Lesson Notes By Weeks and Term - Senior Secondary School 3

SUBJECT: FINANCIAL ACCOUNTING

CLASS:  SS 3

DATE:

TERM: 2nd TERM

 

WEEK FOUR - SIX

TOPIC: PUBLIC SECTOR ACCOUNTING

CONTENT

• Meaning of Public Sector Accounting
• Differences between Public Sector Accounting and Private Sector Accounting
• Government sources of revenue
• Accounting procedures for revenue allocation/illustration
• Cost budget  preparation and illustration

Meaning of Public Sector Accounting

Public Sector Accounting is the process of recording the financial transactions concerning the receipts and payments of government funds, in a systematic way, as well as their analysis and interpretation so as to guide governments and their agents in various financial decisions.

Differences between Public Sector Accounting and Private sector Accounting

Public Sector Accounting            Private Sector Accounting

1. Accounting procedure is based on     It is based principally on profit 

    provision of services                maximization

2. It does not show creditors         It shows creditors for goods
3. Revenues are derived from tax, fees,     Revenues are derived from sales of goods

    fines, etc.

4. The cost of assets are written off in     The cost of assets are spread over the useful 

    one year                    life of the assets

5. It is prepared on cash basis         It is prepared on accrual basis
6. Public sector accounting is based on     It is governed by the companies and Allied

    the constitution of the country            Matters Act.

7. Public sector accounting report is to     Private sector accounting report is to the 

    the general public                shareholder.

Governments Sources of Revenue

Government revenue means the total income accruing to the government of a country. This can be classified under different tiers of government.

1. Federal Government: At the Federal level revenue sources are:

1. Direct and indirect taxes: e.g Personal income tax, withholding tax, corporation tax, capital gains tax, capital transfer tax, petroleum tax, tax export duties, tariffs, sales tax, purchase tax, excise duties etc.
2. Mining: Royalties, sales of crude oil, rent on oil wells, quarrying licenses
3. Fees and Licenses: Visa fees, passport fees, court fees, club registration, church and mosque registration, company registration etc.
4. Income from investments and dividends from corporate organization 
5. Rent from government properties
6. Revenue from armed forces external assignment, armed forces equipment rentage etc. 

1. State Government: A state’s major sources of revenue are:

1. Statutory allocation 
2. Investment earnings 
3. Rent on government properties 
4. Rent of government offices, vehicles etc
5. Special grants
6. Personal income tax
7. Fees from hospitals schools, courts
8. Licences, motor, sales of liquors, patent medicine and motorcycle 

• Local Government: A local Government’s major sources of revenue are:

1. Statutory allocation 
2. Special grant
3. Radio and televsion license
4. Tenement rates
5. Fines
6. Licences on sign post, market stall and liquors 
7. Loan from state
8. Income from street naming etc.

Accounting procedures for revenue allocation

Statutory allocation is the grant from Federal Government to the States and Local Governments. Apart from the statutory allocation various formulae have been devised on various occasions to ensure fair sharing of the total revenue among the three levels of government. The principle usually adopted are:

1. Derivation basis
2. Equality basis
3. Population basis
4. Independent revenue 

ILLUSTRATION 

The government of Nigeria approved N18,000,000 to six local government areas. The allocation was distributed as follows: 

1. Equity basis 75%
2. Population basis 25%

Local government             Population 

A                    6,000,000

B                    4,000,000

C                    7,000,000

D                    1,000,000

E                    3,000,000

F                    2,000,000

                          23,000,000

1. Local government generated the following additional revenue:

                        N

Radio and television licences    100,000

Court fines                250,000

Liquor licences            400,000

Sign post                20,000

Tenement rates            50,000

Expenses salaries            1,150,000

Transport                20,000

Repairs                200,000

Maintenance of cars            60,000

Stationery                25,000

Medical expenses            15,000

Medical expenses            7,600

Park Fees                60,000

You are required to prepare:

1. A statement showing the allocations made to each local government 
2. Receipts and payments accounts of B Local Government for the year ended 31st December 1999.

Solution

Statement of Allocation of Fund

1. Equity Basis 75% = 75% x 18,000 = N13,500,000

Equity allocation = 13,500,000 = 2,250,000

                6

Therefore each of the local government will receive N2,250,000

1. Population Basis 25% = 25% x 18,000,000

= 4,500,000

        Local government A     = A’s Population x 4,500,000 =600,000 X 4,500,000

                                 Total population                 23,000,000

                    =    N1,173,913

Local government B        =    B’s population x 4,500,000

                =     Total population 

                =    4,000,000 x 4,500,000

                    23,000,00

                =    N782,609

Local government C        =    C’s population x 4,500,000 = 7,000,000 x 4,500,000

                    Total population          23,000,000

                            =    N1,369,565   

Local government D        =    D’s population x 4,500,000 = 1,000,000 x 4,500,000

                    Total population          23,000,000 = N586,957

Local government E        =    E’s population x  4,500,000 =  3,000,000  x  4,500,000

                    Total population     1      = 23,000,000 = N5586,957

Local government F        =    F’s population x 4,500,000 = 2,000,000 x 4,500,000

