PSFR Exam Guide

7/25/2019 PSFR Exam Guide

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Public Sector Financial Reporting

December 2014

Examination Guide

T h e Ex am i n a t i o n G u id e c o n t a i n s a ll q u e s t i o n s f r o m t h e D e c em b e r 2 0 1 4

e x a m i n a t i on p a p e r t o g e t h e r w i t h t h e m a r k in g s c h em e a n sw e r s an d c o mm e n t s

f r o m t h e e x a m i n e r .

T h e a n s w e r s d e t a i le d b e lo w s h o w s om e b u t n o t a l l p o s s i b l e a n s w e r s t h a t w e r e

a cc e p t e d b y t h e m a r k i n g t e a m . M a r k s w e r e aw a r d e d f o r o t h e r v a l id a n s w e r s

t h a t m i g h t n o t b e in c l u d e d i n t h i s g u i d e .

T h e Ex am i n a t i o n G u i d e h a s b e e n c r e a t e d a n d s h o u l d b e u s e d a s a st u d y a i d .

2014 Chartered Institute of Public Finance and Accountancy


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PUBLIC SECTOR FINANCIAL REPORTING

Professional Diploma stage examination

28 November 2014

From 10.00 to 13.00plus ten minutes reading time from 09.50 to 10.00

I n s t r u c t i o n s t o c a n d i d a t e s

There are s i xquestions on this question paper.

Answer f i v e questions in total:

T w o c o m p u l so r y questions from S ec t i o n AT h r e e of the four questions from S ec t i o n B

The questions each carry a total of 2 0marks.

A formulae sheet containing standard ratios is appended to this exam paper for thecandidate to refer to and use in preparing answers where relevant.

All workings should be shown. Where calculations are required using formulae,calculators may be used but steps in the workings must be shown. Calculations with noevidence of this (for example, using the scientific functions of calculators) will receive no

credit. Programmable calculators are not permitted in the examinations room.

Template pro forma booklets are available from the invigilator, where applicable.

Where a question asks for a specific format or style, such as a letter, report or layout ofaccounts, marks will be awarded for presentation and written communication.

2014 Chartered Institute of Public Finance and Accountancy


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PSFR Examination Guide December 2014

SECTION A (Compulsory)

The following trial balance has been extracted from the ledgers of Myatt County Council

for the 2013/14 financial year:000 000

Central services 547 391 45 390Cultural, environmental and planning 431 950 341 849Education and childrens services 490 800 254658

Highways and transport services 130 379 63 809Adult social care 550 712 437200

Corporate and democratic core 145 769 5 055Non-distributed costs 96 486 52 840Property, plant and equipment 1 263 288Long term loans received

53 850Long term loans repaid 42 761Inventories 394Short term debtors 47 830Short term creditors 42354

Long term borrowing 821 746Revaluation reserve 35 621Cash and cash equivalents 5 214Capital adjustment account 67 794Capital receipts reserve 125 352

Capital grants unapplied at 01 April 2013 450General fund 90 678Interest payable and receivable 2 421 1 325Net pension interest cost and expected returnon pension assets 3 690Council tax 474 953Non-domestic rates 300 106Non-ringfenced government grants 543 555Liability related to defined pension benefit 87 350Pension Reserve at 01 April 2013 87 350Suspense 500

3 846 435 3 846 435

1


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Additional information for the year ending 31 March 2014:

1. 2 500 000 has been credited to the pension reserve in relation to the cash basedcost to the employer in contributions to the pension fund and the debit has beentaken to the suspense account. 2 750 000 has been debited to the pensionreserve in relation to net IAS 19 costs and income and the credit has been taken

to the suspense account. The authoritys actuaries have reported an actuarial lossof 60 000 in the year that needs to be accounted for.

2. The remaining balance in the suspense account relates to a government grant

received in year with no conditions attached.

3. The authority purchased a new building for 650 000 during the year. This was

financed by:

000Direct revenue funding 75

Use of capital receipts 125

Government grant received in the year with noconditions (see Note 2) 250Government grant with no conditions received inprevious years and held as unapplied 200

650No entries have been made for this purchase other than receipt of the government

grant referred to in Note 2.

4. The authority disposed of land with a net book value of 420 000 during the year.

This land had previously been revalued by 50 000. The selling price of the landwas 600 000 and this was not received until May 2014. No entries have beenmade for this disposal.

