Question Tag: Public Sector Accounting

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  • 20 Marks

PSAF – July 2023 – L2 – Q2 – Preparation and presentation of financial statements for covered entities

Prepare the Statement of Financial Performance and Statement of Financial Position for Ayigya Central Hospital for the year ended December 31, 2022, based on the provided trial balance and additional information.

Ayigya Central Hospital is a Public Hospital established in the Ashanti Region, which serves several communities in the Municipalities. Its Trial Balance for the year ended 31 December 2022 is provided below:

Additional information:

  1. Inventory as at 31 December 2022 consists of Drugs and Stationery amounting to GH¢50 million and GH¢20 million respectively.
  2. Four patients who paid GH¢25 million to the Hospital intending to undertake heart surgery are scheduled to have their surgery done in February 2023. This amount is included in Surgical Fees.
  3. The fixed assets in the trial balance were acquired at the beginning of the year. It is the policy of the Hospital to provide for the consumption of fixed assets using the straight-line method:
    • Asset: Laboratory Equipment, Building, Motor Vehicles, Software
    • Useful life: 5 years, 50 years, 10 years, 5 years respectively
  4. Salaries and other emoluments outstanding relating to casual labor during the year amounted to GH¢8 million.
  5. Provision for Bad Debt relates to NHIS Claims Receivables in the Trial balance. The Provision for Bad Debt is 2%.

Required:

a) Prepare a Statement of Financial Performance for Ayigya Central Hospital for the year ended December 31, 2022. (10 marks)

b) Prepare a Statement of Financial Position for Ayigya Central Hospital as at December 31, 2022. (10 marks)

Statement of Financial Performance for Ayigya Central Hospital for the year ended December 31, 2022

  • 20 Marks

PSAF – Nov 2020 – L2 – Q2 – Preparation and presentation of financial statements for local government

Prepare financial statements (Statement of Financial Performance and Statement of Cash Flow) and explain basic disclosure requirements for Eminaa District Assembly.

a) The following details relate to Eminaa District Assembly for the year 2018.

Details GH¢’000
Dividend Received 93,250
Central Government Salaries 12,000,000
Basic Rates 370,900
Districts Development Facility 15,000,600
Rent from Land and Building 6,120,800
Established Posts 1,140,700
Other Expenditure 600,000
Non-Established Posts 580,000
Allowances 390,470
Court Fees 240,000
Inventory and Consumables 800,000
Sanitation Fees 370,000
General Cleaning 350,000
Common Fund 2,930,000
Social Benefit 840,300
Equity Investment Acquired 420,000
Infrastructure, Plant, and Equipment 980,000
Work-In-Progress 490,000
Loans Received 2,330,000
Interest Expense 200,000
Advances to Staff 660,000
Royalties 430,000
Consultancies cost 470,000
Training and Workshop cost 275,000
Transport and Travelling cost 620,000
Consumption of Fixed Assets 960,000
Special Services 820,000
Utilities 630,000
Market Tolls 870,000
Permit Fees 990,000
Fines and Penalties 330,000
Development Bonds Issued 1,300,000
Hostel License 630,920
Business Income 2,300,600
Chop Bar License 300,400
Proceeds from Sale of Equity 990,320
Accumulated Fund (1/1/2018) 370,600
Herbalist License 530,370
Cash and Cash Equivalent @ (1/1/2018) 12,300,240
Stool Land Revenue 600,000
Lorry Park Fees 720,400
Market Store Rent 300,750
Recoveries 194,000
Loan Repayment 143,000
Property Rate 820,900

Additional Information:

  1. Eminaa District Assembly adopts the accrual basis of accounting in the preparation of its financial statements.
  2. Established Post salaries outstanding as at 31/12/2018 were GH¢180,000,000.
  3. Inventory at 31/12/2018 was GH¢170,000,000.

Required:
Prepare for Eminaa District Assembly:

  • Statement of Financial Performance for the year ended 31/12/2018.

(7 marks)

b) Prepare a statement of cash flow for Eminaa District Assembly for the year ended 31/12/2018. (8 marks)

c) Subject to IPSAS 6: Consolidated and Separate Financial Statements, a Controlling Entity that presents Consolidated Financial Statements shall disclose certain basic information.

