CHAPTER TWO
5.9 DISADVANTAGES OF FUND
1. There is no provision for debtors and creditors.
2. Assets are not capitalised. They are written off in the year of purchase.
3. Effective financial control on all funds may be difficult.
4. It makes consolidation of government accounts difficult.
5.10 ACCOUNTING ENTRIES 1. Dr. Bank Account
Cr. Fund Account
- With the proceed realised on creation of fund.
2. Dr. Fund Account Cr. Fund Account
- With expenditure from the fund 3. Dr. Fund Investment Account
Cr. Bank Account
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- With value of investment purchased with fund 4. Dr. Fund Investment Disposal Account
Cr. Fund Investment Account
- With the value of investment disposed 5. Dr. Book Account
Cr. Fund Investment Disposal Account
- With the proceed on disposal of investment 6. Dr. Fund Investment Disposal Account
Cr. Fund Account
- With profit realised on disposal of investment 7. Dr. Fund Account
Cr. Fund Investment Disposal Account
- With loss on realised on disposal of investment
Illustration: The following trust funds were created on 3rd of January 20xx with the amount state below:
N‟000
Fola Foundation Fund 6,000
Bola Ajayi Scholarship Fund 10,000
Mobolaji Children Fund 14,000
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Investments were made on these funds as follows:
3/6/20xx Fola Foundation Fund – 500,000 Cadbury shares of N1.00 each were purchased at N5.00 each
7/8/20xx Bola Ajayi Scholarship Fund – 200,000 Level Brothers Shares were purchased at N3.00 each
11/11/20xx Mobolaji Children Fund – 1,920,000 shares of Flour Mills were purchased at N5.00 each
Other transactions during the year are as follows:
15/2/20xx Expenses of Fola Foundation Fund – N1,700,00
18/9/20xx Scholarship awards under Bola Ajayi Fund cost N300,000 26/12/20xx 420,000 shares in Flour Mills were sold for N1,720,000.
You are required to:
a. Write all the Trust Fund Accounts relating to this transaction showing the Funds accounts and Investment accounts separately.
b. To prepare Consolidated Balance Sheet for the Fund as at December 31, 20xx
SOLUTION
87 a
Bank Account
N‟000 N‟000
3/1/20xx Fola F.F 6,000 3/6/20xx Fola F.F. Inv. 2,500 3/1/2oxx Bola Ajayi S.F 10,000 7/8/20xx Bola Ajayi S.F.
Inv. 600
3/1/20xx Mobolaji C.F 14,000 11/11/20xx Mobolaji C.F 9,600
6/12/20xx Mobolaji C.F Inv Disposal 1,720 15/2/20xx Fola F F 1,700 18/9/20xx Bola Ajayi S F 300
31/12/20xx Bal c/d
17,020 ________
31,720
31,720
31/12/20xx 17,020
Fola Foundation Fund Account
N‟000 N‟000
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3/6/20xx Bank 1,700 3/1/20xx Bank 6,000
Bal c/d 4,300
_____ _____
6,000 6,000
Bal b/d 4,300
Bola Ajayi Scholarship Fund Account
N‟000 N‟000
18/9/20xx Bank 300 3/1/20xx Bank 10,000
Bal c/d 9,700
_____ ______
10,000 10,000
Bal b/d 9,700
Mobolaji Children Fund Account
N‟000 N‟000
Loss on Disposal 3.80 3/1/20xx 14,000
31/12/2011 Bal c/d 13,630 Bal. b/d
13,620
Fola Foundation Fund Investments Accounts
N‟000 N‟000
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3/6/20xx Bank 2,500 Bal c/d
2,500
31/12/20xx Bal b/d 2,500
Bola Ajayi Scholarship Fund Investment Account
N‟000 N‟000
7/8/20xx Bank 600 Bal c/d
600
31/12/20xx Bal b/d 600
Mobolaji Children Fund Investment Account
N‟000 N‟000
11/11/20xx Bank 9,600 26/12/20xx Mobolaji C.F.