                =    Total population         = 23,000,000  = N391,304

Statement of allocation of Fund

Local            Population Basis     Equity Basis         Total

Government        

                  N                  N                  N

A            1,173,913        2,250,000        3,423,913

B            782,609            2,250,000        3,032,609

C            1,369,565        2,250,000        3,619,565

D            195,652            2,250,000        2,445,652

E            586,957            2,250,000        2,836,957

F            391,304            2,250,000        2,641,304

            4,500,000        13,500,000        18,000,000

1. Local Government Receipt and payments Account

Receipts            N            Payments          N

Allocation        3,032,609        Salaries            1150,000

Radio and TV        100,000            Transport        20,000

Tenement rates    50,000                Electricity        200,000

Court            250,000            Repairs            60,000

Liquor            400,000            Maintenance        25,500

Sign post        20,000            Stationery        15,000

Park fees        60,000            Medical expenses    7,600

                        Balance c/d        2,434,509

3,912,609                    3,912,609

EVALUATION

1. List eight sources of revenue available to a state government.
2. State five differences between private sector accounting and public sector accounting.

PREPARATION OF PERSONNEL COST BUDGET

Budget: A budget is quantitative statement of income and expenditure.

The personnel cost budget is prepared to show the analysis of the basic salary and allowances of the staff members of each government ministry department in  a particular year.

PROCEDURES FOR PREPARING THE COST BUDGET

1. Identification of different positions in the ministry or parastatals
2. Calculation of the number of staff in each post
3. Identification of grade level.
4. Calculation of the basic salary, allowances, etc.

ANNUAL INCREMENTAL RATE

1. If the officers are not on first step of their salary; the formula below will be used for calculating staff total emolument

Formula (new stop 1 ) incremental rate) + basic salary

Illustration

Position             No        Grade Level        Salary

Director General        1            17        300,000 x 50,000

Director            4            16        200,000 x 30,000

Assume the staff are on step 3

Solution 

Director general:    =    (New step – 1) incremental rate + basic salary

            =    (3 – 1) 50,000 + 300,000

            =    2(50,000) + 300,000

            =    N400,000

4 Director        =    (New step – 1) incremental rate + basic salary

            =    (3 -1) 30,000 + 200,000

            =    2(30,000) + 200,000

            =    60,000 + 200,000

            =    N260,000

2. When employees are on step one

Illustration: The following information was extracted from the ministry of finance on 31/10/99.

Post             Grade Level        No. in post            Rate

DG            17            1                40,000 x 4000 – 60,000

Directors        16            3                32,000 x 3600 – 53,600

Chief Accountant    14            4                28,000 x 2400 – 44800

Additional information 

Grade Level             Housing        Transport

12 and above            8400 P.A        6250 P.A

07 and 11            3600 P.A        2500 P.A.

Workings 

One DG’s Basic salary    = 40,000

Housing allowance        = 8400

Transport allowance        = 6250

3 Directors’ basic        =    32000 x 3 = 96,000

Housing allowance         =    8400 x 3 = 25,200

Transport allowance        =    6250 x 3 = 18,750

4 Chief Accountants 

Accounts’ Basic Salaries    =    28,000 x 4 = 112000

Housing allowance        =    8400 x 4= 33,600

Transport allowance        =    6250 x 4 = 25,000

Solution 

PERSONNEL COST BUDGET

Post Grade            No        Basic        Housing     Transport     Total 

                        N        N        N        N

Director General    17    1        40,000    8400        6250        54650

Directors        16    3        96000        25200        18750        139950

Chief Accounts    14    4        112,000    33600        25,000    170,600

                        248,000    67,200    50,000    365,200

Total Personnel Emolument = N365,200

EVALUATION

1. Define Public sector accounting 
2. List seven items of government expenditure.

GENERAL EVALUATION QUESTIONS

1. What is depreciation?
2.  Explain the following methods of calculating depreciation (i) staight line  (ii) reducing balance     (iii) sum of the years digit
3. What is the difference between depreciation and amortization?
4. State ten uses of the general journal
5. Explain the principle of double entry system.

READING ASSIGNMENT 

1. Essential Financial Accounting by O.A. Longe,  Pages 376-388
2. Simplified Bookkeeping and Accounting by Femi Olatunji, Pages 489-513

WEEKEND ASSIGNMENT 

1. Public sector accounting is done on -------------basis (a)credit (b)cash (c)hire purchase (d)installmental payment 
2. Government parastatal accounting system is on -------------basis (a)cash (b)accrual (c)General (d)all of the above
3. Public sector accounts reports are to the -------------(a)shareholders (b)directors (c)public (d)customers
4. The chief accounting officer to the government ministries is (a)auditor general (b)minister of finance (c)secretary to the federal government (d)accountant general of the federation 
5. The formula for calculating emolument where employees are on step 4 is 
   1. (4-1) x salary (b)(4+1) x salary (c) (4-1) incremental rate (d) (4-1) incremental 

rate + basic salary.

THEORY

1. State the formula to apply for (i) calculating emolument when employees are step 1 and (ii) when employees are on step 3
2. State seven differences between the public and private sector accounting