 

Explain FIVE (5) basic information that an institution preparing Consolidated Financial Statements needs to disclose. (5 marks)

a) Statement of Financial Performance:

EMINAA DISTRICT ASSEMBLY
STATEMENT OF FINANCIAL PERFORMANCE FOR THE YEAR ENDED 31ST DECEMBER 2018

Revenue GH¢’000
Decentralized Transfers 30,530,600
Internally Generated Funds (IGF) 14,888,920
Total Revenue 45,419,520
Expenditure GH¢’000
Compensation of Employees 2,291,170
Goods and Services 3,520,000
Consumption of Fixed Capital 960,000
Interest 200,000
Social Benefits 840,300
Other Expenditure 600,000
Total Expenditure 8,411,470

| Net Operating Result – Surplus | 37,008,050 |

Notes:

  1. Decentralized Transfers:
    • Government of Ghana Salaries: GH¢12,000,000
    • District Development Facility: GH¢15,000,600
    • Common Fund: GH¢2,930,000
    • Stool Land Revenue: GH¢600,000
    • Total: GH¢30,530,600
  2. Internally Generated Funds (IGF):
    • Basic Rates: GH¢370,900
    • Rent from Land and Building: GH¢6,120,800
    • Court Fees: GH¢240,000
    • Royalties: GH¢430,000
    • Market Tolls: GH¢870,000
    • Market Store Rent: GH¢300,750
    • Permit Fees: GH¢990,000
    • Fines and Penalties: GH¢330,000
    • Hostel License: GH¢630,920
    • Business Income: GH¢2,300,600
    • Chop Bar License: GH¢300,400
    • Dividend Received: GH¢93,250
    • Herbalist License: GH¢530,370
    • Property Rate: GH¢820,900
    • Sanitation Fees: GH¢370,000
    • Lorry Park Fees: GH¢720,400
    • Total: GH¢14,888,920
  3. Compensation of Employees:
    • Established Posts: GH¢1,320,700 (including GH¢180,000 outstanding)
    • Non-Established Posts: GH¢580,000
    • Allowances: GH¢390,470
    • Total: GH¢2,291,170
  4. Goods and Services:
    • Inventory and Consumables: GH¢630,000 (GH¢800,000 – GH¢170,000)
    • General Cleaning: GH¢350,000
    • Consultancies Cost: GH¢470,000
    • Training and Workshop Cost: GH¢275,000
    • Transport and Travelling Cost: GH¢620,000
    • Special Services: GH¢820,000
    • Utilities: GH¢630,000
    • Total: GH¢3,520,000

b) Statement of Cash Flow:

ELMINA DISTRICT ASSEMBLY
STATEMENT OF CASH FLOW FOR THE YEAR ENDED DECEMBER 31, 2018

Description Amount (GH¢’000) Amount (GH¢’000)
Cash Flow from Operating Activities
Inflows
Decentralised transfer 30,530,600
Internally generated fund 14,888,920
Total Inflows 45,419,520
Outflows
Compensation of employees 2,111,170
Goods and services 3,690,000
Interest 200,000
Social Benefits 840,300
Other expenditure 600,000
Total Outflows 7,441,470
Net cash flow from operating activities 37,978,050
Net Cash Flow from Investing Activities
Equity investment acquired (420,000)
Infrastructure, plant and equipment (980,000)
Work-in-progress (490,000)
Advanced to staff (660,000)
Sale of equity 990,320
Recoveries 194,000
Net Cash Flow from Investing Activities (1,365,680)
Cash Flow from Financing Activities
Development bonds issued 1,300,000
Loans received 2,330,000
Loan repayment (143,000)
Net Cash Flow from Financing Activities 3,487,000
Net increase in Cash and Cash equivalent 40,099,370
Cash and cash equivalent (1/1/2018) 12,300,240
Cash and cash equivalent (31/12/2018) 52,399,610

c) Basic Disclosures in Consolidated Financial Statements:

The following disclosures shall be made in consolidated financial statements:

  1. A list of significant controlled entities: This includes a summary of entities over which control is exercised.
  2. The fact that a controlled entity is not consolidated: As required by IPSAS 6, reasons for not consolidating a controlled entity should be disclosed.
  3. Summarized financial information of controlled entities not consolidated: This includes details such as total assets, liabilities, revenues, and surplus or deficit for unconsolidated entities.
  4. The name and explanation for control: Any controlled entity where the controlling entity holds 50% or less ownership interest should be disclosed with reasons for control.
  5. Significant restrictions on the ability of controlled entities: Any limitations on transferring funds to the controlling entity in the form of cash dividends or similar distributions should be disclosed.
  • 8 Marks

PSAF – Nov 2020 – L2 – Q1a – Accounting policies for cash and accrual-based accounting systems

This question addresses how different accounting bases (cash vs. accrual) affect the treatment of specific items in financial statements.

The Director of Finance and the Principal Spending Officer of a Public Sector Organization are in disagreement as to which basis of accounting will provide the most useful information to the users. The Principal Spending Officer strongly believes that whether an entity applies cash basis or accrual basis, the effect is the same. The Director of Finance disagrees with him totally, arguing that different accounting treatments apply to both and therefore affect the level of disclosure in the financial report. The Director of Finance proceeded to illustrate his point by drawing on the basis of accounting on these items in the financial statement:

i) Motor vehicle donated to the entity

ii) Revenue due but not received by the entity

iii) Furniture acquired in the current year

iv) Electricity consumed for the year but not paid to the Electricity Company.

Required:

The Director of Finance has tasked you to present a brief paper on how the two accounting bases would be applied in the treatment of items i) to iv).

i) Motor vehicle donated to the entity:

  • Cash Basis: No recognition of the vehicle since no cash is involved.
  • Accrual Basis: The vehicle is recognized as an asset at its market value, and the donation is recorded as revenue.

ii) Revenue due but not received by the entity:

  • Cash Basis: No recognition of the revenue since cash has not been received.
  • Accrual Basis: The revenue is recognized in the financial period it is earned, even if not received, and recorded as a receivable.

iii) Furniture acquired in the current year:

  • Cash Basis: The entire cost is recorded as an expense when paid.
  • Accrual Basis: The furniture is capitalized and depreciated over its useful life.

iv) Electricity consumed for the year but not paid to the Electricity Company:

  • Cash Basis: No recognition of the expense since it has not been paid.
  • Accrual Basis: The expense is recognized in the period it is incurred, with a corresponding liability recorded.
  • 8 Marks

PSAF – May 2016 – L2 – Q2b – Public Sector Fiscal Planning and Budgeting

Identify procedures in commitment accounting and explain reasons for writing off advances in the public sector.

i) Commitment accounting begins with the commitment process.

Required:
Identify THREE procedures involved in the commitment process. (3 marks)

ii) Heads of departments have administering authority for advances, recoveries, and proper record keeping in addition to administering losses incurred in advances issued to staff of their department (FAR 121).

Required:
Explain TWO reasons why a head of a government entity may decide to write off advances owed by public officials. (2 marks)

i) Procedures Involved in the Commitment Process:

  1. Verification of Authorization: The proposal to spend money must be approved by an authorized person to ensure that the expenditure is legitimate and within the budget.
  2. Completion of Procurement Process: The procurement process must be completed, ensuring that all necessary approvals and contracts are in place before funds are committed.
  3. Budget Availability Check: It must be verified that money has been appropriated for the purpose in the budget and sufficient funds remain available in the correct expenditure category.

ii) Reasons for Writing Off Advances:

  1. Untraceable Officers: When the officer resigns from employment without leaving a traceable address, making it impossible to recover the advance.
  2. Deceased Officers Without Known Estate: When the officer dies and has no known estate from which the advance can be recovered.
  • 20 Marks

PSAF – March 2024 – L2 – Q2 – Preparation of Financial Statements for Central Government

Prepare the Statement of Financial Performance, Statement of Financial Position, and Statement of Budget Information for a central government department based on the given trial balance.

The following Trial Balance was extracted from the records of the Department of Social Integration, a central government department, for the year ended 31 December 2023.

