WORKSHOP

Certificate in
International
Public Sector
Accounting Standards

IPSAS 23: Revenue from

Non-Exchange Trainer
Transactions Umasudhan Subramaniam
FCCA, CFA, FRM, ACMA, MSc

info@umindmapper.com
www.universalmindmapper.com
Characteristics of Public Sector Entities

Revenue
A major part of the public sector
entity revenue is received as
taxation or other mandatory
payments by citizens or
companies, rather than being
paid in exchange for goods and
services
Many public sector bodies also
receive donations or grants
Expenditure
A major part of their
expenditure involves making
payments or providing
Revenue
services for no charge, a
nominal amount, or an amount
which will not recover costs.
This expenditure may include
Expenditre payments to relieve poverty,
debt forgiveness, and other
social expenditures

Amounts collected as an agent of the government or another government organization or on behalf of other third
parties, do not result in an increase in net assets or revenue.
An entity is acting as an agent when it does not have exposure to the significant risks and rewards associated with
the sale of goods or rendering of services. 2
Revenue under IPSAS

Non-Exchange Revenue Exchange Revenues

No performance obligations or Enforceable agreements, with
stipulations performance obligations to transfer
goods or services to customers on
Example: taxes & transfers commercial terms

Example: Sale of goods and services

on commercial terms

Revenue category between exchange and non-exchange revenue

Enforceable agreements, with performance obligations or stipulations to use or consume resources in a
particular way; and or other agreements requiring resources to be used over a specified period of time

Example: Funding to deliver a specified number of vaccinations to the public 3

Revenue under IPSAS

Non - Exchange Revenue Exchange Revenues

IPSAS 23: As below

If there are no stipulations: record revenue as soon as the right to

receive the revenue is met
IPSAS 9: recognise revenue
over the period to which it
relates
If the stipulation a condition: recognise revenue when the conditions
attached to the revenue has been complied with

If the stipulation a restriction: record revenue as soon as the right to

receive revenue is met

4
IPSAS 23: Revenue from Non-Exchange Transactions
• Non-Exchange transactions: Transactions where an entity receives value from another entity without directly giving
approximately equal value in exchange, or gives value to another entity without directly receiving approximately equal value in
exchange

• Revenue: Gross inflow of economic benefits or service potential that results in an increase in net assets/ equity, other than an
inflow relating to contributions from the entity’s owners

• Recognition of non-exchange revenues: If an entity receives an asset in a non-exchange transaction, it recognises revenue
in the same amount, provided that the asset can be measured reliably

• Under accruals accounting, the entity will recognise revenue when it directly exercise control over the resources or has reliable
information on enforceable claims on these resources. Revenue should only be recognised when control has passed to the
receiving entity on the basis of information which is sufficiently reliable.
• Pledges, promises or announcements of intention to pay are not generally regarded as sufficient to ensure an enforceable
claim and thus control of an asset

• IPSAS 23 applies to: Taxes & Transfers (Example: grants, fines, bequests, gifts, donations, services in-kind)

• IPSAS 23 doesn’t apply to: Revenue from exchange transactions, entity combinations, changes in fair value of financial
instruments and other assets, Agriculture assets

• Contributions from owners are not part of revenue

• Accruals principles apply for advance receipts

• Assets with linked obligations: Identify whether it should be treated as an exchange or non-exchange transaction. For non 5
exchange transactions, recognise a balancing liability in respect of the obligation
IPSAS 23: Measurement related to non-exchange transactions

Item Measurement

Revenue from non-exchange

Measured at the amount of the net assets recognised by the entity
transaction

Measured at the asset’s fair value at the date of acquisition, together with
Assets acquired through a non-
a corresponding amount of revenue unless a liability is required to be
exchange transaction
recognised
Measured as the best estimate of the amount required to settle the
Liability present obligation at the reporting date. If any increase in net assets, that
is accounted for as revenue

Tax revenue: Taxes are defined as economic benefits compulsorily payable to public sector entities, in accordance with laws
or regulations established to provide revenue to the government
IPSAS 23 requires a public sector entity to recognise an asset in respect of taxes when the taxable event occurs and asset
recognition criteria are met ( recognition criteria: control, expectation of future economic benefits or service potential, and
reliable measurement)
6
IPSAS 23: Recognition of Transfers

