KHRYZELL GUILL V.

LAGURIN BSMA-31

Acctg 315 – Accounting for Government and Non-Profit Organization

Sections: AIS31, MA31, MA32
Assessment No.1
Topic: Accounting for Revenue and Other Receipts

Non-exchange transactions are the transactions in which an entity either

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.

Discuss the recognition and measurement of the following non-exchange transactions:

1. Tax Revenue

- Taxes are economic benefits or service potential compulsory paid or

payable to public sector agencies, in accordance with laws and or
regulations, established to provide revenue to the government. Taxes do
not include fines or other penalties imposed for breaches of the law.
- Tax revenue shall be recognized at the gross amount and the expenses
deducted shall be recognized and shall form part of the statement of
financial performance.

2. Debt Forgiveness and Assumption of Liabilities

a. Lenders will sometimes waive their right to collect a debt owed by a public
sector entity, effectively cancelling the debt. (par. 84, PPSAS 23)
b. Entities recognize revenue in respect of debt forgiveness when the former
debt no longer meets the definition of a liability or satisfies the criteria for
recognition as a liability, provided that the debt forgiveness does not satisfy
the definition of a contribution from owners. (par. 85, PPSAS 23)
c. Where a controlling entity forgives debt owed by a wholly owned controlled
entity, or assumes its liabilities, the transaction may be a contribution from
owners. (par. 86, PPSAS 23)
d. Revenue arising from debt forgiveness is measured at the carrying amount
of the debt forgiven. (par. 87, PPSAS 23)

3. Fines

a. Fines are recognized as revenue when the receivable meets the definition
of an asset and satisfies the criteria for recognition as an asset. (par. 89,
PPSAS 23)
 b. Where an entity collects fines in the capacity of an agent, the fine will not
be recognized as revenue of the collecting entity. (par. 89, PPSAS 23)
c. Assets arising from fines are measured at the best estimate of the inflow of
resources to the entity. (par. 89, PPSAS 23)

4. Bequests

a. Bequests which satisfy the definition of an asset are recognized as assets

and revenue when it is probable that the future economic benefits or service
potential will flow to the entity and the fair value of the assets can be
measured reliably. (par. 91, PPSAS 23)
b. The fair value of bequeathed assets is determined in the same manner as
for gifts and donations. (par. 92, PPSAS 23)

5. Gifts, Donations and Goods In-kind

a. Gifts and donations (other than services in-kind) are recognized as assets
and revenue when it is probable that the future economic benefits or service
potential will flow to the entity and the fair value of the assets can be
measured reliably. (par. 95, PPSAS 23)
b. Goods in-kind are tangible assets transferred to an entity in a non-
exchange transaction, without charge, but may be subject to stipulations.
(par. 94, PPSAS 23)
c. Goods in-kind are recognized as assets when the goods are received, or
there is a binding arrangement to receive the goods. If goods in-kind are
received without conditions attached, revenue is recognized immediately.
(par. 96, PPSAS 23)
d. On initial recognition, gifts and donations including goods in-kind are
measured at their fair value as at the date of acquisition, which may be
ascertained by reference to an active market, or by appraisal. An appraisal of
the value of an asset is normally undertaken by a member of the valuation
profession who holds a recognized and relevant professional qualification.
For many assets, the fair value will be readily ascertainable by reference to
quoted prices in an active and liquid market. (par. 97, PPSAS 23)

6. Services In-kind

It is service provided by individual to public sector entities in a non-exchange

transaction. These service meet the definition of an asset because the entity
controls a resources from which future economic benefits.

7. Pledges
 Pledges do not meet the definition of an asset because the recipient entity is
unable to control the access of the transferor to the future economic benefits
or service potential embodied in the item pledged.

8. Advance receipt of revenue

When an entity receives resources before a transfer arrangement becomes

binding, the resources are recognized as an asset when they meet the
definition and satisfy the criteria for recognition as an asset and recognized
as a liability until the event that makes the transfer arrangement binding
occurs, and all other conditions under the agreement are fulfilled.

9. Concessionary loans

Concessionary loans are loans received by an entity at below market terms.

a. The portion of the loan that is repayable, along with any interest payments,
is an exchange transaction and is accounted for in accordance with PPSAS
29, Financial Instruments: Recognition and Measurement, Chapter 7.

b. An entity considers whether any difference between the transaction price

(loan proceeds) and the fair value of the loan on initial recognition is non-
exchange transaction. (par. 105A and B, IPSAS 23)

10. Grant with condition

If conditions are attached to a grant, a liability is recognized, which is reduced

and revenue recognized as the conditions are satisfied.