5. A school held in the accounts at a net book value of 1 575 000 has been

determined to be worth only 1 460 000. The asset had been previously revaluedup by 75 000.

6. An annual depreciation charge of 24 570 000 has been calculated (taking

account of the adjustments in these notes) and has been accounted for againstthe cost of services as well as property, plant and equipment. The depreciationcharge was 540 000 more than it would have been if there had not beenrevaluations.

7. Debtors and creditors balances include 85 000 in respect of services received by

adult social care from education and childrens services.

8.

The Minimum Revenue Provision for the year has been calculated at 20 351 000

and needs to be accounted for.

Requirement for question 1

(a) Prepare Myatt County Councils comprehensive income and expenditurestatement for the year ending 31 March 2014 and the balance sheet as at

this date. (20)

( 2 0 )


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CRK NHS Foundation Trust has the following balances on its Statements of Financial

Position for the past two years.

31 Mar 14 31 Mar 13

000 000

Property Plant and Equipment 1 239 215 1 260 733

Inventories 1 502 1 380

Trade and other receivables 15890 16 830

Cash held at GovernmentBanking Service

9 783 4 030

Trade and other payables (17086) (16 393)

Long term borrowing (23 665) (22 487)

Provisions (127) (110)

Donated asset liability (45) (20)Net assets 1 225 467 1 243 963

Taxpayers' Equity

Public Dividend Capital 976578 994 874

Retained earnings 101 943 102 495

Revaluation reserve 146 946 146 594

Total taxpayers equity 1 225467 1 243963


1. The trust purchased assets worth 378 000 in the year.

2. The trust received donated assets worth 80 000 in the year, of which 45 000

had conditions. The trust held one donated asset with conditions at the start of

the year, and conditions for that asset were met during the year. At the start of

the year the Net Book Value of donated assets was 306 000 and at the end of

the year it was 370 000.

3. Depreciation in the year was 22 368 000, and the trust applied an Historical

Cost Adjustment of 109 000 during the year.

4. The trust found two assets net book value had been impaired. One asset was

impaired by 14 000 due to a change in market prices at a time when there was

6 000 in the revaluation reserve in relation to this asset. The other was found

to be impaired by 10 000 due to a loss of economic benefits at a time when

there was 7 000 in the revaluation reserve in relation to this asset.

2


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5.

The trust received 32 000 and paid 98 000 in interest during the year.

Interest payable in the year was 96 000.

6. The trust disposed of an asset with 12 000 in the revaluation reserve for

85000.

7. Of the trade and other payables on the statement of financial position 48 000

related to the Public Dividend Capital Dividend at the start of the year, and that

had decreased to 25 000 at the end of the year. The average cash balance held

by the Trust throughout the year was 6 900 000.


(a) Calculate the amount of the revaluation of non-current assets and thenet book value of non-current assets disposed of during the year ending31 March 2014. (4)

(b) Prepare the statement of cash flows for CRK NHS Foundation Trust forthe year ending 31 March 2014. (16)

( 2 0 )


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SECTION B (Answer THREE from four questions)

The Statement of Financial Position for The Department of Environmental Services, a

supply financed central government department, as at 31 March 2014 is shown below.

000

Property Plant and Equipment 15 226

Inventories 55

Trade receivables 5 678

Cash and bank 685

6 418

Payables (5 674)

Assets less liabilities 15 970

Taxpayers equity

General fund 7 777

Revaluation reserve 8 193

Total taxpayers equity 15 970


1. The department applies indexation to all property plant and equipment at the

start of the year. The relevant indices are:

12/13 10813/14 112

2. The department drew down 750000 of parliamentary funding and spent, in cash

terms, 800 000.

3. The department incurred an audit fee of 55 000.

4. The department sold an asset with a Net Book Value of 60 000 at 31 March 2013

for 90 000. There was 12 000 in the revaluation reserve brought forward from

the previous year in relation to this asset. The department had received 70 000

for the asset by the end of the year.

5. Depreciation for the year was 389 000 and the historical cost adjustment was

3


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26 000.

6.

The following balances are extracted from the Statement of Financial position as

at 31 March 2013.

