FM Manual - EEA-IGA - Final - July 2021

Financial Management
Policy and Procedure Manual
Ethiopian Economics
Association-IGA
July 2021
Ethiopian Economics Associations _IGA Financial Management Manual
Financial Management Manual

Ethiopian Economics Associations - IGA
Manual Development Facilitated by
Target Business Consultants Plc

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Contents
1. Introduction ............................................................................................................. 4
2. Accounting System ................................................................................................... 5
3. Accounting Period .................................................................................................... 5
4. General Accounting Practices..................................................................................... 5
5. Investment And Cash Management ............................................................................ 7
6. Chart Of Accounts ...................................................................................................10
7. Financial Instruments ..............................................................................................12
8. Cash ......................................................................................................................15
9. Trade Receivable.....................................................................................................25
10. Staff Loan...............................................................................................................26
11. Advances And Prepayments .....................................................................................27
12. Inventory ...............................................................................................................29
13. Property, Plant And Equipment .................................................................................36
14. Intangible Assets.....................................................................................................44
15. Impairment Of Non-Financial Assets .........................................................................48
16. Non-Current Asset Held For Sale...............................................................................53
17. Borrowing Costs ......................................................................................................57
18. Related Party Disclosures .........................................................................................59
19. Events After The Reporting Period ............................................................................61
20. Investments In Associates (Ias 28) ...........................................................................63
21. Investment Property (Ias 40) ...................................................................................66
22. Leases ....................................................................................................................69
23. Liabilities ................................................................................................................77
24. Revenue .................................................................................................................80
25. Expenses ................................................................................................................82
26. Employee Benefits ...................................................................................................82
27. Payroll ....................................................................................................................83
28. Taxes & Legal Liabilities ...........................................................................................85
29. Provision ................................................................................................................91
30. Period End And Year End Procedures ........................................................................91
31. Annual Financial Statements.....................................................................................95
32. Management Accounting ........................................................................................ 109
33. Auditing................................................................................................................ 118
Annex 120
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1. INTRODUCTION
The Income Generating Activity (IGA) wing of the Ethiopian Economics Association, hereinafter
referred as EEA-IGA is established on July 1, 2020 in Addis Ababa, Ethiopia. EEA-IGA is evolved
from the Ethiopian Economics Association (EEA) to be dedicated for the income generating activities
as the relevant laws require separation of income generating activities from civil society roles.
This manual is developed with the objective utilization of EEA-IGA’s resources effectively and
efficiently, to support the strategic goals of EEA-IGA by ensuring the profitability of the various
business units. This manual also addressed best practices, International Financial Reporting
Standards (IFRS), tax proclamation, and existing directives, and policies of EEA-IGA.
The manual contains financial policy, internal control procedures, segregation of duties within the
financial management system, the accounting entry, reporting and other pertinent financial
management procedures. To assist managers at all levels, accurate, complete and timely information
on financial performance of different business units, utilization of financial resources, budgetary
controls, and other similar issues are very vital. In addition, the submission of such financial
information at the right quality, on a timely basis to regulatory bodies, and the appropriate
stakeholders is equally important and mandatory.
The manual serves as a guide in the process of financial management, recording, analyzing and
summarizing, accounting transactions in such a way that it enables the generation of financial
information for both internal and external users and for the efficient management of financial
resources of EEA-IGA.
The Executive Committee of EEA is the hugest decision-making body in revision and amendment of
this manual. The Management of the IGA is responsible for the implementation of this manual. The
structure and staffing of the IGA is depicted under Annex 1/A.
Key terms are explained in a glossary attached (Annex 33)
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2. Accounting System
2.1.1. The accounting system of EEA-IGA is based on IFRS where the basis of accounting is
accrual.
2.1.2. The accounting system is centralized which allows segment reporting by revenue and
cost centers.
2.1.3. Cost accounting system should be established to the extent that cost can be
meaningfully measured at the level of every business units (cost center level).
3. Accounting Period
3.1.1. The Accounting period of EEA-IGA is from July 1 to June 30
3.1.2. The accounting period of EEA-IGA may be changed to a different period with the
request of the GM and approved by the Executive Committee of EEA.
4. General Accounting Practices
4.1. Computerized Accounting
4.1.1. EEA-IGA shall maintain a computerized book of accounts
4.1.2. Basic company setup including creation of chart of accounts, customers, vendors,
inventory and other maintenance IDs shall only be made with the authorization of
the Finance Manager or his delegate.
4.1.3. All accounting transaction should be recorded into the computer system on a daily
basis.
4.1.4. Only Authorized personnel shall have access to the computerized accounting system
and its components. Users of the computerized accounting system who are outside
the Finance Department shall have only “read access”.
4.1.5. Access to the accounting software should be segregated by roles as applicable to the
respective individuals.
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4.1.6. It is strictly forbidden to use a password of a colleague to access the accounting

system.
4.1.7. Backup must be made on a daily basis using a separate media, and must be kept in
a safe place outside the server room.
4.1.8. Monthly backups should be taken and kept in a separate location under the control
of the finance Section heads and Finance Manager. Backup files should be kept in a
fireproof safe box.
4.1.9. Annually backup has to be taken before and after closing procedures in a separate
backup media where the media clearly marked with the dates and where the backup
was conducted before or after closing. The version of the accounting software should
also be indicated in the backup media. The backup media be kept in a fireproof safe
box.
4.1.10. Refer the software for a year end procedure to be taken before closing an account.
4.2. Accountable Documents
4.2.1. The purpose of accountable documents is to evidence the movement of

organizational resources. This includes cash collection and disbursement documents,
stock and property receiving, issuing and disposal documents.
4.2.2. Accountable documents are formally printed in a printing press with duplicate copies
until such time these documents are produced electronically.
4.2.3. Finance Department shall be responsible for the development, maintenance and
recording of accountable documents with the authorization of the IGA Manager.
4.2.4. Finance Department should ensure that appropriate clearance or support letter
acquired from the Ministry of Revenue for printing of accountable documents.
4.2.5. Unused Accountable documents should be controlled, registered and kept safely.
4.2.6. Accountable documents are issued to user against store issue vouchers.
4.2.7. The relevant copies of used accountable documents should be recorded, filed
sequentially according to their type, intact daily together with supporting document
in a secured place by the respective units of EEA-IGA.
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4.2.8. The original and all copies of cancelled vouchers, other than the pad copy, must be
filed with the Finance copy.
4.2.9. Used financial documents shall be kept by designated personnel from the finance
department.
4.2.10. Financial documents shall be kept for a minimum of 10 years and shall be disposed-
off with the decision of the Executive Committee of EEA. Key financial documents
may be retained digitally with the guidance of Finance Department and other relevant
departments.
4.3. Journal Vouchers
4.3.1. Journal vouchers will be used to record all transactions not evidenced by other
recording documents, like Purchase and per diem advance settlements, periodic
adjustments (accruals and provisions) and correcting and reversing entries.
4.3.2. Journal vouchers shall be prepared, with supporting documents attached to it and
being filed in numerical sequence for posting. A printed form will be used and should
be numbered sequentially for each year, starting from 1.
4.3.3. The Finance Manager should approve journal vouchers before they enter into the
computer database. The accountant who entered the transaction into the computer
system will sign for posting.
4.3.4. Journal vouchers should be in the format illustrated (Annex 2/A), as this format
facilitates identification and recording of ledger entries.
5. Investment and Cash Management
5.1. Investment
5.1.1. New project ideas should be supported by a feasibility study and business plan.
5.1.2. Feasibility studies should be reviewed and discussed by the IGA management.
5.1.3. New investments and expansion projects shall be implemented when approved by
the Executive Committee of Ethiopian Economics Association.
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5.2. Optimum Cash balance
5.2.1. Only optimum cash necessary to meet anticipated operational expenditures, to meet short
term liabilities (obligations) and to pay for capital expenditures to be effected in the coming
six months plus reasonable minimum cash for emergencies shall be kept available. Any
excess cash shall be invested in a liquid, income- producing instrument (including time
deposit, treasury bills but not acquisition of shares), as approved by the Executive
Committee of EEA.
5.3. Pricing and Credit Sales
5.3.1. Rental Service Fee rate shall be determined based on market assessment made by the
management of the IGA and final rates shall be determined by the IGA Manager
5.3.2. Other service fee shall be determined based on market assessment and shall be effective
when approved by the IGA manager.
5.3.3. The management of the IGA shall develop a credit sales policy for the provision of the
various services rendered by the IGA. It shall implement when approved by the Executive
Committee of EEA.
5.4. Borrowing
5.4.1. The EEA-IGA may borrow short term and long-term loans from banks for working
capital and long-term investments when approved by the Executive Committee of EAA.
5.4.2. Borrowing requests should be supported by a financial proposal which indicates the
return on investment and proposed repayment schedules.
5.4.3. The assets of EEA-IGA shall only be used as a loan collateral when approved by the
Executive Committee of the EAA.
5.5. Write-off long outstanding receivables
5.5.1. Long outstanding receivables may be write-off with the request of the GM of the IGA
and only when approved by the Executive Committee of EEA.
5.5.2. Reasonable effort should be made by the management of the IGA before request for
a write-off.
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5.6. Disposal of assets
5.6.1. Assets which are obsolete or no longer required by the EEA-IGA shall be disposed of
on a transparent manner with the approval of the Executive Committee of EEA.
5.7. Insurance
5.7.1. The Finance Manager should periodically review and assess insurance coverage
requirements (which includes property employee insurance) and ensure that budget
for insurance premium is accounted in the annual budget.
5.7.2. Insurance policy should be acquired only for relevant perils
5.7.3. To efficient follow-up of insurance renewals, the insurance period for all insurance
policy should be same ending (closing) date
5.7.4. Insurance claim should be reported and followed up immediately as indicated in the
insurance policy and claims should be collected promptly
5.7.5. The Finance Manager maintain a register for the follow-up of insurance policies. The
register, among other things should include the insurance policy number, description
of the insured item, the insured sum, the annual premium, the scope of the insurance
coverage, the name of insurer and other useful information.
5.8. Budget
5.8.1. Budget Preparation
5.8.1.1. The budget of the IGA shall be prepared by the management of the IGA taking
into account the activity plan of the IGA for the year.
5.8.1.2. The Finance Manager takes the lead for the annual budget preparation. The EEA
finance department need to be consulted in the course of the annual budget
preparation to harmonize the dividend and other financial relation that may occur
between the two entities in the budget year.
5.8.1.3. Annual budget should consider the strategic plan of the IGA.
5.8.2. Budget Approval, Execution and Control
5.8.2.1. Annual budget shall be approved by the Executive Committee of EEA.
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5.8.2.2. Annual Budgets are implemented by the GM of the IGA.
5.8.2.3. The Finance Department shall prepare a cash flow forecast.
5.8.2.4. Budget analysis reports are reported monthly and appropriate actions should be
taken after evaluation of such reports.
5.8.2.5. When anticipated expenditure for the acquisition of a fixed asset exceed the
budget by more than 10%, a prior approval of the CEO is required.
5.8.2.6. Budget transfer request should be approved by the CEO of EEA, with a format per
Annex 5/A.
6. CHART OF ACCOUNTS
The chart of account is designed so that it can accommodate future expansions. Some of the
accounts included in the chart of accounts may be used only when they are essential to use them.
6.1. CODING SCHEME
6.1.1. Elements of financial statements are classified as follows:
Accounts start with Category

1 Assets
2 Liabilities
3 Capital
4 Revenue
5 Direct Service Costs
6 General & Admin Expenses
6.1.2. High level account structure

Classification
Classification
Elements of
Description
Reference
Sub-sub
Main
IFRS
Sub
FS
1 Assets IFRS 1, IAS 1

11-14 Current Assets
11 Cash IFRS 9
12 Receivables IFRS 9
13 Inventories IAS 2
131 Inventories
15-19 Non-Current Assets
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15 Property, Plant and Equipment IAS 16

16 Lease IFRS 16
17 Investment Property IAS 40
18 Deferred Tax Assets
181 Deferred Tax Assets
2 Liabilities IFRS 9
21-24 Current Liabilities
21 Trade Debtors
211 Deposit Payables
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221 Tax Liabilities IAS 12
222 Staff Payables
227 Employee Benefit Payable IAS 19
24 Non- Current Labilities
241 Deferred Tax Liabilities
243 Bank Loan
3 Equity IAS 1
311 Capital
Capital
Accumulated Profit
312 Revaluation Reserve IAS 16
4 Revenue IFRS 15
5 Direct Costs
511 Rental Service costs
512 Catering Service Costs
6 601 Admin Expenditures
6.1.3. Revenue / Cost Centers
6.1.3.1. Directly traceable costs of revenue centers shall be charged to the appropriate cost
center account group. Major revenue streams are:
• Rental Income (office space)

• Training service Fee
• Venue rental income
• Sales of training materials
• Printing & Related works
• Stationary, paper and paper products whole Sales
• Café and Breakfast Service
• Renting Car Business
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• Consultancy on Social Issues

• Consultancy on Economic & Business Development Issues
• Regular Higher Education Service
• Film & Theater Demonstration
• Organizing sport and other activities including
• Gymnasium service
• Other Income
See Annex 6/A for the detail chart of accounts.
7. Financial Instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability
or equity instrument of another entity. IFRS 9 requires all financial assets (except equity instruments and
derivatives which are not available for EEA-IGA as of this reporting period) to be assessed based on a
combination of the entity’s business model for managing the assets and the instruments’ contractual
cash flow characteristics. Following its assessment, the management of EEA-IGA determined that its cash
and bank balances, staff advances and receivables to be measured at amortized cost in accordance with
IFRS 9. The Company does not have any financial assets classified as Fair Value Through Profit or Loss,
Held to Maturity or Available-for-Sale
7.1. Financial assets

7.1.1. Financial assets are cash, trade and other receivables other than prepayment deposits.
Initial recognition and measurement
7.1.2. Financial assets are classified, at initial recognition, as financial assets at fair value
through profit or loss, loans and receivables, held-to-maturity investments, as
appropriate. EEA-IGA determines the classification of its financial assets at initial
recognition.
Subsequent measurement
7.1.3. The subsequent measurement of financial assets explained in the relevant section of
the varies financial assets. See Receivable section of this manual
Derecognition of financial assets
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7.1.4. A financial asset (or, where applicable, a part of a financial asset or part of a group of
similar financial assets) is derecognized when the rights to receive cash flows from the
asset have expired or EEA-IGA has transferred its rights to receive cash flows from the
asset or has assumed an obligation to pay the received cash flows in full without
material delay to a third party under a ‘pass-through’ arrangement; and either (a) EEA-
IGA has transferred substantially all the risks and rewards of the asset, or (b) EEA-IGA
has neither transferred nor retained substantially all the risks and rewards of the asset,
but has transferred control of the asset
7.2. Financial liabilities

Initial recognition and measurement
7.2.1. Financial liabilities are classified, at initial recognition, as financial liabilities at fair value
through profit or loss and other liabilities. EEA-IGA does not have any financial liabilities
classified as Fair Value Through Profit or Loss.
7.2.2. EEA-IGA’s financial liabilities include trade and other payables and loans. These are
classified as Other Financial Liabilities and are measured at fair value on initial
recognition, net of transactions costs and subsequently at amortized cost using the
effective interest rate method.
Loans and borrowings
7.2.3. This is the category most relevant to EEA-IGA. After initial recognition, interest-bearing
loans and borrowings are subsequently measured at amortized cost using the EIR
method. Gains and losses are recongnised in profit or loss when the liabilities are
derecognized as well as through the EIR amortization process.
7.2.4. Amortized cost is calculated by taking into account any discount or premium on
acquisition and fees or costs that are an integral part of the EIR. The EIR amortization
is included as finance costs in the statement of profit or loss. This category generally
applies to interest-bearing loans and borrowings.
Derecognition
7.2.5. A financial liability is derecognized when the obligation under the liability is discharged
or cancelled or expires. When an existing financial liability is replaced by another from
the same lender on substantially different terms, or the terms of an existing liability are
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substantially modified, such an exchange or modification is treated as the derecognition

of the original liability and the recognition of a new liability. The difference in the
respective carrying amounts is recongnised in the statement of profit or loss.
7.3. Offsetting of financial instruments

7.3.1. Financial assets and financial liabilities are offset and the net amount is reported in the
consolidated statement of financial position if EEA-IGA has currently enforceable legal
right to offset the recognized amounts and there is an intention to settle on a net basis,
to realize the assets and settle the liabilities simultaneously.
7.4. Financial Risk Management

7.5. General objectives, policies, and processes
7.5.1. The Manager EEA-IGA has overall responsibility for the determination of EEA-IGA's risk
management objectives and policies and, whilst retaining ultimate responsibility for
them, it has delegated the authority for designing and operating processes that ensure
effective implementation of the objectives and policies to EEA-IGA’s finance function.
7.6. Credit Risk

7.6.1. Credit risk is the risk of financial loss to EEA-IGA if a customer or counterparty to a
financial instrument fails to meet its contractual obligations. Significant portion of the
IGA revenue comes from rental services where tenants are required to pay in advance
for one or multiple months rental fees. Hence the credit risks are generally minimal.
7.6.2. EEA-IGA may pay advances and deposits and small amount of credit sales of
publications and other services. The management should assess the credit risk of new
customers before entering contracts. Management should periodically review aging
analysis reports (to be submitted by the finance department at least once in a month)
and should take appropriate measure for the collection of overdue balances.
7.6.3. EEA-IGA's maximum exposure to credit risk is limited to the carrying amount of the
receivables. Further disclosures regarding trade and other receivables including
amounts which are neither past due nor impaired and concentrations of credit risk are
also to be disclosed.
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7.7. Liquidity Risk

7.7.1. Liquidity risk is the risk that EEA-IGA will not be able to meet its financial obligations as
they fall due. Hence, it is the responsibility of the Finance Manager and the IGA manager
to plan for an efficient working capital management.
7.7.2. The management should ensure that a sufficient funds are available to meet its short-
term business requirements, taking into account its anticipated cash flows from
operations and its holdings of cash and cash equivalents. To achieve this aim, it seeks
to maintain cash balances (or agreed facilities) to meet expected requirements for a
period of at least 45 days.
7.8. Interest Rate Risk

7.8.1. Interest rate risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in market interest rates. The EEA-IGA will
be exposed to interest rate risk if received any loan from bank. The risk that the EEA-
IGA will realize a loss as a result of a decline in the fair value of loans is limited because
the EEA-IGA‘s loans are based on market interest rates. If it received any loan, it is the
management shall monitor interest rate risks annually.
7.9. Currency risk

7.9.1. EEA-IGA exposure to currency risk is minimal unless it involves in the import or export
of materials. The immediate impact of currency depreciation (Birr against foreign
currency) is the price escalation of materials which will increase the overhead cost of
the EEA-IGA.
8. Cash
8.1. Definition
8.1.1. Cash and Cash equivalent: - are short-term, highly liquid investments that are readily
convertible to known amounts of cash and which are subject to an insignificant risk of
changes in value.
8.1.2. Cash represents the medium of exchange and is therefore the basis on which all transactions
are measured and recognized in financial statements. A deposit of cash with a bank EEA-
IGA has or similar financial institution represents the contractual right of EEA-IGA to obtain
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cash from the institution or to draw a cheque or similar instrument against the balance in
favor of a creditor in payment of a financial liability.
8.2. Recognition
8.2.1. EEA-IGA shall recognize cash when it becomes a party to its contractual provision / when it
gets hold of it and have the ability to exercise control.
8.3. Measurement
8.3.1. Cash and Cash Equivalent shall initially be measured at fair value (which is the face value)
and through amortized cost (the face value) in subsequent years.
8.4. Cash Collection
8.4.1. Cash receipts originate from revenue from rental services, sales of publications and other
services, borrowings, or in the form of capital contribution. Cash may be collected in
cheques, cash or bank transfer. Deposit Slips, Bank Credit Advice, Bank Statement and Bank
correspondences are the basic documents in connection with banking transactions.
8.5. Bank Account
8.5.1. Except small cash required for petty cash payments, cash has to be kept in bank in the
name of EEA-IGA.
8.5.2. Bank account shall be opened when approved by the Executive Committee of EEA.
8.5.3. When a bank account believed to be inactive for more than 12 months, it should be closed
when the Executive Committee of EEA approves the request of the GM.
8.5.4. Cheques shall be signed by two signatories. The signatories include the IGA Manager, the
IGA Finance manager and other delegated persons. The CEO of EEA and the Finance
Manager of the EEA (the association) shall be alternate signatories in the absence of the
IGA manager and the Finance Manager of the IGA
8.6. Cash Receipt from Sales

