GHc’000 |
|---|---|---|
| Consumption of fixed asset | 0 | 19,000 |
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