2: Preparation of public sector financial statements part 1

PUBLIC SECTOR FINANCIAL REPORTING

PREPARATION OF FINANCIAL
STATEMENTS PART 1

SOLUTIONS 2

Updated December 2022

Valid for exams from June 2023 to March 2024

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 Public Sector Financial Reporting

First published 2016

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 2: Preparation of public sector financial statements part 1

Table of contents
Exercise Solution 2.1 ................................................................. 4
Exercise Solution 2.2 ................................................................. 9
Exercise Solution 2.3 ............................................................... 10
Exercise Solution 2.4 ............................................................... 11
Exercise Solution 2.5 ............................................................... 14
Exercise Solution 2.6 ............................................................... 15
Exercise Solution 2.7 ............................................................... 16
Exercise Solution 2.8 ............................................................... 17
Exercise Solution 2.9 ............................................................... 19
Exercise Solution 2.10 ............................................................. 20
Exercise Solution 2.11 ............................................................. 21
Exercise Solution 2.12 ............................................................. 23
Exercise Solution 2.13 ............................................................. 24
Exercise Solution 2.14 ............................................................. 25
Exercise Solution 2.15 ............................................................. 27
Exercise Solution 2.16 ............................................................. 28
Exercise Solution 2.17 ............................................................. 31
Exercise Solution 2.18 ............................................................. 34

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 Public Sector Financial Reporting

Exercise Solution 2.1

Financial Accounting IPSAS 1 recap
(a) Four principal qualitative characteristics of financial
information
Understandability – Information is understandable when
users might reasonably be expected to comprehend its
meaning. For this purpose, users are assumed to have a
reasonable knowledge of the entity’s activities and the
environment in which it operates, and to be willing to study the
information.
Information about complex matters should not be excluded
from the financial statements merely on the grounds that it may
be too difficult for certain users to understand.
Relevance – Information is relevant to users if it can be used
to assist in evaluating past, present or future events or in
confirming, or correcting, past evaluations. In order to be
relevant, information must also be timely, as well as being
relevant to the decision being taken.
Materiality – The relevance of information is affected by its
nature and materiality. Information is material if its omission or
misstatement could influence the decisions of users or
assessments made on the basis of the financial statements.
Materiality depends on the nature or size of the item or error
judged in the particular circumstances of its omission or
misstatement. Thus, materiality provides a threshold or cut-off
point rather than being a primary qualitative characteristic
which information must have if it is to be useful.
Reliability
Reliable information is free from material error and bias, and
can be depended on by users to represent faithfully that which
it purports to represent or could reasonably be expected to
represent. To be reliable information must adhere to the
following:
Faithful representation – For information to represent faithfully
transactions and other events, it should be presented in
accordance with the substance of the transactions and other
events, and not merely their legal form.

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 2: Preparation of public sector financial statements part 1

Substance over form – If information is to represent faithfully

the transactions and other events that it purports to represent,
it is necessary that they are accounted for and presented in
accordance with their substance and economic reality and not
merely their legal form. The substance of transactions or other
events is not always consistent with their legal form. For
example, equipment leased by an organisation but not legally
owned may still need to be shown as an asset to the
organisation because they take on the risks and responsibilities
of ownership.
Neutrality – Information is neutral if it is free from bias.
Financial statements are not neutral if the information they
contain has been selected or presented in a manner designed to
influence the making of a decision or judgment in order to
achieve a predetermined result or outcome.
Prudence – Prudence is the inclusion of a degree of caution in
the exercise of the judgments needed in making the estimates
required under conditions of uncertainty, such that assets or
revenue are not overstated and liabilities or expenses are not
understated.
Completeness – The information in financial statements should
be complete within the bounds of materiality and cost.
Comparability – Information in financial statements is
comparable when users are able to identify similarities and
differences between that information and information in other
reports.
Comparability applies to the:

 Comparison of financial statements of different entities;

and

 Comparison of the financial statements of the same entity

over periods of time.
An important implication of the characteristic of comparability is
that users need to be informed of the policies employed in the
preparation of financial statements, changes to those policies
and the effects of those changes.
Because users wish to compare the performance of an entity
over time, it is important that financial statements show
corresponding information for preceding periods.

