ADB Grant 0133-CAM: Public Financial
Management in Rural Development
Ministries (Component 1)
Advanced Accounting 1 - The Conceptual Basis
of Government Accounting
Day 4: June 10, 2010: Case Study
ADB Grant No.0133-CAM/Component 1:
PFMRD
Case Study – Accrual Accounting: The Cambodian Water
Company
•
At 1 January 2009 the Cambodian Water Company had the following balance sheet:
Fixed Assets at cost:
Less accumulated depreciation:
Net book value
Current assets:
Cash at bank
300,000
(30,000)
270,000
Government Equity
250,000
Current liabilities:
Accrued other expenses
unpaid
20,000
290,000
• During 2009 the following transactions took place:
Total Income/
Expenditure
Water Sales
500,800
Salaries and wages expense
230,000
Interest paid
10,500
Other expenses
125,600
Purchase of Fixed Assets
300,000
Grant from Government received
140,000
Loan from ADB (20 year maturity)
2,000,000
• Depreciation is 10% per year, straight line basis.
• PREPARE ACCRUAL ACCOUNTS for the year 2009.
40,000
290,000
Cash received/
paid
300,000
220,000
10,500
95,600
300,000
140,000
2,000,000
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Solution – Accrual Accounting: The Cambodian Water
Company
•
First, write up the account for cash at bank:
DEBIT (DR)
Opening balance
Water Sales
Grant from Government
Loan from ADB
CREDIT (CR)
20,000
300,000
140,000
2,000,000
Salaries and wages expense
Interest paid
Other expenses
Purchase of Fixed Assets
Closing balance c/d
2,460,000
220,000
10,500
95,600
300,000
1,833,900
2,460,000
Balance b/d
1,833,900
The bank balance has increased by 1,813,900.... From 20,000 to 1,834,900
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Solution – Accrual Accounting: The Cambodian Water
Company
•
Next, summarise the accounts for income and expenditure and compute the closing
debtors and creditors.
Opening
balance
DR
CR
Income and
Expenditure
DR
CR
Cash receipt/
payment
DR
CR
Closing balance
DR
Water Sales
-
500,800 300,000
200,800
Grant from
Government
-
140,000 140,000
-
Salaries & wages
230,000
220,000
Interest paid
-
10,500
10,500
Other expenses
-
125,600
95,600
CR
10,000
-
30,000
- 366,100 640,800 440,000 326,100 200,800 40,000
The income and expenditure figures go to the income and expenditure account.
The closing balance figures go to the balance sheet.
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Solution – Accrual Accounting: The Cambodian Water
Company
•
Next, compute the figures for fixed assets, including depreciation.
Fixed Asset Cost
Opening balance
300,000
Purchase during the year
300,000
600,000
Fixed asset depreciation: 10% x 600,000 = 60,000
Fixed Asset Accumulated Depreciation
Opening balance
30,000
Depreciation (expense for 2009)
60,000
90,000
Depreciation (expense for 2009)
Fixed Asset Accumulated
Depreciation
60,000
The Depreciation Expense figures goes to the income and expenditure account.
The Fixed Asset Cost and Accumulated Depreciation figures go to the balance sheet.
5
Solution – Accrual Accounting: The Cambodian Water
Company
Operating Statement (Income and Expenditure Account)
INCOME
Water Sales
Grants received
EXPENDITURE
Employee costs
Interest
Other expenses
Depreciation
Net Surplus
640,800
500,800
140,000
426,100
230,000
10,500
125,600
60,000
214,700
Notes:
1. The Grant received is Income. The Loan received is not income,
because it has to be repaid in the future, so it goes to the balance
sheet as a Liability.
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Solution – Accrual Accounting: The Cambodian Water
Company
Balance Sheet (Statement of Assets and Liabilities)
Fixed Assets
Cost:
Less accumulated dep’n:
Net book value
Government Equity
600,000
(90,000)
510,000
Opening balance
Plus: surplus for the period
Closing balance
Bank loan
Current assets
250,000
214,700
464,700
2,000,000
Current liabilities
Debtors: fees
200,800
Cash at bank
1,833,900
2,544,700
Accrued salaries
10,000
Creditors: other expenses
70,000
2,544,700
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Solution – Accrual Accounting: The Cambodian Water
Company
Cash Flow Statement
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts
Water Tariff Received
Grants received
Payments
Employee costs
Interest paid
Other payments
Net cash flow from operating activities
440,000
300,000
140,000
(326,100)
(220,000)
(10,500)
(95,600)
124,900
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment
(300,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings
2,000,000
Net increase/(decrease) in cash
Cash at beginning of period
1,813,900
20,000
Cash at end of period
1,833,900
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Quiz
What does IASB stand for?
What does IPSAS stand for?
What are the three valuations methods for fixed assets?
What are the two intermediate steps RGC can take to get from Full Cash accounting to
Accrual Accounting?
What are the reports you would expect to find in an Accrual Based Accounting System?
How many IPSAS are there for Accrual Accounting and how many for Cash
Accounting?
What are the two different types of Financial Statements and who uses the
Government’s General Purpose Financial Statements?
What is the difference between Financial Accounts and Management Accounts?
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Quiz - Answers
What does IASB stand for? International Accounting Standards Board
What does IPSAS stand for? International Public Sector Accounting Standards
What are the three valuations for fixed assets?
Historical Cost Net Book Value
Economic Value – In use
Net Realizable Value
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Quiz - Answers
What are the two intermediate steps RGC can take to get from Full Cash accounting to
Accrual Accounting?
Modified Cash Basis & Modified Accrual Basis
What are the reports you would expect to find in an Accrual Based Accounting System?
Balance Sheet /Profit & Loss Statement / Cash Flow Statement
How many IPSAS are there for Accrual Accounting and how many for Cash
Accounting?
30 + 1
What are the two different types of Financial Statements and who uses the
Government’s General Purpose Financial Statements?
General Purpose Financial Statements & Special Purpose Financial
Statements – the general public will use General Purpose Financial
Statements
What is the difference between Financial Accounts and Management Accounts?
External users use Financial Accounts
Internal users use Management Accounts
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