RESUME

PUBLIC SECTOR ACCOUNTING

Group 2: Asaquita Sophie Premarci (18312068)
Rania Abdul Aziz Baraba (18312225)

Investment Appraisal
A. Public Investment Program
In order to run public service function, government need supported policy in making public
investment decision. The supporting policy including the programs, activities, and any other
function that need to be prioritized. Public investment spending needs extra attention and
exposure because it is related with public money that the state is about to spent. Not only that,
the effect of the investment is long term and it will bring impact to the state as well as to the
public financially and socially.
In many developing countries separate their budgeting. Public development and regular budget
need to be separated because those have their own different focuses and priority. But in the
practice there are several points that cannot be separated such as:
1. Guarantee the public investment program that is proposed is a comprehensive program
2. Estimating the cost and the amount of money needed for future expenses.
3. Evaluate the relevancy of the existing project.
4. Developing analysis and planning for investment spending and regular spending.

Before deciding to take the investment, government need to identify the investment
requirement. In order to do so, it is necessary to have evaluation including:
1. Inventory investment
2. Inventory investment that contains the lists of types of investment, the conditions, and
the available fund whether they are in a good condition or in a bad condition.
3. Service scope and the level of investment that is available.
4. Additional service scope needed in the present as well as in the future.
5. The inventory of the investment requirement.
6. Evaluation of investment qualification.
7. The criteria of investment qualification including the technical, socio-economic,
financial, economic, and distribution aspects. The calculation of investment
qualification can be done through analysis tools such as NPV, IRR, PP (payback
period), Cost-Benefit Analysis, and Cost-Effectiveness Analysis.

B. Determination of Public Investment Needs

Determining the public investment needs is related with the amount of budget that will be set
by every organization. It is essential to conduct deep analysis before do the investment because
public investment in also related with transparency of the budget. Determining the public
investment needs are interrelated with 2 activities such as the investment quantity improvement
and investment quality improvement.
There are several ways to classify the investment. One of the classifications are:
1. Replacement Investment
2. Additional investment
3. New Investment

C. Investment qualification aspects

In planning and analyzing investment, we have to consider several aspect that at the same time
show some advantages gained because of a specific investment. All aspects need to be
considered and evaluated in every step of planning budget and executing cycle because those
aspect are related to each other.
● Technical aspect
Technical aspect is the most important in analyzing investment that need to be
considered. If there is any investment proposal is not worth to be proceed from its
technical aspect, then that specific type of investment is the first one to be rejected.
● Social and culture aspect
To run any project we need to consider the implication and the effect to the social and
cultural aspect from the investment because it is related with fair distribution of the
public services that will give a fair and big impact to the society. Social and cultural
aspect includes legal aspects and the environment of that specific investment project
that will be proceeds need to reconsider the legal aspect and the environmental aspect
that might bring harm or good.
● Economic and financial aspect
Considering the economic aspects including analyzing whether that specific project
proposed will give real contribution to the development of the economic as a whole.
Financial aspects clarify the financial impact of that specific project proposed. Based on
the budgeting, decisions such as the efficiency, solvability, and liquidity of that project
are need to be considered.
● Distribution aspect
Investment decisions are the decision that need to be related with the problems about
the public service distribution fairly and equally. Therefore, it is important to identify
who will receive the benefit form that investment project.

D. Factors that effecting public investment

There are several factors that need to be considered in analyzing the public investment such
us:
1. Discount rate used
Discount rate represent the rate of return that will be received from a certain project
with certain level of risk
2. Inflation rate
The higher the inflation risk, the lower real future profit that is expected that will
eventually increase the required rate of return.
3. Uncertain risk
Required rate of return will be higher if the risk of the investment increase. The
economic and law uncertainty, unstable socio-economic, and the inconsistency
policy will increase the risk of investment.
4. Capital rationing
Capital rationing is the situation when an organization face fund availability
problem to pay investment cost. In this kind of situation, there are some option can
be chose but the fund unavailability is the obstacle itself.