Additional Information:

  1. The Department prepares its financial statements in compliance with the International Public Sector Accounting Standards, the Public Financial Management Act 2016, Act 921, and the Chart of Accounts of the Government of Ghana.
  2. Included in printing materials and stationery is a closing inventory valued at cost of GH¢380,000. The estimated net realizable value and replacement cost of the inventory are GH¢320,000 and GH¢330,000 respectively. The printing is not for commercial purposes.
  3. In June 2023, the government conducted a massive recruitment into the civil services, of which 20 employees were posted to the Department. However, they have not been paid salaries for the period. The amount owed to these employees is GH¢2,500,000 and this should be reflected in the financial statement of the period.
  4. The Department currently pays rent for two of its Regional Offices, and at the end of the year rent of GH¢200,000 was outstanding. Further, the Department also rented part of its premises at the Headquarters. At the end of the financial year, an amount of GH¢150,000 was received to cover 2024 rent. Meanwhile, GH¢20,000 rent has not been received from tenants for the year 2023. These transactions have not been accounted for.
  5. Depreciation of fixed assets is charged on a straight-line basis as follows:
Assets Estimated useful life (in years)
Motor vehicle 5 years
Furniture 4 years
Computers 3 years
Premises 20 years
  1. It was revealed that computer accessories costing GH¢340,000 acquired in 2022 were accounted for as goods and services. However, the Auditor for the 2023 financial year recommended that the transaction should be accounted for as a non-current asset. The recommendation is yet to be implemented.
  2. The budget extract of the Department for 2023 is as follows:
Item GH¢’000
Approved budget allocation 20,000
Internally generated fund 3,000
Donor support 1,000
Compensation for employees 10,000
Use of Goods and Services 6,000
Other expenses 5,500

Required: Prepare in compliance with the International Public Sector Accounting Standards, the Public Financial Management Act 2016, and the Chart of Accounts of Ghana: a) A Statement of Financial Performance for the year ended 31 December 2023.

b) A Statement of Financial Position as at 31 December 2023.

c) A Separate Statement of Budget Information in comparison with the Actuals for the year ended 31 December 2023.

a) Statement of Financial Performance for the year ended 31 December 2023:

Revenue GH¢’000
Receipts from Government 17,100
Internally generated fund 1,720
Donation 1,200
Total Revenue 20,020
Expenses
Compensation for employees 12,520
Goods and Services 5,110
Consumption of fixed capital 38,100
Other expenses 5,000
Total Expenses 60,730
Net Deficit (40,710)

b) Statement of Financial Position as at 31 December 2023:

Non-current Assets GH¢’000
Property, Plant, and Equipment 155,527
Current Assets
Inventory 330
Receivable 3,020
Fixed Deposit 1,000
Cash and Cash equivalent 10,000
Total Current Assets 14,350
Total Assets 169,877
Liabilities and Fund
Payable 9,100
Tender Security 900
Rent advanced 150
Total Liabilities 10,150
Accumulated Fund 159,727
Total Liabilities and Fund 169,877

c) Statement of Budget Information in Comparison with the Actuals for the year ended 31 December 2023:

Item Budget Actual Variance Variance %
Revenues
Receipts from Government 20,000 17,100 2,900 86
Internally Generated Fund 3,000 1,720 1,280 57
Donation 1,000 1,200 (-200) 120
Total Revenues 24,000 20,020 3,980 83
Expenses
Compensation of employees 10,000 12,520 (-2,520) 125
Goods and Services 6,000 5,110 890 85
Other expenses 5,500 5,000 500 91
Total Expenses 21,500 22,630 (-1,130) 105
Surplus/Deficit 2,500 (-2,610) 5,110 (-104)

Workings:

  • Receipts from Government:
    • Compensation for employees = GH¢7,000,000
    • Use of goods and services = GH¢5,600,000
    • Capital expenditures = GH¢4,500,000
    • Total Receipts from Government = GH¢17,100,000
  • Compensation for Employees:
    • Established post salaries = GH¢4,000,000
    • Salaries outstanding = GH¢2,500,000
    • Non-established post salaries = GH¢1,500,000
    • Car maintenance allowance = GH¢800,000
    • Travel allowance = GH¢1,100,000
    • Cost of living allowance = GH¢1,800,000
    • Pensions and gratuity = GH¢400,000
    • SSF contribution = GH¢120,000
    • Rounding = GH¢100,000
    • Utility allowance = GH¢200,000
    • Total Compensation for Employees = GH¢12,520,000
  • Goods and Services:
    • Travel and transport = GH¢560,000
    • Repairs and maintenance = GH¢340,000
    • Training, seminars, and conferences = GH¢660,000
    • Local consultancy = GH¢890,000
    • General cleaning = GH¢125,000
    • Printing materials:
      • Opening inventory = GH¢860,000
      • Purchases = GH¢800,000
      • Closing inventory = (GH¢330,000)
      • Total Printing materials = GH¢1,330,000
    • Utilities = GH¢650,000
    • Rent = GH¢300,000
    • Rent accrued = GH¢200,000
    • Bank charges = GH¢10,000
    • Special audit fees = GH¢45,000
    • Total Goods and Services = GH¢5,110,000
  • Internally Generated Fund:
    • Trial balance = GH¢1,850,000
    • Receivable = GH¢20,000
    • Advance = (GH¢150,000)
    • Total Internally Generated Fund = GH¢1,720,000
  • Receivables:
    • Per Trial Balance = GH¢3,000,000
    • Rent Receivable = GH¢20,000
    • Total Receivables = GH¢3,020,000
  • Payables:
    • Per Trial Balance = GH¢6,400,000
    • Salaries accrued = GH¢2,500,000
    • Rent payable = GH¢200,000
    • Total Payables = GH¢9,100,000

Non-current Asset Schedule:

Assets Motor Vehicle Furniture Computers Premises Total
Cost
Balance b/d 84,000 42,000 14,000 120,400 260,400
Adjustment 0 0 340 0 340
Total Cost 84,000 42,000 14,340 120,400 260,740
Depreciation
Balance b/d 25,000 16,000 4,000 22,000 67,000
Adjustment 0 0 113 0 113
Charge for the year 16,800 10,500 4,780 6,020 38,100
Total Depreciation 41,800 26,500 8,893 28,020 105,213
Carrying Amount 42,200 15,500 5,447 92,380 155,527

Statement of Changes in Net Assets for the year ended 31 December 2023:

Item GH¢’000
Accumulated fund balance as at 31 Dec 2022 200,210
Prior year adjustment 227
Adjusted Accumulated Fund Balance 200,437
Deficit for the year (40,710)
Accumulated Fund Balance as at 31 Dec 2023 159,727
  • 20 Marks

PSAF – Nov 2018 – L2 – Q4a – Preparation and presentation of financial statements for covered entities

Prepare the Statement of Income and Expenditure and Statement of Financial Position for DFG for the year ended 31 December 2016.

Destitute Foundation Ghana (DFG) is a Non-Governmental Organisation established in 1980 with the mission of protecting and securing the economic and social interest of the underprivileged and vulnerables. Below is the trial balance as at 31 December, 2016.

i) It is the policy of management to prepare financial statements on a modified accrual basis. ii) The current chart of accounts of DFG has seven items of expenditure: compensation of employees, administration and general expenses, finance cost, legal cost, capital assets, project cost, and other expenses. iii) Under the current chart of accounts, income is classified as fund-raising, grants/supports, and fees and charges.

Required: a) Prepare Statement of Income and Expenditure for the year ended 31 December 2016, suitable for publication. (8 marks)

b) Prepare Statement of Financial Position as at 31 December 2016. (8 marks)

c) Disclose relevant notes to the accounts. (4 marks)