8.6.1. Cash received from Sales should be evidenced by VAT Cash Sales Invoice Attachment
together with a fiscal printer slip (Annex 8/A). However, cash received for the settlement
of credit sales for which a Credit VAT invoice has been issued earlier will be evidenced by
Cash Receipt Voucher. Invoicing and cash receiving functions should be handled by different
persons. The person in charge of preparing Cash VAT sales invoice (a person other than a
cashier) shall prepare Cash VAT sales Attachment in four copies and pass it to the cashier.
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The cashier collects the money; submits the original invoice to the customers and pass the
relevant copy to the accounts section together with the deposit slip.
8.6.2. Cash sales should be evidenced by receipts generated by a fiscal printer. VAT Cash sales
invoice used along with fiscal printer should be marked by marked “Attachment” as visible
as possible. The invoice has to be marked with a statement “This invoice is invalid without
fiscal receipt is attached”.
8.6.3. Standard VAT Cash Sales Invoice (Annex 8/B) without “attachment” mark is used only when
there is no electric power and in line with the relevant directives issued by Ministry of
Revenue (MoR) or other relevant laws in connection with use of Invoice without fiscal
printers.
8.7. Cash Receipt from Others
8.7.1. Cash collection for the settlement of credit sales and cash from any source (other than cash
sales on rental services and other cash sales) such as refund of staff advance, insurance
claim collection, and retention collection should be evidenced by pre-numbered and serially
sequenced Cash Receipt Voucher (Annex 8/C). It is prepared in three copies of different
colors. It should be pre-numbered, printed or written in ink (not in pencil) and distributed
as follows:
• The original is issued to the customer.
• The second copy is sent to Accounts.
• The third remains in the pad.
8.8. Internal Control over Collection/Receipt of Cash

8.8.1. Cash receipt shall be collected by officially designated cashier and deposited daily in EEA-
IGA’s bank accounts.
8.8.2. The cashier should not have access to accounting documents and records except cash
receipts currently in use, bank slips and deposit reports.
8.8.3. Accounting personnel should not have access to cash. New cash receipt pads shall be issued
to the cashier upon return of the used one.
8.8.4. Unused Cash Receipt Vouchers shall be kept in locks under close supervision and control of
the finance section, and a new pad should be issued to a Cashier accountant only after
ascertaining that all the leaves of the previously issued cash receipt pad are accounted for.
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8.8.5. Cash in safe and in transit shall be adequately covered by insurance. Cash should not be
kept in the safe box in excess of the sum insured.
8.8.6. For confirmation of receipt, Cashier shall initial cash receipt voucher.
8.8.7. Cash overages shall be treated as other income and a shortage shall be treated as receivable
and reported to the Finance Manager for appropriate actions.
8.8.8. Daily cash collections should be deposited intact on the date of receipt or the following day.
It is not allowed to effect payments from cash receipts.
8.8.9. Mandatory surprise cash count should be made at irregular intervals, and Cashier should
not keep third party funds in Company’s safe.
8.8.10. Incorrect receipt should be defaced by writing the word “VOID” or “CANCELLED”. The
original and copies together forwarded to accounts one copy should be filed on the pad.
8.8.11. In the event of a burglary or theft of funds, the cashier should immediately notify to the
IGA Manager, and if the case is serious, inform to police and Insurance.
8.9. Recording Cash Receipts
8.9.1. Each cash and check receipt transactions are recorded in the prime documents of Cash
Receipt Voucher, VAT Cash Sales Invoice and bank credit advices.
8.9.2. When there are more than cash collectors, separate Cash Receipt Voucher pad should be
provided for each of them. The posting of cash collections should be made directly from the
Cash Receipt Voucher, VAT Cash Sales Invoice and bank credit advices.
8.9.3. Cash receipts data shall be entered in to computer properly and timely using the accounting
software in use.
8.9.4. Entered data must be checked in detail with source documents as to their numerical
sequence, correctness of description, amounts and accounts coding before approval for
posting.
8.10. Cash Disbursement - Cheque
8.10.1. Payments made in cash and cheque shall be evidenced by pre-numbered payment
vouchers, where the voucher is to be approved by designated officials.
8.10.2. For all payments, sufficient supporting documentation should be presented and the
documentation to be attached to the respective payment vouchers. The following
documentation need to be available to the minimum:
▪ Approved “Request for Payment” (refer annex 8/D for the format to be used)
▪ Invoices for the purchase of goods and services.
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▪ Evidences of the receipt of goods (Goods Receipt Voucher) and a certificate of the
user department as to the receipt of services. The description indicated in the
Request for Payment may be sufficient for small service purchases.
▪ When payment is to be made to an employee for reimbursement or persons who

have not official invoice, the recipient must sign on payment voucher for proof of
payment.
8.10.3. All disbursements more than Birr 3000.00 shall be effected by cheque.
8.10.4. Request for new cheque pads shall be initiated by the Finance Manager of the IGA using
formats provided by the bank and the request to be approved by the authorized by the
Signatories.
8.10.5. Cheques are collected from the Bank by the Finance Manager/ or the IGA Manager or any
one of the signatories. When signatory, other than the Finance, collects a cheque, he/she
will deliver the check in the day of collection to the Finance Manager.
8.10.6. The Finance Manager ensures the availability of sufficient fund in the bank account before
disbursement is made by cheque.
8.10.7. Cheque may only be prepared against Request for Payment form in one copy with format
per (Annex */D) attached, which is to be approved for payment by the designated officials
and authorized by requesting section as verified by the Finance Manager.
8.10.8. Upon submission of approved payment Request for Payment, the designated accountant
shall prepare a pre-number Cheque Payment Voucher (CPV) (Annex 8/E) in two copies.
Withhold from payments the appropriate withholding taxes (refer the taxation section of
this manual) as applicable. If the payment request is not supported by adequate
documentation, the accountant will return the request form to the requesting section with
a remark.
8.10.9. The original CPV together with supporting documents should be filed in order. If certain
supporting documents are filed in sequence due to their peculiar nature, such as
contractual agreements and procurement files, the document reference or the file number
has to be cross referenced with the payment voucher in such a way that these
documentations can be easily accessed for reference.
8.10.10. Cheque book stubs should be completed with payee's name, amount, direct payment
voucher number and the stub should be initialed by the Finance Manager. The authorized
signatories should initial the check stubs.
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8.10.11. Blank cheques must never be signed by signatories.

8.10.12. Incorrect cheques shall be marked “VOID” or “CANCELLED” and signatures on the
cancelled cheque must be defaced. A payment voucher should be prepared for the
cancelled cheque for the purpose of keeping the sequence of recording all other cheques.
8.10.13. Cheque shall be released only to the payee or his authorized representative upon
presentation of an official receipt or signing on the CPV. The power of attorney of an
official representative and his ID card should be copied and attached to the voucher when
personal cheques are paid to a person other than the name indicated in the cheque.
8.10.14. Withdrawal of multiple payments in the name of the cashier should not be made. Such
exceptions have to be authorized by the Finance Manager.
8.10.14.1. Cheque payment vouchers and supporting documentation should be stamped
PAID and the CPV No. and date inserted by the person who prepares the checks.
8.10.14.2. A Cheque payment of a single transaction should not be split.
8.10.14.3. Advance payment in cheque for purchase should be settled within 7 days.
8.11. Bank Transfers (Using Letter)

8.11.1. Payment may be made using a letter requesting a bank to transfer to a beneficiary or
by completing a standard template of a bank. This method is used when payment by
cheque is not convenient. The letter should indicate the name of the branch/beneficiary
and the name of the Bank Branch and of the bank account (if required).
8.11.2. The requesting department which initiates the transfer should fill in the Request for
Payment form and get the approval from the relevant section head. The internal control
procedures for the preparation of cheques apply also for bank transfers payments.
8.11.3. Letter requests to Bank for cash transfer are to be approved by the cheque signatories.
Bank transfer letters should be prepared in one extra copies. One copy will be retained
by accounts where the supporting documentation to be attached to it.
8.11.4. The bank notifies the payment action for the requests by sending debit advices
specifying the amount charged to EEA-IGA bank accounts. The Finance Manager should
check the debit advice against the letter and request for Payment.
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8.12. Bank Reconciliation

8.12.1. Bank reconciliation shall be prepared monthly within five days from the end of each
month. The reconciliation will be between the bank statement and the bankbook which
is to be generated from the accounting software.
8.12.2. Before conducting the reconciliation activities, the accountant responsible for the
reconciliation has to make sure that all the advices reflected in the bank statement are
collected.
8.12.3. The reconciliation should give a complete and satisfactory explanation discrepancy
between the book and the statement. Unexplained difference between bank and book
record should investigated immediately.
8.12.4. Monthly reconciliation should be prepared by an accounting staff that is not involved in
preparing and approving vouchers or writing cheque. It shall be approved and signed
by the Finance Manager and the IGA Manager. Annex 8/K
8.12.5. Cancelled checks should be kept attached to the check stub.
8.12.6. Bank statements should be filed for future reference.
8.12.7. Banks do not issue advices for some expenses such as bank service charges. These
expenses shall not be carried over as reconciling items and proper accounting entry
should be processed immediately.
8.12.8. Cheques drown more than six (6) months prior to the date of reconciliation are
considered to be long outstanding and will be written back to operating funds.
8.12.9. All reconciling items should be recorded and cleared in the subsequent month if not in
the current month.
8.13. Petty Cash

8.13.1. A petty cash fund is established to meet petty and recurring expenses which would not
normally require the writing of cheques. Petty cash operations should follow the imprest
system where cash on hand plus the documents paid out of the fund should equal to
the established petty cash fund.
8.13.2. Petty cash fund shall be established on imprest system whereby the cashier is advanced
a float of a fixed amount, which will always be represented by cash or vouchers. The
fund will be used for effecting single payments of Birr 3,000 or below.
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8.13.3. Petty cash float shall be Birr 10,000. The float size may be reviewed as and when
needed and revised when approved by the IGA Manager.
8.13.4. Payments from petty cash must be requested using a Payment Request Form, invoice,
payment order and slip and signed by the requesting unit.
8.13.5. The cashier shall prepare a pre-numbered PCPV in two copies with format per (Annex
8/F) attached then authorized and approved by the Finance Manager.
8.13.6. When it is not possible to get official (formal) receipts for payments, it is essential to
prepare internal invoice with a format per (Annex 8/H) to be approved by the requesting
Section head before presented to accounts for settlement. The recipient of the cash
should sign for receiving.
8.13.7. For small payments where the exact amount of payment is not known, the payment
may be effected using a suspense voucher which is to be replaced against invoices. A
suspense voucher should not be prepared for more than Birr 3,000 and should not be
used for salary advances.
8.13.8. Suspense advances must be approved and paid using a Suspense Voucher in one copy
with format per (Annex 8/G), adequately documented and settled within five days of
payment. A detailed list of all pending suspense vouchers must be submitted to the
senior accountant and section head for review at the time of replenishment.
8.13.9. Once the suspense voucher replaced with Petty Cash Voucher (or refunded in full) it
has to be returned to the person signed for receiving the cash on the suspense. The
person has to check and destroy the form.
8.13.10. Petty cash payment should be replenished when 75% of the fund is paid. The petty
cash replenishment request should be replenished in two days from the date of request.
8.13.11. Cashiers should not have access to the accounting records or check books other than
petty cash vouchers, petty cash report and request forms, cash receipts and bank
deposit slips.
8.13.12. Custodians of petty cash funds are solely responsible for the safety of such fund and
must at all times secure the approval of the Finance Manager/Section head when
effecting payment.
8.13.13. Any overage in petty cash fund will be considered as company fund, and under no
circumstances will the custodian be entitled to claim such overage as his/her personal
fund. All such excess shall be deposited to EEA-IGA’s bank account.
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8.13.14. Documents supporting each disbursement and the petty cash vouchers shall be
stamped PAID or defaced by cashier accountant to prevent reuse.
8.13.15. Periodic surprise counts should be made by the Finance Manager or by senior
accountant when delegated.
8.13.16. PCPV shall be prepared per beneficiary and the cashier should not withdraw a petty
cash and pay for multiple people.
8.13.17. All paid vouchers/receipts and petty cash report and request must be stamped
REPLENISHED and referenced to the direct payment voucher number and date by which
replenishment was effected.
8.13.18. The cashier will record payments daily in numerical sequence on a Petty Cash Summary
and Replenishment Request form with the format as per (Annex 8/I) attached, in two
copies. The original, attached with the supporting documents being given to the
accounts when replenishment is requested. The other copy will remain with the cashier.
The amount of the petty cash float will be brought forward in the Balance column, the
balance being diminished by each payment made so that it always reflects the value of
cash and suspense vouchers on hand.
8.13.19. A senior accountant /or the Finance Manager should count the cash on hand, inspect
the suspense vouchers and agree them with the schedule prepared by the cashier
accountant and agree the totals with those reported on the Petty Cash Report and
Request and forwarded to the Finance Manager/ Section head for approval. Format per
Annex 8/J to be used for all cash counts.
8.13.20. The senior account will check the Petty Cash Report and Request for correctness and
he/she must also review the schedule of pending suspense vouchers to ensure that
advances are being cleared within the prescribed time limit. The Finance Manager then
approves the summary and forward it for cheque preparation for replenishment.
8.13.21. The Finance Manager should sign for receiving of the petty cash documents from the
petty cashier on the petty Cash Request & Replenishment Form.
8.13.22. The Petty Cash Report and Request should be filed with the petty cash vouchers to
which they relate in a separate petty cash payments file and should not be filed (mixed)
with the cheque payment vouchers.
8.14. Journal Entries
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Debit Credit
1 Cash Collection
a Cash Sales
Cash on Hand /Bank xx
Revenue xx
VAT Payable xx
Other Collections
b Cash on Hand/Bank xx
A/R, Staff xx
C For Bank Credit Advice:

Cash in Bank xx
Account Receivables xx
Note that this entry is with the assumption that a Credit VAT
invoice was prepared before or after the transfer made into the
bank account of EEA-IGA by the customer
d For Cash Deposit in the Bank
Cash in Bank xx
Cash on Hand xx
2 Cheque Payments / Bank Transfers
Purchase and Settlement
Asset/Liability/Expense/Cost xx
VAT receivables (if VAT invoice received) xx
Cash in Bank xx
On Establishment of petty cash

Petty Cash Fund /Custodians/ xx
Cash in Bank xx
On replenishment of petty cash
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Debit Credit
Expense/Asset/Liability xx
Cash in Bank xx
On Establishment of petty cash

Petty Cash Fund /Custodians/ xx
Cash In Bank xx
On replenishment of petty cash

Expense/Asset/Liability xx
Cash In Bank xx
9. TRADE RECEIVABLE
9.1. Definition
9.1.1. Trade Receivable represents a contractual right EEA-IGA has to receive cash or cash
equivalent in the future.
9.1.2. Trade Receivables (Trade Debtors) are receivables arise from sales goods and services on
credit.
9.2. Credit Sales
9.2.1. Credit sales of goods and services shall be authorized by the designated official.
9.2.2. The IGA will have a price list approved by the executives of EEA.
9.2.3. All credit sales of services shall be evidenced by VAT credit Sales invoice with attachment
with a format per Annex 9/A, when a fiscal printer is operational.
9.2.4. In a situation where the fiscal printer is off for maintenance, a manual Credit Sales Invoice
shall be prepared in line with the guidelines issued by the Ministry of Revenue with a
format per Annex 9/B.
9.3. Recognition
9.3.1. EEA-IGA shall recognize Trade Receivables when it becomes party to the contractual
provisions (when EEA-IGA has/gets the right to the cash flows from trade receivable)
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9.4. Measurement
9.4.1. EEA-IGA shall initially measure trade receivables at their transaction price. For subsequent
measurements, EEA-IGA shall use amortized cost (transaction price of trade receivables
along with providing for life time credit loss allowance)
9.4.2. EEA-IGA measures the loss allowance at an amount equal to lifetime expected credit
losses using provision matrix.
o The provision matrix is based on its historical observed default rates, adjusted
for forward looking estimates.
o At every reporting date, the historical observed default shall be updated to
reflect current and forecast credit conditions if there are conditions that
indicates default rates have changed.
Provision matrix format

Due date 1-30 days 31-60 days 61-90 More Than
due due days due 90 days due
Allowance rate 0 0% 0% .01 % 10%
10. Staff Loan
10.1. Definition
10.1.1. Loan to staff - represent a contractual right EEA-IGA has to receive cash in the future.
10.1.2. Initial and subsequent recognition- EEA-IGA shall recognize loan to staff advances
when it becomes party to the contractual provisions (when EEA-IGA has/gets the right
to the cash flows from staff loans).
10.2. Policy
10.2.1. Staff loan may be provided if permitted in the HR manual and pre-conditions for loans are
fulfilled and approved by the IGA manager.
10.3. Measurement
10.3.1. Loan to staff advances shall initially be measured at discounted market value minus
transaction costs that are directly attributable. For subsequent measurements, EEA-IGA
shall use Amortized cost method using prevailing Market interest rate.
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10.4. Short-term Staff Advances

10.4.1. Short term staff advances that are going to be redeemed with in a period of 12
month or less can be carried at cost.
11. Advances and Prepayments
11.1. Prepayments
11.1.1. Prepayments are advance payments for purchase of goods or Services; such prepaid
amounts represent future economic benefits that acquired in exchange for cash payments.
As such, the initial expenditure gives rise to an asset. As time passes, the asset is
diminished. This means that adjustments are needed to reduce the asset account and
transfer the consumption of asset’s cost to an appropriate expense account.
11.1.2. Prepayments are not financial assets unless there is anticipation of refund or in the form
of cash or other assets. They shall initially and in subsequent years be measured at
transaction price. Prepayments can be presented on the financial statement under the
category of “other assets”. EEA-IGA may have the following Prepayments:
• Prepaid Insurance
• Prepaid Rent
• Other prepayments
11.1.3. Receivables that arise from advance to supplier, claims from tax refund and insurance
claims are not financial assets and are governed by other standards and EEA-IGA’S policy
towards the above items are detailed below. These short-term assets can be presented
on the financial statement under the category of “other assets”
11.1.4. When there is no reasonable expectation of recovering part or full amount of financial
assets, the gross amount of the financial assets shall be reduced to reflect the expected
amount to be recovered from the assets.
11.2. Travel Advance
11.2.1. Travel and per diem advances represent money advanced to employees of EEA-IGA for
approved business travel outside their duty station. The rate and detailed procedure shall
be specified in Human Resource manual.
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11.2.2. Travelers (the staff) should fill Travel Advance Request Form (Annex 11/A) before
departure and it has to be approved by authorized official before processing advance
payment.
11.2.3. Advances for per diem is paid only after ascertaining the previous travel advance has been
settled.
11.2.4. Travelers should complete a Travel Declaration Form (Settlement Form) with a format per
Annex 11/B and should get the approval of their respective department head or Section
head as applicable before submission to finance for settlement.
11.2.5. The Finance Manager or any designated person has to check the validity of the supporting
documents. Where any errors are found, the Travel Declaration and Settlement Form
should be returned to the traveler with a memo listing the errors or omissions.
11.2.6. Travelers should submit the approved travel expense report up on return from trip and an
accountant from the Finance Department should verify and forward the report to the
authorized official for approval. If the traveler spends more than the advance and
overspending is approved, a petty cash voucher or direct payment voucher is prepared
for the difference. Any balance not utilized should be returned to the cashier and a cash
receipt voucher is prepared.
11.2.7. Travelers are required to complete a Terms of reference before travel and also submit a
one-page travel report as part of settlement procedure. Internal auditors may not require
to present very detail report if they think it compromise their result of an ongoing internal
audit.
11.2.8. All per diem advance payments are initially charged to staff debtor account by the name
of the staff. Approved Travel Declaration and Settlement Form should be submitted for
the settlement of the advance payment. At the time of the settlement, the appropriate
expense or cost account will be debited and the staff advance account will be credited.
Debit Credit
Upon giving a purchase advance
Purchase Advance (with purchaser name)

Cash or Cash in Bank xx
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Debit Credit
xx
Upon settlement of advances xx
Inventory/Expense/Cost xx
Purchase Advance (with purchaser name) xx
When payment is made as prepayment

Prepaid rent/Insurance etc xx
Cash in Bank xx
To transfer expired portion to expense
Rent/ Insurance Expense etc xx

Prepaid Rent/Insurance etc xx
12. INVENTORY
12.1. Definition
12.1.1. Inventories are assets: (a) held for sale in the ordinary course of business; (b) in the
process of production for such sale; or (c) in the form of materials or supplies to be
consumed in the construction process, production process or in the rendering of
services.
12.1.2. Inventories at EEA-IGA includes maintenance supplies, office supplies for consumption
(that are consumed with in a period of 12 month) general supplies and other items
which are not qualified for definition of Property, Plant and Equipment.
12.2. Recognition
12.2.1. Inventories shall be recognized when they satisfy the definition/recognition criteria of
assets (I.e when the resource is controlled by the EEA-IGA, there is a past event to it
and it is probable that future economic benefit will flow to the EEA-IGA) and EEA-IGA
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can measure the cost or the value reliably. EEA-IGA shall recognize inventories obtained
through construction/ purchase/ production/exchange/gift or transfer.
12.3. Measurement
12.3.1. Inventories, shall be measured at the lower of COST and Net Releasable Value (or
replacement Cost)
Cost of inventories
12.3.2. Purchase price, transport, handling and other costs directly attributable to the
acquisition of finished goods, materials and services, trade discounts and rebates of
purchase.
12.4. Net Realizable Value
12.4.1. Net releasable value includes expected selling price; less expected costs to sell (for the
trading and real estate unit)
12.4.2. Net releasable value includes Market value less cost to sell (for the transport and real
Estate units)
12.5. Recognition as expense
12.5.1. When inventories are sold or consumed the carrying amount of those inventories shall
be recognized as an expense in the period in which the related revenue is recognized.
12.5.2. Materials and supplies which are consumed up on issue can be expensed right away.
12.6. Measurement
12.6.1. EEA-IGA shall use weighted Average method to value its inventories.
12.6.2. Inventory is measured at Lower of Cost and Market Value or replacement cost
12.7. Presentation
12.7.1. Inventory shall be presented in the Statement of financial Position as current asset.
12.8. Disclosure
12.8.1. The financial statements shall disclose
• Accounting policies adopted for measuring inventories and the cost flow assumption (i.e.,
cost formula) used
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• Total carrying amount as well as amounts classified as appropriate to the entity

