Back to: FINANCIAL ACCOUNTING SS3
Welcome to class!
In today’s class, we will be talking about public sector accounting. Enjoy the class!
Public Sector Accounting
Public Sector Accounting is the process of recording the financial transactions concerning the receipts and payments of government funds, systematically, as well as their analysis and interpretation 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
- Accounting procedure is based on the provision of services It is based principally on profit maximization
- It does not show creditors It shows creditors for goods
- Revenues are derived from tax, fees, Revenues are derived from sales of goods fines, etc.
- The cost of assets are written off in the life of the assets The cost of assets are spread over the useful one year
- It is prepared on a cash basis It is prepared on an accrual basis
- Public sector accounting report is to the general public Private sector accounting report is to the 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.
Federal Government: At the Federal level revenue sources are:
- 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.
- Mining: Royalties, sales of crude oil, rent on oil wells, quarrying licenses
- Fees and Licenses: Visa fees, passport fees, court fees, club registration, church and mosque registration, company registration etc.
- Income from investments and dividends from corporate organization
- Rent from government properties
- Revenue from armed forces external assignment, armed forces equipment rentage etc.
State Government: A state’s major sources of revenue are:
- Statutory allocation
- Investment earnings
- Rent on government properties
- Rent of government offices, vehicles etc
- Special grants
- Personal income tax
- Fees from hospitals schools, courts
- Licenses, motor, sales of liquors, patent medicine and motorcycle
Local Government: A local Government’s major sources of revenue are:
-
- Statutory allocation
- Special grant
- Radio and television license
- Tenement rates
- Fines
- Licenses on a signpost, market stall and liquors
- Loan from state
- Income from street naming etc.
Accounting procedures for revenue allocation
Statutory allocation is the grant from the 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:
- Derivation basis
- Equality basis
- Population basis
- Independent revenue
Illustration
The government of Nigeria approved N18,000,000 to six local government areas. The allocation was distributed as follows:
- Equity basis 75%
- 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
- Local government generated the following additional revenue:
N
Radio and television licenses 100,000
Court fines 250,000
Liquor licenses 400,000
Signpost 20,000
Tenement rates 50,000
Expenses salary 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:
- A statement showing the allocations made to each local government
- Receipts and payments accounts of B Local Government for the year ended 31st December 1999.
Solution
Statement of Allocation of Fund
- 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
- 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
- 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
- List eight sources of revenue available to a state government.
- State five differences between private sector accounting and public sector accounting.
Preparation of personnel cost budget
A budget is a 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
- Identification of different positions in the ministry or parastatals
- Calculation of the number of staff in each post
- Identification of grade level.
- Calculation of the basic salary, allowances, etc.
Annual incremental rate
- 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
- 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
- Define Public sector accounting
- List seven items of government expenditure.
General evaluation
- What is depreciation?
- Explain the following methods of calculating depreciation (i) straight line (ii) reducing balance (iii) sum of the years’ digit
- What is the difference between depreciation and amortization?
- State ten uses of the general journal
- Explain the principle of the double-entry system.
Reading assignment
- Essential Financial Accounting by O.A. Longe, Pages 376-388
- Simplified Bookkeeping and Accounting by Femi Olatunji, Pages 489-513
Weekend assignment
- Public sector accounting is done on ————-basis (a)credit (b)cash (c)hire purchase (d) instalment payment
- Government parastatal accounting system is on ————-basis (a)cash (b)accrual (c)General (d)all of the above
- Public sector accounts reports are to the ————-(a)shareholders (b)directors (c)public (d)customers
- 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
- The formula for calculating emolument where employees are on step 4 is (a) (4-1) x salary (b)(4+1) x salary (c) (4-1) incremental rate (d) (4-1) incremental rate + basic salary.
Theory
- State the formula to apply for (i) calculating emolument when employees are step 1 and (ii) when employees are on step 3
- State seven differences between the public and private sector accounting
In our next class, we will be talking about Branch Account. We hope you enjoyed the class.
Should you have any further question, feel free to ask in the comment section below and trust us to respond as soon as possible.
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