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 Public Sector Financial Reporting

(b) Potential constraints on relevant and reliable

information:
Timeliness
Information may become irrelevant if there is a delay in
reporting it. There is a balance between timeliness and the
provision of reliable information. Information may be reported
on a timely basis when not all aspects of the transaction are
known, thus compromising reliability.
If every detail of a transaction is known, it may be too late to
publish the information because it has become irrelevant. The
overriding consideration is how best to satisfy the economic
decision-making needs of the users.
Balance between benefits and cost
When information is provided, its benefits must exceed the
costs of obtaining and presenting it. This is a subjective area
and there are other difficulties: people other than the intended
users may gain a benefit; also, the cost may be paid by
someone other than the users. It is therefore difficult to apply a
cost–benefit analysis, but preparers and users should be aware
of the constraint.
Balance between characteristics
A trade-off between qualitative characteristics is often
necessary, the aim being to achieve an appropriate balance to
meet the objective of financial statements. It is a matter for
professional judgement as to the relative importance of these
characteristics in each case.
True and fair view/fair presentation
The Framework does not attempt to define these concepts
directly. It does state, however, that the application of the
qualitative characteristics and of appropriate standards will
usually result in financial statements which show a true and fair
view, or present fairly.

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 2: Preparation of public sector financial statements part 1

(c) Five components of financial statements

A complete set of financial statements includes the following
components:
(1) Statement of financial position;
(2) Statement of financial performance;
(3) Statement of changes in net assets/equity;
(4) Cash flow statement; and
(5) Accounting policies and notes in the financial statements.
(d) Further information that IPSAS 1 recommends for
inclusion where applicable:
Public sector entities are typically subject to budgetary
constraints. When the financial statements and budget are on
the same basis of accounting, IPSAS 1 encourages the inclusion
in the financial statements of a comparison with the budgeted
amounts for the reporting period.
As well as budget information, IPSAS 1 encourages public sector
entities to present additional information to assist users in
assessing the performance of the entity, and its stewardship of
assets, as well as making and evaluating decisions about the
allocation of resources. This information could include details
about the entity’s outputs and outcomes in the form of
performance indicators and reports by management. The
inclusion of this information gives users of the financial
statements a more complete picture of performance.
Finally, IPSAS 1 encourages entities to disclose information
about compliance with legislative, regulatory or other
externally-imposed regulations. Public sector entities have to
operate in a very stringent legislative and regulatory framework
and therefore to be a transparent entity it is important that
disclosures in this respect are made.
(e) Information that must be disclosed:

 The name of the reporting entity;

 Whether the financial statements cover the individual entity

or the economic entity (all statements in the module with
deal with individual entities);

 The reporting date or the period covered by the financial

statements;

 The reporting currency;

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 Public Sector Financial Reporting

 The level of precision used in the presentation of figures in

the financial statements (e.g. £, £000s, £m).

 Financial statements are normally presented annually.

Where a longer or shorter period is used the reason for
doing so must be disclosed.

 Unless an IPSAS permits or requires otherwise,

comparative information should be disclosed in respect of
the previous period for all numerical information in the
financial statements.

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 2: Preparation of public sector financial statements part 1

Exercise Solution 2.2

Revenue and capital transactions

(a) i. Purchase of a minibus for school use: This is a non-current
asset and would therefore be a capital transaction.
ii. Bus fares from students: This is current income and should
be classified as revenue.
iii. Contribution to the cost of buying the minibus by parents:
This is income for the school but we would expect it to be
matched to the life of the asset funded and will therefore
consider this to be a capital item.
iv. Annual grant towards the school running costs: This is
income associated with current expenditure and should
therefore be treated as a revenue item.
v. Grant towards a new school gymnasium: This is income to
fund a non-current asset and should therefore be treated
as a capital item and matched to the use of the asset.
vi. Rent collected from a community group for use of the
gymnasium: This is a current item and should therefore be
treated as revenue.
vii. Costs associated with building the gymnasium: These costs
are related to a new non-current asset and should
therefore be considered capital expenditure.
viii. Costs associated with redecorating the school cafeteria:
These costs will not create a new non-current asset for use
by the school and should therefore be considered as
revenue expenditure.
ix. Proceeds from a second-hand book sale to raise money for
the school: This is current income and should therefore be
considered revenue.
(b) Revenue items will be recorded in the statement of financial
performance and capital items in the statement of financial
position. You will see in later study sessions how capital items
can also have an impact on the statement of financial
performance (e.g. through the depreciation charge).