• Carrying amount of any inventories carried at fair value less costs to sell
• Amount of inventory recognized as expense during the period
• Amount of any write-down of inventories recognized as an expense in the period
• Amount of any reversal of a write-down to net realizable value and the circumstances that
led to such reversal
• Circumstances requiring a reversal of the write-down
12.9. Acquisition and Valuation
12.9.1. Inventory items are purchased in accordance with the procurement policies and
procedures manual.
12.10. Internal Control
Receiving
12.10.1. All inventory items purchased should be evidenced by Goods Receiving Note (GRN)
with a format per (Annex 12/A).
12.10.2. Name of supplier, date of receiving, Purchase requisition number, Purchase order
number, supplier invoice number, detail specification of items purchased, unit of
measures, quantity and other information’s should be filled in the Goods Receiving
Reports.
12.10.3. Supplies purchased and used immediately shall be recorded in Receiving/Issuing

Voucher with a format per (Annex 12/B) in four copies. The original copy will be
issued to the purchaser, first copy will be issued to accounts to compute cost of
material, and one copy will be retained by the store keeper and the last copy retained
in the pad.
12.10.4. The purchaser will submit the original copy of the Goods Receiving Report together
with the remaining supporting documents (invoices, purchase orders etc) to the
Finance Department for the settlement of the advanced for purchase.
12.10.5. Damaged goods and shortages of delivery should be remarked in the Goods Receiving
Report. Such shortages and damages should be reported immediately to Supply &
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Procurement Manager. The Supply and Procurement manager shall follow-up for
insurance claim when applicable.
Requisition
12.10.6. Store Requisition is initiated by staff in the user department and approved by the
head of the requesting section and authorized by Department Manager with a format
per (Annex 12/C) in four copies. The Store Requisition should be pre-numbered and
serially sequenced. The original and first copy of the Store Requisition are issued to the
warehouse. If the requested item is not available in the warehouse, the firs copy will
be issued to procurement by the store keeper and the last pad copy retained by the
originator or requester.
12.10.7. The requesting section has to fill in (in the Store Requisition) the name of the
requesting section, clearly indicate the specific type of materials with detail, model and
part number when applicable, the quantity required and unit of measure, Date on which
the section/team is wishing to receive the items.
12.10.8. For Stock items which are not available in the store, a Purchas Requisition Form
shall be completed by the store keeper with a format per Annex 12/D
issues
12.10.9. Inventories are issued to users from store against Store Issue Voucher (following
the approval of Store Requisition) with a format per (Annex 12/E) in four copies.
12.10.10. Store Issue Voucher is prepared by a store keeper and authorized by a designated
person and signed for receiving by the user. The original copy of the Store Issue
Voucher will be passed to the warehouse, first copy of Store Issue Voucher
submitted to account, the second copy issued to the user/ requested and the last
copy remained with pad.
12.10.11. The store keeper should deliver the requested items or should communicate the
requesting section if “out of inventory” in the same day where he/she receive the
approved Store Requisition.
Inventory Returns
12.10.12. Return of inventories for whatever reasons shall be evidenced using Stock Return
Voucher with a format per (Annex 6/F) in four copies. The original shall be given to
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the deliverer, one copy to the warehouse, one copy to accounts and the remaining
copy shall remain in the pad.
Inventory Control Record
12.10.13. The store keeper should maintain a bin card with a format per (Annex 12/H) for
each inventory item. The Bin card should contain the full description of the item
(including the specification) the item code, shelf number, date of receiving, and
issuing, quantity received and issued and the running balance of the item. Bin card
has to be recorded perpetually and immediately upon finalizing of the store
documents (Receiving, shipping and issuing documents).
12.10.14. Inventory records (Annex 12/G) are maintained by Finance Department using the
inventory module of the accounting software in use. For each item, a unique
identification number shall be provided regardless of the location. The marketing
department is responsible for the issuance of a standard reference system to be used
across the EEA-IGA.
12.11. Physical Count
Interim Physical count
12.11.1. High value inventory should be counted once in a month and should be reconciled
with the record maintained by Property Control Section. The basis of selection of items
to be counted should be mainly on the basis of 80/20 approach. This is to mean that
20% of the items in the inventory are representing 80% of the inventory value of the
items. Inventory items for the real estate are counted fully without the application of
80/20 approach.
12.11.2. Appropriate cutoff procedure has to be made to make sure that no inventory
movement taken place during the count. The count team has to sign at the back of the
last used inventory receiving and issuing just before the count.
12.11.3. Inventory count shall be captured using an inventory count sheet with a format
per Annex 12/I.
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12.12. Review / Reconciliation
12.12.1. Appropriate measures, should be taken for discrepancy found between the
inventory record and physical count. Recount should be made when necessary.
12.12.2. Compensating or offsetting of inventory shortage and overage for identical items
with a variation of weight and size differences is not allowed.
12.12.3. Inventory shortages which result from inherent nature of the product will be
adjusted against consumption, if the variance is within the acceptable range (tolerance
limit or allowances). This is applying to inventory items such as fuel, oil and lubricant,
chemicals and dyestuff etc. Various means, including measuring instruments, trends
and experiences will be helpful to determine the allowance.
12.12.4. The shortage as a result of leak or waste for each product need to be determined
based on actual experience. Procurement & Supply section is responsible for the
determination of normal acceptable wastage (loss) level of such products. Custodians
will be accountable for inventory shortages in excess of the acceptable leakage or
wastage level.
12.13. Disposal
12.13.1. Inventory should be disposed in accordance with the Property Administration

Manual of EEA-IGA. The manual describes the manner in which users request for
disposal, the role of Property team, the disposal committee, the IGA Manager and IGA
Manager of EEA-IGA.
12.13.2. Disposal of significant inventory should be communicated to Ministry of Revenue

(when the value of the items to be disposed is significant) well in advance so that they
witness the disposal.
12.13.3. Inventory account will be adjusted based on approved inventory disposal

document.
12.14.1. At the time of Acquisition
▪ When items are purchased:-
Accounts Debit Credit
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Asset/Stock/Purchase/Inventory xx
VAT Receivable xx
WHT Payable xx
Cash at bank / account payable xx
▪ At the time of sales Consumption
Debit Credit
Accounts
Cost of goods Sold / Direct Costs XXX
Inventory/Stock XXX
▪ During Year End
▪ Case I: - If the cost of ending Inventory less than the NRV: - No entry
▪ Case II: - If the cost of ending Inventory greater than the NRV
Debit Credit
Accounts
Expense (Inventory write down) XXX
Inventory/Stock XXX
▪ For issuance of inventories
Debit Credit
Accounts
Expense / Cost XXX
Inventory XXX
▪ Inventory Adjustment following physical count / inventory reconciliation

o If the shortage is within the approved leakage (shortage) range
Debit Credit
Accounts
Expense / Cost XXX
Inventory XXX
o If the shortage is in excess of the approved leakage (shortage) range
Debit Credit
Accounts
Inventory shortage (Expense)/ Staff XXX
Receivables
Inventory XXX
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The extra loss will be recorded as administration cost if the loss cannot be traceable to
any one of the staff involved in the process, it is recorded as administration expense
(as cost of inefficiency). If the loss or shortage is attributed to a staff and when the
designated official endorses it, the shortage will be recorded as a receivable from the
staff.
13. Property, Plant and Equipment
13.1. Definition
A) Property, plant and equipment are fixed and tangible items that (a) are held for use by EEA-IGA
in the day-to-day operations or supply of goods or services, for rental to others, or for
administrative purposes; and (b) are expected to be used during more than one period.
13.1.1. Property, Plant and Equipment is defined as an "item" of a capital nature with a useful
life of over one year and which can be kicked and also costs Birr 30,000 and above
before VAT (if goods) or Birr 100,000 above before VAT if construction / Works for own
use.
13.1.2. PPEs of EEA-IGA include Building, Motor vehicles, Office furniture and equipment,
computer and accessories, etc.
13.2. Recognition
13.2.1. PPEs shall be recognized when they satisfy the definition/recognition criteria of asset
(I.e when the resource is controlled by the EEA-IGA, there is a past event to it and it
is probable that future economic benefit will flow to the EEA-IGA) and EEA-IGA can
measure the cost or the value reliably. EEA-IGA shall recognize PPEs obtained through
construction/purchase/ production/exchange/gift or transfer.
13.2.2. Exchange of items of property, plant and equipment, regardless of whether the assets
are similar, are measured at fair value, unless the exchange transaction lacks
commercial substance or the fair value of neither of the assets exchanged can be
measured reliably. If the acquired item is not measured at fair value, its cost is
measured at the carrying amount of the asset given up.
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13.3. Initial measurement
13.3.1. EEA-IGA shall initially measure PPEs at cost.
Cost of PPE
13.3.2. The cost of an item of property, plant and equipment comprises:
a. Its purchase price, including import duties and non-refundable purchase taxes, less
trade discounts and rebates.
b. Any costs directly attributable to bringing the asset to the location and condition
necessary for it to be capable of operating in the manner intended by management.
c. The initial estimate of the costs of dismantling and removing the item and restoring the
site on which it is located, the obligation for which EEA-IGA incurs either when the item
is acquired or as a consequence of having used the item during a particular period for
purposes other than to produce inventories during that period.
d. Borrowing costs incurred to construct/acquire or produce qualifying PPE assets (Such

constructed buildings, etc shall be capitalized and add on the cost of the PPEs)
13.3.3. One or more items of property, plant and equipment may be acquired in exchange for
a non-monetary asset or assets. The cost of such an item of property, plant and
equipment is measured at fair value.
13.4. Subsequent measurement
13.4.1. EEA-IGA shall follow the cost model for PPE for subsequent measurements for
Buildings, Machineries and Vehicles. For other assets EEA-IGA will use the cost model,
that is cost less any accumulated depreciation and impairment losses unless it is
classified as a non-current asset held for sale.
13.4.2. Recording of property and equipment under construction are recorded as construction in
progress.
13.4.3. If a significant part of a PPE is removed and replaced, then the cost incurred to do so will be
capitalized. However, the cost of the removed part shall be deducted first. For the purpose
of financial reporting, a significant part is any part that amounts to 20% or more of the cost
of the original PPE.
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13.5. Depreciation
13.5.1. Depreciation on item of PPE shall begin when it is available for use and depreciation shall
continue until it is derecognized or classified as held for sale, even if during that period
the item is idle.
13.5.2. Each part of an item of property, plant and equipment with a cost that is significant in
relation to the total cost of the item shall be depreciated separately
13.5.3. Depreciable amount is the historical /revalued cost of the item less residual value divided
by its useful life.
13.5.4. EEA-IGA shall annually revise estimations it makes including depreciation methods,
residual values and useful life of assets.
13.5.5. Depreciation of property, plant and equipment shall be based on the full-acquisition cost
of the property and equipment, net of its salvage value, as applicable.
13.5.6. The depreciation charge for each period should be recognised as an expense unless it is
included in the carrying amount of another asset
13.5.7. Each part (component) of an item of property, plant and equipment with a cost that is
significant in relation to the total cost of the item shall be depreciated separately
particularly if their pattern of use is different.
13.5.8. Land use rights, land improvements and buildings are separable assets and are dealt with
separately. Land use right is amortized over the life of the lease. Buildings depreciate over
the estimated useful life.
13.5.9. Applying different useful lives to assets at different locations and/or operated under
different conditions may be justifiable.
13.5.10. Depreciation of an asset begins when it is available for use, i.e. when it is in the location
and condition necessary for it to be capable of operating in the manner intended by
management
13.5.11. Depreciation of an asset ceases at the earlier of the date that the asset is classified as
held for sale (or included in a disposal group that is classified as held for sale) in
accordance with IFRS 5 and the date that the asset is derecognised.
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13.5.12. A review of the useful life and residual value of property, plant and equipment should be
carried out at least at each financial year end and the depreciation charge for the current
and future periods should be adjusted if expectations have changed significantly from
previous estimates. Changes are changes in accounting estimates and are accounted for
prospectively as adjustments to future depreciation.
13.5.13. Under normal circumstances, taking into account the context of EEA-IGA, the depreciation
method and depreciation rate shall be as follows. As indicated above, the useful life may
be changed following the annual review.
Asset Class Depreciation Useful life in

years
Building Straight Line 40
Office Furniture Straight Line 10

Office Equipment 10
Vehicles 10
Generators Straight Line 7
Computers and Printers Straight Line 7
13.5.14. Minimum book value for in use fixed asset but completed its depreciation life shall retain
Birr 100 as a book value until its disposal. The Residual value for vehicles shall be 10% of
its original cost.
13.5.15. Depreciation for Tax Purpose
Useful life in
Asset Class
Depreciation years
Building Straight Line 5%
Equipment Straight Line 15%
Computers and Accessories Straight Line 20%
Vehicle Straight Line 15%
13.5.16. For all PPE categories EEA-IGA use straight line method.
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13.6. Derecognition
13.6.1. The carrying amount of an item of property, plant and equipment of EEA-IGA shall be
derecognized (a) On disposal; or (b) When no future economic benefits are expected from
its use or disposal.
13.7. Presentation
13.7.1. PPEs shall be presented in the statement of financial position on non-current asset section
13.8. Disclosure
13.8.1. The financial statements should disclose
• Measurement bases for determining gross carrying amounts

• Depreciation methods
• Useful lives or depreciation rates used
• Gross carrying amount and accumulated depreciation (aggregated with
accumulated impairment losses) at the beginning and end of the period
• Additions
• Assets classified as held for sale
• Acquisitions through business combinations
• Compensation for assets impaired, lost, or given up
13.9. Borrowing Costs
13.9.1. Borrowing costs directly attributable fixed assets are capitalized as indicated in the policy
part of this manual.
13.10. Impairment of Assets
13.10.1. At the end of each reporting period, assets are reviewed to look for any indication that an
asset may be impaired. If impairment is indicated, the asset's recoverable amount is
calculated and the corresponding impairment loss to be computed and journalized in the
period.
13.10.2. Once in a year comprehensive physical count of Property and Equipment should be made.
13.10.3. The unit in charge of Administration of Property, Plant and Equipment of EEA-IGA shall
generate a list of fixed assets from the register (or from the fixed asset software) to assist
the physical count process.
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13.11. Non-Current Asset Held for Sale
13.11.1. Property, Plant and Equipment segregated (held) for sale shall be measured at the lower
of carrying amount and fair value less costs to sell.
13.11.2. The record of the Property, Plant and Equipment should be adjusted by the value of the
disposed assets. Such non-current assets held for sale (whether individually or as part of a
disposal group) are not depreciated. Property and Equipment held for sale are classified
separately in the statement of financial position.
13.11.3. If a disposed asset is sold, it should be evidenced using a VAT invoice.
13.12. Internal Control
13.12.1. Finance Department shall maintain a fixed asset register using the accounting software
or an Excel based register.
13.12.2. Each fixed asset should be tagged with a unique systematically designed identification
number where this number is also recorded in the fixed asset register (Annex 13/A) as
follows:
Entity Code Main Sub category Specific Number Note

Category
XXX-XXX xx xx xxx
EEA-IGA 03 01 001 Computer
13.12.3. Fixed assets, when purchased, should be provided with this identification number and
the number has to be indicated in the Receipt Voucher and Issue Vouchers.
13.12.4. Property, Plant and Equipment acquisition should be evidenced using Goods Receiving
Report with a format per Annex 12/A. Original Copy of the receipt voucher should be
attached together with supporting documents (invoices and others) for accounting
recording.
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13.12.5. Fixed assets are issued to users using Store Issue Voucher with a format per Annex
12/E. The Store Issuing Voucher is a basis for recording subsidiary fixed asset register
by name of custodian.
13.12.6. When fixed assets are returned to Store by a user, Store Return voucher with a format
per Annex 12/F should be prepared and one copy of return to be provided to the users
who return the assets.
13.12.7. When Fixed Assets are issued for maintenance, Store Issue Voucher for maintenance
should be completed and approved by the EEA-IGA Manager. Proper follow-up should
be exercised to ensure that such items are maintained timely and returned back to EEA-
IGA premises. The unit in charge of property control should prepare annual report of
properties in the hands of third parties for maintenance.
13.12.8. The physical count should be conducted with the supervision of Finance Department though
the count committee has the prime responsibility for the overall preparation, counting and
reporting of the count result.
13.13. Journal Entry
13.13.1. At the time of Acquisition

• When items are purchased :-
Asset\PPE (by category – example Vehicle) xx
VAT Receivable xx
WHT Payable xx
Cash at bank / Account Payable xx
13.13.2. During Disposal

• Case I: - If the disposal amount is greater than the carrying amount

Cash
XXX
Accumulated depreciation
XXX
Loss on disposal of Assets (if loss)
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Accumulated Impairment loss (If any)

XXX
PPE XXX
Value Added Tax XXX
Gain on disposal (if gain) XXX
• If PPE is discarded
Debit Credit
Accounts
XXX
XXX
Loss on disposal XXX
PPE XXX
13.13.3. Year End to record depreciation expense

Accounts Credit
Debit
Depreciation Expense XXX
Accumulated depreciation XXX
13.13.4. Year End to record impairment loss (if any)

Debit Credit
Accounts
XXX
Impairment loss
Accumulated Impairment loss XXX
13.13.5. borrowing costs to be capitalized

Debit Credit
Accounts
Construction in progress /PPE XXX
Cash/Accrued interest XXX
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When a debit advice received from bank in connection with a loan for the construction of a
fixed assets or acquisition of a fixed assets, then the appropriate fixed asset or construction
in progress account will be debited.
13.13.6. Construction in Progress: When materials purchased, labor cost

paid or other overheads are incurred:-
Debit Credit
Accounts
Construction in Progress (by subsidiary XXX
account)
Cash / Inventory / Account payable XXX
In addition, the subsidiary fixed asset record (the particular item upgraded or the
add-on inserted should be updated at the ERP fixed asset system). If an engine
replaced for a vehicle, the Cost of the Vehicle will be updated by the value of the
upgrade and the above general journal entry will pass.
13.13.7. When properties segregated for sales

Debit Credit
Accounts
Accumulated Depreciation XXX
Non-current assets held for sale (at the XXX
lower of Book Value or NRV)
Gain or loss xxx
PPE XXX
No depreciation will be computed after transfer of the fixed assets from the fixed asset
group into fixed assets for sales account.
14. INTANGIBLE ASSETS
14.1. DEFINITION
14.1.1. Intangible asset is an identifiable non-monetary asset without physical substance with
a minimum cost of acquisition of ETB 30,000. Intangible assets shall be separable, i.e.
44
is capable of being separated or divided from EEA-IGA or shall arise from contractual
or other legal rights. Some examples of Intangible assets are: Purchased brand names;
Purchased computer software; ERP, licenses and franchises; Copyrights, patents and
other industrial property rights, service and operating rights; and Intangible assets
under development.
14.2. INITIAL MEASUREMENT
14.2.1. Intangible assets shall initially be measured at cost.
Cost
14.2.2. The cost of an internally generated intangible asset comprises all directly attributable
costs necessary to create, produce, and prepare the asset to be capable of operating
in the manner intended by management. Examples of directly attributable costs are:
(a) costs of materials and services used or consumed in generating the intangible asset;
(b) costs of employee benefits arising from the generation of the intangible asset; (c)
fees to register a legal right; and (d) Amortization of patents and licenses that are used
to generate the Intangible asset.
14.2.3. Cost of Purchased intangible asset include its purchase price, including import duties
and non-refundable purchase taxes, after deducting trade discounts and rebates. Any
costs directly attributable to bringing the asset to the location and condition necessary
for it to be capable of operating in the manner intended by management.
14.2.4. One or more intangible assets may be acquired in exchange for a non-monetary asset
or assets. The cost of such an intangible asset is measured at fair value.
14.2.5. If an intangible asset is acquired in a business combination, the cost of that intangible
asset is its fair value at the acquisition date.
14.3. SUBSEQUENT MEASUREMENT
14.3.1. In Subsequent years, intangible assets of EEA-IGA shall be carried at cost less any
accumulated amortization and any accumulated impairment losses using the cost
model.
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14.4. AMORTIZATION
14.4.1. Amortization of intangible asset shall begin when it is available for use and amortization
shall continue until it is derecognized.
IA Economic life Residual Value

