THE INSTITUTE OF FINANCE MANAGEMENT

PUBLIC SECTOR ACCOUNTING

TUTORIAL QUESTIONS IPSAS 2&3
1. What are the steps to correct material errors in financial statements according to IPSAS 3
2. How should an entity disclose changes in accounting policies in its financial statements?
Question 3
A conceptual framework in the context of financial reporting is a statement of generally accepted
reporting principles, which provides the part of reference for financial reporting. The International
Public Sector Accounting Standards Board (IPSASB) has developed a conceptual framework for
General Purpose Financial Reports (GPFR) of entities in the public sector. The conceptual
framework has a number of advantages in the preparation of GPFR as well as developers of IPSAS.
REQUIRED:
Briefly explain five (5) main advantages of a conceptual framework.

Question 4
IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors; lays down criteria for the
selection of accounting policies and prescribes circumstances in which an entity may change an
accounting policy. The standard also deals with accounting treatment of changes in accounting
policies, changes in accounting estimates and correction of prior period errors.
REQUIRED:
Explain the accounting treatment required to record a “change in accounting policy” and a “change
in accounting estimate” according to IAS 8.

Question 5
Below are cash transactions of Department of Welfare for the year ended 31st December 2023
Details TZS.
“000”
Government tax receipt 750,000
Fees and charges on services 150,000
Compensation of employees 330,000
Goods and services 270,000
Interest expense 75,000
Grants received from donors 180,000
Purchase of non-financial assets 225,000
Staff loans 60,000
Investment 90,000
Sale of investment 15,000
Auction of old assets 22,500
Staff advances 120,000
 Bank loans 450,000
Repayment of loans 90,000
Social benefits 30,000
Other expenditure 105,000
Consumption of fixed capital 75,000
Cash and cash equivalent as at 1/1/2023 135,000
REQUIRED
Prepare a Statement of Cash Flows for the year ended 31 December 2023, in accordance with IPSAS
2.
Question 6
a) Explain the concept of “Value for Money”
b) Illustrates with examples, how each element of value for money plays out in a typical public
sector entity.
Question 7
You are the Chief Accountant of XYZ Public Sector entity. You have been preparing cash flow
statements on the basis of the indirect method. A circular has been issued by the Paymaster General
that all cash flow statements should be prepared using direct method for easy of the Accountant
General to prepare consolidated financial statements for the whole government. You obtain the
following information in respect with the exercise.
XYZ PUBLIC SECTOR
STATEMENT OF FINANCIAL PERFORMANCE FOR THE YEAR ENDED 30TH JUNE 2023
2023 2022
TZS. billion TZS. billion
Revenue 200 180
Taxes 80 120
Fees, fines, penalties, and licenses 250 150
Revenue from exchange transactions 30 50
Transfers from other government entities 55 70
Other revenue 615 570
Total Revenue 200 180
Expenses
Wages, salaries, and employee benefits 120 100
Grants and other transfer payments 60 40
Supplies and consumables used 140 90
Depreciation and amortization expense 180 150
Impairment of property, plant, and equipment 50 -
Other expenses 30 45
Finance costs on long term borrowings 80 70
Total Expenses 660 495
(45) 75
Share of surplus from associate 120 -
Surplus/ Deficit for the period 75 75
 XYZ PUBLIC SECTOR
STATEMENT OF FINANCIAL POSITION FOR THE YEAR ENDED 30TH JUNE 2023
2023 2022
TZS. billion TZS. billion
ASSETS
Current assets
Cash and cash equivalents 200 150
Receivables 270 300
Inventories 300 180
Prepayments on consumables 95 80
865 710
Non-current assets
Receivables 45 30
Investments in associates 280 160
Property plant and equipment (PPE) 950 450
1,275 640
Total assets 2,140 1,350

LIABILITIES
Current liabilities
Payables 40 60
Current portion of long-term borrowings 85 75
Employee benefits 25 30
150 165
Non-current liabilities
Long-term borrowings 450 250
Employee benefits 12 8
462 258
Total liabilities 613 423
Net assets 1,528 927

Net assets/ Equity

Government 898 452
Revaluation Reserves PPE 130 50
Accumulated surpluses/(deficits) 500 425
1,528 927
You obtain the following additional information:
i. All receivables relate to operation of exchange transactions.
ii. During the year a loan of TZS.45 billion from ABC bank was paid. All finance costs relating
to borrowing were paid promptly.
iii. During the year property plant and equipment with a written down value of TZS. 90 billion
was disposed for TZS.80 billion. The loss was charged to revaluation reserve.
iv. Investments in associates is accounted for through equity method.
 v. Payables relate to amount in respect with other expenses.
Required
Prepare a cash flow statement using the direct method for the year ended 30 th June 2023 and its
related reconciliation

QUESTION 7
IPSAS 3 provides steps to be followed when selecting accounting policies to apply.
Required:
Following the steps of selecting accounting policies as per IPSAS 3. Fill in the blanks for items (i) to
(v)
YES
Step 1: (i)………….. (ii)………………

NO
YES
Step 2:(iii)………….. (iv)………………

NO

Step 3:(v)………….