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 Public Sector Financial Reporting

Exercise Solution 2.3

Capital financing in your organisation
(a) The sources identified will depend on the organisation identified
but may include:

 Grants (from government or other bodies).

 Borrowing.

 Leasing.

 Funding from revenue.

 Selling non-current assets previously used by the

organisation.
(b) Restrictions will again depend on the organisation but may
include:

 Long term borrowings can only be used to fund capital

expenditure.

 There may be limits on borrowing levels, or borrowing may

not be permitted at all.

 Capital grants may be given to fund particular assets, i.e.

cannot be spent on any capital expenditure.

 Non-current asset disposal proceeds may have to be

returned to central government for reinvestment.

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 2: Preparation of public sector financial statements part 1

Exercise Solution 2.4

FA accounts preparation recap (Bulgaria)
Bulgaria
Income statement for the year ended 30 September 20X5

£ £
Sales 349 321
Less returns inwards (3 275)
346 046
Less Cost of goods sold
Opening inventories 19 800
Add purchases
(252 400 – 740) (d) 251 660
Less returns outwards (2 597)
Plus carriage inwards 270
Less closing inventories (a) (15 700)
(253 433)
Gross profit 92 613

Add Miscellaneous income

Bad debts recovered (h) 300

Less Expenses:
Wages/salaries
(35 181 + 1 072) (b) 36 253
Carriage outwards 325
Rates and insurance (4 770 – 235) (c) 4 535
Repairs to buildings 5 679
General expenses 3 214
Bad debts 3 400
Increase in doubtful debts allowance
(W5 (g)) 200
Loss on disposal of non-current assets
(W3 (f)) 5 133
Depreciation (W1, 2, 4 (e))
(1 814 + 2 646 + 7 333) 11 793
(70 532)
Net profit 22 381

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 Public Sector Financial Reporting

Bulgaria
Statement of financial position as at 30 September 20X5
Cost Acc Dep NBV
£ £ £
Non-current assets
Land 27 000 – 27 000
Buildings (120 000 – 30 000) (f) (W4) 90 000 (39 666) 50 334
Furniture and fittings (W1) 17 200 (11 758) 5 442
Motor vehicles (W2) 18 000 (11 826) 6 174
152 200 (63 250) 88 950
Current assets
Inventories (a) 15 700
Receivables 39 331
Less allowance for doubtful debts (g) (720) 38 611
Prepayments (c) 235
Cash in hand (h) 300
54 846
Total assets 143 796

Capital and liabilities:

Capital as at 01.10.X4 109 671
Plus profit for the year 22 381
Less drawings (11 000 + 740) (d) (11 740)
Capital as at 30.09.X5 120 312

Non-current liabilities
Loan –

Current liabilities
Payables 18 141
Accrued expenses (b) 1 072
Bank overdraft 4 271

23 484
Total capital and liabilities 143 796

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 2: Preparation of public sector financial statements part 1

Workings
W1 F & F depreciation (e) (17 200 – 9 944) * 25% = £1 814
Accumulative depreciation = 9 944 + 1 814 = £11 758
W2 MV depreciation (e) (18 000 – 9 180) * 30% = £2 646
Accumulative depreciation = 9 180 + 2 646 = £11 826

W3 – Loss on disposal (f)

Age on disposal:
1 Aug X1 - 31 May 20X5 = 46 months
£
Cost 30 000
Less – Depreciation 30 000 / 15 × 46/12 = (7 667)
Net book value 22 333
Less – Proceeds of sale (17 200)
Loss on disposal 5 133

