Subject (SQ): PUBLIC SECTOR ACCOUNTING AND FINANCE

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  • 10 Marks

PSAF – L2 – Q10.1 – Revaluation of Assets

Show financial statement extracts for Kumawu District Assembly's building revaluation at 31 December 2024 under IPSAS.

Kumawu District Assembly revalues its buildings and decides to incorporate the revaluation into the financial statements. The following information has been made available:
a) Extract from the statement of financial position at 31 December 2023

Buildings at cost GHc’000
Buildings at cost 300,000
Accumulated Depreciation (93,000)
Carrying amount 207,000

b) Depreciation has been provided at 2% per annum on a straight-line method.
c) The building is revalued at 30 June 2024 at GHc276 million. There has been no change in the remaining estimated future life of the buildings.
Required:
Show the relevant extracts from the financial statements at 31 December 2024.

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  • 20 Marks

PSAF – L2 – Q9.4 – Provisions and Contingent Liabilities

Account for contract cancellation, court ruling, and revised contract costs under IPSAS 19, including provisions and disclosures.

Under IPSAS 19: Provisions, Contingent Liabilities and Contingent Assets, the authority needs to account for the cancellation of contracts, the legal case, the court’s decision, and the potential revision of the contract amount.

Required:

Determine whether provisions should be made for the court award and contract revision, calculate the expected value of the revised contract amount, and outline the disclosures required under IPSAS 19.

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  • 20 Marks

PSAF – L2 – Q9.3 – Employee Benefits

Show financial statement extracts for Ministry of Transport and Infrastructure's defined benefit plan for 2024 per IPSAS 39.

As at 31st December 2023, the following balances were outstanding in respect of employee pensions which are determined based on a formula that considers number of years of service and the best last six months remuneration of the employee:

GHC million
Pension plan assets 65
Pension liabilities 85

During the year ending 31st December 2024, the following transactions occurred:

GHC million
Transfers into the investments of the scheme 15
Pension payments made 29
Investments liquidated to support pension payments 11
Current service cost 10
Cost resulting from improvement to the plan formula 6

At 31st December 2024, the present value of pension liabilities was computed at GHc127 million (using a discount rate of 15%) and the fair value of plan assets estimated at GHc98 million.

Required:
You are required to show extracts of the financial statements in respect of employee benefits for the year ended 31st December 2024.

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  • 20 Marks

PSAF – L2 – Q9.2 – Leases

Classify a lease for Keta District Hospital as finance or operating per IPSAS 13/43 criteria.

Based on the information provided, this lease arrangement falls under the category of a finance lease according to IPSAS 13/43: Leases.
To classify a lease as a finance lease, the following criteria are typically considered:

  • Transfer of ownership: If the lease transfers ownership of the asset to the lessee by the end of the lease term.
  • Bargain purchase option: If the lessee has the option to purchase the asset at a price lower than the asset’s fair value.
  • Lease term: If the lease term is for a major part of the economic life of the asset.
  • Present value of lease payments: If the present value of lease payments amounts to substantially all of the asset’s fair value.
  • Specialized nature: If the asset is so specialized that only the lessee can use it without major modifications.

            In this case, Keta District Hospital:

  • The lease term (4 years of primary lease period with an indefinite secondary lease period at peppercorn rent) covers a substantial portion of the asset’s useful life (10 years).
  • The present value of the lease payments is likely to cover a substantial part of the fair value of the asset.
  • The Assembly retains almost all risks and rewards of ownership (e.g., paying repair, maintenance, and insurance costs).

    Therefore, the lease qualifies as a finance lease, meaning the equipment will be recorded as an asset with a corresponding     liability for future lease payments.                                                                                                                                                                                                                                                                                                                                                                                                                             (B)

Prepare the extracts of the final accounts with regards to the lease of the equipment in accordance with IPSAS 43: Leases for the year ended 31st December 2024.
There are four steps in answering this question and these are:

  • Calculate the lease liability and right-of-use asset
  • Calculate depreciation on the right-of-use asset
  • Determine the lease liability and interest expense for 2024
  • Extract the financial statements

Calculation of lease liability and right-of-use asset
Since the lease is a finance lease, Keta District Hospital will recognize both a right-of-use asset and a lease liability at the inception of the lease. The lease liability is initially measured as the present value of the lease payments over the primary period, discounted using the interest rate implicit in the lease (15%). The present value of the lease payment is as follows:

Year Lease payment (GHc)
2022 2,000,000
2023 2,000,000
2024 2,000,000

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  • 10 Marks

PSAF – L2 – Q9.1 – International Public Sector Accounting Standards

Account for borrowing costs for a tunnel project by the Ministry of Transport under IPSAS 5 for 2023.

