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 | classnotes.ng

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

  1. Accounting procedure is based on the provision of services         It is based principally on profit 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 life of the assets              The cost of assets are spread over the useful one year
  5. It is prepared on a cash basis                                                         It is prepared on an accrual basis
  6. 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.
  1. Income from investments and dividends from corporate organization
  2. Rent from government properties
  3. Revenue from armed forces external assignment, armed forces equipment rentage etc.

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

  1. Statutory allocation
  2. Investment earnings
  • Rent on government properties
  1. Rent of government offices, vehicles etc
  2. Special grants
  3. 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:

  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 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:

  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 population4,500,0003,000,000  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

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
  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

 

  1. 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
  1. What is depreciation?
  2. Explain the following methods of calculating depreciation (i) straight 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 the 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) instalment 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 (a) (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

 

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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