MODULE ACCOUNTING FOR GOVERNMENT AND NON-PROFIT ORGANIZATIONS

CHAPTER 4 REVENUES AND OTHER RECEIPTS

Learning Objectives

State the sources of revenue of a

government entity.
State the recognition and measurement of
revenue.

Fundamental Principles for Revenue

 All revenues shall be remitted to the

BTr and included in the General
Fund, unless another law
specifically allows otherwise.
Recording in other types of funds
(e.g., Special Fund) shall be made
only when authorized by law.

 Receipts shall be properly

acknowledged through pre-
numbered ORs. Receipts can be in
the form of checks.

Sources of Revenue

Revenues may arise from exchange and non-exchange transactions.

 Exchange transaction - examples: sale of goods and rendering of services.

 Non-exchange transactions - examples: tax revenue, fines and penalties and

donations.

Sale of Goods

Revenue from the sale of goods shall be recognized when all of the following
conditions are satisfied:

a. Significant risks and rewards of ownership of the goods are transferred to the
buyer;

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b. The entity does not retain continuing managerial involvement or effective control
over the goods sold;

c. It is probable that economic benefits will flow to the entity;

d. Revenue can be measured reliably; and

e. Costs relating to the transaction can be measured reliably.

Rendering of Services

 Revenue from rendering of services is recognized on a straight line basis over

the contact term.

 However, revenue is recognized by reference to the stage of completion if the

outcome of the transaction can be estimated reliably, such as when all of the
following conditions are satisfied:

a. The stage of completion can be measured reliably;

b. It is probable that economic benefits will flow to the entity;

c. Revenue can be measured reliably; and

d. Costs relating to the transaction can be measured reliably.

 When the outcome cannot be estimated reliably, revenue is recognized only to

the extent of recoverable costs.

Interest, Royalties & Dividends

 Interest is recognized on a time proportion basis that takes into account the
effective yield on the asset;

 Royalties is recognized as they are earned in accordance with the substance of

the relevant agreement; and

 Dividends are recognized when the entity’s right to receive payment is

established.

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Measurement of Revenue from Exchange Transactions

 Revenue from exchange transactions are measured at the fair value of the
consideration received or receivable.

 Any trade discounts and volume rebates shall be taken into account.

 When cash flows are deferred, the fair value of the consideration is the present
value of the consideration receivable.

Exchanges of Goods or Services

 Similar – no revenue is recognized.

 Dissimilar – revenue is recognized, measured using the following order of

priority:

a. Fair value of the goods or services received, adjusted by the amount of

any cash transferred.

b. Fair value of the goods or services given up, adjusted by the amount of
any cash transferred.

Non-exchange Transactions

 Revenue from non-exchange transactions are derived mostly from taxes, fines
and penalties, gifts, donations and goods in-kind.

Tax Revenue

Type of tax Taxable event

 Income tax  Earning of taxable income

 Value added tax  Undertaking of a taxable activity

 Goods and services tax  Purchase or sale of taxable goods

or services

 Customs duty  Movement of dutiable goods or

services across the customs
boundary

 Death duty  Death of the owner of the taxable

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property

 Property tax  Passage of the time period for

which the tax is levied

Gifts, Donations and Goods In-kind

 Recognized as revenue measured at fair value when it is probable that future

economic benefits will flow to the entity.
 If without condition, recognized immediately as revenue.
 If with condition, initially recognized as liability and recognized as revenue
only when the condition is satisfied.

Others

 Services in-kind – not recognized as revenue.

 Debt Forgiveness – carrying amount of debt forgiven is recognized as revenue.

 Bequests – (transfers made according to the provisions of a deceased person’s

will) recognized as revenue measured at fair value, if asset recognition criteria
are met.

 Grant with Condition – initially recognized as liability until condition is satisfied.

 Pledges – (unenforceable promises to give) not recognized as revenue.

 Concessionary Loans – (loans w/ below-market rate) difference b/w fair value

and transaction price is recognized as revenue, if non-exchange transaction.

Impairment Losses and Allowance for Impairment Losses

 When an amount already recognized as revenue becomes uncollectible, it is

recognized as expense (i.e., impairment loss) rather than as an adjustment to the
revenue originally recognized.

Other Receipts

 Subsidy from NG and other NGAs  Recognized as revenue from

assistance and subsidy.

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 Receipts from:  Not recognized as revenue.

a. excess cash advance;

b. overpayment of expenses;

c. performance bonds and security

deposits;

d. collections on behalf of other entities;

and

e. Inter or intra-agency fund transfers.

To know more information about CHAPTER 4-REVENUE- PLEASE CLICK THE LINK:
https://www.youtube.com/watch?v=LWDaDyYbVKM

To know more information about CHAPTER 4-Sources of revenue- PLEASE CLICK

THE LINK: https://www.youtube.com/watch?v=ILZP63gsBts

Reference:

Accounting for Government and Non-profit Organization by Zeus Vernon B.

Millan

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