Transfer type Recognition

Recognised at the receipt of the grant or the date of an enforceable claim

Grants
Grants may contain stipulations

Fines Recognised in the period in which the fine is imposed

Recognised when the nature of the bequest is known and it has been established that the
Bequest estate is sufficient to meet all claims
Bequests may contain stipulations as to how the money or assets are to be spent or utilised
At receipt of gift of donation and transfer of legal title. For goods in-kind, at receipt of goods
Donation
or binding agreement to receive them
When the lender waive their right to collect a debt owed by a public entity (thus effectively
Debt forgiveness cancelling the debt), the public entity’s net assets/equity will increase. Thus the amount
forgiven is treated as a revenue from a non-exchange transaction
Services in-kind are voluntary services provided to an entity by an individual or individuals.
The standard provides that entities may, but not required to, recognise services in-kind as
Services in-kind revenue and expenditure where the amount can be measured, is material and its inclusion
enhances the presentation of the financial statements. Disclosure of the nature of significant
in-kind services in all cases is encouraged.
7
IPSAS 23: Stipulations (Conditions vs Restrictions)
Grants are often provided with limitations on how money should be spent or assets should be utilized

The standard separates such stipulations into conditions and restrictions

Conditions Restrictions

Money must be spent as specified or returned to the Where there is a more general requirement to
donor (a performance obligation) spend the money in a specified area but not to
return it if this is not achieved

Recognition: Recognise revenue when the conditions

attached to the revenue has been complied with Recognition: Revenue is recognised immediately
Set up a liability for the obligation generally to the
value of the money received, which will be reduced as
the conditions are satisfied

The distinction between conditions and restrictions may not always be clear cut and it is necessary to consider
the substance of the stipulation and not merely its form.

This might take into account the likelihood of enforcement, prior experience with the donor/ grant-giver, the extent
8
of specification of detailed requirements and the degree of monitoring by the donor/ grant-giver.
Revenue recognition under IPSAS (Summary)

Income

Exchange Non-Exchange
Revenue Revenue

Apply IPSAS 9 Apply IPSAS 23 If there are no stipulations,

recognise revenue as soon as
Recognise revenue over the Check whether there are any the right to receive the
period to which it relates stipulations revenue is met

If there is a stipulation, check

whether it is a condition or a
restriction

If the stipulation is a
condition, revenue is
recognised when the
conditions attached to the
revenue has been complied
with
If the stipulation is a
restriction, recognise
revenue as soon as the right
to receive the revenue is met 9
IPSAS 23: Example 1
On 5 April 20X9, ABC hospital received $50,000 grant from a local community group.
The community group does not stipulate how the funds should be spent, but the
hospital intends to use the funds to build a new rehabilitation centre for use by the
local community
Explain how the revenue should be recognised

As there are no stipulations attached to the grant, recognise revenue when

received

5 April 20X9
Debit Cash $50,000
Credit Grant Revenue $ 50,000

10
IPSAS 23: Example 2

On 5th Feb 20X8, ABC hospital received $200,000 grant from a local government
agency to assist with the provision of training courses for nurses over a two year
period.
The contract stipulates that the hospital must provide training to 1000 nurses.
The hospital must report to the grant provider at each reporting date and at the end of
the two year period any unspent money must be returned.
During the financial year 20X8, the hospital provided training for 400 nurses
During the financial year 20X9, the hospital provided training for another 500 nurses.
At the end of the specified two-year period, the hospital overall provided training for
900 nurses.

Explain how the revenue should be recognised

11
IPSAS 23: Example 2
As the grant contract specifically states that there is an obligation for unspent
money to be repaid, the grant income is recognised on the balance sheet as
income in advance until it is spent on the activities as defined by the contract

On 5 Feb 20X8 (When grant is received)

Debit Cash $200,000
Credit Income in Advance $ 200,000

FY 20X8 (training completed for 400 nurses)

Debit Income in Advance $80,000
Credit Grant Revenue $ 80,000

FY 20X9 (training completed for 500 nurses)

