Public Sector Accounting

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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:

1. Statutory allocation
2. Special grant
3. Radio and television license
4. Tenement rates
5. Fines
6. Licenses on a signpost, 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 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:

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 31^st 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

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.

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Public Sector Accounting