The Ministry of Transport decided to construct a tunnel that will link two major cities in the country to ease traffic congestion. The project, which commenced in January 2023, is expected to take two years to complete. The financing for the project includes the following borrowings:

  • Bank Term Loans: GHc50 million at 7% interest per annum
  • Institutional Borrowings: GHc70 million at 8% interest per annum
  • Corporate Bonds: GHc100 million at 9% interest per annum

The total borrowings amount to GHc220 million, of which GHc20 million was used for routine maintenance of existing roads, and the remaining was for the tunnel construction. During the year, the Ministry earned GHc5 million from temporary investments of the borrowed funds.

Required:
(a) Explain the accounting treatment for the borrowing costs under the benchmark treatment option (expense recognition) for the year ended 31st December 2023.
(b) Explain the accounting treatment for the borrowing costs under the alternative treatment option (capitalization of borrowing costs) for the year ended 31st December 2023.

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  • 10 Marks

PSAF – L2 – Q8.4 – Revenue Recognition Standards

Discuss revenue recognition criteria under IPSAS 47 and contrast with IPSAS 9 and IPSAS 23.

Discuss the criteria for recognising revenue under IPSAS 47: Revenue and contrast these criteria with the criteria for revenue recognition under IPSAS 9 AND IPSAS 23.

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  • 10 Marks

PSAF – L2 – Q8.3 – Revenue from Exchange Transactions

Explain accounting treatment of tuition fees for Wisdom Academy for 2023 per IPSAS 9.

The academic year of Wisdom Academy starts from September each year but has a financial year from January 1 to December 31, consistent with the fiscal year of the Government of Ghana. With respect to the 2023/2024 academic year, a total of 6,000 students were on the roll of students, each expected to pay tuition fees of GHc8,000 for the academic year, divided into two equal parts for each semester. All students are expected to pay 25% of the first semester tuition fees at the start of September each year and pay the remaining 25% before the end of first semester examinations which starts in the first week of December. Similar arrangements pertain to the second semester which starts in February of the following year and ends in May. As at 31st December 2023, 20% of the total students’ population had paid their entire fees for the academic year, 60% of the students had paid full fees for the first semester only, the remaining 20% of the students had managed to pay only 90% of the tuition fees for the first semester but were allowed to write the end of semester examinations.

Required:

Explain the accounting treatment of tuition fees in the financial statements of Wisdom Academy for the year ended 31st December 2023 being guided by IPSAS 9: Revenue from exchange transactions.

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  • 10 Marks

PSAF – L2 – Q8.2 – International Public Sector Accounting Standards

Show the accounting treatment of bilateral grant revenue for the Federal Government of Nigeria as at 31st December 2023.

Bilateral grants were received from a number of friendly governments in 2023 amounting to NGN125 million. The Federal Government of Nigeria is unlikely to comply with some of the conditions for the bilateral grants from one country amounting to NGN15 million included in bilateral grants received. The Federal Government of Nigeria has already complied with grant conditions in respect of a grant from a Global Development Agency amounting to NGN22 million which is yet to be received. The probability of receipt of this grant in a month’s time from December 2023 is very probable.

Required:

Show the accounting treatment for the grant revenue in the books of the government as at 31st December 2023.

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  • 10 Marks

PSAF – L2 – Q8.1 – International Public Sector Accounting Standards

Detail the accounting treatment of outstanding tax revenue for the Federal Government of Nigeria as at 31st December 2024.

As at 31st December 2024, corporate tax assessments amounting to NGN170 million were still outstanding to be paid by corporate entities to the Federal Government of Nigeria, whilst the total amount owed to the Federal Government of Nigeria as at 31st December 2024 in respect of taxes on goods and services stood at NGN140 million. It is estimated that, only 85% and 90% of the outstanding corporate taxes and taxes on goods and services respectively may be recovered.

Required:

Detail out the accounting treatment of tax revenue for the year ended 31st December 2024.

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  • 10 Marks

FM – L2 – Q6.4 – Public Financial Management Systems

Discuss five public financial management functions integrated on the ZIFMIS platform.

The most important element of the Zamara Integrated Financial Management Information System (ZIFMIS) is its integration capability, which enables the linking of various functions of public financial management onto a single platform.

Required:

Discuss five public financial management functions integrated on the ZIFMIS.

Explain the risk associated with implementing the ZIFMIS.

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