Debit Income in Advance $100,000
Credit Grant Revenue $ 100,000

At the end of the two-year period when the balance money is returned
Debit Income in Advance $20,000
Credit Cash $ 20,000 12
IPSAS 23: Example 3
On 3 March 20X9, a national government makes a grant of $50,000 to a local
government housing entity specifying the below objectives
• Increase the social housing by an additional 500 units
• Use the cash transfer in other ways to support social housing objectives
If neither of these objectives is satisfied, the entity must return the cash to the national
government
Explain how the revenue should be recognised

The stipulations in the transfer are stated so broadly so as not to impose on the
recipient a performance obligation. The performance obligation is imposed by
the operating mandate of the entity, not the terms of the transfer

3 March 20X9
Debit Cash $50,000
Credit Grant Revenue $ 50,000

13
IPSAS 23: Example 4
A public sector entity purchased an equipment with a fair value of $20,000 at a
reduced price of $15,000 from the government. There are no stipulations attached to
this transaction.
Explain the correct accounting treatment for this

The asset is recorded at fair value and price concession is recognised as

revenue from non-exchange transaction

Debit Equipment $20,000

Credit Cash $ 15,000
Credit Revenue $ 5,000

14
Disclosure requirements for
Non-Exchange Revenue
The accounting policies for the recognition of revenue from
01 non-exchange transactions including, four major classes, the
basis of assessing fair value

Information about the nature of taxes which cannot be

02 measured reliably and are therefore not recognised

The Nature and types of major classes of bequests, gifts and

03 donations

04 The amount of revenue from taxation, split by major classes

The amount of other revenue/ transfers from non-exchange

05 transactions, split by major classes
The amount of receivables in respect of revenue from non-
06 exchange transactions
The amount of liabilities from amounts received with
07 conditions, and from advance payments, as well as liabilities
forgiven

08 The amount of assets subject to restrictions 15

IPSAS 33: Transitional relief for first-time
adopter
• A first-time adopter is not required to change its accounting policy in
respect of the recognition and measurement of non-exchange revenue
for reporting periods beginning on a date within three years following
the date of adoption of IPSASs

• A first-time adopter may change its accounting policy in respect of

revenue from non-exchange transactions on a class-by-class basis

• The transitional relief of three years for non-exchange revenue is

intended to allow a first-time IPSAS adopter time to develop reliable
models for recognising and measuring revenue from non-exchange
transactions in accordance with IPSAS 23

16
WORKSHOP

Certificate in
International
Public Sector
Accounting Standards

IPSAS 9: Revenue from

Exchange Transactions Trainer
Umasudhan Subramaniam
FCCA, CFA, FRM, ACMA, MSc

info@umindmapper.com
www.universalmindmapper.com
IPSAS 9: Revenue from Exchange
Transactions
• IPSAS 9: based on IAS 18 and specifies the accounting approach for revenue
from exchange transations
• Exchange transaction: one entity receives assets or services, or has liabilities
extinguished, and directly gives approximately equal value to another entity in
exchange
• Measurement: Revenue should be measured at the fair value of the consideration
received or receivable

Rendering of Services: Mainly consists of the performance, by the public

sector entity, of an agreed task over an agreed period of time
Eg: Provision of medical services in public sector hospitals in return for payment

Sale of Goods: Revenue is derived from either goods produced for sale or
goods purchased for resale
Eg: Sale of publications
18
IPSAS 9: Conditions for Revenue Recognition
Revenue from the sale of goods should be recognized when all the following conditions have been satisfied

The entity has transferred to the purchaser the

significant risks and rewards of ownership of goods

The entity retains neither continuing

It is probable that the economic
managerial involvement to the
benefits or service potential
degree usually associated with
associated with the transactions will
ownership nor effective control over
flow to the entity
the goods sold

The costs incurred or to be incurred in

The amount of revenue can be respect of the transaction can be
measured reliably measured reliably

19
IPSAS 9: Disclosure requirements
for Exchange Revenue

The accounting policies adopted for recognising revenue,

01 including the methods adopted in determining the stage of
completion for transactions involving the rendering of services

02 Amount of each significant category of revenue recognised

Amount of revenue recognised from exchange of goods or

03 services

20
IPSAS 9: Revenue recognition

• When the outcome of a process of a contract to supply

services can be reliably measured, revenue should be
recognised by the stage of completion, otherwise only
to the extent of expenses recoverable