Question 9
An entity procures a second-hand machine and determines the depreciation charge based on the
expected life of the machine. However, at a future period, the entity realises that the estimated life of
the machine does not match the original estimate. As a result, there is a change in the rate of
depreciation from 10% to 25%.

Required: Can this change in the depreciation rate qualify for retrospective restatement?

Question 10

The original cost of equipment is TZS115 million and an estimated useful life of ten years with a nil
residual value. It is depreciated on a straight line basis annually that comes to TZS11.5 million p.a.
The carrying amount of the equipment after three years will be TZS80.5 million. It was decided in
the fourth year that the remaining useful life of the equipment is only five years and not seven years.

Required: Recalculate the depreciation per annum and state the accounting treatment of the asset in
the books.
Question 11
You are the trainee accountant of Kivukoni Company and the company are preparing the financial
statements for the year-ended 30 September 2023. The financial statements are expected to be
approved in the Annual General Meeting, which is to be held on Monday 29 November 2023.
Today’s date is 22 November 2023. You have been made aware of the following matters:
1. On 14 October 2023, a material fraud was discovered by the bookkeeper. The payables ledger
assistant had been diverting funds into a fictitious supplier bank account, set up by the
employee, which had been occurring for the past six months. The employee was immediately
dismissed, legal proceedings against the employee have been initiated and the employee’s
final wages have been withheld as part-reimbursement back to the company.
2. On 20 September 2023, a customer initiated legal proceedings against the company in relation
to a breach of contract. On 29 September 2023, the company’s legal advisers informed the
directors that it was unlikely the company would be found liable; therefore no provision has
been made in the financial statements, but disclosure as a contingent liability has been made.
On 29 October 2023, the court found the company liable on a technicality and is now required
to pay damages amounting to a material sum.
3. On 19 November 2023, a customer ceased trading due to financial difficulties owing
TZS2,500,000. As the financial statements are needed for the board meeting on 22 November
2023, you have decided that because the amount is immaterial, no adjustment is required. The
auditors have also confirmed that this amount is immaterial to the draft financial statements.

Required:
For each of the three events above, you are required to discuss whether the financial statements
require amendment.
 SUGGESTED SOLUTION
QUESTION 5
DEPARTMENT OF WELFARE
CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST DECEMBER 2023
Details TZS.
“000”
CASH FLOW FROM OPERATING ACTIVITIES
Tax receipt 750,000
Fees and charges 150,000
Grants 180,000
Compensation for employees (330,000)
Goods and services (270,000)
Interest payment (75,000)
Social Benefits (30,000)
Other expenses (105,000)
NET CASH FLOW FROM OPERATING ACTIVITIES 270,000
CASH FLOW FROM INVESTING ACTIVITIES
Non-Financial Asset (225,000)
Staff loan (60,000)
Staff advances (120,000)
Investment (90,000)
Sale of investment 15,000
Auction of old assets 22,500
NET CASH FLOW FROM INVESTING ACTIVITIES (457,500)
CASH FLOW FROM FINANCING ACTIVITIES
Bank Loan 450,000
Repayment of loan (90,000)
NET CASH FLOW FROM FINANCING ACTIVITIES 360,000
Increase in Cash and Cash equivalent 172,500
Cash and cash equivalent at the beginning 135,000
Cash and cash equivalent at the end 307,500
QUESTION 7
XYZ PUBLIC SECTOR
CASH FLOW STATEMENT FOR THE YEAR ENDED 30TH JUNE 2023
(DIRECT METHOD)

CASH FLOW FROM OPERATING ACTIVITIES TZS.