000

Inventories 76

Trade receivables 4 989

Trade payables (5 876)

General fund 7 296


(a) Reconstruct the general fund to calculate the Net Operating Cost for theyear ending 31 March 2014. (4)

(b) Calculate the net cash outflow from operating activities for the yearending 31 March 2014. (5)

(c) Both supply and non-supply financed Central government bodies mayhave categories on their statement of financial position headed Financial

Assets and Financial Liabilities. Identify what could be reported underthese headings and the basis on which they are valued. (6)

(d) Discuss the basis of calculation and the purpose of the Historical Cost

Adjustment. (5)

( 2 0 )


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You are the trainee accountant for Hager Unitary Authority and you have recently been

asked to mentor a new member of the team who has joined the authority from workingin the private sector. He has sent you the following email which requires a response.

To: Trainee Accountant

From: New menteeDate: December 2014Subject: Local Authority Accounting

As you know I have only just joined the authority and am therefore unfamiliar with therequirements of local authority financing, so it would be really good if you can help mewith the following queries;

i) I have noticed that the financial statements contain a number of accounts that I

am unfamiliar with: a donated asset account (DAA); a capital grants received

in advance account (CGRA); a capital receipts reserve (CRR); a deferred

capital receipts reserve (DCRR); and a capital grants unapplied account (CGU).

It would be useful to know what each of these accounts is used for.

ii) There is a class of non-current assets on the balance sheet of the authority called

heritage assets and another called community assets. Could you please tell

me what these non-current assets are (distinguishing between them) and how

they should be measured?

iii) I have been given the following information relating to the authoritys pension

costs and charges for the year. Could you please advise me on the

appropriate journal entries I should make to account for these and produce aworking to show what the pension reserve and pension liability on the balance

sheet at the end of the year would be. The opening position for the pension

reserve and liability is 23 450 000.

The current service cost for the year is 5 470 000 and past service cost

is 67 000.

The expected return on pension fund asserts is 2 300 000 and the

pension cost for unwinding the discount on liabilities is 2 240 000.

The authority paid cash contributions of 4 730000 in the year to the

pension fund.

There is an actuarial loss of 40 000 that needs to be included within the

accounts.

Thank you for your help with these matters and I look forward to hearing from you soon.

4


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Prepare a response to the email addressing each of the issues. Marks are awardedas follows;

a) Descriptions of what the accounts are used for

b) Heritage and community assets

c) Pension transactions

(5)

(5)

(10)

( 2 0 )


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The public sector is unique in the way that it is predominately funded, either directly orindirectly, by the taxpayer. This means that in reporting financial performance in the

public sector, it is important that the reporting organisation demonstrates that fundshave been spent on the purposes intended and have not been wasted. A developmentthat public sector organisations also need to consider is the requirement for sustainabilityreporting.


(a) Describe the various sources of funding available to a local authority to

finance their activity. (8)

(b) Compare and contrast the sources of finance available to supply-financedcentral government organisations with those available to non-supply

financed central government organisations. (5)

(c) Describe the specific frameworks that exist within local government forperformance measurement and evaluating performance. (3)

(d) Describe sustainability reporting, and the process public sectororganisations should follow to produce a sustainability report. (4)

( 2 0 )

5


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Public sector organisations are increasingly working in partnership arrangements and are

frequently required to produce consolidated accounts.


(a) Discuss the reasons why organisations working in groups prepare bothsingle entity and group accounts. (6)

(b) Identify and explain the adjustments that may be required when groupaccounts are prepared. (6)

(c) Identify and discuss the circumstances under which NHS bodies and theDepartment of Health might produce consolidated accounts. (5)

(d) Explain the difference between a joint venture and a joint arrangement

not comprising an entity (JANET) under FRS 9. (3)

( 2 0 )

6


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Ratio Basis of calculations

Return on capitalemployed

Net profit before tax & interest

Capital employed

Profit margin (gross) Gross profit

Sales

Profit margin (net) Net profit before tax & interest

Sales

Turnover of capitalemployed

Sales

Capital employed

Stock turnover period Average stock x 365

Cost of goods sold

Debtors collection period Average debtors x 365

Credit sales

Creditor payment period Average creditors x 365

Credit purchases

Current ratio Current assets

Current liabilities

Quick ratio

(Acid test)

Current assets stock

Current liabilities

Gearing Non-equity finance

All long-term finance

Interest cover Operating profit/surplus

Interest


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Marking Scheme for question 1