a) Statement of Income and Expenditure for the year ended 31 December 2016

c) Notes to the accounts

  1. Accounting policies
    • Financial statements are prepared on a modified accrual basis.
    • Capital assets are written off in the year of acquisition.
  2. Grants and support (GH¢ ’000)
    • International agencies: 2,200
    • Government of Ghana: 1,800
    • Other grants: 200
    • Total Grants and Support: 4,200
  3. Administration and General Expenses (GH¢ ’000)
    • Administration and general expenses: 2,100
    • General expenses: 1,700
    • Office rent: 200
    • Total Administration and General Expenses: 4,000
  4. Capital assets (GH¢ ’000)
    • Office equipment: 500
    • Motor vehicle: 1,300
    • Total Capital Assets: 1,800
  5. Project cost (GH¢ ’000)
    • Scholarship: 3,000
    • Boreholes: 4,400
    • Classroom blocks: 3,600
    • Total Project Cost: 11,000
  6. Accumulated Fund (GH¢ ’000)
    • Balance b/f: 2,000
    • Deficit: (7,270)
    • Total Accumulated Fund: (5,270)
  • 10 Marks

PSAF – Nov 2021 – L2 – Q3b – Financial Statements Discussion and Analysis

Prepare a Common Size Statement of Financial Performance and analyze the financial performance of Okagya Municipal Assembly for 2020.

Presented below is the Statement of Financial Performance of Okagya Municipal Assembly for the year ended 31 December 2020.

GH¢’million 2020 Actual 2019 Actual 2020 Budget
Revenues
Decentralized Transfer 16,450 12,400 20,200
IGF 22,200 25,600 34,100
Donation and Grants 1,300 1,900 2,000
Total Revenue 39,950 39,900 56,300
Expenditure
Compensation for employees 29,800 24,300 25,900
Use of goods and services 10,300 9,860 18,000
Consumption of fixed Asset 240 220 0
Interest 19,660 14,550 16,780
Grants 510 430 1,920
Other expenses 1,600 1,430 2,450
Total Expenditure 62,110 50,790 65,050
Net Operation Result (22,160) (10,890) (8,750)

Required:

i) Prepare a Common Size Statement of Financial Performance for the year ended 31 December 2020.
(6 marks)

ii) Based on the Common Size Statement of Financial Performance prepared in (i) above, write a report analyzing the financial performance of Okagya Municipal Assembly in line with the Recommended Practice Guide 2, Financial Statement Discussion and Analysis.

i) Common Size Statement of Financial Performance for the year ended 31 December 2020:

ii) Financial Performance Analysis Report:

Introduction:
This report analyzes the financial performance of Okagya Municipal Assembly for the year ended 31 December 2020. The analysis is based on the Common Size Statement of Financial Performance, focusing on the key revenue and expenditure items.

Revenue Analysis:

  • Decentralized Transfer: The revenue from decentralized transfer constituted 41.18% of total revenue in 2020, an increase from 31.08% in 2019, but lower than the budgeted 35.88%.
  • Internally Generated Funds (IGF): IGF contributed 55.57% to the total revenue in 2020, down from 64.16% in 2019, and below the budgeted 60.57%. This indicates a decrease in the Assembly’s ability to generate internal revenue.
  • Donations and Grants: This source made up only 3.25% of total revenue, a reduction from 4.76% in 2019, and was close to the budgeted figure of 3.55%.

Expenditure Analysis:

  • Compensation for Employees: This accounted for a significant 74.59% of total expenditure in 2020, up from 60.90% in 2019, and far exceeding the budgeted 46%. This suggests a heavy reliance on human resources and possibly an overspend on employee compensation.
  • Use of Goods and Services: The cost of goods and services represented 25.78% of total expenditure, a slight increase from 24.71% in 2019, but below the budgeted 31.97%.
  • Interest: Interest payments constituted 49.21% of total expenditure, a substantial increase from 36.47% in 2019, and higher than the budgeted 29.80%. This indicates an increased burden of debt on the Assembly’s finances.

Conclusion:
The financial performance of Okagya Municipal Assembly shows a heavy dependence on employee compensation and interest payments, which consume a large portion of the Assembly’s revenues. The reduction in IGF as a percentage of total revenue suggests challenges in internal revenue generation. The Assembly needs to improve its revenue generation strategies and control expenditure, particularly in employee compensation and debt servicing, to enhance its financial sustainability.

  • 10 Marks

PSAF – Nov 2021 – L2 – Q3a – Public expenditure and financial accountability framework

Distinguish between the Weakest Link Method and the Average Method in scoring PEFA indicators and compute and interpret the results for three indicators.

