NYARADZAI MAKURUMIDZE

FINANCIAL REPORTING

ASSIGNMENT 1

STUDENT NUMBER:

LECTURER: MR J. DUBE

DUE DATE: 26 MAY 2023

PUBLIC SECTOR ACCOUNTING (PSA)

CHARTERED GOVERNANCE AND ACCOUNTANCY INSTITUTE IN ZIMBABWE

PUBLIC SECTOR EXCELLERATED PROGRAM

ADVANCED PUBLIC SECTOR FINANCIAL REPORTING

NYARADZAI MAKURUMIDZE

Question 1
My advice to the Mayor who wants to know about what accrual and IPSASs are, is based on
what some authors have written and our government Statutory Instrument. As argued by
Schmidthuber et al. (2020), the adoption of IPSAS is expected to increase transparency,
accountability and comparability of government financial activities which will strengthen
governance. The adoption and implementation of IPSAS is in line with the public financial
management principles enunciated in section 298 of the Constitution of Zimbabwe. In the 2018
National Budget Statement, the Government confirmed its commitment to migrate to the
Framework with effect from the 1st of January 2018. This was gazetted in Statutory Instrument
41 of 2019 which formally adopted IPSAS as the reporting framework in Zimbabwe.
Accrual accounting in the public sector is a method to present financial information on
government operations. Under accrual accounting, income and expenditure transactions are
recognized when they occur, regardless of when the associated cash payments are made. Accrual
accounting improves public sector dec
ision-making. Accrual accounting generally makes the relationships between revenue and
expenses clearer, providing better insight into profitability. It also offers a more accurate picture
of a company's assets and liabilities on its balance sheet.
IPSAS Framework will support Mayor’s efforts to achieve the desired results-based performance
through the efficient use of resources, timely and transparent reporting. The migration is an
essential aspect of the ongoing efforts to enhance and strengthen Public Finance Management
system.
IPSAS reporting in accruals accounting basis will help the entity’s Accounts to be presented in a
logical manner which is prescribed by IPSAS1 and the accounts will be comparable to other
Local Authorities in the country and even internationally since other countries have also adopted
it.
IPSASs are designed to apply to public sector entities that meet all the following criteria:
 Are responsible for the delivery of services to benefit the public and/or to redistribute
income and wealth;
 Mainly finance their activities, directly or indirectly, by means of taxes and/or transfers
from other levels of government, social contributions, debt or fees; and
 Do not have a primary objective to make profits.
IPSAS 33 prescribes the way first time adopters of accrual basis of accounting should present
their final statements and also shows exemptions that affect fair presentation and those that do
not affect it.
IPSAS 45 PPE. It guides on classification, recognition and measurement of PPE. The Standard
requires an entity to measure an item of property, plant and equipment acquired in exchange for a
non-monetary asset or assets, or a combination of monetary and non-monetary assets, at fair
value unless: the exchange transaction lacks commercial substance; or the fair value of neither
the asset given up nor the asset received can be reliably measured.
IPSAS 45 requires that revaluations be made with sufficient regularity to ensure that the carrying
amount does not differ materially from that which would be determined using current value at
reporting date. The revaluation period set out in the table above represent maximum periods thus
entities can perform revaluations more regularly
IPSAS 12 Inventories
Inventories are said to be measured at the Lower of cost and net realizable value (except as
below)
 Fair value when acquired in non-exchange transaction
 Lower of cost and current replacement cost when held for distribution or consumption in
production of goods to be distributed at no or nominal charge. This IPSAS help the Mayor
to measure inventories.

Question 2

Calculation on the amount the entity spent on the purchase of property, plant and
equipment in the year ended 31 December 2022 is as follows: -

Balance b/d 01/01/22 $2 890 000

Revaluation $ 500

Disposal ($948 000)

Depreciation ($,380 000)

$1 562 500

Therefore, Purchase of property plant and Equipment=($3 070 000-$1 562 500)

=$1 507 500

Question 3

Working 1
Fees for Students: Receivables

Bal b/d 4

Cash paid 1280

Revenue 1293

Bal b/d (17)

Working 2

Government funding: Receivables

Bal b/d 48

Revenue 5748

Bal c/d 168

Cash received 5628

That is 5748-168=5628

Woking 3

PPE

Bal b/d (3849)