(based on %age of cost)
Intangible Software 6 Nil
14.4.2. If intangible assets have infinite useful life, they should not be amortized. Rather, they
should be tested for impairment annually. If however intangible assets have finite useful
life, they should be amortized and amortization expense should be charged to profit
and loss statement.
14.5. Derecognition
14.5.1. The carrying amount of intangible assets of EEA-IGA shall be derecognized: (a) On
disposal; or (b) When no future economic benefits are expected from its use or disposal.
14.6. Presentation
14.6.1. Intangible Asset shall be present in the statement of financial position on non-current
asset section
14.7. Disclosure
14.7.1. The financial statement must disclose
• Whether useful lives are indefinite or finite and, if finite, the useful lives or
amortization rates used
• The amortization methods used
• The gross carrying amount and accumulated amortization and impairment losses at
the beginning and end of the period
• The line items in the income statement in which amortization is included
• Additions, separately showing those internally generated, those acquired separately,
and those acquired through business combinations
• Assets classified as held for sale under IFRS 5
• Impairment losses
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• Reversals of impairment losses

• Amortization recognized during the period
• Net exchange differences on retranslation
• Other changes during the period
• For assets with indefinite useful lives, the carrying amount of the asset and the
reasons supporting such an assessment
• Description, carrying amount, and remaining amortization period of any intangible
assets that are material to the entity’s financial statements
• The existence and carrying amounts of intangible assets whose tile is restricted or
pledged as security for liabilities
• Contractual commitments for the acquisition of intangible assets
• Intangible assets acquired by way of government grant and initially recognized at
fair value, including their fair values, their carrying amounts, and whether
subsequently carried under the cost or revaluation model
• The amount of research and development expenditure expensed during the period
14.8. Journal Entry
14.8.1. Recognition of acquired (purchased) intangible assets

Intangible Asset (copy right, patent right, good will…) XXX
Fixed assets (components of the purchased business unit XXX

– if applicable)
Cash /A/p/other account XXX
14.8.2. During Disposal

• If the disposal amount is greater than the carrying amount
Debit Credit
Accounts
Cash (if there is any cash proceeds)
XXX
Accumulated amortization
XXX
Loss on disposal (if any)
Accumulated Impairment loss(If any)
XXX
Intangible Asset XXX
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Gain on disposal (if any) XXX
• During Year End to record depreciation expense
Debit Credit
Accounts
Amortization Expense XXX
Accumulated amortization XXX
• During Year End to record impairment loss (if any)
Debit Credit
Accounts
Impairment loss XXX
15. Impairment of Non-Financial Assets
15.1. Definition
15.1.1. An impairment loss is the amount by which the carrying amount of an asset or a cash-
generating unit exceeds its recoverable amount. The recoverable amount of an asset
or a cash-generating unit is the higher of its fair value less costs of disposal and its
value in use.
15.1.2. A cash-generating unit is the smallest identifiable group of assets that generates cash
inflows that are largely independent of the cash inflows from other assets or groups of
assets.
15.1.3. Corporate assets are assets other than goodwill that contribute to the future cash flows
of both the cash-generating unit under review and other cash-generating units.
15.1.4. An impairment loss is the amount by which the carrying amount of an asset or a cash-
generating unit exceeds its recoverable amount.
15.1.5. The recoverable amount of an asset or a cash-generating unit is the higher of its fair
value less costs of disposal and its value in use.
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15.1.6. Value in use is the present value of the future cash flows expected to be derived from
an asset or cash-generating unit.
15.2. Impairment Testing

15.2.1. At the end of each reporting period, EEA-IGA Finance Department in collaboration with
the relevant departments / sections should assess whether there is any indication that
an asset may be impaired (i.e. its carrying amount may be higher than its recoverable
amount). IAS 36 has a list of external and internal indicators of impairment. If there is
an indication that an asset may be impaired, then the asset's recoverable amount must
be calculated.
15.2.2. The following are external and internal indication for impairment
• External sources:
o market value declines
o negative changes in technology, markets, economy, or laws
o increases in market interest rates
o net assets of EEA-IGA higher than market capitalization
• Internal sources:
o obsolescence or physical damage
o asset is idle, part of a restructuring or held for disposal
o worse economic performance than expected
15.2.3. Additionally, even if there is no indication of any impairment, these assets should be
tested for impairment:
o An intangible asset that has an indefinite useful life
o An intangible asset that is not yet available for use
o Goodwill that has been acquired in a business combination
15.2.4. Since individual assets of EEA-IGA cannot generate cash flows independent of each
other, EEA-IGA shall use cash generating units to see if impairment has occurred and
use the cash generating units to calculate impairment loss. EEA-IGA shall only calculate
and compute impairment loss of non-financial assets if there are indications of
impairment on its identified cash generating units
49
15.2.5. Where the recoverable amount of a cash generating unit is less than its carrying
amount, the carrying amount will be reduced to its recoverable amount. This reduction
is the impairment loss.
15.3. Recognition
15.3.1. The impairment loss should be recognized in profit or loss
15.3.2. Where an impairment loss has been recognized, any depreciation charged for the asset
will be adjusted to reflect the asset’s revised carrying value.
15.3.3. Any impairment loss calculated for a cash-generating unit should be allocated to reduce
the carrying amount of the asset in this order:
a) The carrying amount of goodwill (if there is any) should be first reduced, then the
carrying amount of other assets of the unit should be reduced on a pro rata basis
determined by the relative carrying value of each asset.
b) Any reductions in the carrying amount of the individual assets should be treated as
impairment losses. The carrying amount of any individual asset should not be reduced
below the highest of its fair value less cost to sell, its value-in-use, and zero.
15.4. Measuring Recoverable Amount

Value in Use
15.4.1. The following elements are reflected in the calculation of an asset’s value in use:
15.4.2. an estimate of the future cash flows the entity expects to derive from the asset;
a) expectations about possible variations in the amount or timing of those future cash
flows;
b) the time value of money, represented by the current market risk-free rate of interest;
c) the price for bearing the uncertainty inherent in the asset; and
d) Other factors, such as illiquidity, that market participants would reflect in pricing the
future cash flows the entity expects to derive from the asset.
15.5. Composition of Estimates of Future Cash Flows

15.5.1. Compositions of estimates of future cash flows include:
a) projections of cash inflows from the continuing use of the asset;
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b) projections of cash outflows that are necessarily incurred to generate the cash inflows
from continuing use of the asset (including the cash outflows to prepare the asset for
use) and that can be directly attributed, or allocated on a reasonable and consistent
basis, to the asset; and
c) net cash inflows, if any, to be received (or paid) for the disposal of the asset at the end
of its useful life.
15.5.2. Future cash flows are estimated for the asset in its current condition. Such estimates
do not include estimated future cash inflows or outflows that are expected to arise
from a future restructuring to which an entity is not yet committed or improving or
enhancing the asset’s performance.
15.5.3. Estimates of future cash flows do not include cash inflows or outflows from financing
activities; or income tax receipts or payments
15.6. Discount Rate
15.6.1. The discount rate is a pre-tax rate that reflects current market assessments of the
time value of money; and the risks specific to the asset for which the future cash flow
estimates have not been adjusted.
15.7. Reversing an Impairment Loss

15.7.1. EEA-IGA assesses at each reporting date whether there is any indication that an
impairment loss recognized in prior periods for an asset may no longer exist or may
have decreased. If any such indication exists, estimate the recoverable amount of that
asset
15.7.2. The increased carrying amount of an asset attributable to reversal of an impairment

loss does not exceed the carrying amount that would have been determined (net of
amortization or depreciation) had no impairment loss recognized been recognized for
the asset in prior years. A reversal of an impairment loss is recognized immediately in
profit or loss.
15.8. Disclosure
15.8.1. For each class of asset EEA-IGA shall disclose
a) Impairment losses recognized in the income statement
b) losses reversed in the income statement
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c) The line item in the income statement in which the impairment losses are included
d) Additionally, any impairment losses recognized directly in equity should be disclosed,

including reversals of impairment losses.
e) Each segment should disclose these items in terms of primary segments only: impairment
losses recognized and reversed in the period both in the income statement and directly in
equity.
f) If an individual impairment loss or reversal is material, then this information should be

disclosed:
(i) The events and circumstances leading to the impairment loss

(ii) The amount of the loss
(iii) If it relates to an individual asset, the nature of the asset and the segment to which it
relates
(iv) For a cash-generating unit, the description of the amount of the impairment loss or
reversal by class of assets and segment should be disclosed.
(v) Detailed information about the estimates used to measure the recoverable amounts of
the cash-generating units that contain goodwill or intangible assets with an indefinite
useful life should also be set out.
15.9. Procedure
15.9.1. During annual PEE counting, the finance/audit department shall asses the status of
PPEs/Cash generating units
15.9.2. The finance/Audit department shall see whether there are internal/external indicators
of impairment via physical assessment of PPEs/CGUs and overall study of the
organization performance
15.9.3. If the Finance /audit department concludes that there are indications of impairment,
recoverable amounts shall be calculated and compared with the carrying amount of
PPEs/ CGUs
15.9.4. If the recoverable number of PPEs/CGUs is less than the carrying amount, Impairment
loss shall be recognized against profit and loss account
15.10.1. If the recoverable amount is greater than the carrying amount: No Entry
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15.10.2. If the carrying amount is less than the recoverable amount

Debit Credit
Accounts
Impairment loss XXX
PPE/Cash Generating Unit XXX
15.10.3. Case III: If the impairment is reversed

Debit Credit
Accounts
Accumulated Impairment XXX
Reversal of Impairment Loss (P/L) XXX
16. Non-Current Asset Held for Sale
16.1. Definition
16.1.1. Non-current assets held for sale are PPEs and IAs of EEA-IGA whose carrying amounts will
be recovered principally through a sale transaction rather than through continuing use. For
this to be the case, the assets must be available for immediate sale in its present condition
subject only to terms that are usual and customary for sales of such assets and its sale
must be highly probable.
16.2. Disposal group is a group of assets to be disposed of, by sale or otherwise, together
as a group in a single transaction, and liabilities directly associated with those assets that
will be transferred in the transaction.
16.3. Classification of Non-Current Assets (Or Disposal Groups)
16.3.1. For a noncurrent asset or disposal group to be classified as held for sale,
• The asset must be available for immediate sale in its present condition and its sale must
be highly probable. In addition, the asset must be currently being marketed actively at
a price that is reasonable in relation to its current fair value.
• The sale should be completed, or expected to be so, within a year from the date of the
classification.
• The actions required to complete the planned sale will have been made, and it is unlikely
that the plan will be significantly changed or withdrawn.
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• For the sale to be highly probable, management must be committed to selling the asset
and must be actively looking for a buyer.
• It is possible that the sale may not be completed within one year.
• In this case, the asset could still be classified as held for sale if the delay is caused by
events beyond the entity’s control and the entity is still committed to selling the asset.
16.4. Measurement
16.4.1. Noncurrent asset held for sale at the time of classification should be measured at the
lower of carrying amount and its fair value less cost to sell.
16.5. Impairment Losses and Reversals

16.5.1. Impairment Losses and Reversals
• EEA-IGA shall recognize all impairment loss for any initial or subsequent write-down of
the asset (disposal group) to fair value less costs to sell.
• EEA-IGA recognizes a gain for any subsequent increase in fair value less costs to sell of
an asset (disposal group), up to the cumulative impairment loss that has been
recognized.
• An impairment loss recognized for a disposal group will reduce the carrying amount of
the non-current assets in EEA-IGA.
• A gain or loss not previously recognized by the date of the sale of a non-current asset
shall be recognized at the date of de-recognition.
• There is no amortization or depreciation of a non-current asset while it is classified as
held for sale or while it is part of a disposal group classified as held for sale. The interest
and other expenses attributable to the liabilities of a disposal group classed as held for
sale will continue to be recognized.
16.6. De-Recognition of An Asset Held for Sale
16.6.1. EEA-IGA has classified an asset (or disposal group) as held for sale, but the recognition
criteria is no longer met, then EEA-IGA must cease to classify the assets as held for
sale.
16.6.2. EEA-IGA shall measure a non-current asset that ceases to be classified as held for sale
at the lower of either:
54
a) the carrying amount before the asset was classified as held for sale, adjusted for
any depreciation, amortization or revaluations that would have been recognized
had the asset not been classified as held for sale, or
b) its recoverable amount at the date of the subsequent decision not to sell.
16.6.3. Any required adjustments to the carrying amount of a non-current asset that ceases
to be classified as held for sale will be transferred to the income statement from
continuing operations in the period in which the recognition criteria are no longer met.
16.7. Presentation
16.7.1. Non-current assets classified as held for sale shall be presented separately from other
assets in the balance sheet. The liabilities of a disposal group classified as held for sale
shall be presented separately from other liabilities in the balance sheet
16.8. Disclosure- Noncurrent Assets Held for Sale

16.8.1. Noncurrent assets held for sale and assets of disposal groups must be disclosed
separately from other assets in the Statement of financial position. The liabilities must
also be disclosed separately in the Statement of financial position.
16.8.2. Other disclosures are required, including a description of the noncurrent assets of a
disposal group, a description of the facts and circumstances of the sale, and the
expected manner and timing of that disposal.
16.9. Discontinued Operations: Presentation and Disclosure

16.9.1. Any cumulative income or expense recognized directly in equity relating to a
noncurrent asset or disposal group classified as held for sale must be disclosed.
16.10. Procedure
16.10.1. Before classifying PPEs as held for sell, the finance department shall make sure that:-
a) The asset/Assets are available for immediate sale in present condition

b) EEA-IGA is actively marketing the asset/assets at price that is reasonable in relation
to its current fair value.
c) The sale is expected to be completed within a year from the date of the classification.
d) A minute referring to management decision and commitment for selling the
asset/assets is compiled and filed
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16.10.2. The finance department shall continually asses the progress of the sale and see
whether the sale is effected in time.
16.10.3. The finance department shall recognize gain/loss on sale by refereeing the sale
proceeds with the carrying amount of the Asset/assets. If the sale is not effected with
in the planned time, the finance department shall assess whether to reclassify the
asset/assets as PPEs and account for change in estimate
16.11. Accounting Entry
16.11.1. If the fair value less cost to sell is greater than the carrying amount: -
XXX
Current asset (NCAHFS)
XXX
PPE
16.11.2. If the fair value less cost to sell is less than the carrying amount
XXX
Current asset (Non-current asset held for sale))
XXX
Impairment loss
XXX
PPE
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17. Borrowing costs
17.1. Definition
17.1.1. Borrowing costs- are interest and other costs incurred by EEA-IGA in connection with the
borrowing of funds.
17.1.2. Qualifying asset- an asset that necessarily takes a substantial period of time to get ready
for its intended use or sale
17.1.3. The following may be included in borrowing costs.
a) Interest on bank overdrafts and short-term and long-term borrowings

b) Amortization of discounts or premiums relating to borrowings
c) Finance charges in respect of leases
17.1.4. Depending on the circumstances, qualifying assets includes inventories, manufacturing

plants, intangible assets and investment properties.
17.1.5. Financial assets and inventories that are manufactured, or otherwise produced over a short
period of time are not qualifying assets.
17.1.6. Assets that are ready for their intended use or sale when purchased are not qualifying
assets.
17.2. Capitalization
17.2.1. EEA-IGA shall capitalize all eligible borrowing costs.
17.2.2. Only borrowing costs that are directly attributable to the acquisition, construction or
production of a qualifying asset can be capitalized as part of the cost of that asset.
17.3. Borrowing costs eligible for capitalization:

17.3.1. EEA-IGA must identify those borrowing costs directly attributable to the acquisition, construction
or production of a qualifying asset.
17.3.2. Directly attributable borrowing costs are those that would have been avoided had the expenditure
on the qualifying asset not been made
17.3.3. In case when EEA-IGA uses a range of debt instruments to finance a wide range of assets, so
that there is no direct relationship between particular borrowings and a specific asset, for
example, all borrowings may be made centrally and then lent to different parts of EEA-IGA,
judgment is required.
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17.3.4. Once the relevant borrowings are identified, which relate to a specific asset, and then the amount
of borrowing costs available for capitalization will be the actual borrowing costs incurred on those
borrowings during the period, less any investment income on the temporary investment of those
borrowings.
17.3.5. EEA-IGA may invest some or all of the funds before they are actually used on the qualifying
asset.
17.3.6. In a situation where borrowings are obtained generally, but are applied in part to obtaining a
qualifying asset, then the amount of borrowing costs eligible for capitalization is found by applying
the 'capitalization rate' to the expenditure on the asset.
17.3.7. The capitalization rate is the weighted average of the borrowing costs applicable to the entity's
borrowings that are outstanding during the period, excluding borrowings made specifically to
obtain a qualifying asset. However, there is a cap on the amount of borrowing costs calculated in
this way: it must not exceed actual borrowing costs incurred.
17.4. Commencement of Capitalization

17.4.1. Three events must be taking place for capitalization of borrowing costs to be started. These are
(a) expenditure on the asset is being incurred, (b) borrowing costs are being incurred, and (c)
activities are in progress that are necessary to prepare the asset for its intended use or sale
17.5. Suspension of Capitalization

17.5.1. If active development is interrupted for any extended periods, capitalization of borrowing costs
should be suspended for those periods.
17.5.2. Suspension of capitalization of borrowing costs is not necessary for temporary delays or for
periods when substantial technical or administrative work is taking place.
17.6. Cessation of Capitalization

17.6.1. Once substantially all the activities necessary to prepare the qualifying asset for its intended use
or sale are complete, then capitalization of borrowing costs should cease. This will normally be
when physical construction of the asset is completed, although minor modifications may still be
outstanding.
17.6.2. The asset may be completed in parts or stages, where each part can be used while construction
is still taking place on the other parts.
17.6.3. Capitalization of borrowing costs should cease for each part as it is completed.
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17.7. Disclosures
17.7.1. EEA-IGA shall disclose its accounting policy for the recognition of borrowing costs, the amount of
borrowing costs capitalized during the period, and the capitalization rate used to determine the
amount of borrowing costs eligible for capitalization.
17.8. Accounting Entry for borrowing costs

17.8.1. Capitalizing borrowing costs
Qualifying Asset XXX
Cash/ Accrued interest XXX
18. Related Party Disclosures
18.1. Definitions of Key Terms

18.1.1. Related parties are parties that are: -
(a) Directly or indirectly, through one or more intermediaries, that party controls, is
controlled by, or is under common control with the entity; has an interest in the entity
that gives it significant influence; or has joint control over the entity.
(b) The party is an associate
(c) The party is a joint venture in which the entity is a venturer
(d) The party is a member of the key management personnel of the entity or of its parent.
(e) The party is a close family member of any individual referred to in (a) or (d).
(f) The party is EEA-IGA that is controlled, jointly controlled, or significantly influenced by,
or for which significant voting power in such entity resides with, directly or indirectly,
any individual referred to in (d) or (e).
18.1.2. Related party transaction A transfer of resources, services, or obligations between related parties,
regardless of whether a price is charged or not
18.1.3. Close family members of an individual. Those family members who may be expected to influence,
or be influenced by, that individual, in their dealings with the entity and include
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(a) The individual’s domestic partner and children
(b) Children of the individual’s domestic partner
(c) Dependents of the individual or the individual’s domestic partner
18.1.4. Compensation Includes all employee benefits

18.1.5. Control The power to govern the financial and operating policies of EEA-IGA so as to obtain
benefits from its activities.
18.1.6. Joint control -The contractually agreed sharing of control.
18.1.7. Significant influence -The power to participate in the financial and operating decisions of an entity,
but not control over those policies.
18.1.8. Key management personnel -Those persons having authority and responsibility for planning,
directing, and controlling the activities of an entity, either directly or indirectly, and include
managers (executive or otherwise) of that entity.
18.2. Key Management Personnel
18.2.1. Key management personnel include all those who have authority and responsibility for planning,
directing, and controlling the activities of an entity. Individuals who act in the capacity for director
and above for EEA-IGA are deemed Key management personnel.
18.3. DISCLOSURES
18.3.1. EEA-IGA shall disclose “key management personnel” compensation in total and for each of these
categories:
(a) Short-term employee benefits
(b) Postemployment benefits
(c) Other long-term benefits
(d) Termination benefits
(e) Share-based payments
18.3.2. If there are transactions with related parties, EEA-IGA shall disclose the nature of the related
party relationship as well as information about the transactions and outstanding balances
necessary for an understanding of potential effect of the relationship on the financial statements
At a minimum, disclosures shall include
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• The amount of the transactions

• The amount of outstanding balances and
• Their terms and conditions
• Whether they are secured or unsecured
• The nature of the settlement consideration
• Details of guarantees given or received
• Provisions for doubtful debts against balances outstanding
• Provisions for doubtful debts recognized as an expense
19. Events After the Reporting Period
19.1. Introduction
19.1.1. The end of the Reporting Period is the pivotal date at which the financial position of EEA-
IGA is determined and reported. Thus, events that occur up to that date are critical in
arriving at financial results and the financial position. However, sometimes events occurring
after the end date may provide additional information about events that occurred before
and up to the end of the reporting. This information may have an impact on the financial
results and the financial position of the entity. It is imperative that those post–Statement
of financial position events up to a certain “cutoff date” be taken into account in preparing
the financial statements for the year ended and as at the Statement of financial position.
19.1.2. Additionally, certain events that occur after the end of the reporting period might not affect
the figures reported in the financial statements but may warrant disclosure in footnotes to
the financial statements.
19.2. Definition
19.2.1. The authorization date is the date when the financial statements could be considered
legally authorized for issuance. The Authorization date EEA-IGA is three months after the
end of the reporting period
19.3. Adjusting and Non-Adjusting Events (After the Year-End)