• Where there are several components to a transaction,

the revenue recognition rules should be applied to
each component separately

• All costs associated with the revenue should be

accounted for in the same period as the revenue is
recognised (matching of revenue and expenses

• General rules for the recognition of interest, royalties

and dividends apply

21
IPSAS 9: Example 1
On 1st April 2020, a public sector entity sells statistical software to a school for a total
value of $66,000 and offers 12 months time to make the payment. The value includes
$6,000 interest applicable for the 12 months period. Financial year end of the entity is
31 Dec. The entity received the payment from the school on 1 Apr 2021.
Explain the relevant accounting treatment applicable for this transaction

1 April 2020
Debit Receivable (school) $60,000
Credit Sales Revenue $ 60,000

Apr to Dec 2020 (interest for 9 months)

Debit Receivable (school) $4,500
Credit Interest Income $ 4,500

Jan to Mar 2021 (interest for 3 months)

Debit Receivable (school) $1,500
Credit Interest Income $ 1,500

1 Apr 2021 (receipt of payment)

Debit Cash $66,000
22

Credit Receivable (school) $ 66,000

IPSAS 9: Example 2

A local authority has entered into a binding contract to sell an asset for a fixed
amount
Can the authority record this transaction and recognise a gain on sale?

No, IPSAS 9 requires control of the asset to be passed to recognise in the

financial statements

23
WORKSHOP

Certificate in
International
Public Sector
Accounting Standards

IPSAS 11: Construction

Contracts Trainer
Umasudhan Subramaniam
FCCA, CFA, FRM, ACMA, MSc

info@umindmapper.com
www.universalmindmapper.com
IPSAS 11: Construction contracts

IPSAS 11 provides guidance on accounting for construction

contracts

IPSAS 11 is almost identical to IAS 11 construction contracts

IPSAS 11 relates to specifically negotiated contracts for the

construction of assets

Under IPSAS 11, it is necessary to divide the overall contract

value over the total time it takes to complete the contract and to
recognise an appropriate part of the contract costs and revenues
in each period. The difference between the costs and revenue in
any period would be the surplus/ deficit earned in the period.

When the outcome of the contract can be estimated reliably, then

the revenues and costs should be recognised at each reporting
date by reference to the stage of completion of the contract

The stage of completion of a contract can be measured with

reference to value of work certified to date, costs incurred to date
compared to total estimated costs or physical proportion of work 25
completed.
IPSAS 11: Types of construction contracts
Fixed Price Contract
• Revenue arising is fixed at the outset of the
contract, either for the contract as a whole or for
units of output
• Under such contracts, there is an element of
certainty about the revenue accruing, but not about
the costs which will arise
• The contractor should be able to measure reliably
both the costs that have been incurred and those
that will be incurred to complete the project
• The contractor should also assess whether it is
probable that payment will be received under the
contract
Cost Plus Contract
• The costs will be recoverable plus some agreed
element of profit
• Under such contracts, there is a high degree of
certainty about the profit arising although there is
no certainty about either the revenue or the costs
• The outcome of the contract is capable of reliable
measurement where it is probable that the
contractor will receive payment for the revenues
under the contract and the costs can be both
clearly identified are themselves reliably
measured
26
IPSAS 11: Treatment of losses

Under IPSAS 11, any loss expected to be incurred in

performing a contract should be recognised immediately.
There are criteria to help determine whether these estimates can
be reliably made, including that the costs and the revenues of the
contract must be separately identified

When the outcome of a contract cannot be estimated reliably,

revenue should be recognised only to the extent of contract costs
that will probably be recoverable, and contract costs should be
recognised when they are incurred. Again, expected losses should
be recognised immediately.

27
Disclosure requirements for
Construction Contracts
The contract revenue recognised as revenue in the period.
01 Such amounts include the contract revenue recognised in the
period, the total costs incurred to date and the aggregate
profits recognised to date

The methods used to determine both contract revenues and

02 the stage of completion

The amounts recognised in the statement of financial position

03 in relation to the contract should also be disclosed, including
the gross amounts due from customers and recognised as an
asset and any amounts that are due to the customer that have
been recognised as a liability at the end of the reporting
period.

