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Lesson Number 5: Revenues - Non-Exchange Transactions and Other Receipts

Lesson Objectives:
1. State the sources of revenue of a government entity.
2. State the recognition and measurement of revenue.

Getting Started
Non-exchange Transactions
Revenue from non-exchange transactions are derived mostly from taxes, fines and penalties, gifts, donations and
goods in-kind. These are received without directly providing something of equal value in return.
• Taxes - are compulsory payments intended to provide revenue to the government. Taxes do not include fines
and penalties.
• Fines and penalties - are monetary sanctions received as a consequence of breach of laws.
• Gifts, Donations and Goods/Services In-kind - are voluntary transfers of assets and services that one entity
makes to another, normally free from stipulations.
Recognition of Revenue from Non-exchange Transactions

Revenue from non-exchange transactions are recorded on a cash basis until a reliable measurement model is developed.
Accordingly, the asset and revenue or liability arising from a non-exchange transaction are recognized when collected or when
these are measurable and legally collectible. (GAM for NGAs, Chapter 5, Sec. 12)

Tax revenue

 Tax revenue is recognized at a gross amount and not reduced for expenses paid through the tax system.
Expenses paid through the tax system are those expenses which should be paid irrespective of whether the
taxpayer pays taxes, or uses a particular mechanism to pay taxes.
 Tax revenue shall .not be grossed up for the amount of tax expenditures Tax expenditures are preferential
provisions of the tax law that provides certain taxpayers with concessions that are not available to others.
Tax expenditures are foregone revenue, not expenses.
Types of tax Taxable event
Income tax Earning of taxable income
Value added tax Undertaking of a taxable activity
Goods and services tax Purchase or sale of taxable goods or services
Customs duty Movement of dutiable goods or services across the
customs boundary
Death duty Death of the owner of the taxable property
Property tax Passage of the time period for which the tax is levied
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Transfers

Transfers are inflows of future economic benefits or service potential from non-exchange transactions, other than taxes (PPSAS
23). Transfers include fines, gifts, donations and goods and services in-kind, debt forgiveness, bequests, and grants. All of these
transactions transfer resources without approximate equal value in exchange and are not taxes but some are with conditions.

 Fines and penalties

Fines and penalties are recognized as income in the year they are collected. (GAM for NGAs, Chapter 2, Sec.
33). However, fines are recognized as revenue when the receivable meets the recognition criteria for asset
and are measured at the best estimate of inflow of resources to the entity. (GAM for NGAs, Chapter 5, Sec.
24). An Entity collecting fines in the capacity of an agent shall not treat those fines as revenue.
 Gifts, Donations and Goods In-kind
Gifts, donations and goods in kind are recognized as revenue when it is probable that future economic
benefits or service potential will flow to the entity. Those that are received without conditions are recognized
immediately as revenue. Those with conditions are initially recognized as liability and recognized as revenue
only when the conditions are satisfied.
 Services In-kind
Services In-kind are not recognized as revenue due to the uncertainties affecting the entity's ability to control
those services and measure them at fair value. Examples of services in-kind include technical assistance from
foreign bodies, community services rendered by persons convicted of offenses, volunteer services, and the
like. Services in-kind received may be disclosed in the notes.

Measurement

Assets, liabilities and revenue arising from a non-exchange transaction are measured as follows:

 Assets - at the acquisition date fair value.

 Liabilities - at present value, when the effect of time value of money is material.
 Revenue - at the amount of increase in net assets. If the nonexchange transaction is initially recognized as a
liability, the subsequent reduction in that liability (e.g., because the condition is satisfied) is recognized as
revenue.
Debt Forgiveness

When a lender cancels the debt of a government entity, the debtor recognizes revenue equal to the carrying amount of the debt
forgiven. However, when, a controlling entity cancels the debt of a wholly owned controlled entity, the cancelled debt is treated
as contribution from owners and not revenue.

Bequests

Bequests are transfers made according to the provisions of a deceased person's will. A bequest that satisfies the recognition
criteria for asset is recognized as revenue, measured at the fair value of the resources received or receivable.

Grant with Condition

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An asset received under a grant with condition is initially recognized as liability and recognized as revenue only when the
condition is satisfied.

Pledges

Pledges are unenforceable undertakings to transfer assets to the recipient entity. Pledges are not recognized as revenue because
they do not meet the recognition criteria for asset, i.e. at present, the entity has not yet obtained control over the item pledged.
If the pledged item is subsequently transferred to the recipient entity, it is recognized as a gift or donation. Pledges may warrant
disclosure as contingent assets.

Concessionary Loans

Concessionary loans - are loans received by an entity at below market terms. The entity considers whether the difference
between the transaction price (loan proceeds) and the fair value of the loan on initial recognition is a non-exchange transaction.
If it is so, the difference is recognized as revenue, except if a present obligation exists, in which case the difference is recognized
as a liability and recognized as revenue only when the obligation is satisfied.

Impairment Losses and Allowance for Impairment Losses

When an amount already recognized as revenue becomes uncollectible, it is recognized as expense (impairment loss) rather
than as an adjustment to the revenue originally recognized. Entities shall evaluate the collectability of accounts receivable on
an ongoing basis based on historical bad debts, customer/recipient credit-worthiness, current economic trends and changes in
payment activity. An allowance is provided for known and estimated bad debts. (GAM for NGAs, Chapter 5, Sec. 9)

Other Receipts

Other receipts include, but not limited to, the following:

a) Receipt of subsidy from the National Government (i.e., disbursement authority), such as receipt of
1. Notice of Cash A1location (NCA)
2. Tax Remittance Advice
3. Non-Cash Availment Authority
4. Cash Disbursement Ceiling
b) Receipt of subsidy or assistance from other government agencies, including LGUs and GOCCs. The
Collecting Officer shall issue an official receipt (OR) upon receipt of any of this subsidies/ assistance.
c) Receipt of excess cash advance granted to officers and employees (e.g., receipt of excess cash advance for
travel).
d) Receipt of refund of overpayment of expenses.
e) Receipt of performance bond or security deposit. A performance bond is a security deposit required from a
contractor or supplier to guaranty the full and faithful performance of a contract. It may be in the form of
cash or certified check.
f) Collections made on behalf of another entity. The collecting entity records the collection as a credit to the
"Due to NGAs" account. Upon receipt of remittance, the recipient entity records the collection as a credit
to the "Trust Liabilities" account.
g) Intra-agency and Inter-agency fund transfers.
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Summary of the Lesson

 Gifts, Donations and Goods
 If without condition recognized immediately
 If with condition, initially recognized as liability until condition is satisfied.
 Services In-kind
 Not recognized as revenue.
 Debt Forgiveness
 Carrying amount of debt forgiven is recognized as revenue.
 Bequests
 Recognized as revenue measured at fair value, if asset recognition criteria are met.
 Grant with Condition
 Initially recognized as liability until condition is satisfied.
 Pledges
 Not recognized.
 Concessionary loans
 Difference between fair value and transaction price is recognized as revenue, if non-exchange transaction.
 Subsidy from NG and other NGAs
 Recognized as revenue from assistance and subsidy.
 Receipts from excess from cash advance, overpayment of expenses, performance bonds and security deposits,
collections on behalf of other entities, and inter or intra-agency fund transfers.
 Not recognized as revenue.

REFERENCES:
1. Millan, Z. V. (2019) Government Accounting and Accounting for Non-Profit Organizations, Baguio City,
Philippines, Bandolin Enterprise Publishing and Printing