19.3.1. There are two kinds of events after the end of the reporting period. These are, respectively,
“adjusting and non-adjusting events after the end of the reporting period”. Adjusting
events are events that provide evidence of conditions that existed at the end of the
reporting period. Typical examples of adjusting events are
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19.3.2. The bankruptcy of a customer after the end of the reporting period usually suggests a loss
of trade receivable at the end of the reporting period.
▪ The sale of inventory at a price substantially lower than its cost after the end of the
reporting period confirms its net realizable value at the end of the reporting period
▪ The sale of a property, plant, and equipment for a net selling price that is lower than
the carrying amount is indicative of an impairment that took place at the end of the
reporting period.
▪ The determination of an incentive or bonus payment after the end of the reporting
period when EEA-IGA has a constructive obligation at the end of the reporting period
19.3.3. Non-Adjusting events are events that provide evidence of conditions that existed at the
end of the reporting period that provide evidence of conditions that existed at the end of
the reporting period. Examples of non-adjusting events include: Declaration of a dividend,
Classification of assets as held for sale under IFRS 5 and the purchase, disposal, or
expropriation of assets and Commencing a lawsuit relating to events that occurred after
the end of the reporting period
19.4. Disclosure
i. The date when the financial statements were authorized for issue and who gave that
authorization. If EEA-IGA’S owners have the power to amend the financial statements after
issuance, this fact should be disclosed.
ii. If information is received after the Statement of financial position date about conditions that
existed at the end of the reporting period, disclosures that relate to those conditions should
be updated in the light of the new information.
iii. Where non-adjusting events after the end of the reporting period are of such significance that
nondisclosure would affect the ability of the users of financial statements to make proper
evaluations and decisions, disclosure should be made for each such significant category of
non-adjusting event regarding the nature of the event and an estimate of its financial effect
or a statement that such an estimate cannot be made.
19.5. Non-adjusting events after the reporting period
19.5.1. If non-adjusting events after the reporting period are material, non-disclosure could influence the
economic decisions that users make on the basis of the financial statements. Accordingly, EEA-
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IGA shall disclose the following for each material category of non-adjusting event after the
reporting period:
i. The nature of the event; and
ii. An estimate of its financial effect, or a statement that such an estimate cannot be made.
19.5.2. The following are examples of non-adjusting events after the reporting period that would
generally result in disclosure:
i. Announcing a plan to discontinue an operation;
ii. major purchases of assets, classification of assets as held for sale in accordance with IFRS
5 Non-current Assets Held for Sale and Discontinued Operations, other disposals of assets,
or expropriation of major assets by government;
iii. The destruction of a major asset by a fire after the reporting period;
iv. Announcing, or commencing the implementation of, a major restructuring
20. Investments In Associates (IAS 28)
20.1. Definition
20.1.1. This Standard is to be applied to all accounting for investments in associates where EEA-IGA has
a 20-49% ownership in other entities. In such cases, EEA-IGA will be the parent and the other
entity will be an associate.
20.1.2. An associate is EEA-IGA over which the EEA-IGA has significant influence.
20.1.3. The equity method is a method of accounting whereby the investment is initially recognized at
cost and adjusted thereafter for the post-acquisition change in the investor’s share of the
investee’s net assets.
20.1.4. The EEA-IGA’S profit or loss includes its share of the investee’s profit or loss .
20.1.5. Significant influence is the power to participate in the financial and operating policy decisions of
the investee but is not control or joint control of those policies. Significant Influence: It is
presumed that the EEA-IGA has significant influence if it holds directly or indirectly 20% or more
of the voting power of the associate unless it can be clearly shown that significant influence does
not exist.
20.1.6. Significant influence is lost when the EEA-IGA loses the power to participate in the financial and
operating policy decisions of the investee.
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20.2. Equity Method
20.2.1. Under the equity method, EEA-IGA shall recognize the investment in the associate initially at cost,
and then the carrying amount is adjusted to recognize its share of profit or loss of the investee
after that date. EEA-IGA’S share of the profit or loss of the associate is recognized in the income
statement.
20.2.2. If the associate uses accounting policies that are different from those of EEA-IGAs’, the associate’s
financial statements should be adjusted and EEA-IGA’S accounting policies should be used.
20.2.3. If EEA-IGA’S share of losses of an associate equals or exceeds its interest in the associate, then
EEA-IGA should not recognize its share of any further losses.
20.2.4. The interest in the associate is essentially the carrying amount of the investment using the equity
method together with any other long-term interests that are essentially part of EEA-IGA’S net
investment in the associate.
20.2.5. When the EEA-IGA’S interest is reduced to zero, any additional losses are provided for and
liabilities recognized only to the extent that EEA-IGA has a legal or constructive obligation or has
made payments on behalf of the associate. When the associate reports profits, EEA-IGA can
recognize its share of those profits only after its share of the profits equals the share of the losses
not yet recognized.
20.3. Impairment Losses
20.3.1. Each associate must be assessed individually regarding the recoverable amount of that
investment unless the associate does not generate independent cash flows.
20.4. Disclosures
20.4.1. Under IAS 28, these disclosures are mandated:

▪ Summarized financial information of associates, including the aggregated amounts of assets,
liabilities, revenues, and profit or loss
▪ The reporting date of the financial statements of an associate that is different from that of
the investor and the reasons why.
▪ Nature and extent of any significant restrictions on the ability of associates to transfer funds
to the investor in the form of cash dividends, or repayment of loans or advances.
▪ Equity method investment should be classified as noncurrent assets.
20.5. Journal Entry
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a) For initial recognition
Investment in associate XXX
Cash/payable XXX
b) To recognize EEA-IGA’S Share of the investee’s profit
Share of profit from associate XXX
c) To recognize dividend declared by investee
Debit Credit
Accounts
Cash XXX
d) To recognize EEA-IGA’S Share of the investee’s Loss
Debit Credit
Accounts
Share of loss from investment in associate XXX
e) To recognize EEA-IGA’S Share of the investee’s Impairment
Debit Credit
Accounts
Impairment loss of investment in associate XXX
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21. Investment Property (IAS 40)
21.1. Definition
21.1.1. Investment property is property (land or a building—or part of a building—or both) held
by EEA-IGA to earn rentals or for capital appreciation or both, rather than for:
a. Use in the production or supply of goods or services or for administrative purposes; or

b. Sale in the ordinary course of business.
21.2. Recognition
21.2.1. Investment property shall be recognized as an asset when and only when It is probable
that future economic benefits will flow to the entity; and The cost of the investment
property can be measured reliably.
21.3. Initial Measurement
21.3.1. An investment property shall be measured initially at cost, including transaction charges.
21.4. Subsequent Measurement
21.4.1. EEA-IGA shall continue to measure investment properties at fair value model in subsequent
periods.
21.5. Transfers
21.5.1. Transfers to and from investment property shall be made when and only when there is a
change of use evidenced by
• Commencement of owner occupation (transfer from investment property to property, plant,

and equipment)
• Commencement of development with a view to sale (transfer from investment property to
inventories)
• End of owner occupation (transfer from property, plant, and equipment to investment
property)
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21.6. Disposals
21.6.1. An investment property shall be derecognized on disposal or at the time that no benefit is
expected from future use or disposal. Any gain or loss is determined as the difference
between the net disposal proceeds and the carrying amount and is recognized in the
income statement.
21.6.2. Gains or losses arising from the retirement or disposal of investment property shall be
determined as the difference between the net disposal proceeds and the carrying amount
of the asset and shall be recognized in profit or loss in the period of the retirement or
disposal.
21.6.3. Compensation from third parties for investment property that was impaired, lost or given
up shall be recognized in profit or loss when the compensation becomes receivable.
21.7. Disclosures
21.7.1. EEA-IGA shall disclose

• Depreciation methods used
• Useful lives or depreciation rates used
• A reconciliation of the opening and closing gross carrying amounts and the accumulated
depreciation and impairment losses, showing
• Additions, showing separately acquisitions, subsequent expenditure, and additions through
business combinations
• Impairment losses recognized and reversed
• Net exchange differences
• Transfers to and from inventories and owner-occupied property
• The fair value of investment property and, if fair value cannot be reliably measured
• Disposals of investment property not carried at fair value
21.8. Journal Entry
a) At the time of Acquisition
Debit Credit
Accounts
IP XXX
Cash /A/p/other account XXX
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b) During Disposal
If the disposal amount is greater than the carrying amount
Debit Credit
Accounts
Cash
XXX
XXX
Accumulated Impairment loss(If any)
XXX
IP XXX
Gain on disposal XXX
If the disposal amount is less than the carrying amount
Debit Credit
Accounts
Cash
XXX
XXX
XXX
Loss on disposal
XXX
IP XXX
c) During Year End to record depreciation expense
Debit Credit
Accounts
Depreciation Expense XXX
Accumulated depreciation XXX
d) During Year End to record impairment loss (if any)
Debit Credit
Accounts
Impairment loss XXX
e) Accounting Entry for qualifying borrowing costs to be capitalized

CIP/IP XXX
Cash/Accrued interest XXX
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22. Leases
22.1. Definition
22.1.1. Lease is a contract, or part of a contract, that conveys (transfers) the right to use an asset
(the underlying asset) for a period of time in exchange for a consideration.
22.2. Identifying A Lease
22.2.1. At inception of a contract, EEA-IGA shall assess whether the contract is, or contains, a lease.
A contract is, or contains, a lease if the contract conveys the right to control the use of an
identified asset for a period of time in exchange for consideration.
22.3. Separation of Lease Components
22.3.1. For a contract that contains a lease component, EEA-IGA accounts for each lease component
within the contract separately from non-lease components. However, a EEA-IGA may apply
a practical expedient by class of underlying asset, and ignore the requirement to separate
non-lease components (such as services) from the lease components. Instead it may account
for the entire contract as a single lease contract. For example, a contract for the lease of an
asset together with its maintenance during the lease term can be accounted for in its entirety
as a lease contract rather than accounting for the lease of the asset separately from the
maintenance service.
22.4. Identified Asset
22.4.1. The first criterion to be assessed in determining whether a contract between EEA-IGA and
a supplier contains a lease is whether there is an identified asset. This is consistent with
the requirement that for a lease to exist, EEA-IGA must control the asset. Typically, an
asset will be explicitly identified in a contract (for example, by specifying the registration
or chassis number of a car as well as a description of the manufacturer and model).
Alternatively, a contract can involve the use of an identified asset if that asset is implicitly
identified at the point at which it is made available for use by the EEA-IGA.
22.5. Obtaining Economic Benefits
22.5.1. The next criterion to analyses in determining if EEA-IGA controls the use of an identified
asset is whether EEA-IGA has the right to obtain substantially all of the economic benefits
from use of the asset throughout the period of use, for example by having exclusive use
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of the asset throughout the period of the contract or by having a right to sub-lease the
asset.
22.6. Right to Direct the Use of The Asset
22.6.1. In determining whether EEA-IGA has the right to direct the use of an asset, an analysis of
who directs how and for what purpose the asset is used throughout the period of use needs
to be carried out
22.7. Determining the Lease Term
22.7.1. If a contract is, or contains, a lease, the lease term needs to be determined. The lease term
begins on the commencement date (i.e. the date on which the lessor makes the underlying
asset(s) available for use by the lessee) and includes any rent-free or reduced rent periods.
It comprises:
a. The non-cancellable period of the lease

b. Periods covered by an option to extend the lease if the lessee is reasonably certain to exercise
that option and
c. Periods covered by an option to terminate the lease if the lessee is reasonably certain not to
exercise that option
22.8. Non-Cancellable Period
22.8.1. The non-cancellable period of a lease is as defined in the contract. It is the period under
which the terms of the contract are enforceable until both EEA-IGA and lessor each have the
right to terminate the contract or the term ceases.
22.8.2. During the non-cancellable period only extension and termination options held by EEA-IGA
are considered when determining the lease term. If only a lessor has termination rights, the
non-cancellable period of the lease includes the period of time covered by these lessor
termination options.
22.9. Lessee Extension and Termination Options
22.9.1. Options to extend or terminate a lease contract are common in many types of leases. For
leases where only the lessee has a termination option the analysis is entirely about the
duration the lessee’s will chose.
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22.10. Revisions to The Lease Term
22.10.1. EEA-IGA shall periodically reassess whether it is reasonably certain to exercise extension and
termination options and to revise the lease term if there is a change. The lease term may
also change due to modifications to the lease contract.
22.11. Recognition: - In The Capacity Of Lessee
Recognition Exemption
EEA-IGA may elect not to recognize a lease if
1. the lease is a short term lease (less than 12 month period)

2. Leases for which the underlying asset is of low value less than ETB 5,000,000
Accounting Entry for short term and low value lease

Rent expense (Lease expense) XXX
Cash XXX
If the recognition exemption does not apply, At the commencement date EEA-IGA shall
recognize a right-of-use asset and a lease liability.
22.12. Initial Measurement of The Right-Of-Use Asset
22.12.1. At the commencement date, EEA-IGA shall measure the right-of-use asset at cost.
22.12.2. The Cost of the right-of-use asset comprises:
(i) The amount of the initial measurement of the lease liability.
(ii) Any lease payments made at or before the commencement date, less any lease
incentives received.
(iii) Any initial direct cost incurred by the lessee.
(iv) An estimate of costs to be incurred by the lessee in dismantling and removing the
underlying asset.
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22.13. Initial Measurement of The Lease Liability
22.13.1. At the commencement date, EEA-IGA shall measure the lease liability at the present value
of the lease payments that are not paid at that date.
22.13.2. The lease payments shall be discounted using the interest rate implicit in the lease, if that
rate can be readily determined.
22.13.3. If the implicit interest rate cannot be readily determined, EEA-IGA shall use EEA-IGA's
incremental borrowing rate.
22.14. Subsequent Measurement of Right-Of-Use Asset
22.14.1. After the commencement date EEA-IGA shall measure the right-of-use asset by a cost
model.
22.15. Subsequent Measurement of Lease Liability
22.15.1. After the commencement date, EEA-IGA shall measure the lease liability by:
(i) Increasing the carrying amount to reflect the interest on the lease liability.
(ii) Reducing the carrying amount to reflect the lease payment made.
(iii) Re measuring the carrying amount to reflect any reassessment or lease modification.
22.16. Presentation Of Leases
22.16.1. Statement of Financial Position
▪ EEA-IGA shall present in the statement of financial position, right-of-use assets

separately from other assets and lease liabilities separately from other liabilities.
22.16.2. Statement of Profit or Loss and Other Comprehensive Income
▪ In the statement of profit or loss and other comprehensive income EEA-IGA shall present
interest expense on the lease liability separately from the depreciation charge for the
right-of-use asset.
22.16.3. Statement of Cash Flows
▪ Cash payments for the principal portion of the lease liability within financing activities.
▪ Cash payments for the interest portion of the lease liability applying the requirements in
IAS 7 Statement of Cash Flows for interest paid.
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▪ Short-term lease payments, payments for leases of low-value assets and variable lease
payments not included in the measurement of the lease liability within operating
activities.
22.17. DISCLOSURES AS LESSORS FOR FINANCE LEASES
• Gross investment in lease

• Reconciliation between gross investment and Present value
• unearned finance income, unguaranteed residual values, allowance for uncollectible
receivable
• Contingent rent income
• Information about material leasing arrangements
22.18. DISCLOSURES FOR OPERATING LEASES:
• Contingent rental income recognized

• Description of leasing arrangements
22.19. PROCDURE
a) The finance department shall Bi-annually obtain new contracts that have been signed by EEA-
IGA from the legal department
b) The finance department shall asses the contracts and determine whether the contracts contain
a lease/s.
c) If the finance department determines that the contract/contracts contain lease, it shall determine
the period of the lease and the value of the leased assets and see if the low value exemption
can be applied
d) If the finance department concludes that the low value exemption cannot be applied, it shall
then account right to use an asset throughout the lease period and lease liability throughout the
lease payment period
e) If the contract that contains a lease doesn’t stipulate a discount rate, the finance department
shall use the incremental borrowing cost of the EEA-IGA as a discounting factor in recognizing
right to use an asset and lease liability
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f) In recognizing lease liabilities and right to use an asset, the finance department shall make sure
that remaining unpaid principal and interest charges are included in determining the balances
g) The finance department shall annually reassess that contracts it identifies as lease and see if
there are modifications to the contracts and weather the modifications will impact the recognized
right to use an asset and lease liabilities
22.20. Journal Entry for lease in the capacity of lessee
a) Initial recognition at the commencement date

Right of use an asset XXX
Lease liability XXX
b) During Year End

Interest expense XXX
Lease liability XXX

Lease liability XXX
Cash XXX

Depreciation expense on right of us asset XXX
Right of use an asset XXX
22.21. EEA-IGA IN THE CAPACITY OF LESSOR
22.21.1. Classification of leases

▪ EEA-IGA shall classify each of its leases as either an operating lease or a finance lease.
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▪ A lease is classified as a finance lease if it transfers substantially all the risks and rewards
incidental to ownership of an underlying asset.
▪ A lease is classified as an operating lease if it does not transfer substantially all the risks
and rewards incidental to ownership of an underlying asset.
22.22. RECOGNITION AND MEASUREMENT – FINANCE LEASE
22.22.1. Initial measurement

22.22.2. At the commencement date, EEA-IGA shall recognize assets held under a finance lease in its
statement of financial position and present them as a receivable at an amount equal to the net
investment in the lease
22.22.3. Subsequent Measurement
22.22.4. EEA-IGA shall recognize finance income over the lease term, based on a pattern reflecting a
constant periodic rate of return on EEA-IGA’s net investment in the lease.
22.23. RECOGNITION AND MEASUREMENT- OPERATING LEASE
22.23.1. EEA-IGA shall recognize lease payments from operating leases as income using straight-line
basis.
22.24. Journal Entry for lease in the capacity of Lessor
• Initial recognition Finance Lease

Asset held under finance lease XXX
Leased property XXX
• During year end Finance Lease

Finance income XXX

Cash XXX
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• Initial and subsequent recognition Operating Lease

Cash XXX
Rent income XXX
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23. Liabilities
23.1.1. Definition
23.1.2. A liability is a present obligation of EEA-IGA arising from past events, the settlement of which
is expected to result in an outflow from the entity of resources embodying economic benefits.
23.1.3. Examples of Liabilities
a) Trade payables are liabilities to pay for goods or services that have been received or
supplied and have been invoiced or formally agreed with the supplier
b) Accruals are liabilities to pay for goods or services that have been received or supplied
but have not been paid, invoiced or formally agreed with the supplier.
c) Financial liabilities represent a contractual obligation to deliver cash in the future.
Some examples of financial liabilities include trade and loan payables.
23.1.4. A constructive obligation is an obligation that derives from an entity’s actions where:
a) by an established pattern of past practice, published policies or a sufficiently specific

current statement, the entity has indicated to other parties that it will accept certain
responsibilities; and
b) As a result, the entity has created a valid expectation on the part of those other parties
that it will discharge those responsibilities.
23.2. Recognition of Liabilities
23.2.1. A liability is recognized in the balance sheet when it is probable that an outflow of resources
embodying economic benefits will result from the settlement of a present obligation and the
amount at which the settlement will take place can be measured reliably.
23.2.2. Except for financial liabilities, EEA-IGA shall recognize liabilities when there is a present
obligation to transfer cash or other form of assets and the values of the liabilities can be
measured reliably.
23.2.3. Financial liabilities shall be recognized when EEA-IGA becomes party to a contract to deliver
cash or other form of assets to the other party/parties in the contract.
23.3. Initial Measurement
23.3.1. EEA-IGA shall initially measure financial liabilities at their fair value (which is the transaction
price).
Ethiopian Economics Associations-IGA Financial Management Manual
23.4. Subsequent Measurement
23.4.1. EEA-IGA shall use Amortized cost method using effective interest rate.
23.5. Derecognition
23.5.1. EEA-IGA shall remove a liability (or a part of a liability) from its statement of financial position
when, and only when, it is extinguished—ie when the obligation specified in the contract is
discharged or cancelled or expires.
23.6. Accounting Procedure: Trade/Accounts Payable
a) Receive supplier’s original invoice accompanied by goods receiving voucher (GRV) or

acknowledgement or delivered service.
b) Verify arithmetic accuracy, authenticity of the claim
c) Pass the necessary entry recognizing the obligation
d) Depending on the case and the terms of the agreement, arrange the payment when due,
prepare the necessary payment vouchers to effect payment
23.7. Unearned Revenues or Advances
23.7.1. If customers make payment for which the EEA-IGA has not made a corresponding delivery
of goods or services, then the amount received is recorded as a deferred Revenue until
goods/services are rendered.
23.7.2. At the end of each month, the finance identify contracts where advance payments are
received for which performance obligations are met to transfer the realized portion of the
advance payment into revenue
23.8. Accrued liabilities
23.8.1. Are expenses incurred but not paid and recognized using the end-of-period adjustment
process. Example includes utilities, audit fees, salaries and services fee payables. The
Finance Department should recognize accrued liabilities by the end of the reporting period
(at least quarterly and annually).
23.9. Bank Loans
23.9.1. A bank loan register should be maintained for term loans and long-term loans.
23.9.2. Internist should be computed based on the loan agreement and should be checked against
the interest charged by the bank. Discrepancies between the bank computation and the
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internal computation should be investigated and reported to the bank for correction, if the
error founds to be a bank error.
23.9.3. Long term loans received at a lower rate than the market rate shall be discounted and
differences to be recognized in profit and loss account.
For Loan Payables
a) Initial Entry using effective interest rate ‘