W4 – Building depreciation (e) £

(120 000 – 30 000 sold)(f) / 15 = 6 000
Asset sold (f) = 30 000 / 15 × 8/12 = 1 333
7 333
Cumulative depreciation
Balance 1.10.X4 40 000
Less: depreciation relating to asset sold (W3) (7 667)
Add: depreciation charge for year (see above) 7 333
Balance 30.9.X5 39 666

W5 – Allowance for receivables (g) £

Allowance required 720
Current allowance (520)
Increase in allowance required 200

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 Public Sector Financial Reporting

Exercise Solution 2.5

Statement of financial performance format
The differences that you have identified will depend on which
organisation you have chosen to compare with.
Note that IPSAS 1 is not prescriptive with regards terminology or
layout of the statement so therefore differences between
organisations are inevitable.
There may also be differences in the layout and level of detail. This
is partly to do with materiality. It may also reflect statutory or other
requirements. We are comparing with IPSAS 1 as the basis for the
statement’s format. You may have looked at an organisation that
has followed other standards or national legislation and this might be
reflected in the structure of the statement.

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 2: Preparation of public sector financial statements part 1

Exercise Solution 2.6

Revenue in the statement of financial performance

(a) It might not be prudent to assume that the £3 000 returned will
be received as the donor is not obliged or contracted to give
this money to the organisation. Therefore donations of £50 000
should be recognised
(b) Although this was a sale that had been properly accrued in the
accounts, the fact that the goods have been returned needs to
be reflected in this year’s statement. Some organisations would
keep a separate sales returned account in order to keep track of
the value of sales that have been returned in this manner. The
amount shown as sales in the statement of financial
performance would then be the total sales less the sales
returned.
(c) As the grant is expected to be received and as it relates
specifically to the year to 31 December 20X0 it should be
accrued and shown as revenue in this year. This means we will
have a receivable outstanding at the end of the year for
£50 000. In this way, we are matching this revenue with the
expenses that it was intended to finance.
(d) It is normal practice in accounting to show transactions
separately rather than offsetting them, except in some limited
circumstances. The full revenue of £35 000 should be shown
and the expenses of £8 000 should be shown separately.
The operating revenue section of the statement of financial
performance would therefore be:
Operating revenue: £000
Sales (1 350 + 8 – 12) 1 346
Grants 600
Donations 50
Total operating revenue: 1 996

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 Public Sector Financial Reporting

Exercise Solution 2.7

Expenses in the statement of financial performance
The activity required you to collect expenses together in a way that
you think is informative and meaningful so there is some flexibility in
the presentation of the answer. The key things are to make sure all
relevant expenses are included (including accruals for any items that
have not yet been charged to the accounts) and that any grouping of
items into one figure is reasonable.
The following is an example of how these can be achieved.
20X0
£000
Operating expenses:
Wages, salaries and employee benefits
(950+190+150) 1 290
Supplies and consumables used 280
Transport costs 84
Depreciation 120
Other operating expenses
(2+8+9+10+100+1+47) 177
Total operating expenses: 1 951

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 2: Preparation of public sector financial statements part 1

Exercise Solution 2.8

Further transactions in the statement of financial

performance
(a) (i) The first transaction (receipt of dividends) is clearly a
financing item. As it is not part of operating activities, it
should be shown after the surplus from operating activities.
(ii) The sale of the non-current assets results in a loss. The
receipts of £20 000 are compared with the net book value
of the assets which was £25 000 (i.e. cost £85 000 less
depreciation of £60 000) giving a loss on the sale of
£5 000.
Note that neither of these can be classed as an extraordinary
item as they are within the control of the organisation (e.g. they
can decide when to sell machinery and can influence the price)
and they are expected to recur (although there have been no
sales of non-current assets for several years, there probably will
be more in the future). As the name suggests extraordinary
items are not things you expect to see in every statement so it
is quite reasonable that we do not have any to include here.