Comprehensive Income and Expenditure statement for Myatt CountyCouncil for the year ending 31 March 2014

000 000 000

Gross Exp(W1)

Grossincome Net Exp

Central services 547,391 (45,390) 502,001Cultural, environmental and planning 431,950 (341,849) 90,101

Education and childrens services (+ 40) 490,840 (254,658) 236,182 ()Highways and transport services 130,379 (63,809) 66,570Adult social care 550,712 (437,200) 113,512

Corporate and democratic core 145,769 (5,055) 140,714Non-distributed costs 96,486 (52,840) 43,646

Cost of services 2,393,527 (1,200,801) 1,192,726

Other operating expenditure:

Net (gain) on the disposal of non-currentassets (600-420)

(180) ()

Financing and investment income and

expenditure:Interest payable 2,421Interest receivable (1,325)Net pension interest cost and expected

return on pension assets 3,690

Taxation and non-specific grant income:

Non-ringfenced government grants (474,953)NNDR (300,106)Council tax (543,555)Capital grants and contributions

(250) ()

Surplus on provision of services(121,532)

Net loss on revaluation of property plant

and equipment 75 ()Actuarial loss on pension assets and

liabilities 60 ()Other comprehensive income andexpenditure 135

Total comprehensive income and

expenditure (121,397)


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Balance Sheet for Myatt County Council as at 31 March 2014

000Property, plant and equipment (W1) 1,263,403

Inventories 394Short-term debtors (47,830 +600 85) 48,345 (1)Cash and cash equivalents (5,214 - 650) 4,564 ()

53,303

Short-term creditors (42,354 85) (42,269) ()

Long term borrowing (821,746 +53,850 42,761) (832,835) ()

Liability related to defined pension benefitscheme (87,350 + 60) (87,410) ()

Net assets 354,192

Usable ReservesGeneral fund (W2) 216,214Capital receipts reserve (125,352 125) 125,227 ()Capital grants unapplied (450 200) 250 ()

Unusable Reserves

Revaluation reserve(35,621 75 540 - 50) 34,956 (1)Capital adjustment account (W3) 64,355Deferred capital receipts 600 ()

Pension Reserve (87,350 + 60) (87,410) ()

Total reserves 354,192

Working 1: PPE

Opening 1,263,288

Additions 650

Impairment (115)

Disposals (420)

1,263,403

Working 2: General fund

Opening 90,678MRP (20,351) MRP & depDepreciation 24,570

Grant in year (250) DRF (75) Pension cash (2,500) Cash & costsPension costs 2,750Impairment 40 Disposal NBV 420 Disposal proceeds (600) Surplus on services 121,532

216,214


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Working 3: CAA

Opening 67,794MRP 20,351 MRP & depDepreciation (24,570)

Impairment (40) Revaluation on disposal 50

Grant in year 250

DRF 75 Capital receipts 125

HCA 540 Disposal NBV (420) Previous year grant 200

64,355

(Presentation of statements 1 mark)

( 2 0 )


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Examiners comments on question 1

This question was a compulsory local government income and expenditure

statement and balance sheet and was generally well answered, with the highestaverage mark on the paper. There were some extremely good answers, with one

student achieving the maximum 20 and nine achieving 18 or above. However,

there was an extremely disappointing number of students scoring below 5,

including four not scoring any marks. This is especially disappointing as students

must be expecting a large computational question on local government.

The actuarial loss was consistently incorrectly treated and students often failed to

correctly adjust the cash and cash equivalent. It is also important to read the

question carefully; many students removed the depreciation from the Property,

Plant and Equipment figure despite the clear statement this had already been

done.


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Marking scheme for question 2

Question 2

(a)

(w1) RR

Opening 146,594

Impairment temp -6 (both for

1/2)Impairment perm -7

HCA -109 (1/2)

Disposal -12 (1/2)

Revaluation (balancing) 486

146,946

(w2) PPE

Opening 1,260,733

Depreciation -22,368 (1/2)

Impairment (10+14) -24 (1/2)

Revaluation (w1) 486 (1/2)

Donated 80 (1/2)(1/2)Purchases 378

Disposal (balancing) -70

1,239,215

(4)

(b)

(w3) RE

Opening 102,495

Disposal revaluation writeout

12 (1/2)

HCA 109 (1/2)

Impairment 7 (1/2)

Deficit for the year

(balancing) (680)

