PSAF – May 2021 – L2 – Q1 – Public Sector Financial Statements

Apply IPSAS standards to adjust and analyze financial information for Okuku State University.

Question

Okuku State University is a parastatal under Okuku State, not classified as a Government Business Enterprise (GBE). The following is the statement of financial position for the University as of December 31, 2018:

Statement of Financial Position (as at Dec 31, 2018)

Item	Cost (₦’million)	Accumulated Depreciation (₦’million)	Carrying Amount (₦’million)
Land and Buildings	15,000	250	14,750
Equipment	1,000	100	900
Furniture	800	80	720
Plant & Machinery	550	50	500
Motor Vehicles	450	45	405
Total Non-Current Assets	17,800	525	17,275
Inventories	11,000	–	–
Receivables	15,000	–	–
Bank	3,000	–	–
Total Current Assets	–	–	29,000
Total Assets	–	–	46,275
Non-Current Liabilities	–	–	30,000
Current Liabilities	–	–	8,000
Total Liabilities	–	–	38,000
Net Assets	–	–	8,275
Reserves	–	–	8,275

Additional Information:

Office equipment was purchased for ₦150,000,000 from Joko Nigeria Limited, with installation and transportation costing ₦3,000,000. Half was paid during the year, with the remainder in January 2019. The University also acquired a building valued at ₦500,000,000 from a defunct State College.
The University Teaching Hospital received motor vehicles and laboratory equipment donations worth ₦20,000,000 and ₦50,000,000, respectively, from a UK-based research institute.
A motor vehicle bought on January 1, 2017, for ₦8,000,000 with a five-year life was sold for ₦4,000,000 at year-end.
Computers bought in 2017 for ₦1,000,000, with an expected five-year lifespan, were damaged in a fire and written off.
Land was bought for ₦50,000,000 for constructing a plaza valued at ₦250,000,000, with an estimated 25-year life.
One building, valued at ₦160,000,000, was damaged by fire, with a post-fire valuation of ₦130,000,000.
A motor vehicle was acquired on January 1, 2018, for ₦150,000,000.
The University’s depreciation policy includes full-year depreciation with rates: Motor Vehicle 20%, Building 4%, Furniture 10%, Equipment (including Lab and Computers) 20%, and Plant and Machinery 15%.

Required:
a. Identify FOUR characteristics of Government Business Enterprises (GBEs) as
stated in IPSAS 1 on presentation of financial statements. (2 Marks)
b. Prepare the necessary journal entries to record the above transactions for
the year ended December 31, 2018. (10 Marks)
c. Prepare the adjusted statement of financial position as at December 31,
2018. (20 Marks)
d. Identify and explain FOUR qualitative characteristics of financial reporting as
required by appendix 2 of IPSAS 1 on presentation of financial statements.
(8 Marks)

Answer

a. Government Business Enterprise (GBE) is an entity that has all the following
characteristics:
i. It is an entity with the power to contract in its own name;
ii. It has been assigned the financial and operational authority to carry on a
business;
iii. It sells goods and services, in the normal course of its business to other
entities at a profit or full cost recovery;
iv. It is not reliant on continuing government funding to be a going concern
(other than purchases of outputs at arm‟s length); and
v. It is controlled by a public sector entity.

b.
Okuku State University
Journal entries to record transactions not recognised
for the year ended December 31, 2018