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 Public Sector Financial Reporting

(a) Statement of financial performance for the year-

ended 31 December 20X0
20X0
£000
Operating revenue:
Sales (1 350 + 8 – 12) 1 346
Grants 600
Donations 50
Total operating revenue: 1 996
Operating expenses:
Wages, salaries and employee benefits
(950+190+150) 1 290
Supplies and consumables used 280
Transport costs 84
Depreciation 120
Other operating expenses
(2+ 8+ 9+ 10+100+1+47) 177
Total operating expenses: 1 951
Surplus/(deficit) from operating activities 45
Financing transactions 1
Loss on sale of machinery (5)
Surplus from ordinary activities 41
Extraordinary items –
Surplus for the year: 41

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 2: Preparation of public sector financial statements part 1

Exercise Solution 2.9

Capital Museum (Statement of financial performance)

Statement of financial performance for Capital Museum for
the year ended 31 December 20X0:
20X0
£000
Operating revenue:
Admissions revenue 376
Grants (1 400 + 40) 1 440
Donations 25
Other revenue 46
Total operating revenue: 1 887
Operating expenses:
Wages, salaries and employee benefits
(1 250 + 60) 1 310
Depreciation (6 342/40) 159
Other operating expenses
(15+ 345 – 50 [note workings below] + 30) 340
Total operating expenses: 1 809
Surplus/(deficit) from operating activities 78
Financing transactions (5 + 8 (workings) – 20) 7
Surplus/(deficit) from ordinary activities 85
Extraordinary items 0
Surplus/(deficit) for the year: 85

Workings:
Insurance – £345 000 is for 14 months therefore charge is
(approximately) £25 000 per month. Two months’ charge should be
carried forward to next year so reduce this year’s charge by
£50 000.
Financing transactions – accrue three months interest on loan
(£400 000 * 8%) / 4 = £8 000.

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 Public Sector Financial Reporting

Exercise Solution 2.10

Capital Museum (Statement of financial position
categorisation)
Assets:

 Buildings.
 Inventories.
 Receivables.
 Short term investments.
 Cash.
Liabilities:

 Payables.
 Long term loans.
 Accumulated depreciation*.
Capital:

 Accumulated surpluses.
 Reserves.
 Capital contributed by government.
* You may have had to think about some of these more than others
before deciding which category to put them into. For example,
although buildings are clearly assets, the accumulated depreciation
account is more difficult to categorise. It has been shown as a
liability here, as it is listed on the credit side of the trial balance and
is clearly not a revenue or capital item. However, we do not actually
owe anybody this amount, so it seems strange to group it with
payables and loans. We shall see, when we are constructing the
statement of financial position, that this type of question (i.e. where
is the most appropriate place to show each item in the statement)
needs to be considered so that the statement is as meaningful and
useful as possible.

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 2: Preparation of public sector financial statements part 1

Exercise Solution 2.11

(a) Receivables:
£
Opening balance 25 000
New receivables (175 000 – 40 000) 135 000
Payments from receivables (125 000)
Bad debt written off (2 000)
Closing balance 33 000
The closing balance would be the amount shown for receivables
on the statement of financial position under current assets.
(b) Vehicles:
£
Opening balance (85 000 – 40 000) 45 000
New vehicles 12 000
Sale of vehicle (8 000 – 5 000) (3 000)
Depreciation charge for the year (11 000)
Closing balance 43 000
Note that this assumes we would be presenting the net book
value (i.e. cost less depreciation) on the statement of financial
position.
(c) Building repair reserve:
£
Opening balance 140 000
Transfer of surplus (78 000 × 50%) 39 000
Expenditure (37 000)
Closing balance 142 000

Accumulated surplus/(deficit):
Opening balance (16 000)
Surplus less transfer to BRR 39 000
Closing balance 23 000

(d) Long term loan:

£
Opening balance 0
New loan raised in year 15 000
Loan repaid (1 500 – 750 interest) (750)
Closing balance 14 250
The £750 interest would be shown in the statement of financial
performance as a finance expense so the outstanding loan
would only be reduced by the remaining £750.