Debit Credit
Accounts
Cash Xx
Loan Payable Xx
b) Payment of principal
Debit Credit
Accounts
Loan Payable Xx
Cash Xx
c) Payment of interest (if effective interest rate is equal to the contractual rate)

Interest expense Xx
Cash Xx
d) Payment of interest (if effective interest rate if higher than the contractual rate)
Debit Credit
Accounts
Interest expense Xx
Cash Xx
Premium on amortized cost Xx
e) Payment of interest (if effective interest rate is lower than the contractual rate)
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Debit Credit
Accounts
Interest expense Xx
Discount on amortized cost Xx
Cash Xx
N.B- In most cases the contractual rate and effective interest rate will be similar unless upfront
fees are material and loans are paid with premium/discount
24. REVENUE
24.1. When EEA-IGA satisfies a performance obligation by delivering the promised goods or
services it creates a contract-based asset on the amount of consideration earned by the
performance. Where the amount of consideration received from a customer exceeds the
amount of revenue recognized this gives rise to a contract liability.
24.2. Revenue is measured at the fair value of the consideration received or receivable, taking
into account contractually defined terms of payment and excluding taxes and duty. The
EEA-IGA assesses its revenue arrangements against specific criteria to determine if it is
acting as principal or agent.
24.3. Revenue is recognized to the extent it is probable that the economic benefits will flow to
EEA-IGA and the revenue and costs, if applicable, can be measured reliably.
24.4. Revenues
24.4.1. Rental income: Rental income is recognized when earned. Advance rental income
collected are recorded as deferred revenue and shall be transferred to revenue
expired monthly.
24.4.2. Sales of Products: Sales of publications and other products shall be recongnised up
on transfer of goods to the buyer.
24.4.3. Interest revenue: Interest income is recognized monthly as evidenced by bank

credit advices (or reflected in the bank statement).
24.4.4. Sales of scraps: Revenue from sales of scrap recognized up on delivery of the scraps
to the buyer.
24.5. Journal Entry
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24.5.1. When credit sales invoice is issued:-

Trade Receivable/by client name xx
VAT payable xx
Revenue xx
24.5.2. When cash sales invoice raised to customer:-

Cashier account/cash Xx
WHT Receivable Xx
VAT payable Xx
Revenue Xx
24.5.3. When cash is collected in advance before the service is rendered (cash receipt is
prepared)
Cashier account Xx
VAT withholding receivable Xx
VAT payable xx
Deferred Revenue xx
24.5.4. When the unearned revenue is realized:-

Deferred Revenue xx
Revenue xx
24.5.5. When Revenue is earned but not invoiced

Xxx
Receivables
Xxx
Accrued Revenue
24.5.6. Settlement of Credit Sales
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xxx
Cas
Xxx
Acc/Receivables
25. EXPENSES
25.1.1. Expenses are decreases in economic benefits during the accounting period in the form
of outflows or depletions of assets or incurrences of liabilities that result in decreases
in equity, other than those relating to distributions to equity participants.
25.1.2. Expenses encompass losses as well as those expenses that arise in the course of the
ordinary activities of the entity. Expenses that arise in the course of the ordinary
activities of EEA-IGA include, for example, cost of sales, wages and depreciation. They
usually take the form of an outflow or depletion of assets such as cash and cash
equivalents, inventory, property, plant and equipment.
25.1.3. Expenses are recognized in the income statement when decrease in future economic
benefits related to a decrease in an asset or an increase of a liability has arisen that
can be measured reliably. This means, in effect, that recognition of expenses occurs
simultaneously with the recognition of an increase in liabilities or a decrease in assets
(for example, the accrual of employee entitlements or the depreciation of equipment).
25.1.4. EEA-IGA shall present and analyze expenses based on their function. EEA-IGA shall
present expenses based on their ‘function of expense’ or ‘cost of sales’ method and
classifies expenses according to their function as part of cost of sales or, for example,
the costs of distribution or administrative activities.
26. EMPLOYEE BENEFITS
26.1.1. EEA-IGA has an employee benefit scheme which follows the Labor Proclamation No.
1156/2019 in which it effects severance pay for those employees who voluntarily leaves
EEA-IGA after 5 and plus years of service. The payment made is based on employees'
final salary.
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26.1.2. EEA-IGA uses estimates, averages and computational short cuts to provide a reliable
approximation of the liability incurred on each year in relation to severance pay.
26.1.3. EEA-IGA accounts for annual leaves by providing in full for all unused leaves.
26.1.4. EEA-IGA has a defined post-employment scheme in line with the provisions of Ethiopian
pension of private organization employees’ proclamation 715/2011. Funding under the
scheme is 7% and 11% by employees and EEA-IGA respectively. The pension scheme
is based on employees' monthly salary.
26.1.5. Employer's contributions to this scheme are charged to profit or loss and other
comprehensive income in the period in which they relate.
26.2. Termination benefits
26.2.1. Termination benefits are payable to employees as per proclamation 1156/2019 when
employment is terminated by the corporation before the normal retirement date, or
whenever an employee accepts voluntary redundancy in exchange for these benefits.
EEA-IGA recognizes termination benefits when it is demonstrably committed to either:
terminating the employment of current employees according to a detailed formal plan
without possibility of withdrawal; or providing termination benefits as a result of an
offer made to encourage voluntary redundancy.
27. PAYROLL
Payroll is prepared by Finance Department based on the monthly personnel data supplied by
Administration Department or the respective personnel teams.
27.1. Internal control over payroll
27.1.1. Payroll database should be updated and processed by a designated finance officer and
should be protected with password.
27.1.2. Administration Department is responsible for the issuing of changes to the personnel
records on the same date on the letter has been issued. Changes to personnel records
includes: Employment, Dismissal / Resignation / Termination, Transfer, Promotion /
demotion, Salary increments and Fine.
27.1.3. Finance Department should file copies of personnel related letters received from
Administration in good order for future reference.
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27.1.4. The respective department or section heads are responsible to ensure that absenteeism
is well taken and reported to Human Resource Department. Human Resource Department
is responsible to collect payroll sheets on a weekly basis and compiles on a monthly basis.
27.1.5. Recurrent payroll information, like overtimes, fines, absenteeism, and annual leave and
the likes has to be passed by Administration section/team to the Finance before the 25th
day of the month.
27.1.6. Employee name, rate, arithmetic accuracy etc. of payrolls should be checked by senior
accountant other than those who prepared them.
27.1.7. Payrolls should be with a format per (Annex 27/A) in two copies signed for preparation,
checking and approval. The following sign on payroll sheet
▪ The accountant who prepares the payroll
▪ The Finance Manager of EEA-IGA
▪ IGA Manager of EEA-IGA
27.1.8. After the approval of the payroll sheet, finance should transfer the net pay of employees
to their respective saving accounts. The first salary payment for newly recruited
employees and partial salary payments for outgoing employs may only be paid in cash or
cheque using vouchers. Otherwise, all salary payments should be effected through bank.
27.1.9. Payroll deductions should be properly accounted for and paid to the appropriate
government body before due date.
27.1.10. Work records should be checked and approved by persons not involved with payroll
preparation.
27.1.11. Only the net pay should be drawn from Bank.
27.1.12. Salaries should only be paid to third parties on the written instruction of the employee
concerned.
27.1.13. Unpaid salary that is unclaimed for ten days must be deposited at bank immediately.
Subsequent payment should be effected from petty cash or by cheque.
27.1.14. Finance Department should review at least twice a year that the payroll database is in line
with the basic personnel documents issued by HR.
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Debit Credit
i When a check is issued in the name of the Cashier
Accountant for salary payment
Payroll Fund xx
Cash in Bank xxx
ii After payment of approved payroll sheet is delivered

to the finance officer:
Salary Expense xx
Overtime xx
Allowances xx
Income Tax Payable xx
Pension Fund payable xx
Other Deductions xx
Unclaimed Salary xx
Cash xx
iii When Income Tax, pension and other deductions are

paid to the beneficiaries:
Income Tax Payable / Pension Payable / other xx
payables
Cash/Bank xx
28. TAXES & LEGAL LIABILITIES
Finance Department should follow-up for changes to tax laws, regulations and directives in
connection with employment income tax, profit tax, withholding taxes, about the allowable and non-
allowable expenses, about taxable and non-taxable incomes.
28.1. Profit Tax Payables
28.1.1. Profit Tax Payables should be paid soon after submission of the annual financial statements
to Ministry of Revenue, not later than Tikimt 30 (which is within four months from the end
of the fiscal year of EEA-IGA).
28.1.2. Separate schedule should be prepared to compute profit tax payable with the following
format:
ETB ETB
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Rental Rental Other Total

Revenue
Centers
A. Profit Before tax (Net Income before Tax) XXXXX

Add: Depreciation computed as per the internal depreciation XXX
rate of EEA-IGA
Unallowable Expenses (Entertainment, penalties,…) XXX

Prior Year Adjustment (revenue related prior period) XXX
B. Sub Total XXX
Less: Depreciation expense based on rates for tax purpose (XXX)
Dividend Income Received from other investments (XXX)
Prior year Adjustment (Expenses related to prior period) (xxx)
C. Sub Total (XXX)

Taxable Income (A+B-C) XXXXX
Profit Before tax (30%) (XXX)
Net Income After Tax XXXX
28.1.3. Withholding tax retained by customers should be netted –off from the total tax liabilities to
determine the outstanding tax payables to MoR.
28.1.4. Net profit tax payable from rental income should be computed separately from other income
as it is a separate schedule.
28.2. INCOME TAX from Employment
28.2.1. Income taxes should be withheld from employees according to the income tax law. Income
Tax Proclamation 979/2016 provide the following rates to be used for the computation of
monthly taxes to be withhold from payroll:
Ranges in Birr Tax Rate

From To
0 600 Exempt
601 1,650 10%
1,651 3,200 15%
3,201 5,250 20%
5,251 7,800 25%
7,801 10,900 30%
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10,901 Above 35%
28.2.2. Finance Department has to follow-up changes to the tax tables
28.2.3. Income tax withheld should be paid to the appropriate Revenue office within thirty days
from the end of the month concerned.
28.2.4. The balance of the Income tax payable at the end of each month should only be that of the
previous month and that there should not be unsettled balance due to the Revenue office.
28.2.5. Apart from the payroll, Finance Department should make sure that income tax deductions
for partial salary and related payments effected on Payment vouchers (for newly employed
and leaving staffs) are also accounted when settling income tax liabilities.
28.3. WITHHOLDING TAX
28.3.1. As per Proclamation no 979/2016, EEA-IGA is required to withhold 2% of the gross amount
of payment they make to tax payers providing goods and services:
▪ Supply of goods involving above Birr 10,000 in any one transaction or one supply
contract;
▪ Rendering of services involving above Birr 3,000 in one transaction or one service
contract (list services is detailed in Proclamation No. 979/2016).
28.3.2. EEA-IGA should collect 30% withholding tax instead of 2% for those service providers or
suppliers of goods or works who couldn’t submit a Tax Identification Number Certificate.
28.3.3. According to the income tax law EEA-IGA has the responsibility to withhold such taxes with
a serially sequenced pre-numbered receipt with a format per (Annex 28/A). EEA-IGA should
transfer the collection in ten days from the end of collection month to the respective MoR
Office by filling a withholding tax return form supplied by the authority.
28.3.4. When customers withheld from the payment due to EEA-IGA as a withholding tax, EEA-IGA
finance should collect the withholding tax receipts of the customers/clients and should file
properly in a separate box file. These receipts are evidences for profit tax advance payments,
evidence to offset from the annual profit tax payable and to be presented to MoR for review
when requested.
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28.4. VALUE ADDED TAX
28.4.1. EEA-IGA is required by law to collect value added tax of 15% from customers from sales of
services and goods. The value added taxes collected from customers are referred as input
VAT. On the other hand, EEA-IGA pays value added tax when it purchases goods and services
from a VAT registered suppliers which is referred as input VAT.
28.4.2. Input VAT (VAT paid during Purchase): Vat receivables are recorded during purchase of
goods from VAT registered suppliers and during import of goods. The cost of the goods
purchased should be recorded net of VAT, where the VAT component should be recorded as
VAT receivables.
28.4.3. Output VAT (VAT collected during sales): VAT payables are recorded from VAT Cash Sales
and VAT Credit Sales invoices. VAT collected during sales should be recorded as VAT
payables. Output vat may not be collected when goods and services are sold to a public body
(public organization), as they are required to withhold VAT payables by themselves.
28.4.4. VAT returns should be completed and submitted every month to Revenue and Customs
Authority whether there is VAT transaction on time.
28.4.5. VAT return details; including the sales summaries and VAT purchase detail notes should be
filed properly together with copy of the VAT return in a suitable filing system (like in a box
file).
28.4.6. At the end of each month/fiscal year, transfer one of the VAT accounts (VAT Payable or VAT
receivable) to the account with a higher balance. If for instance, the balance of the VAT
payable at the end of the month/fiscal year is higher than the balance of VAT receivable,
the VAT receivable account should be credited and VAT payable should be debited (by the
amount of the ending balance of the VAT Receivable).
28.5. Pension Fund Payables
28.5.1. New employees who satisfy the legal requirement for pension scheme should be registered
immediately in the month of employment. Human Resources Department is responsible for
the follow-up of the registration of new recruits for social security scheme
28.5.2. Finance Department should compute properly both the employee and EEA-IGA’s contribution
for social security fund in accordance with the prevailing rates and should transfer the fund
to the appropriate agency timely.
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28.6. Cost Sharing
28.6.1. Finance deducts the cost sharing a monthly basis for a period of 12 months until the
outstanding balances paid from graduates of public universities which didn’t paid the cost
sharing payables.
28.6.2. EEA-IGA shall issue evidence of cost sharing payment certificate to the employee up on
completion of the payment.
28.7. Deferred Tax Assets and Liabilities (IAS 12)
28.7.1. Deferred tax asset is the amounts of income taxes recoverable in future periods in respect
of deductible temporary differences, carry forwards of unused tax losses, and carry forwards
of unused tax credits. While, deferred tax liability is the amounts of income taxes payable in
future periods in respect of taxable temporary differences.
28.7.2. Income tax expense is comprised of two components: current tax expense and deferred tax
expense. Either of these can be a benefit (i.e., a credit amount in the statement of
comprehensive income), rather than an expense (a debit), depending on whether there is
taxable profit or loss for the period.
28.7.3. Under IAS 12, deferred tax assets resulting from temporary differences and from tax loss
carry forwards are to be given recognition only if realization is deemed to be probable. To
operationalize this concept, the standard sets forth several criteria, which variously apply to
deferred tax assets arising from temporary differences and from tax loss carryforwards.
Details and examples are presented under Annex 28/B.
28.8. Journal entry
Debit Credit
i Withholding tax retained by customers/clients
Cash xx
Withholding Tax Receivables xx
Sales / Account Receivables xx
ii Provision of tax liabilities

Retained Earnings xx
Provision for Taxation xx
iii Closing of Withholding Tax Receivables to provision

for taxation accounts
Provision for Taxation (Profit Taxa Payables) xx
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Debit Credit
Withholding Tax Receivables xx
iv Purchase of goods and services

▪ where input VAT can be claimed (That is where
input VAT Can be offset against output)
Inventory / Cost xx
VAT Receivables xx
Cash / Account Payable xx
▪ where input VAT cannot be claimed according to

the VAT Proclamation
Inventory / Cost xx
Cash / Account Payable xx
The VAT component will be part of the cost as the

input VAT will not be claimed in this case.
v VAT Sales
Sales to government organizations (Where output vat
is withheld by the government organization itself)
Cash /Account Receivables xx
Sales xx
VAT payables will not be recorded as the government
organization which purchases the services and goods
from EEA-IGA assumed responsibility.
Sales other than Government Organizations

Cash/Account Receivables xx
Value Added Tax Payables xx
Sales xx
vi Payment of VAT to MoR

Value Added Tax Payable xx
Cash xx
vii Offsetting of VAT receivables or payables accounts

• If the annual VAT payables exceed the VAT
receivables balance
VAT Payables xx
VAT Recevables xx
• If the annual VAT receivables exceeds the VAT

payable balance
VAT Recevables xx
VAT Payables xx
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Debit Credit
viii Retaining withholding tax from payments to suppliers
/ contractors / consultants
Inventory / Expenses/Cost/Account Payable
Withholding tax payables xx
Cash
xx
ix Settlement of Withholding Tax payables
Withholding tax payables xx
Cash xx
29. PROVISION
29.1. General
29.1.1. Provisions are recognized for liabilities of uncertain timing or amount that have arisen
as a result of past transactions, including legal or constructive obligations. The provision
is measured at the best estimate of the expenditure required to settle the obligation at
the reporting date.
29.1.2. Where EEA-IGA expects some or all of a provision to be reimbursed, for example under
an insurance contract, the reimbursement is recognized as a separate asset but only
when the reimbursement is virtually certain. The expense relating to a provision is
presented in the income statement net of any reimbursement.
29.2. Warranty provisions
29.2.1. Provisions for warranty-related costs are recognized when the product is sold or service
provided to the customer. Initial recognition is based on historical experience. The
initial estimate of warranty-related costs is revised annually.
30. Period End and Year End Procedures
The purpose of period end and year end procedure is to ensure completeness of financial reports
and that no uncleared, suspense and unreconciled accounts are reported in the interim and annual
financial statements, period end and year end procedures must be accomplished. In addition, proper
documentation for the interim and annual financial statements, journals, trial balances and journals
to be printed and kept in softcopy.
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30.1. Petty Cash and Purchase funds
30.1.1. It is advisable to close the petty cash account by the end of the year regardless of the
petty cash balance remaining. A new float will be established in the following day (at
the beginning of the fiscal year).
30.2. Cash at Bank
30.2.1. Cash at bank accounts should be reconciled and unknow debit and credits should be
accounted and any bank errors should be communicated and cleared.
30.3. Debtors
30.3.1. Trade Debtors: At least every quarter, the trade receivable account of major
customers and at least once in a quarter, the accounts of all customers have to be
reconciled. The reconciliation will be conducted though exchange of statement of
accounts. EEA-IGA should take the initiation for the reconciliation.
30.3.2. Advances received from tenants should be reviewed and the expired portion as of the
end of the fiscal year should be adjusted to revenue.
30.3.3. Staff Debtors: Staff debtors account should be reconciled and appropriate action
need to be taken for long outstanding staff balances.
30.3.4. Prepayments paid for rent, insurance and other services should be adjusted for the
expired portion on a monthly basis. Prepayments should be checked against contract
agreements and policies (if insurance) by the end of the year to make sure that the
expired portion of the advance payment has been transferred to the appropriate
accounts.
30.3.5. VAT receivables together with VAT payables should be reconciled against the monthly
VAT return forms on a monthly basis. The yearend net VAT payable or net VAT
receivable should be reconciled the balance with yearend VAT return form.
30.3.6. Withholding Tax receivables should be reconciled with the withholding tax receipts
collected from customers and clients during the period. The details on the withholding
tax receivable ledger should be summarized in the following format and kept together
with the withholding tax receipt files.
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Withholding
Amount
Date tax receipt, Customer / Client name
withheld
no
30.3.7. Impairment test: As indicated in the receivable section of this manual, impairment
of receivables (provision for doubtful accounts) should be provided by the end of the
year as part of year end procedure. In addition, long outstanding receivables
determined by the management and Executive Committee of EEA-IGA should be
written off.
30.3.8. In line with IAS 36, an annual impairment test for an asset to be taken when there is
an indicator of impairment annually at the year end.
30.4. Inventory
30.4.1. Quarterly sample physical counts should be reconciled against the record with inventory
module of the accounting software and the inventory card, bin card of inventory
keepers. Overage and shortages should be adjusted before compiling interim reports.
30.4.2. Inventory overage and shortages following the annual physical count should be
adjusted as indicated in the inventory section of this manual before the compilation of
the annual financial report.
30.4.3. Impairment of inventory (Provision for inventory obsolescence) to be computed as per