Total 101,943

(w4) PDCD

31/03/2014 31/03/2013

000 000

Net assets 1,225,467 1,243,963

Add PDC payable 25 48 (1/2)

less donated (370) (306) (1/2)

Net relevant assets 1,225,122 1,243,705

Average 1,234,414

Less average cash held (6,900) (1/2)


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1,227,514

PDCD at 3.5% 42,963 (1/2)

(w5) Operating surplus

Operating deficit (w3) (680) (1/2)

PDCD w4 42,963 (1/2)Unwinding of discount (110 x1.9%)

(2) (1)

Interest receivable (32) (both for1/2)Interest payable 96

Operating surplus 42,345

Statement of cash flows for CKR NHS Trust for the year ending 31 March2014

CASH FLOWS FROM OPERATING ACTIVITES 000

Operating surplus w5 42,345 (1/2)Impairment and reversals (14-6)+10 18 (1/2)

Depreciation 22,368 (1/2)

Increase Inventories (1380-1502) (122) (1/2)

Decrease trade and other receivables (16830-15890) 940 (1/2)

Increase trade and other payables (17086-25)-(16393-48)+(98-96) 718 (1)

Increase in provisions (127-(1102)) 19 (1)

Profit on disposal of NCA (85-70) (15) (1/2)

Donated assets conditions met (20) (1/2)

Receipt of donated assets (45-80) (35) (1/2)

Net cash inflow from operating activities 66,216

Cash flows from investing activities

Interest received 32 (1/2)

Proceeds of sale of property plant and equipment 85 (both fo

1/2)Purchase of property plant and equipment (378)

Net cash outflow from investing activities (261)

Cash flows from financing activities

Receipts of loan (23665-22487) 1,178 (1/2)

Repayment of PDC (976578-994874) (18,296) (1/2)

Payment PDCD (42963-(25-48)) (42,986) (1)

Interest paid (98) (1/2)

Net cash outflow from financing activities (60,202)

Net increase in cash & CE 5,753

Cash & CE at 31/3/13 4,030

Cash & CE at 31/3/14 9,783

Presentation ()

(16)

( 2 0 )


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This question was a compulsory NHS foundation trust cash flow statement. Thisquestion was fairly well answered but slightly lower than we have come to expect

from computational questions. The cash flow of an NHS foundation trust is quitecomplex and students are advised to carefully review the treatment of donationsand grants in particular as these areas are frequently incorrectly treated. Onestudent achieved the maximum 20 marks, and five students scored 18 and

above. However, there was again a very disappointing tail of 30 students scoring5 and below including, and two who failed to attract any marks at all.

Very few students were able to unwind the discount correctly, but the PublicDividend Capital Dividend was well answered. Part (a) which required balancingfigures in relation to non-current assets was well answered, with many studentsscoring maximum marks. However, the additional complications of calculating the

deficit for the year and converting this to operating surplus, was frequentlymissed out entirely.


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(a)

7 296 OpeningNet operating cost

(balancing) 414

750 PF recd (cash) (1/2)

50 PF due (1/2)

26 HCA (1/2)

55 Audit fee (1/2)

14

Disposal write out

(w1) (1/2)

Closing 7 777

8 191 8 191

w1

(112-108)/108=3.7% (1/2)

3.7%*60=2 net indexation (1/2)

Disposal write out 12+2=14 (1/2)

(4)

(b)

000Net operating cost (414) (1/2)

Non cash adjustments

Depreciation 389 (1/2)

Audit fee 55 (1/2)

Profit on disposal of NCA (W2) (28) (1/2)

Decrease in inventories (76 55) 21 (1/2)

Increase in receivables ((5 678-(50+20)) 4989))

(619) (1)

Decrease in payables (5 876 5 674) (202) (1/2)

Net cash outflow from operating activities (798)

w2

Profit on disposal

90-(60+2(w1)) 28 (1)

(5)

(c) Financial assets:

Central government bodies are allowed to make investments in otherorganisations within and outside the central government sector.


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These are most likely to be:

Loans or PDC from voted supply to trading funds

Loans from the National Loans Fund passed on to other public serviceorganisations

Investments in private sector companies, usually through equity purchase.

Depending on whether the organisation is the loaning or borrowing

organisation, they will have either a financial asset or a financial liability.

Investments or loans to government bodies outside the resource accounting

boundary are held at historical cost less any impairments.