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 Public Sector Financial Reporting

Statement of financial position for your organisation

The differences that you have identified will depend on which
organisation you have chosen to compare with.
There may also be differences in the layout and level of detail. This
is partly to do with materiality. It may also reflect statutory or other
requirements. We are comparing with IPSAS 1 as the basis for the
statement’s format. You may have looked at an organisation that
has followed other standards or national legislation and this might be
reflected in the structure of the statement.

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 2: Preparation of public sector financial statements part 1

Exercise Solution 2.12

Statement of financial position for your organisation
The differences that you have identified will depend on which
organisation you have chosen to compare with.
There may also be differences in the layout and level of detail. This
is partly to do with materiality. It may also reflect statutory or other
requirements. We are comparing with IPSAS 1 as the basis for the
statement’s format. You may have looked at an organisation that
has followed other standards or national legislation and this might be
reflected in the structure of the statement.

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 Public Sector Financial Reporting

Exercise Solution 2.13

Settle Enterprise College
To: Head of Mechanical Engineering, Settle Enterprise College
From: Auditor
Subject: Queries raised in email
Thank you for your email. Please see responses to each of your
queries below.
(a) Machinery:
The amount shown in the statement for machinery represents
the value of the asset (i.e. what it cost us to buy the
machinery) less the amount that it has been depreciated so far
(the extent to which is has been used up or worn out to date).
The value will therefore fall each year that we use the asset and
should eventually be valued at nil at the end of its useful life.
Furthermore, the cost of £7 000 in your 20X0 catalogue may be
more than we originally paid for these assets if there has been
any price inflation.
(b) Accumulated surpluses:
The accounts have been produced on an accruals basis. This
means that we enter expenses and revenues into the statement
of financial performance as they are incurred rather than when
the cash transaction takes place. The surplus for the year
(which is added to the accumulated surplus from the previous
year) is therefore not necessarily available in the form of cash.
The cash flow statement provides more information on the cash
coming into and going out of the college during the year.
(c) Intangible assets/patents:
It is normal practice to reduce the value of intangible assets in
the same way as we reduced the value of machinery by
charging depreciation each year. If the patents are only
expected to be of benefit to the college for ten years then it is
appropriate to reduce their value by £5 000 each year, which
would explain the reduction from £50 000 to £45 000 that you
refer to.
I hope that this clarifies each of these issues for you.
Regards
Auditor

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 2: Preparation of public sector financial statements part 1

Exercise Solution 2.14

Capital Museum (Statement of financial position preparation)
Statement of financial position for Capital Museum as at
31 December 20X0:
£000 £000
Assets:
Non-current assets:
Land and buildings (6 342 – 2 162 – 159) 4 021
Total non-current assets 4 021

Current assets:
Inventories 1 223
Receivables 100
Short term investments 90
Prepayments 50
Cash 420
Total current assets: 1 883
Total assets 5 904

Capital and liabilities:

Capital contributed by government 4 000
Designated reserves 142
Accumulated surpluses (840 + 85) 925
Total capital and reserves: 5 067

Liabilities:
Current liabilities:
Payables 369
Accrued expenses 68
Total current liabilities 437

Non-current liabilities:
Long term borrowings 400
Total non-current liabilities 400
Total liabilities: 837
Total capital and liabilities 5 904
Workings:
Note these figures follow on from Exercise 9 so you might need to
refer to the way that the statement of financial performance was
constructed in that example as you work through this example.
Prepayment is the £50 000 for two months’ insurance payments
that relate to January and February 20X6.

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 Public Sector Financial Reporting

Buildings are shown net of accumulated depreciation including

this year’s depreciation charge of £159 000.
Accrued expenses consist of:
Interest £8 000
Pay increase £60 000
Total = £68 000

Long term borrowing:

Loan of £400 000 is reduced by the £10 000 repayment of principal
accrued this year.
Accumulated surpluses:
The trial balance figure is increased by the net surplus for the year
as shown in the statement of financial performance.