the procedure indicated in the inventory section of this manual.
30.4.4. Inventory valuation loss when the market values of a inventory is higher than the
carrying cost of the inventory to be adjusted as outlined in inventory section of this
manual. Commercial department shall provide the necessary information to compute
the market value of inventory items: For finished goods current market price and for
raw materials: current replacement cost shall be a basis for the computation of Net
Realizable Value.
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30.5. Property, Plant and Equipment
30.5.1. By the end of the year, the fixed asset register and the fixed asset ledger should be
reconciled. Assets disposed should be checked whether they are marked on the fixed
asset register and the appropriate journal passed.
30.5.2. PPEs which are segregated not to be used anymore should be reclassified as fixed asset
for disposal and should be deducted from the fixed asset category and the associated
depreciation expense should be computed only to the extent they had been in service.
The balance should be reported under inventory.
30.5.3. Depreciation should be computed for all active assets and for those which have been
used partly in the year.
30.5.4. Depreciation schedule for the purpose of the financial books should be reconciled
against the depreciation schedule in accordance with the income tax proclamation.
30.6. Creditors / Payables
30.6.1. Review all payables accounts to ensure that they are still a liability and figures are
accurate. Bid deposit, performance bond any other deposits payables should be
reviewed for correctness and validity.
30.6.2. Accrue for goods and services received to 30th of June. These includes machinery rent
payables, power, telephone, transportation, transit and custom fees, staff perdiem,
salaries and wage payables.
30.6.3. Advance received from clients (customers) should be adjusted for the portion where
no goods and services provided as unearned revenue (deferred revenue).
30.6.4. Retention payables that had been withheld from contractors should be reviewed
whether it is really payable and to be reconciled with the respective contractors by the
end of the year.
30.6.5. Interest payables, which are not accounted should be computed based on the loan
agreement and accrued interest to be journalized.
Interest Expense XX
Accrued Interest Payable XX
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30.6.6. Similarly, interest on lease payments should be computed based on the lease payment
schedule.
30.6.7. Deferred tax liabilities and assets to be computed and the appropriate journal entry to
be effected.
30.7. Employee Benefits
30.7.1. Finance department shall compute employee benefit payables for the year which are
resulted from annual leave and severance pay. Human Resource Department shall
provide details of information including projected employee turnover rate by major
category of positions, segregating those who served less than five years and those who
served more than five years in EEA-IGA.
30.8. Reconciliation with EAA
30.8.1. Ending balances between the IGA and EAA should be reconciled. Both entities shall
exchange statements of accounts.
30.9. Backup and Printing
30.9.1. Back up of the accounting software is essential after completing all the adjustments and
when the interim financial report and the annual financial report is ready for printing.
30.9.2. At least three backup files should be taken and kept in a separate safe location.
30.9.3. The journals, ledgers, trial balances, financial statements, account reconciliations should
be printed and also kept in a pdf or other suitable format.
30.9.4. Closing procedure will be conducted after completion of all the above activities. Unless the
software prohibits use of the following year recording, it is wise to wait for some time until
the external auditing to be completed before closing of the fiscal year so that any possible
adjustments found during the audit to be accounted in the same period.
31. Annual Financial Statements
The objective of financial statements of EEA-IGA is to provide information about the financial position,
performance and cash flows of EEA-IGA that is useful for economic decision-making by a broad range
of users who are not in a position to demand reports tailored to meet their particular information
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needs. Financial statements also show the results of the stewardship of management and the
accountability of management for the resources entrusted to it.
31.1. Submission of financial reports
31.1.1. Finance Manager has to deliver the required financial reports to the GM of the IGA within
30 days from the end of the fiscal year.
31.1.2. Annual Financial statements should be presented for audit within two months from ending
date of the fiscal year.
31.1.3. Audited Finance statement should be submitted to Ministry of Revenue before the 20th of
October.
31.2. Qualitative characteristics of information in financial statements
The Qualitative Characteristics of information in financial statements classified as fundamental

characteristics and Enhancing characteristics. Fundamental characteristics are Relevance and Faithful
representation. Enhancing characteristics are comparability, verifiability, timelessness and
understandability.
The benefits derived from information should exceed the cost of providing it. The evaluation of
benefits and costs is substantially a judgmental process. Furthermore, the costs are not necessarily
borne by those users who enjoy the benefits, and often the benefits of the information are enjoyed
by a broad range of external users.
31.3. Financial Statements Presentation
31.3.1. Financial statements of EEA-IGA should be prepared based on fundamental principles

established for the preparation of financial statements includes relevance (Predictive Value,
Confirmatory Value and Materiality), faithful presentation (Complete, Neutral and free from
error), Comparability, Verifiability, Timeliness, Understandability and Cost1.
31.3.2. A complete set of financial statements comprises2:
✓ a statement of profit and loss and other comprehensive income;

✓ a statement of financial position;
✓ a statement of changes in equity;
1 IFRS framework
2 IAS 1
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✓ a statement of cash flows;

✓ Accounting Policies and Notes to the accounts
31.3.3. Annex 31/A illustrate the format to be used for the preparation of the annual financial
statements. The corresponding notes in the financial statement formats are explained in
the subsequent sections under accounting policies and notes to the accounts.
31.3.4. Statement of Profit and loss and other comprehensive income
Format
EEA-IGA should show in this statement only the main income and expense categories, the
detailed make-up of such categories being shown in the notes. An example of this
statement format is given in Annex 13/A.
Revenue: Revenue should be stated in the statement of financial performance and other
comprehensive income as one figure. As EEA-IGA has different revenues by major sales
category and other non-operating revenues the total of them should be shown on the
Statement of financial performance and other comprehensive income, while the make-up
of the revenues total by revenue type may be disclosed in the notes to the accounts.
EEA-IGA recognize income in accordance with IFRS 15. Revenue is to be measured at the
performance obligation is satisfied. In most cases, the value is easily determined by the
sales contract or sales invoices after trade discounts or rebates. IFRS 15 includes a cohesive
set of disclosure requirements that would result in an entity providing users of financial
statements with comprehensive information about the nature, amount, timing and
uncertainty of revenue and cash flows arising from the entity’s contracts with customers.
Cost of Sales: Cost of Sales should be shown as one figure in the statement profit and
loss and other comprehensive income, the make-up being disclosed by way of note. Such
note should show the cost of goods manufactured and detail of cost of sales.
Other Income: Other income should include miscellaneous items of income other than
main operation, e.g. sales of scrapes, gain on disposal of property, plant and equipment
and others. The make-up need only by disclosed by way of note if the total is material.
General and Administration Expenses and Selling Expenses: Full details of all
administration and selling expenses should be disclosed in the notes to the accounts. It is
not, however, necessary to detail insignificant amounts, which should be grouped as
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"miscellaneous". The value of items included under the heading "miscellaneous" should not
exceed 5% of the total of administration or selling expenses. In addition, other expenses
such board fee, audit fee etc. regardless of the amount the expense.
Financial Charges: Where interest is paid under more than one different type of credit
facility e.g. bank short term loan, long term loans etc., the make-up should be disclosed by
way of note and shown in a separate line in the statement of profit and loss and other
comprehensive income.
Net Profit before Taxation: The working of profit tax computation should be shown in
the notes to the account.
Provision for taxation: Detail schedule of the tax liabilities should be disclosed which
shows the adjustment of EEA-IGA’s net income before tax to arrive to a taxable income.
Allowable and unallowable expenses and revenues will be adjusted.
31.3.5. A statement of financial position
This section sets out the information that is to be presented in a statement of financial
position and how to present it (the form). The statement of financial position (sometimes
called the balance sheet) presents EEA-IGA’s assets, liabilities and equity as of a specific
date—the end of the reporting period.
Format
The statement of financial position should be presented in vertical format showing the non-
current assets, current assets, total assets, equity, non-current liabilities, current liabilities
and total equity and total liabilities. For clarity of presentation the detail on the statement
of financial position should be limited to the main asset and liability classifications of material
amounts, supporting detail being given by way of notes to the accounts as indicated in
Annex 13/A.
Inventory: Inventory should be shown in one total in the financial position. The make-up
is being disclosed by way of note. The amounts of each major inventory category e.g.
construction materials, spare parts, other supplies and goods in transit should be shown.
Any provision for obsolescence should be shown as a deduction from the sub-total of the
inventory items. Goods in transit are being also disclosed separately. (refer the chart of
account). As per IAS 2 Inventories the financial statements should disclose;
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▪ Accounting policies adopted for measuring inventories and the cost flow assumption
(i.e., cost formula) used
▪ Total carrying amount as well as amounts classified as appropriate to the entity
▪ Carrying amount of any inventories carried at fair value less costs to sell
▪ Amount of inventory recognized as expense during the period
▪ Amount of any write-down of inventories recognized as an expense in the period
▪ Amount of any reversal of a write-down to net realizable value and the circumstances
that led to such reversal
▪ Circumstances requiring a reversal of the write-down
▪ Carrying amount of inventories pledged as security for liabilities
Debtors: Debtors should be shown as one total in the financial position. The make-up is
being disclosed by note. Items which should, if material, be disclosed in the note, may
include, trade debtors, staff debtors, sundry debtor and other debtors. Provision for
doubtful debts, if any, should always be shown by way of note as a deduction from
debtors, only net debtors being shown on the financial position.
Property, Plant and Equipment: Only the total book value of property, plant and
equipment should be shown in the financial position. The make-up of this figure by cost
and depreciation for each major class of asset, showing the movement during the year
(acquisition, additions, transfer and disposal) should be shown by way of note.
IAS 16 property, plant, and equipment require disclosures with respect to each class of
property, plant, and equipment is extensive and comprise;
▪ Measurement bases for determining gross carrying amounts

▪ Depreciation methods
▪ Useful lives or depreciation rates used
▪ Gross carrying amount and accumulated depreciation (aggregated with
accumulated impairment losses) at the beginning and end of the period
▪ Additions
▪ Assets classified as held for sale
▪ Acquisitions through business combinations
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▪ Increases and decreases arising from revaluations and from impairment losses and
reversals thereof
▪ Depreciation
▪ Existence and amounts of restrictions on ownership title
▪ Assets pledged as security for liabilities
▪ Assets in the course of construction
▪ Contractual commitments for the acquisition of property, plant, and equipment
▪ Compensation for assets impaired, lost, or given up
If property, plant, and equipment are stated at revalued amounts, these items must be
specified;
▪ The effective date of the valuation

▪ Whether an independent valuer was involved
▪ Methods and significant assumptions used in assessing fair values
▪ The extent to which fair values were measured by reference to observable prices
in an active market, recent market transactions on an arm’s-length basis, or were
estimated using other techniques
▪ For each class of asset revalued, the carrying amount that would have been
recognized if the class had not been revalued
▪ The revaluation surplus, indicating the change for the period and any restrictions
on remittance to the government
Intangible Assets: Intangible assets at EEA-IGA are accounted for using a cost model.
Under the cost model, assets are carried at cost less any accumulated amortization and
any accumulated impairment losses. IAS 38 Intangible assets require these disclosures
for each class of intangible asset:
▪ Whether useful lives are indefinite or finite and, if finite, the useful lives or
amortization rates used
▪ The amortization methods used
▪ The gross carrying amount and accumulated amortization and impairment losses at
the beginning and end of the period
▪ The line items in the income statement in which amortization is included
▪ Additions
▪ Increases or decreases during the period resulting from revaluations
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▪ Impairment losses
▪ Reversals of impairment losses
▪ Amortization recognized during the period
▪ For assets with indefinite useful lives, the carrying amount of the asset and the
reasons supporting such an assessment
▪ Description, carrying amount, and remaining amortization period of any intangible
assets that are material to the entity’s financial statements
▪ The existence and carrying amounts of intangible assets whose tile is restricted or
pledged as security for liabilities
▪ Contractual commitments for the acquisition of intangible assets
▪ Intangible assets acquired by way of government grant and initially recognized at fair
value, including their fair values, their carrying amounts, and whether subsequently
carried under the cost or revaluation model
▪ The amount of research and development expenditure expensed during the period
In addition to the preceding disclosures, EEA-IGA should disclose (Recommended by
IFRS) the description of any fully amortized intangible assets that are still in use and of
any significant intangible assets controlled by the entity but are not recognized as assets
as they failed to meet the recognition criteria.
Investment Property: Investment property (land or building or both) held to earn

rentals or for capital appreciation or both are measured at depreciated cost less any
accumulated impairment losses unless it is classified as a non-current asset held for sale.
Even if EEA-IGA measures an investment property under the cost model it is still required
by IAS 40 investment property to disclose the fair value of the investment property in the
financial statements.
As per IAS 40 investment properties, EEA-IGA shall disclose;
▪ Depreciation methods used

▪ Useful lives or depreciation rates used
▪ A reconciliation of the opening and closing gross carrying amounts and the
accumulated depreciation and impairment losses, showing
▪ Additions, showing separately acquisitions and subsequent expenditure
▪ Impairment losses recognized and reversed
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▪ Transfers to and from inventories

▪ The fair value of investment property and, if fair value cannot be reliably measured
▪ Explanation as to why fair value cannot be reliably measured
▪ Range of estimates, if possible, within which the fair value is highly likely to fall
▪ Disposals of investment property not carried at fair value
Creditors: Creditors should be shown in one total in the financial position. The make-up
is being disclosed by way of note. Items which may, if material, be disclosed in the note,
will include, trade creditors, sundry creditors, deferred revenue and accruals.
Where current maturity of long-term loans includes arrears of unpaid installments and
interest, this fact should be disclosed in a note to the accounts in order to draw attention
to the fact that the security given for the loan may be endangered.
Provision for Taxation: Provision for taxation comprises the provision for taxation on
the profits of the year under review plus any arrears of unpaid taxation. Computation of
current year taxation as per the income tax law should be clearly disclosed on this part of
the note. The amount of any material arrears of unpaid taxation from previous years
should be disclosed by note. Such a note should also, where possible, disclose the last
year to which assessments have been finalized with the Ministry of Revenue (MoR). The
amount of any taxation assessments under appeal, not provided for, must be disclosed in
the contingent liabilities note.
Tax payable should be shown in one total in the financial position. The make-up is being
disclosed by way of note. Items which may, if material, be disclosed in the note, will
include, taxes payable (e.g. employment taxes, VAT and withholding taxes, etc.).
Short Term Loans: Short-term loans comprise overdraft, term loans, merchandise loans,
advance on bills or other similar bank loan facilities whose term does not exceed one year
and current maturity of long-term loans. Where there is more than one loan, only the
total need be shown on the balance sheet, the make up being disclosed in the notes to
the accounts. If, however, there is only one loan then it should be described on the
financial position. The nature of the security given and important part of terms of the loan
in respect of such loans should be disclosed in the notes.
Long Term Loans: Long term loans are loans that are not repayable in full within one
year from the date of the loans. Such loans comprise part of the financing of EEA-IGA and
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should accordingly be included in the financial position. Where there is more than one
long term loan, it should be disclosed separately in the financial position. A note to the
accounts also should distinguish the sources of the loan. Others information which should
be given in respect of each loan is;
▪ From whom loan was obtained

▪ Year obtained and period of the loan
▪ Repayment terms
▪ Interest rate
▪ Security
Paid up Capital, Reserves and Retained Earning: These will be shown separately in
the financial position. Explanation should be provided for changes in the capital of EEA-
IGA. The movement of legal reserves and other reserves (if any) account and the amount
of authorized capital should be disclosed in the notes.
31.3.6. A statement of changes in equity
This section explains a statement of changes in equity which shows the changes in EEA-
IGA’s equity for a period. An example of a statement of changes in equity format is given
in Annex 31/A.
31.3.7. A statement of cash flows
This section sets out the information that is to be presented in a statement of cash flows
and how to present it. The statement of cash flows provides information about the changes
in cash and cash equivalents of EEA-IGA for a reporting period, showing separately changes
from operating activities, investing activities and financing activities.
Form
EEA-IGA prepares the cash flow statement under the indirect method. An example of a
statement of cash flows format is provided as per Annex 31/A. The statement of cash flow
should list EEA-IGA’s cash flows for the fiscal period classified under the following headings
as operating activities, investing activities and financing activities:
Operating activities: Under the indirect method, the first item presented is the net income
(or loss) for the year as reported in the income statement. Noncash items of revenue and
expense are added or deducted to arrive at net cash provided by operating activities. For
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instance, depreciation on property, plant, and equipment is added back because these
expenses reduce (increase) net income (loss) for the year without affecting cash from
operating activities. Similarly, gain on sale of property, plant, and equipment is deducted
from net income for the year because it does not affect cash flow from operating activities.
Changes in inventory, accounts receivable, and other operating assets and liabilities are
used to convert the accrual basis net income (loss) for the year to arrive at cash flows from
operating activities.
Investing activities: Investing activities include the purchase and disposal of property,
plant, and equipment and other long-term assets, such as investment property. They also
include purchase and sale of debt and equity and debt instruments of other entities that
are not considered cash equivalents or held for dealing or trading purposes. Investing
activities also include cash advances and collections on loans made to other entities. This,
however, does not include loans and advances made by banks and other financial
institutions to their customers that would be classified as “operating activities” as they are
cash flows from these entities’ principal revenue-producing activities. Common examples of
cash flows relating to investing activities are;
Cash Inflows
• Proceeds from disposal of property, plant, and equipment

• Proceeds from disposal of debt instruments of other entities
• Proceeds from the sale of equity instruments of other entities
Cash Outflows
• Purchase of property, plant, and equipment
• Acquisition of debt instruments of other entities
• Purchase of equity instruments of other entities (unless held for trading purposes or
considered to be cash equivalents)
Financing activities: Financing activities include obtaining resources from and returning
resources to the owners. Also included in this category is obtaining resources through
borrowings (short term or long term) and repayments of the amounts borrowed. Common
examples of cash flows relating to financing activities are;
Cash Inflows
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• Proceeds from additional paid capital from government

• Proceeds from issuing debt instruments
• Proceeds from bank borrowings
Cash Outflows
• Payment of dividend to EAA - Association

• Repayment of principal portion of debt, including finance lease obligations
• Repayment of bank borrowings
Noncash Transactions: IAS 7 requires that noncash investing and financing activities
should be excluded from the cash flow statement and reported “elsewhere” in the financial
statements, where all relevant information about these activities is disclosed. This
requirement is interpreted as the necessity to disclose noncash activities in the footnotes to
financial statements instead of including them in the cash flow statement. Common
examples of noncash activities are;
a. Conversion of accumulated profit to equity
b. Issuance of addition paid capital to acquire property, plant, and equipment
31.3.8. Notes (Refer Annex 31/A for a comprehensive Note)
The purpose of the notes to the accounts is;
▪ to disclose the major accounting policies followed by EEA-IGA;

▪ to show whether the financial statements have been prepared incompliance with the
IFRS;
▪ to provide details of the make-up or clarification of items appearing in the financial
position and in the statement of income and other comprehensive income statement,
and
▪ to disclose information on matters such as commitments or contingencies which may
affect the interpretation of the financial statements but are not reflected therein.
The notes to the accounts are an integral part of the financial statements and must be
prepared by EEA-IGA’s management at the same time as the financial position, income
Statement and other comprehensive income and cash flow statement.
Accounting Policies Note: IFRS requires that in order to facilitate the understanding of
financial statements, the Accounting policies followed for items judged material or critical
in determining the profit or loss for the year and in stating the financial position should
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be disclosed in a note to the accounts. The Accounting Policies note will always be Note
1 of the notes to the accounts (See Annex 31/A).
Finance Department should follow-up changes and requirements in IFRS and should
include additional notes and disclosures in addition to those stated in this manual.
Accounting policies normally disclosed in this note will include some or all of the following:
Property, plant and equipment: Basis of statement of property, plant equipment and
calculation of depreciation including the annual depreciation rates used for each
classification of fixed assets detailed in the note on the make-up of property, plant
equipment. Any other unusual accounting policies such as the capitalization of repair costs
should be disclosed.
Inventory: Basis of valuation of inventory for each classification of inventory detailed in

the note on the make-up of inventory. Basis of provision for inventory obsolescence if
other than the estimation by management of the actual provision required to reduce
individual inventory items to their estimated realizable value; i.e. a note will only be
required if the provision is created on an arbitrary basis such as a percentage of the value
of inventory. Balances/ Carrying amount of the following classes of inventories, finished
goods, WIP, raw materials. The amount of inventories recognized as an expense during
the periods. The amount of any write-down of inventories recognized during the periods
Debtors: Basis of provision for doubtful debts if other than a realistic estimate by
management of collectability of each individual debt; i.e. a note will only be required if
the provision is created on a non-specific basis such as a percentage of outstanding
debtors. In addition, any other accounting policy should be disclosed and cross referenced
to the financial position note column.
Commitments Note: In order to enable the reader of the financial statements to

determine the adequacy or otherwise of EEA-IGA’s liquidity position, a note should be
made of all material commitments for which provision has not been made in the accounts.
The note should disclose the approximate financial amounts of each commitment.
Contingent Liabilities Note: A contingent liability is a potential liability the existence of

which will be confirmed only by the occurrence or non-occurrence of an uncertain future
event. Common examples of contingent liabilities are disputed tax assessments under
appeal; threatened or pending litigation for damages; liability under guarantees to third
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parties or on promissory notes discounted. All material contingent liabilities should be

disclosed in a note to the accounts, showing;
▪ the nature of the contingency,

▪ the uncertainties which may affect the outcome, and
▪ a reasonable estimate of the financial effect should the contingency become and
actual liability.
Events After the Reporting Period Note: As per IAS 10, Events after the Reporting
Date, post–balance sheet events are categorized into “adjusting” and “non-adjusting”
events. Adjusting events are those post–balance sheet events that provide evidence of
conditions that actually existed at the balance sheet date, albeit they were not known at
the time. Financial statements should be adjusted to reflect adjusting events after the
balance sheet date. Typical examples of adjusting events are;
▪ The bankruptcy of a customer after the balance sheet date usually suggests a loss
of trade receivable at the balance sheet date.
▪ The sale of inventory at a price substantially lower than its cost after the balance
sheet date confirms its net realizable value at the balance sheet date.
▪ The sale of property, plant, and equipment for a net selling price that is lower than
the carrying amount is indicative of an impairment that took place at the balance
sheet date.
▪ The determination of an incentive or bonus payment after the balance sheet when
an entity has a constructive obligation at the balance sheet date.
▪ A deterioration in the financial position (recurring losses) and operating results