Disposal 72.77

Depreciation 256

Non-Trade payable (25)

Cash balancing figure 319.77

Carrying amount of the Asset disposed of

YEAR OPENING DEPRECIATION CLOSING

BALANCE($000) BALANCE($000)
($000)
1 230 57,5 172.5
2 172.5 43.125 129.375
3 129,375 32,34375 97,03125
 4 97.03125 24.2578 72.77345
Remaining balance 157.2

Working 5

Disposal Account

DR CR

Cost 230

Acc Depreciation 157.23

Profit 20

Cash 92.7

Working 6

Payables

Bal b/d 34

Other expenses 2609

Bal c/d (665)

Cash paid to suppliers 2596

Working 7

Cash paid to employees

Bal b/d 34

Wages, salaries and employees benefits 3034

Bal c/d (26)

Cash paid to employees 4042

Working 8

Loan borrowings

Bal b/d 100

Additional borrowing 30

Bal b/d (115)

Bank 15

Working 9

Provision for legal expenses

Bal b/d 100

Finance cost 4

Bal c/d 104

Working 10

Dividend

Bal b/d (122)

Bal c/d 274

Surplus 152

CASHFLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2022

($000) ($000)
Operating Activities
Cash Received: Students 1280
Government Agencies 5628
Cash paid to suppliers (2596)
Cash paid to Employees 4042
270

Investing Activities
Acquisition of PPE (320)
Proceeds from disposal 93
Interest received 4
Net Cashflow from investing 223
Activities

Financing Activities
Issued loan 30
Loan Redeemed (15)
 Interest paid (10)
Net Cashflow from Financing 5
Activities
Cash generated during the 52
year
Cash and cash equivalents b/d 57
Cash and cash equivalents c/d 109

Ques 4

Dedicated loan capitalisation plus interest cost is

$130 000 - $40 000 = $90 000

Determination of weight average capital cost

Interest rate 13.5% 9.5%

Interest Interest 270 000 285 000 555 000
Expense Expense
Loan Loan 2m 3m 5 000 000
purchase purchase

WACC = Sum of interest charges = 555 000 X 100 =11.1%

Final borrowed Money 5 000 000

Date Amount Paid $ Time Charge @11.1%

30 Sept 21 200 000 9/12 16 650
31 March 22 2400 000 3/12 66 600
$83 250

Total capitalisation = $83 250 + $90 000 = $173 250

Question 5

a. Commencement of capitalisation of borrowing costs

An entity begins capitalising borrowing costs as part of the cost of a qualifying asset on the
commencement date, which is the date when the entity first meets all of the following conditions.
If it incurs expenditures for the asset; it incurs borrowing costs and if it undertakes activities that are
necessary to prepare the asset for its intended use or sale.
Activities necessary to prepare the asset for its intended use or sale should be understood rather
broadly and include not only physical construction, but also prior technical and administrative
work e.g. obtaining permits. On the other hand, when an asset e.g. land is acquired for further
development, but no associated activities have started, borrowing costs are expensed in P/L as
incurred.

B. Suspension of capitalisation borrowing costs

Capitalisation of borrowing costs should be suspended during extended periods in which active
development of a qualifying asset is suspended, and expensed. Capitalisation of borrowing costs is
suspended when, for example, the entity needs to redirect its workforce and efforts to
development of another asset. Such costs are costs of holding partially completed assets and do
not qualify for capitalisation. Capitalisation of borrowing costs is not suspended when :-

 Physical construction of an asset is suspended because the entity carries out substantial
technical and administrative work
 Any delays in direct works are a necessary part of the process of getting an asset ready
for its intended use or sale for example high water levels during construction of a bridge.

c.Cessations of capitalisation of borrowing costs.

Borrowing costs are no longer capitalised when substantially all the activities necessary to
prepare the qualifying asset for its intended use or sale are complete. Examples of activities that
are not substantial in preparing the qualifying asset for its intended use are routine administrative
work at the end of the project for example formal inspections and minor modifications still to be
finalised. An asset is normally ready for its intended use or sale when the physical construction
of the asset is complete even though routine administrative work might still continue, if minor
modifications such as decoration of property to the purchaser’s user’s specifications are all that is
outstanding, this indicates that substantially all activities are complete.