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 2: Preparation of public sector financial statements part 1

Exercise Solution 2.15

Capital Museum (Statement of changes in equity)
Capital Museum: Statement of changes in equity for
year-ended 31 December 20X0
Contributed Designated Accumulated
capital reserve surpluses Total
£000 £000 £000 £000
Balance at
31 December
20W9 4 000 142 840 4 982
Net surplus 85 85
Balance at 31
December 20X0 4 000 142 925 5 067

Note that the closing balances as at 31 December 20X0 should equal

the year-end capital balances in the statement of financial position
that you prepared in Exercise 14.

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 Public Sector Financial Reporting

Exercise Solution 2.16

General Administration Agency statement of financial
performance for the year ended 31 December 20X6
£000
Operating revenue:
Sales and charges 425
Grants (75 + 1 670) 1 745
Donations 120
Other revenue 125
Total operating revenue: 2 415
Operating expenses:
Wages salaries and employee benefits (1 155 + 25) 1 180
Depreciation (W1) 374
Other operating expenses (W2) 267
Total operating expenses: 1 821
Surplus/(deficit) from operating activities 594
Financing transactions (5 + 13) (18)
Surplus/(deficit) from ordinary activities 576
Extraordinary items –
Surplus/(deficit) for the year: 576

Workings (£000)
W1 Depreciation:
Buildings: 5 900 / 40 = 148
IT assets: (1 234 – 587) *35% = 226
374
W2 Other operating expenses:
Electricity and office expenses 40
Insurance (240 – 15 prepayment) 225
Bad debt written off 2
Total 267

W3 financing transactions:
Bank interest 5
Loan interest (250 * 5% = 12,500) 13
Total 18

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 2: Preparation of public sector financial statements part 1

General Administration Agency statement of changes in

equity for the year ended 31 December 20X6
Contributed Designated Accumulated
capital reserves surpluses Total
£000 £000 £000 £000
Balance at
31 December
20X5 3 500 80 1 240 4 820
Capital
contributed by
government 300 300
Net surplus 576 576

Balance at
31 December
20X6 3 800 80 1 816 5 696

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 Public Sector Financial Reporting

General Administration Agency statement of financial

position as at 31 December 20X6
£000 £000
Assets:
Non-current assets:
Land and buildings
(5 900 – 1650 – 148) 4 102
Infrastructure plant and equipment
(1 234 – 587 – 226) 421
Total non-current assets 4 523
Current assets:
Inventories 888
Receivables (90-2) 88
Short term investments 100
Prepayments 15
Cash (540+300) 840
Total current assets: 1 931
Total assets 6 454
Capital and liabilities:
Capital and reserves:
Capital contributed by government (3 500+300) 3 800
Designated reserves 80
Accumulated surpluses (1240 + 576) 1 816
Total capital and reserves: 5 696
Current liabilities:
Payables 470
Accrued expenses (25 + 13) 38
508
Non-current liabilities:
Long term borrowings 250
Total non-current liabilities 250
Total liabilities: 758
Total capital and liabilities 6 454

30
 2: Preparation of public sector financial statements part 1

Exercise Solution 2.17

New Technology Agency

New Technology Agency statement of financial performance
for the year ended 31 December 20X6:
Operating revenue: £000
Sales and charges 980
Grants (170 + 3 840) 4 010
Donations 280
Other revenue 290
Total operating revenue: 5 560
Operating expenses:
Wages salaries and employee benefits 2 660
Depreciation (W1) 749
Other operating expenses (W2) 703
Total operating expenses: 4 112
Surplus/(deficit) from operating activities 1 448
Financing transactions (W3) (43)
Surplus/(deficit) from ordinary activities 1 405
Extraordinary items –
Surplus/(deficit) for the year: 1 405

New Technology Agency statement of changes in equity for

the year ended 31 December 20X6:

Capital Designated
contributed reserves
by
government
£000 £000 £000 £000
At 31 December
20X5 8 050 180 2 850 11 080
Surplus for year 1 405 1 405
At 31 December
20X6 8 050 180 4 255 12 485

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 Public Sector Financial Reporting