Investments in other bodies are held at fair value, if available.

Financial liabilities:

Supply financed central government bodies are unlikely to hold financialliabilities other than loans advanced from the NLF, the outstanding principal

elements of finance leases, and principal elements of on balance sheet PFIarrangements.

Trading funds may also have finance lease liabilities but also the loansadvanced to them by either their parent department or the NLF (via theirparent department).

(1/2 mark per identified asset/liability if no reference to valuation up to maximumof 3. Identification and valuation of assets a n dliabilities needed for full 6

marks)

(d) The historical cost adjustment is calculated by taking the difference betweendepreciation charged on the revalued amounts of depreciable assets and thedepreciation charge which would have been made had no revaluations takenplace. This is debited to the revaluation reserve and credited to the generalfund/I&E reserve. (2)

The historical cost adjustment aims to ensure that over an assets life therevaluation reserve is written down to nil. Therefore when the assets netbook value is nil, there will be no residual value relating to this asset in therevaluation reserve which has not been recognised in the revenue account. (2)

It also allows the general fund or income and expenditure reserve to becompensated for the inflated depreciation expense which occurs as a resultof revaluing the non-current assets. (1)

(1 mark per point up to maximum of 5 marks)

( 2 0 )


23/31



This question was on Central Government, and included re-creation of the generalfund, a cash flow extract and a discussion of financial assets and liabilities within

Central Government and the Historical Cost Adjustment. This was the secondmost popular optional question, however, it was the least well answered.

In the general fund many students struggled with the parliamentary funding and

missed the adjustment to the realised revaluation gain. The cash flow extract wasquite well answered, although many students did not calculate the disposal writeout correctly.

The Historical Cost Adjustment section was also well answered, however, thesection on financial assets and liabilities was extremely poorly answered withmany students discussing non-financial assets and liabilities such as property,

plant and equipment and few correctly identifying the basis on which these assetsand liabilities are held. This consistently poorly answered section meant that thiswas the question with the lowest average marks.


24/31



(a)

The donated asset account (DAA) is used to record the potential liability inrespect of any assets donated to the authority where the conditions of the

donation have not yet been met in full.

The capital grants received in advance (CGRA) account is used to record thepotential liability in respect of any capital grants received where the conditions ofthe grant have not been met in full.

The capital receipts reserve (CRR) will hold proceeds from the sale of non-current

assets which can be used to either finance future additions or to repay externaldebt.

The deferred capital receipts reserve (DCRR) is used where the authority has sold

the asset but not yet received the cash. Once the cash is received an adjustment

is made between the deferred capital receipts reserve and the capital receiptsreserve.

If capital grants have been received and credited to income but not yet spent inthe acquisition of non-current assets they will be credited to the capital grantsunapplied (CGU) account. When the money has been spent the grant will be

transferred to the capital adjustment account (CAA).(1 mark per description of account up to 5)

(b)

Heritage assets are assets held principally for their contribution to knowledge and

culture. Community assets are things like parks and gardens and war memorials.

Distinguishing between the two is not always straightforward since manycommunity assets will be held in perpetuity and may have restrictions on theiruse and disposal. The key to distinguishing them is whether or not they arepreserved principally for their contribution to knowledge and culture.

Community assets will be put on the balance sheet at historical cost and

depreciated.

Heritage assets would be recognised at cost or fair value where this is known.Where it is not practical to obtain a valuation for an asset it may be carried at

historical cost. Should this information not be available the asset should bedisclosed in the notes to the accounts only..Heritage assets with indefinite liveswould not be subject to depreciation.

The Code gives local authorities the option to hold community assets on the samevaluation basis as heritage assets. If this option is exercised, all communityassets must be measured on this basis but they will still be disclosed on the

balance sheet within PPE.