Inv. Disposal 2,100
Bal c/d 7,500
9,600 9,600
31/12/20xx Bal b/d 7,500
Mobolaji Children Fund Investment Disposal Account
N‟000 N‟000
26/12/20xx Mobolaji C.F Inv. 2,100 Proceed from disposal
(bank) 1,720
Loss on disposal (Mobolaji F F) 380
2,100 2,100
90 b.
CONSOLIDATED BALANCE SHEET AS AT DECEMBER 31, 20XX
Assets N1,000
Fola Foundation Fund Investment 2,500
Bola Ajayi Scholarship Fund Investment 600
Mobolaji Children Fund Investment 7,500
Bank Balance 17,020
27,620
FINANCED BY
Fola Foundation Fund 4,300
Bola Ajayi Scholarship Fund 9,700
Mobolaji Children Fund 13,620
27,620
Workings
Loss on disposal of Investment
Cost of Mobolaji Children Fund Investment N
= 420,000 units @ N5.00 2,100,000
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Proceed from Disposal (1,720,000)
Loss on disposal (380,000)
92 5.11 SUMMARY & CONCLUSION
Government generates revenues from taxes as well as other non-tax sources.
For taxes, there are direct and indirect taxes, and for non-taxes, there are various forms of charges, penalties, licenses, dividends and interests, proceeds from sale of government properties and investments.
Additionally there are grants and loans, grants being free monies that are often given to the government by other countries and International organisations.
The fund system has been the predominant accounting system that is applied and this system is the situation where government revenue and its spending is considered under fund arrangement where institutions and departments are recognised as individual and separate units that are authorised to undertake specific government activities.
5.12 END OF CHAPTER REVIEW QUESTIONS
1. The following are sources of fund for development fund EXCEPT A. Contribution form CRF
B. External Capital Grant C. External Capital loan D. Internal Capital loan
E. External grants for training of staff of Ministry of Education.
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2. Tax paid directly by individuals and organizations and is charged on the income that they earn from their professions and operations is called
A. Corporate Tax B. Income Tax C. Direct Tax D. Progressive Tax E. Indirect Tax
3. Which of the following is NOT an indirect tax?
A. Petroleum profit tax B. Pay as you earn C. Value Added Tax D. Import Duties E. Export Duties
4. Which of the following is NOT a public money?
A. Government loans repaid
B. Dividend from government investment C. Interest Earned
D. Sales of government properties E. Deposit.
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5. Which of the following is NOT Capital expenditure?
A. Construction of Road B. Construction of Bridge C. Construction of Runaway D. Payment of salaries
E. Purchase and installation of a new power plant.
6. A fund operated by the government to take care of all forms of natural disaster is fund
7. What is a fund?
8. A grant that is tied to a specific project is called……….
9. The fund set aside by Local Government to replace fixed assets is called………
10. The fund whose assets are held by the government as trustee for application to purposes stated in the trust deed is called………..
SOLUTION
1. E 2. C 3. B 4. E 5. D
95 6. Contingences Fund
7. Fund is defined as a separate fiscal entity in which accounts are kept, separated from other funds and governed by specified rule and regulation.
8. Specific grant 9. Asset Renewal fund 10. Fiduciary fund.
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97 CHAPTER SIX
GOVERNMENT EXPENDITURE
6.1 LEARNING OBJECTIVES
At the end of this chapter, candidates should be able to
Discuss expenditure estimation in government departments.
List and discuss kinds of warrant to authorise government expenditures.
Discuss the departmental procedure to request for funds to spend.
6.2 INTRODUCTION
The chapter discusses how government expenditures are estimated by the spending organisations as authorised by the government financial regulations.
And when the spending plans are approved, spending organisations are expected to make requests for monies to spend on their activities while different authorisations are needed for different spending.
The chapter discusses the process the spending organisations follow to request for monies and the spending authorisations needed by the spending organisations from the revenue control authorities for the different expenditure types.