billion
Receipts
Taxation 200
Fines 80
Exchange transactions 265
Transfers 30
Other receipts 55
Payments
Employee costs (121)
Transfers (60)
Suppliers (275)
Other expenses (50)
Interest paid (80)
Net cash flows from operating activities 44
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of plant and equipment (730)
Proceeds from sale of plant and equipment 80
Net cash flows from investing activities (650)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings 255
Repayment of borrowings (45)
Contribution from Government 446
Net cash flows from financing activities 656
Net increase/(decrease) in cash and cash equivalents 50
Cash and cash equivalents at beginning of period 150
Cash and cash equivalents at end of period 200

WORKINGS: All amounts are in Shillings in billions

 Property plant and Equipment
DR CR
Balance b/d 450 Disposal 90
Revaluation reserve a/c 90 Impairment 50
Bank- Additions 730 Depreciation 180
Balance c/d 950
1,270 1,270

Re valuation Reserve Account

Loss 10 Balance b/d 50

Balance c/d 130 Disposal 90
140 140
Borrowing account
Bank – paid (note ii) 45 Balance b/d – current 75
Balance c/d - current 85 Balance b/d – Long 250
Balance c/d - long 450 Bank – new loan – balancing 255
580 580
Receivable account
Balance b/d - current 300 Bank – balancing 265
Balance b/d - long 30 Balance c/d – current 270
SF performance 250 Balance c/d – long 45
580 580
Inventories and Pre-payment account
Balance b/d – prepay 80 SF Performance 140
Balance b/d – inventory 180 Balance c/d – prepay 95
Bank – suppliers - balancing 275 Balance c/d – inventory 300
535 535
Employees Account – Wages and Salaries
Bank – paid 121 Balance b/d – current 30
Balance c/d - current 25 Balance b/d – long 8
Balance c/d - long 12 SF performance 120
158 158
Other expenses
Bank – paid 50 Balance b/d 60
Balance c/d 40 SF Performance 30
90 90
RECONCILIATION
TZS. billion
Surplus for the year 75
Adjustment of non cash items
Depreciation 180
Impairment 50
Share of surplus from associate (120)
185
Increase in inventory and prepayment (135)
Decrease in receivables 15
Decrease in payables (20)
Decrease in employees benefits (1)
44

RECONCILIATION WORKING
Closing Opening
Inventory and prepayment 300 180
95 80
395 260 (135)

Receivables 270 300

45 30
315 330 15

Payables 40 60 (20)

Employee benefit 25 30
12 8
37 38 (1)

QUESTION 9
The change to the rate of depreciation cannot be carried out retrospectively since the
circumstances and information available at the time of original estimation are different from
the information and circumstances on the date of the change in the accounting standard.

QUESTION 10

 The depreciation should be charged in that year (and in the next four years)
 The depreciation will be calculated by bringing forward the carrying amount divided by
the revised remaining useful life (i.e. TZS80.5 million/5 = TZS16.1 million)
 The depreciation charged for the past three years should not be changed.
 The effect due to the increase in the annual depreciation from TZS11.5 million to
Tshs16.1million in the current and the next four years should be disclosed.

QUESTION 11
When presented with such scenarios, it is important to be alert to the timing of the events in
relation to the reporting date and to consider whether the events existed at the year-end, or
not. If the conditions did exist at the year-end, the event will become an adjusting event. If
the event occurred after the year-end, it will become a non-adjusting event and may simply
require disclosure within the financial statements.
1. Fraud
Clearly the fraud committed by the payables ledger clerk has been ongoing during,
and beyond the financial year. Fraud, error and other irregularities that occur prior to
the year-end date – but which are only discovered after the year-end – are adjusting
items, and therefore the financial statements would require amendment to take
account of the fraudulent activity up to the year-end.

2. Legal proceedings
At the year-end, the company had made disclosure of a contingent liability. However,
subsequent to the year-end (29 October 2023), the court found the company liable for
breach of contract. The legal proceedings were issued on 20 September 20123 (some
10 days before the year-end). This is, therefore, evidence of conditions that existed at
the year-end. IPSAS 14 requires the result of a court case after the reporting date to be
taken into consideration to determine whether a provision should be recognised in
accordance with IPSAS 19, Provisions, Contingent Liabilities and Contingent
Assets at the year-end. In this case, the financial statements will require adjusting
because:
 the conditions existed at the year-end
 the recognition criteria for a provision in accordance with IPSAS 19 have been
met.

3. Loss of customer
A customer ceasing to trade so soon after the reporting period indicates non-
recoverability of a receivable at the reporting date and therefore represents an
adjusting event under IPSAS 14, Events After the Reporting Date. Assets should not
be carried in the statement of financial position at any more than their recoverable
amount and, therefore, an allowance for receivables should be made.