(working capital deficiencies) of an entity that has a bearing on the entity’s
continuance as a “going concern” in the foreseeable future.
Dividends proposed or declared after the balance sheet date should not be recognized
as a liability at the balance sheet date. Such declaration is a non-adjusting subsequent
event and footnote disclosure is required, unless immaterial.
The date when the financial statements were authorized for issue, and who gave
that authorization. If the entity’s owners have the power to amend the financial
statements after issuance, this fact should be disclosed.
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Comparative Figures Note: Except when this IFRS permits or requires otherwise, EEA-
IGA shall disclose comparative information in respect of the previous comparable period
for all amounts presented in the current period’s financial statements. EEA-IGA shall
include comparative information for narrative and descriptive information when it is
relevant to an understanding of the current period’s financial statements.
Comparative prior-period information is presented for amounts shown in the financial

statements and notes.
The financial statements of any one-year should include the comparative figures for the
immediately preceding year. Such comparative figures being taken from the financial
statements of that year.
Where, however, the basis of accounts recording or of presentation of the financial

statements has changed in the current year it may be necessary to reclassify the
comparative figures of the previous year in order to facilitate comparison. Where such a
reclassification of the preceding year's figures has been made this fact should be disclosed
in a note to the accounts.
31.4. Management Report
The annual financial statements should be accompanied by a short management report prepared
and signed by the Finance Manager and the IGA Manager of EEA-IGA.
▪ Financial position
As regards the financial position the report should explain the reason for any significant
changes in assets and liabilities from the previous year and comment on the overall financial
situation of EEA-IGA. Financial position ratios (liquidity ratios such as current ration, quick
ratio and Debt/equity Ratio, Fixed assets/Capital ratio) should be included for the current and
previous year, with explanations for significant variances. (please refer section 12 of this
manual for detail financial analysis)
▪ Statement of Financial Performance and other comprehensive income
As regards the income Statement and other comprehensive income Account the report should
comment on changes in Income, cost of sales, gross profit, expenses and net profit, both as
compared to the previous year and to budget. To facilitate understanding, items should be
108
expressed as common size percentages of sales, particularly the gross profit percentage and
ratios of significant expense items such as direct materials. Material changes in individual
expense items should be explained where appropriate.
▪ Capital and efficiency ratios
Return on Capital Employed, Return on Capital Invested, Net Asset Turnover and Property,
Plant and Equipment Turnover Capital and efficiency ratios for the current and preceding year
should be included in the report with explanations for significant variances .
32. Management Accounting
32.1. Cash Flow Forecasts
32.1.1. Cash flow forecasting is an essential aspect of financial planning. The forecast indicates the
ability of EEA-IGA to generate sufficient cash flow to meet its commitments as they fall due
and thus to remain in business.
Annual Cash Plan
32.1.2. In order to provide management with a long-range forecast of cash requirements for the
year, the forecast must be broken down by quarters and included in Br. 000's on an Annual
Cash Plan. The Annual Cash Plan should be prepared in June immediately preceding the
budget year to which it relates in order that it may be as accurate as possible.
32.1.3. The Annual Cash plan presents the overview of the whole year's activities and will indicate
in advance when cash storages are likely to be encountered and bank facilities, if not already
available, may be required. It will also indicate whether existing overdraft facilities, which
should be noted on the forecast, are adequate or if they are more than necessary in which
case they may be reduced so as to avoid unnecessary commitment charges.
32.1.4. The Finance Manager will review the Annual Cash Plans submitted by each section to ensure
that existing credit facilities are adequate and to arrange additional facilities or investment
as applicable, where necessary.
Quarterly Cash Flow Forecast
32.1.5. The Annual Cash Plan is prepared for overall cash management. The cash flow should be
re-forecasted quarterly to provide management with up-to date accurate information as to
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available cash resources and subsequent commitments and collections. The actual outturn
of cash flow should be analyzed against the budget and should be reported to the
management.
32.2. Interim Reports
32.2.1. An interim financial report is intended to provide an update of the last annual report. Thus,
Finance Department should prepare such financial reports as Statement of Financial
Performance, Statement of financial position, cash flow statements, etc at least on a
quarterly basis.
32.2.2. Before submission of interim financial reports, Finance Department should reconcile
advances with EAA, if any and advance from tenants against accrued revenue.
32.2.3. Finance Department has to deliver the interim financial reports with the minimum content
requirement as indicated in the following section together with financial analysis to the IGA
Manager. Minimum content of consolidated interim financial reports (if quarterly) include:
The quarterly financial statement should not necessary be prepared in accordance with
IFRS. It shall focus on the reporting requirement of the management of EEA-IGA.
32.2.3.1. condensed statement of financial position;
32.2.3.2. condensed statement of comprehensive income presented either as a condensed

single statement or a condensed separate income statement and a condensed
statement of comprehensive income;
32.2.3.3. Profitability report by revenue centers
32.2.3.4. Condensed statement of cash flows; and selected explanatory notes.
Daily/Weekly Reports
32.2.4. Weekly financial reports’ content will be determined in accordance with the needs of the
management at all levels. The following are necessary weekly reports to be presented.
Additional reports may be designed or existing one maybe customized on demand basis.
Report Name Purpose Responsible Deadline Users Format

units
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Weakly Cash Position To know the cash Finance Dept First Day of Finance Annex 32-A
Report position of EEA-IGA. / General the following Manager
Section head Accounts week IGA Manager
Weekly Sales Report Better cash Finance Monday Finance Annex 32-B
management – Department / morning Manager
updating of cash General following the IGA Manager
forecast Accounts week
Weekly Account To follow-up Finance Monday Finance Annex 32-C
Receivable Status receivables Department morning Manager
following the IGA Manager
week
Monthly Progress Reports on Status of Accounts
32.2.5. These reports must be carefully reviewed at EEA-IGA.
Debtors reports: The Finance Department should continue to report to the IGA Manager
and relevant managers on outstanding receivables.
Age Analysis
0-3 months 4- 6 7 - 12 Over 12

months months months
Trade
Staff
Deposits and Prepayments
Retention Receivables
Others
Movement of Trade Debtors
Previous month This month

Beginning Trade Receivable
Total Value of Credit sales
Total Available Collection
Less: Cash collection from credit sales
Ending Balance: Receivable
The debtors’ report should be accompanied by a note where necessary, drawing the
attention of the Finance Manager and the IGA Manager. Aging report to be reviewed by the
management and course of plan to be designed if there is a significant outstanding payable.
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Monthly Taxes and Financial Obligations: Finance Department should follow up the
balance of due income tax, VAT and withholding tax and other financial obligations, and
report them to the Finance Manager.
Segmental Profitability Report: In addition to the monthly and quarterly financial

reports, a year to date progressive segmental profitability report should be submitted. The
report will have the following format. Individual segmental reports will be submitted to
management for review.
Business unit (revenue center) Name Year to date Year to date Variances
Budget actual
Revenue
Gross Profit earned / Gross Loss
Gross Profit %
Gross Profit Contribution
The General Accounts Team will consolidate these reports and submit to the Finance
Manager of EEA-IGA, where this report will be submitted to management through
him/her.
P1 P2 P3 P4 P5 P6 P7 Total
Revenue
Gross Profit
Gross Profit %
earned / Gross
Gross Profit
Loss
“P” refers business units (revenue centers)
• Contribution
• Separate analysis report should be submitted to explain significant discrepancies noted
in any of the segments in terms of anticipated gross profit and actual gross profit.
32.3. Financial Analysis
32.3.1. Financial analysis is a process of evaluating relationships between component parts of

financial statements to obtain a better understanding of the firm’s financial condition and
performance. The focus of financial analysis is on key figures in the financial statements
and the significant relationship that exists between them.
32.3.2. Finance Department of EEA-IGA should conduct financial analysis based on the quarterly
and annual financial reports. The analysis will be submitted to management soon after the
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submission of the quarterly financial reports and together with the yearend financial report.
The analysis will have the following objectives:
▪ Assess the profitability of each revenue streams

▪ Assess how efficiently EEA-IGA uses its assets and how it finances them;
▪ To evaluate the extent of cost effectiveness in maintenance and other services;
▪ Assess the liquidity position of EEA-IGA;
▪ Review the status of EEA-IGA in terms of its capacity to pay debts;
▪ Evaluate performance (profitability, timely addressing of customers enquiries);
▪ What changes are needed to improve future performance?
32.3.3. Ratios: Financial ratios to be used for the purpose of EEA-IGA categorized into four. These
are liquidity ratio, activity ration, leverage ratio and profitability ratio.
a) Liquidity Ratio
Definition: Liquidity ratio measures the ability of EEA-IGA to meet its short-term
obligations and reflects its short-term financial strength. It is a measure of whether EEA-
IGA’s current assets are sufficient to pay its current liabilities?
Application: These ratios are applicable to EEA-IGA as an entity.
Formula
C ur r entAs s ets
Current ratio =
C ur r ent
Liabilities
As s ets− Inventor y
Cur r ent
Quick ratio =
Cur r entLiabilities
Quick ratio measures short term solvency by removing the least liquid asset which
inventory (Inventory).
Calculate
Period 1 minus
Current Period
EEA-IGA’ s
1 (previous
Benchmark
Industry
Average
Period)
Target
Norm
ratio
P -2
P -3
(P)
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Current Assets
Current Liabilities
Inventory
Current Ration 2:1
Quick Ratio 1.5:1
Analysis: The ratio is just an indicator. Interpretation should be made cautiously taking
into account internal and external contexts. The analysis should answer the why and
should assist the management to take appropriate decision, if required. The analyst should
recommend (based on the analysis on the findings) the appropriate interventions for
efficient liquidity management. When conducting a trend analysis over changes to liquidity
ratio, it is worth noting the trends with summary of the following items:
% over total Assets
Current P -1 P -2 P -3
Period (P)
Current Assets
Cash and Bank Balances
Staff Debtors
Trade Debtors
Prepayments and Deposits
Advance to Suppliers
Tax Receivables
Sundry Debtors
Expected Credit Loss
Material & Supplies
Non-Current Assets held for sale
Current Liabilities
Trade Debtors
Bank loans
Other payables
Retained Earning
Other Balance Sheet items
Fixed Assets and Construction in Progress
Other Non-Current Assets
Capital (Capital and retained earnings)
b) Activity Ratios
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Definition: Activity ratios/turnover ratios measure how efficiently EEA-IGA manages its
assets including working capitals, non-current assets and sales. It also measures the
speed at which various accounts are converted in to sales or cash.
Formula
(i) (ACP) Average collection period (days’ sales outstanding): The ratio measures the
duration where credit sales have been outstanding. To give an example, it is the date
on which a credit sale has been effected and actual cash is being received.
365days 365X Aver ageReceivables
ACP = =
ARTO Cr editSales
• Where ARTO is Average Receivable Turnover, computed as: Total Credit sales /
average account receivables.
• Average receivable can be easily computed by adding the beginning and ending
receivables for the period and dividing it by two.
• To be more specific, the Average collection period can be specifically computed by
segment. If segmental analysis to be conducted, then the relevant receivables and
credit sales should only be included in the computation.
(ii) Inventory turnover (ITO): Measures the inventory items are ordered repeatedly and
also for how long an inventory has been in store (Inventory holding period).
C os of
t GoodsSold
ITO =
Aver ages tock
Inventory Holding Period (IHP) = 365

ITO
• The analysis will be more meaningful if conducted by category of inventory based
on the information from Inventory module of the software.
(iii) Fixed Assets Turnover Ratio ( FATO): Measures the contribution of 1Birr investment
on fixed assets to the generation of sales and net income. To be more specific, it is
also possible to measure the contribution of 1 Birr investment on Plant and machinery
on revenue from sales of finished goods.
Sales
FATO = or
NetFixedAs s ets
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NetIncome
FATO=
NetFixedAs s ets
(iv) Total Assets Turn Over /TATO/ Ratio: Similar with the above, and measures the
contribution of investment of 1Birr in Asset (regardless of its nature) to total sales.
Sales
TATO = Sales/Total Assets or
TotalAs s ets
Calculate
Current Period
EEA-IGA’ s
Benchmark
Industry
Average
Target
Norm
ratio
P -1
P -2
P -3
(P)
Average Inventory
Average Account Receivables
Credit Sales
Cost of Sales
ACP
ITO
FATO against total Sales
FATO Against Net income
TATO against total Sales
TATO Against Net income
The analysis should take into account new developments in EEA-IGA including additional
investments, the external environment. The analysis is more important than the rate. The
analysis should be supported by a recommendation to the management based on the
outcome of the analysis.
c) Leverage Ratio
Definition: These ratios measure the extent to which EEA-IGA finances itself with debt
as opposed to equity.
Formula
a. Debt Ratio= Total Debt/Total assets
116
Indicate the percentage of total assets financed by debt funds (also indicate whether
most of the debt is short term or long term in nature).
b. Debt Equity Ratio=Total debt/ Total Equity
This ratio indicates the amount of Birr long term and short-term creditors are
contributing for each one Birr equity contribution.
c. Times Interest Earned Ratio= EBIT/Interest
This indicates how much operating income has been generated for each one Birr of
interest expense. The ratio also called interest coverage ratio.
Current Period
EEA-IGA’ s
Benchmark
Industry
Average
Target
Norm
ratio
P -1
P -2
P -3
(P)
Long Term Liabilities (Debts)

Equity (Capital, Reserves and
retained earnings)
Debt Ratio
Debt Equity Ratio
Times Interest Earned Ratio
d) Profitability Ratio
Definition: Profitability ratios provide an overall evaluation of performance of EEA-IGA

and its Management. Profitability ratios show the combined effects of liquidity, Asset
Management, and Debt Management on operating results. Profitability ratios measure the
overall management effectiveness in generating profit on sales, total assets and owner’s
equity.
Formula
a. Gross Profit Margin= Gross Profit/Sales

b. Profit Margin= Net Income/Sales
c. Return on Investment (ROI) = Net Income/Total Assets
d. Return on Equity /ROE/=Net Income/Total Equity
Calculate
117
EEA-IGA’ s Target
Current Period (P)
Industry Average
Benchmark ratio
Period 2
Period 3
Period 1
Norm
Gross Profit Rental Service
Gross Profit Publications
Gross Profit - others
Total
Gross Profit Margin
Profit Margin
Return on Investment (ROI)
Return on Equity /ROE
Ratios are indicators. The finance department, in consultation with other departments,
should interpreted and provide recommendation. Additional internal and external data
may be required for an in-depth analysis
33. Auditing
33.1. Internal Audit
33.1.1. The IGA may receive an internal audit support from the EEA finance team, when authorized
by the Executive Committee of EEA.
33.1.2. The internal audit unit shall be responsible to ensure the implementation of best practices in
internal control including the COSO framework and application of International Framework
for Professional Practices in internal audit.
33.2. The internal audit shall have unlimited power of audit over the whole affairs of finance, property
and activity of IGA.
33.3. External Audit
33.3.1. The accounts of the IGA shall be audited annually by External Auditor.
118
33.3.2. External Auditor shall be appointed by Executive Committee of EEA.
33.3.3. An auditor shall not be appointed for more than three consecutive years.
33.3.4. The financial statements should have to be reviewed and discussed by the management of
the IGA before forwarded to external auditors.
33.3.5. Draft Financial reports shall be delivered to auditor within one month from the end of the
fiscal year (not later than September 30).
33.3.6. Audit draft reports should be reviewed and comments and disclosures have to be agreed
upon before the release of the final audit report by the management the IGA and EEA. The
final audit report should be delivered to the CEO of EEA before 20th of October.
33.3.7. The GM of the IGA shall issue copies of the audit report to the relevant stakeholders.
119
Annex
120
Annex No. Description
Annex 1/A Organizational Structure of EEA-IGA
Annex 2/A Journal vouchers format
Annex 3/A Detail chart of accounts
Annex 4/A VAT Cash Sales Invoice Attachment together with a fiscal
printer slip
Annex 4/B Standard VAT Cash Sales Invoice without “attachment” mark
is used only when there is no electric power
Annex 4/C Cash Receipt Voucher
Annex 5/A Request for Payment
Annex 5/B Cheque Payment Voucher (CPV)
Annex 5/C Petty Cash Payment Voucher
Annex 5/D Suspense Voucher
Annex 5/E Internal Invoice
Annex 5/F Petty Cash Summary and Replenishment Request form
Annex 5/G cash counts
Annex 5/H Bank Reconciliation
Annex 6/A VAT Credit Sales Invoices Attachment
Annex 6/B VAT Credit Sales Invoices
Annex 6/C Travel Advance Request Form
Annex 6/D Travel Declaration Form (Settlement Form)
Annex 8/A Goods Receiving Note (GRN)
Annex 8/B Store Requisition
Annex 8/C Purchase Requisition
Annex 8/D Store Issue Voucher
Annex 8/E Store Return Voucher
Annex 8/F Stock card Format
Annex 8/G Bin card Format
Annex 8/H physical count sheet
Annex 9/A Fixed asset register
Annex 9/B Property, Plant and Equipment (fixed asset) card
Budget Transfer Request
Annex 14/B Recurrent payroll information, like overtimes, fines,
absenteeism, and annual leave and the likes has to be passed
by Administration section/team with a format
Annex 14/C Payroll format
Annex 15/A Withholding Tax Format
Annex 15/B Deferred Tax Example
Annex 18/A Annual financial statements
Annex 19/B Weekly sales report
Annex 19/C Weekly Account Receivable Status

Annex 19/D Weekly collection and Disbursement summary
Annex 1/A: Organizational Structure of EEA-IGA
Structure / Positions
List of Employees of IGA with Positions and Functions

Functional S/N Name Position Remark
Areas of Employee
1 Manager 1 Tamrat Afework Manager Reports to CEO of

the Association
Reports to IGA
2 Finance 2 Tesfaye Accountant Manager
Gebreyes
3 Mulu G/Medhin Cashier
3 Guard & 4 Yakob Yano Guard & Security

Security 5 Martha Mikiele Guard & Security
6 Megerssa Guard & Security
Balemi
7 Solomon Ero Guard & Security
8 Asfaw Desalegn Guard & Security
9 Yohannes Cleaner &
Debela Messenger
10 Ayalew Belay Guard & Security
4 Cleaner & 11 Abebech Cleaner &

Messenger Alemayehu Messenger
12 Alem Abebe Cleaner &
Messenger
13 Addisalem Dinku Cleaner &
Messenger
14 Roman Cleaner &
Gebremedhin Messenger
122

FM Manual - EEA-IGA - Final - July 2021

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Financial Management

Policy and Procedure Manual

Financial Management Manual

Manual Development Facilitated by

Target Business Consultants Plc

Key terms are explained in a glossary attached (Annex 33)

3.1.1. The Accounting period of EEA-IGA is from July 1 to June 30

4. General Accounting Practices

4.1. Computerized Accounting

4.1.1. EEA-IGA shall maintain a computerized book of accounts

4.1.6. It is strictly forbidden to use a password of a colleague to access the accounting

4.2. Accountable Documents

4.2.1. The purpose of accountable documents is to evidence the movement of

4.3. Journal Vouchers

5. Investment and Cash Management

5.2. Optimum Cash balance

5.5. Write-off long outstanding receivables

5.6. Disposal of assets

5.7.2. Insurance policy should be acquired only for relevant perils

5.8.1. Budget Preparation

5.8.2. Budget Approval, Execution and Control

5.8.2.1. Annual budget shall be approved by the Executive Committee of EEA.

5.8.2.2. Annual Budgets are implemented by the GM of the IGA.

5.8.2.3. The Finance Department shall prepare a cash flow forecast.

6.1.1. Elements of financial statements are classified as follows:

Accounts start with Category

6.1.2. High level account structure

1 Assets IFRS 1, IAS 1

15 Property, Plant and Equipment IAS 16

6.1.3. Revenue / Cost Centers

• Rental Income (office space)

• Consultancy on Social Issues

7.1. Financial assets

Initial recognition and measurement

Derecognition of financial assets

7.2. Financial liabilities

Loans and borrowings

substantially modified, such an exchange or modification is treated as the derecognition

7.3. Offsetting of financial instruments

7.4. Financial Risk Management

7.6. Credit Risk

7.7. Liquidity Risk

7.8. Interest Rate Risk

7.9. Currency risk

8.6. Cash Receipt from Sales

• The second copy is sent to Accounts.

• The third remains in the pad.

8.8. Internal Control over Collection/Receipt of Cash

▪ Invoices for the purchase of goods and services.

▪ When payment is to be made to an employee for reimbursement or persons who

8.10.11. Blank cheques must never be signed by signatories.

8.11. Bank Transfers (Using Letter)

8.12. Bank Reconciliation

8.13. Petty Cash

C For Bank Credit Advice:

On Establishment of petty cash

On replenishment of petty cash

On Establishment of petty cash

On replenishment of petty cash

Provision matrix format

10. Staff Loan

10.4. Short-term Staff Advances

11. Advances and Prepayments