04 Any advances received from customers

Any retentions withheld by customers, being amounts held

05 back by the customer, in accordance with the contract, as a
security for any rectification work required 28
IPSAS 11: Example
A government agency is operating as a construction company that uses costs
incurred to date to measure the stage of completion
At the end of the reporting period, the following details are available regarding project
XYZ.
Assuming that the outcome of the project can be estimated reliably, how much
revenue and profit should be recognized for project XYZ in the current reporting
period?

Stage of completion (based on costs incurred to date)

Contract value: $10,000,000
5,200,000 / (5,200,000 + 2,800,000) = 65%
Value of work certified to date: $6,000,000 Total estimated profit
Costs incurred to date: $5,200,000 10,000,000 - (5,200,000 + 2,800,000) = 2,000,000
Estimated costs complete: $2,800,000 Revenue to recognize
65% * 10,000,000 = 6,500,000
Profit to recognize
65% * 2,000,000 = 1,300,000

29
IPSAS 11: Example
Stage of completion based on work certified to date

Contract value: $10,000,000

Value of work certified to date: $6,000,000
Stage of completion (based on work certified to date)
Costs incurred to date: $5,200,000
6,000,000 / 10,000,000 = 60%
Estimated costs complete: $2,800,000
Total estimated profit
10,000,000 - (5,200,000 + 2,800,000) = 2,000,000
Revenue to recognize
60% * 10,000,000 = 6,000,000
Profit to recognize
60% * 2,000,000 = 1,200,000

30
WORKSHOP

Certificate in
International
Public Sector
Accounting Standards

Exposure Draft 70, 71 & 72

Trainer
Umasudhan Subramaniam
FCCA, CFA, FRM, ACMA, MSc

info@umindmapper.com
www.universalmindmapper.com
Exposure Draft 70: Revenue with Performance Obligations
Revenue with performance obligations is accounted for using a five-step approach based on IFRS 15 - Revenue from
Contracts with Customers, modified for use in the public sector

Identify
Allocate the
performance
transaction price
obligations

Identify the 4
2 Determine the Recognise
binding
transaction price revenue
arrangement

1 3 5 32
Exposure Draft 71: Revenue without Performance Obligations
ED 71 focuses on present obligations that are not performance obligations. A present obligation is a binding obligation
resulting in an outflow of resources which an entity has little or no realistic alternative to avoid. A transfer provider may
provide resources to a transfer recipient as required in a binding arrangement with an understanding that they will be used
in a particular way
ED 71 incorporates 6 decision points as shown below
Step 1 Step 2 Step 3 Step 4 Step 5 Step 6

Does the inflow Does the Are there Are there Recognise revenue
Is there an transaction performance present
result from a when (or as)
asset to be arise from a obligations in obligations in
contribution present obligations
recognised? binding the binding the binding
from owners? are met
arrangement? arrangement? arrangement?
If there is no asset to be Contributions from If the transaction does If there are If there are no present If there are present obligations,
recognised, then there owners are not revenue not arise from a binding performance obligations in the when the transfer recipient has
is no revenue to be and are therefore arrangement then obligations in the binding arrangement, control of the resources, they
recognised. If an asset outside the scope of revenue is recognised binding arrangement, then revenue is will initially recognise an asset
meets the definition and ED 71. If the inflow is when the transfer apply ED 70. If there recognised when the and a liability. As the present
recognistion criteria, not a contribution from recipient has control of are no performance transfer recipient has obligations are met, the
move to step 2 owners, move to step 3 the resources. If the obligations, move to control of the transfer recipient will recognise
transaction is from a step 5 resources. If there are revenue and derecognise the
binding arrangement, present obligations, liability to the extent of
33
move to step 4 move to step 6 the revenue recognised
Exposure Draft 72: Transfer Accounting for transfer
Expenses expenses

• ED 72 proposes requirements for transfer expenses

• A transfer expense is an expense arising from a

transaction, other than taxes, in which an entity provides
goods, service, or other asset to another entity (which
may be an individual) without directly receiving any good,
service, or other asset in return

• ED 72 also aims to ensure that the accounting for

transfer expenses is consistent with the accounting for
the equivalent revenue transactions that the IPSASB has
been developing in parallel to its non-exchange expenses
project

34
Thank You