CHAPTER 4

ACCOUNTS OF STATE CORPORATION

State corporations are established in every Country according to the provision of state
corporation account. Some state corporations have been established by special acts of parliament.
State corporations established in every country include the following:-

1. Airways

2. Ports Authority

3. Post Office Saving Bank

4. Posts and Telecommunications

5. Railways

6. Power and Lighting Company Ltd.

Some of these corporations may be privatized in near future. At present, state corporations enjoy
monopolistic rights in their business or rendering service to the community. These under takings
require a huge amount of capital which is mostly fixed and sunk i.e. once invested in fixed assets
can’t ordinarily be got back. As a greater part of this capital is raised from the public, hence such
concerns are normally bound to give full information to the public in order to show how the
amount of capital was utilized in acquiring fixed assets.

Main provisions of the state corporations account in respected of annual accounts are stated as
under:-

1. States that every state corporation should prepare its revenue and expenditure account for the
financial year not later than the end of in every year. This account should be accompanied by
proposals for funding all projects to be undertaken by the corporation in the following year.
All annual estimates and proposals for funding projects should not be implemented until they
have been approved by the ministry and the treasury.
2. Every state corporation should keep proper books in order to record the property,
undertakings, funds, activities contracts, transactions and other business of the state

GOVERNMENTAL ACCOUNTING Page 1

 corporation.
3. The accounts of every state corporation should be audited and reported on annually by the
auditor general (Corporations) in accordance with of the Exchequer and Audit Act.
4. The board of State Corporation is responsible for the proper management of the affairs of a
state corporation and accountable for the moneys.
5. Every state corporation should make provision for the renewal of depreciating assets by the
establishment of the sinking funds and for the contributions to such reserve and stabilization
funds as may be necessary.
Final accounts of state corporations

Final accounts of the state corporations consist of the following:-

1. Revenue Account
This account is also called as revenue and expenditure Account. This account shows the details
of total income and expenditure of a state corporation for particular financial year. It is prepared
in lieu of Profit and Loss Account.
2. Net Revenue Account
This account is prepared by some corporations. It is prepared in lieu of appropriation of Profit
and Loss Account.
3. Balance sheet
Balance sheet of State Corporation gives the details of the assets and liabilities of the corporation
at a specific date. In some countries e.g. India, the balance sheet of State Corporation is divided
in to two parts viz. the Capital Account and General Balance Sheet. This way of presenting the
balance sheet is called the Double Accounting System. Capital account on the debit side shows
the capital expenditure incurred on the acquisition of fixed assets and on credit side shows the
receipt on capital account such as shares, debentures, and fixed loans e.t.s. The General Balance
sheet shows the balance of capital account and current liabilities side and current assets on the
asset side.

GOVERNMENTAL ACCOUNTING Page 2

Example 1: The following balances were extracted from the books of African post and
Telecommunication Corporation for the year ended 31st December 1997.

Trial Balance

Particular Dr Cr
$(000) $(000)
Equity 75,200
General reserve- surplus retained 1,278,600
Pension liability fund 151,300
Loans 10,253,500
Land and buildings 2,451,700
Plant and machinery 10,695,900
Motor vehicles 451,700
Furniture and office equipment 252,750
Investment 572,850
Pension liability fund (cost) 271,400
Debtors – services 551,900
Short term deposits 351,600
Cash and cash balance 250,700
Creditors – services 1,312,400
Stock – stores 545,600
Depreciation provision of fixed assets 2,421,400
Postal revenue 451,500
Telephone revenue 2,252,800
Miscellaneous revenue 842,700
Administration expenses 254,700
Operational expenses 670,500
International services expenses 845,700
Miscellaneous expenses 421,500
Maintenance expenses 78,200
Loan interest 372,800
19,039,500 19,039,500
Additional information

Provisions are to be made as under:-

a. Depreciation $453,400
b. Pension liability $175,600
c. Provision for corporation tax $535,400
d. Dividends $238,500
Required:
Prepare the revenue account, net revenue account of African post and Telecommunication
Corporation for the year ended 31st December 1997 and a balance sheet on that date.

GOVERNMENTAL ACCOUNTING Page 3

 Solution
African post and Telecommunication Corporation
Revenue Account
For the year ended 31st December 1997

Expenditure $(000) Revenue $(000)

Administration 535,400 Postal 451,500
Operational 670,500 Telephone 2,252,500
International services 845,700 Miscellaneous 842,700
Miscellaneous expenses 421,500
Maintenance 78,200
Loan interest 372,800
Depreciation 453,800
Pension liability 175,600
Surplus c/d t net
revenue account 274,600
3,547,000 3,547,000
Working
1. Surplus c/d to net revenue account = revenue – expenses
3,547,000 – 3,272,400 = 274,400
Net Revenue Account
For the year ended 31st December 1997

$ $
(000) (000)
Corporation tax 535,400 Surplus transferred from
Dividend – proposed 238,500 revenue account 274,600
Retained surplus bal: c/f 779,300 Retained surplus bal: b/f 1,278,600
1,553,200 1,553,200
Working

1. Retained surplus bal: c/f = 1,553,300 – 773,900 = 779,300

GOVERNMENTAL ACCOUNTING Page 4

 Balance sheet
As at 31st December 1997
$ (000) $ (000)
Fixed Assets
Land and buildings 2,451,700 Equity 75,200
Plant & machinery 10,695,900 General reserve
Motor vehicles 451,700 - Retained surplus 779,300
Furniture & office Loans 10,253,500
equipment 251,750 Pension liability fund 326,900
13,852,050 Current liabilities
Less depreciation (2,874,900) Creditors 1,312,400
10,977,150 Corporation tax 535,400
Investment 572,850 Proposed dividends 238,500
Pension liability
fund (cost) 271,400
Current Assets
Stock store 545,600
Debtors 55,900
Short term deposit 351,600
Cash and bank balance 250,700 13,521,200
13,521,200
Working

1. Depreciation provision = 2,421,500 + 453,400 = 2,874,900

2. Pension liability fund = 151,300 + 175,600 = 326,900

GOVERNMENTAL ACCOUNTING Page 5