New Technology Agency statement of financial position as at

31 December 20X6
£000 £000
Assets:
Current assets:
Inventories (2040–50) 1 990
Receivables (210-5) 205
Short term investments 230
Prepayments 25
Cash 1 240
Total current assets: 3 690

Non-current assets:
Land and buildings
(13 570 – 3 800 – 302) 9 468
Infrastructure plant and equipment
(2 840 – 1 350 – 447) 1 043
Intangible assets
Investments
Total non-current assets 10 511
Total assets 14 201

Capital and liabilities

Capital and reserves:
Capital contributed by government 8 050
Designated reserves 180
Accumulated surpluses (2 850 + 1 405) 4 255
Total capital and reserves: 12 485

Liabilities:
Current liabilities:
Payables (1 090 + 30) 1 120
Accrued expenses (3 + 13) 16
Total current liabilities 1 136
Non-current liabilities:
Payables
Long term borrowings 580
Total non-current liabilities 580
Total liabilities: 1 716
Total capital and liabilities 14 201
Workings (£000)
W1 Depreciation:
Buildings – 13 570 / 45 = 302
IT assets – (2 840 – 1 350) *30% = 447
749

32
 2: Preparation of public sector financial statements part 1

W2 Other operating expenses:

Electricity and office expenses (90 + 3) 93
Insurance (550 – 25 prepayment) 525
Inventory written off 50
Consultancy services accrual 30
Bad debt written off 5
Total 703

W3 financing transactions:
Bank interest 20
Loan interest (580 * 4% = 23) 23
(Note: 13 is to be accrued, 10 already paid)
Total 43

33
 Public Sector Financial Reporting

Exercise Solution 2.18

Essential Services Agency statement of financial performance
for the year ended 31 December 20X7
£ 000
Operating revenue:
Sales and charges 1 100
Grants (3 520 + 250 + 220) 3 990
Donations 350
Other revenue 175
Total operating revenue: 5 615
Operating expenses:
Wages, salaries and employee benefits
(1 650 + 20) 1 670
Depreciation (W1) 1 051
Other operating expenses (W2) 1 445
Total operating expenses: 4 166
Surplus/(deficit) from operating activities 1 449
Financing transactions (15 + 10 + 10) (35)
Surplus/(deficit) from ordinary activities 1 414
Extraordinary items –
Surplus/(deficit) for the year: 1 414
Workings:
W1 Depreciation:
Buildings – 18 500 / 45 = 411
Equipment – (4 150 – 1 590) *25% = 640
1 051

W2 Other operating expenses:

General expenses (935 + 540 – 340) 1 135
Insurance (300 – 15 prepayment) 285
Bad debt written off 25
Total 1 445

34
 2: Preparation of public sector financial statements part 1

Essential Services Agency statement of changes in equity for

the year ended 31 December 20X7

Capital
contributed by Designated Accumulated
government reserves surpluses Total
At 31 December
8 785 100 3 300 12 185
20X6
Surplus for year 1 414 1 414
At 31 December
8 785 100 4 714 13 599
20X7

35
 Public Sector Financial Reporting

Essential Services Agency statement of financial position as

at 31 December 20X7
£ 000 £ 000
Assets:
Current assets:
Inventories 340
Receivables (120 + 250 – 25) 345
Short term investments 380
Prepayments 15
Cash 120
Total current assets: 1 200

Non-current assets:
Land and buildings (18 500 – 6 300 – 411) 11 789
Infrastructure plant and equipment
(4 150 – 1 590 – 640) 1 920
Intangible assets
Investments
Total non-current assets 13 709
Total assets 14 909

Capital and liabilities

Capital and reserves:
Capital contributed by government 8 785
Revaluation reserve
Designated reserves 100
Accumulated surpluses (3 300 + 1 414) 4 714
Total capital and reserves: 13 599
Liabilities:
Current liabilities:
Payables 880
Accrued expenses (10 + 20) 30
Total current liabilities 910
Non-current liabilities:
Long term borrowings 400
Total non-current liabilities 400
Total liabilities: 1 310
Total capital and liabilities 14 909

36
 2: Preparation of public sector financial statements part 1

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