One important pillar in Public Financial Management is accounting and financial reporting, according to the Public Expenditure and Financial Accountability (PEFA) Framework of 2016. The pillar has three indicators with ten dimensions scored using the Weakest Link Method (M1) and Average Method (M2).

The information below relates to the scoring of the accounting and reporting pillar for Ghana in the 2019-2020 PEFA Report:

Pillar (P1-07) Accounting and Financial Reporting Score
Indicator 1 (P1-07.1) Financial data integrity To be determined
Dimensions (M2) Bank account reconciliation D
Suspense accounts D
Advance accounts A
Financial data integrity process C
Indicator 2 In-year budget reports To be determined
Dimensions (M1) Coverage and comparability of reports B
Timing of in-year budget reports C
Accuracy of in-budget reports B
Indicator 3 Annual financial reports To be determined
Dimensions (M1) Completeness of annual financial report C
Submission of reports for external audit B
Accounting standards D

Required:

i) Distinguish between the weakest link method and the average method of scoring the performance indicators.
(3 marks)

ii) Compute the score for each of the three indicators using the appropriate method of scoring and interpret your result.
(5 marks)

iii) Suggest TWO (2) ways the government can improve its performance in indicator 3: Annual financial reports.
(2 marks)

i) Distinguish between the Weakest Link Method and the Average Method:

  • Weakest Link Method (M1): In this method, the overall score for an indicator is determined by the lowest score received by any of its dimensions. This means that if one dimension is rated poorly, the entire indicator score reflects that weakest link, regardless of the scores of the other dimensions.
  • Average Method (M2): In this method, the overall score for an indicator is the average of the scores of its dimensions. This method balances out the different scores of the dimensions, providing an overall rating that reflects the general performance across all dimensions.

ii) Compute the Score for Each Indicator:

  1. Indicator 1 (Financial data integrity):
    • Dimensions: D, D, A, C
    • Method: Average Method (M2)
    • Score: (D, D, A, C) -> Average of scores: (1+1+4+3)/4 = 9/4 = 2.25 ≈ C
    • Interpretation: The overall score for financial data integrity is C, indicating moderate performance with significant room for improvement in specific areas.
  2. Indicator 2 (In-year budget reports):
    • Dimensions: B, C, B
    • Method: Weakest Link Method (M1)
    • Score: The lowest score among the dimensions is C, so the overall score for this indicator is C.
    • Interpretation: This score reflects that the weakest dimension (timing of in-year budget reports) is dragging down the overall performance.
  3. Indicator 3 (Annual financial reports):
    • Dimensions: C, B, D
    • Method: Weakest Link Method (M1)
    • Score: The lowest score among the dimensions is D, so the overall score for this indicator is D.
    • Interpretation: The poor score in accounting standards significantly affects the overall performance of this indicator.

iii) Ways to Improve Performance in Indicator 3 (Annual financial reports):

  1. Adopt and Implement IPSAS: The government can improve the accounting standards dimension by adopting and fully implementing International Public Sector Accounting Standards (IPSAS). This will enhance the quality and comparability of financial reports.
  2. Timely Submission of Reports: Ensure that annual financial reports are completed and submitted within the prescribed timeframes. Strengthening internal processes and automating reporting systems can help achieve this.
  • 20 Marks

PSAF – Nov 2021 – L2 – Q2 – Preparation and presentation of financial statements for covered entities

Prepare the Statement of Financial Performance, Statement of Financial Position, and Notes to the Accounts for a Municipal Hospital based on the provided trial balance and additional information.

Kologo Municipal Hospital is a Public Hospital established in the Upper East Region, which serves several communities. Its Trial Balance for the year ended 31 December 2020 is provided below.

Trial Balance as at 31 December 2020

Additional Information

i) The hospital’s policy is to apply the Accrual Basis of Accounting in preparing its Financial Statements in compliance with the Public Financial Management Act, 2016 (Act 921), Public Financial Management Regulation 2019 L.I 2378, and the International Public Sector Accounting Standards (IPSAS).

ii) The hospital purchased equipment at the cost of GH¢200,000 on 1 April 2020.

iii) A new equipment valuing GH¢100,000 was donated to the hospital on 1 July 2020. The equipment was assessed to have a useful life of ten (10) years. This has not yet been accounted for in the Trial Balance.

iv) The Fixed Deposit attracts an interest of 15% per annum.

v) Inventory of drugs as at 31 December 2020 amounted to GH¢95,000,000 at cost and had a net realizable value of GH¢110,000,000 but its replacement cost is GH¢78,000,000. In addition, stationery stock as at 31 December 2020 cost GH¢28,000,000 and has a replacement cost of GH¢25,000,000 with an estimated net realizable value of GH¢35,000,000.

vi) Redundancy pay outstanding as at the end of the year amounted to GH¢25,950,000.

vii) Provision for undertaking is estimated at 10%.

viii) The hospital currently owes Healer Pharmaceuticals for Drugs amounting to GH¢1,950,000 supplied to the hospital during the years 2020 and 2021 in respect of the following months:

  • November 2020: GH¢820,000
  • December 2020: GH¢610,000
  • January 2021: GH¢520,000
  • Totals: GH¢1,950,000

ix) Consumption of Fixed Assets is charged on a straight-line basis with time apportionment in the year of acquisition.

  • Asset | Useful life
    • Laboratory Equipment | 20 years
    • Building | 50 years
    • Motor Vehicles | 10 years
    • Software | 5 years

Required:

Prepare in compliance with the IPSAS and relevant legislation:

a) Statement of Financial Performance for the year ended 31 December 2020.
(8 marks)

b) Statement of Financial Position as at 31 December 2020.
(8 marks)

c) Notes to the Accounts.
(4 marks)

Statement of Financial Performance for the year ended 31 December 2020

Statement of Financial Position as at 31 December 2020

b) Statement of Financial Position as at 31 December 2020.

Notes to the Financial Statements

  1. Significant accounting policies applied for the preparation of the financial statements include the following:
    • Compliance with IPSAS and PFM Act.
    • The financial statements have been prepared in conformity with the Financial Management Act, 2016(Act 921), Public Financial Management Regulation 2019 L.I 2378 and the International Public Sector Accounting Standards (IPSAS).
    • Basis of accounting.
      The financial statements have been prepared on an accrual basis where transactions and events are recognised as and when they occur.
    • Cost measurement.
      Assets are measured on a historical cost basis except for motor vehicle donated to the assembly, which was measured and recognised at fair value.
    • Consumption of fixed assets.
      Consumption of fixed assets are charges using a straight-line basis. The estimated useful life of the assets are as follows:
      Laboratory Equipment 20 years
      Building 50years
      Motor Vehicles 10 years
      Software 5years
    • Valuation of inventory.
      Inventory of office consumables was valued at lower of cost and current replacement cost in compliance with IPSAS 12: inventory

 

  • 5 Marks

PSAF – Nov 2018 – L2 – Q1d – The context of public financial management

Explain five reasons why public sector accounting is useful in any national economy

A public sector organization is an entity that is owned and operated by the government for non-profit goals. The public sector is made up of different organizations, and as such requires an effective accounting framework to ensure transparency and accountability.

Required:
Explain FIVE (5) reasons why Public Sector Accounting is useful in any national economy.

Reasons why Public Sector Accounting is useful in any national economy include:

  • Demonstrates Accountability: Public sector accounting enables governments to demonstrate accountability for public resources to the citizens, ensuring that funds are used for their intended purposes.
  • Supports Decision Making: Public sector accounting provides useful information that supports social, economic, and political decision-making by the government, aiding in the effective allocation of resources.
  • Efficient Resource Allocation: It is a tool that enables the efficient allocation of public resources to the priorities of the government, ensuring that public funds are used where they are most needed.
  • Control and Monitoring: Public sector accounting serves as a tool used by the government to control its plans, programs, and activities, ensuring that they are executed as intended.
  • Performance Measurement: It helps measure the performance of the government in terms of economy, efficiency, and accomplishments, providing a basis for evaluating how well public funds are being managed.
  • Legal Compliance: Public sector accounting is a means of meeting legal requirements for public accounts to be presented quarterly and annually, ensuring compliance with statutory obligations.

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