(1 mark per point up to maximum of 5 for this section)


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(c)

000Dr CIES: Cost of Services 5,470Cr Pension Fund Liability 5,470

Dr CIES: Non-distributed costs 67Cr Pension Fund Liability 67

Dr CIES: Financial and investment income and expenditure 2,240

Cr Pension Fund Liability 2,240

Dr Pension Fund Liability 2,300

Cr CIES: Financial and investment income and expenditure 2,300

Dr Pension Fund Liability 4,730Cr Cash 4,730

Dr General Fund 4,730Cr Pension Reserve 4,730

Dr Pension Reserve 5,477 *Cr General Fund 5,477 *5,470 + 67 + 2,240 2,300 1

Dr Pension Reserve 40Cr Pension Fund Liability 40

Pension fund liability working

b/f 23,450Expected return 2,300 Current service cost 5,470 Cash based cost 4,730 Past service cost 67 c/f 24,237 Unwinding discount 2,240

Actuarial loss 40

31,267 31,267

Pension Reserve working

b/f 23,450 Cash based cost 4,730 IAS 19 costs 5,477

Actuarial loss 40 c/f 24,237

28,967 28,967

(10)

( 2 0 )


26/31



This question was an optional question about local government non-currentassets, balance sheet reserves and pensions. The question was quite wellanswered with eight students achieving 18 marks or above and had the third

highest average mark on the paper.

The reserves were very well described with many students scoring full marks onthis part; however students should consider the number of marks available for

any question when allocating their time, as some spent much time expanding onthe descriptions in unnecessary detail. Students are again reminded to read thequestion since many students failed to produce the requested working for thepension reserve and pension liability accounts.


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(a)

Fees and charges local authorities have the power to levy a fee for non-

statutory services that they provide.

NDR Councils receive a share of business rates from the national pool and

business rates retention scheme means that a share of growth in NDR can now beretained locally.

Council tax generally used to fund revenue expenditure but can be used to

finance capital. Subject to gearing effect.

Government grants General or specific grants available, from central

government or from EU.

Borrowing and leasing eg from PWLB or other sources. Prudential borrowinglimits apply.

Capital receipts from the sale of assets. Can be used to finance the purchase ofnew assets or for the repayment of debt.

Donations Donations may have conditions attached which would affect theiruse.

Investment income eg rents from commercial properties such as shops or lightindustrial units.

Rents from council housing stock where authorities have housing stock this is

accounted for through the Housing Revenue Account.

(1 mark per w e l l d e s c r i b e d source of finance up to 8 marks)

(b)

Supply-financed organisations receive Parliamentary funding from the

Consolidated Fund. They may also collect income from fees and charges,

rents, interest and dividends.

Supply financed bodies do not receive loan financing apart from NLF funds

which they pass on to other bodies.

This contrasts to non-supply financed organisations who do not receive

funding through the Consolidated fund and their main income is from

charging for services.

Both types of organisation can also collect income from donations and

grants.

Non-supply financed organisations may receive loans from the National

Loans Fund or from their parent department.

They may also have Public Dividend Capital advances from their parent

department for financing capital expenditure.

(1 mark per point (when comparing/contrasting) up to 5 marks)


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(c)

Local government are required to set a balanced budget each year, thus

presenting a required standard against which financial performance should

be assessed.

The Prudential Code provides a framework for assessing performance in

relation to capital financing. It includes are requirement for local

authorities to set their own limits in terms of such things as total

borrowing limits and interest rate exposure.

BVCOP and its replacement SERCOP ensure a common approach to the

reporting of net cost of delivering services across all local authorities.

Until recently local authorities were also subject to CAA.

Students may also talk about VFM and its constituent elements.

(1 mark per point up to 3)(d)

The principle of sustainability is that we should not use resources today which

compromise quality of life for future generations. Sustainability reporting isabout organisations showing that they are following sustainabile principlesin pursuing their strategic objectives.

The CIPFA Framework for Sustainability Reporting for Public Sector Organisationsguides organisations to set their own targets in relation to sustainability tofit with their local situation, however, generally they should;

Identify their areas of consumption and production of carbon

Set targets to reduce outputs and measure actual against targets Report outcomes against their targets.

(1 mark per point up to 4)

( 2 0 )


This question was an optional question on public sector funding, frameworks andsustainability reporting. It was the most popular optional question and wasgenerally well answered with the second highest average mark.

The local authority funding section was particularly well answered, but again, inmany cases, the question was over answered with students spending more timeon this section than the marks suggested. It is, however, important that

students are not too brief; one word answers will not attract marks. Studentswere also, in general, quite vague on sustainability reporting with answersfrequently clearly guesses.

Students are reminded to pay attention to the wording of the questions; theywere asked to compare and contrast supply and non-supply financed centralgovernment bodies and some students simply described elements of the fundingfor each.


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(a)

The individual organisation reports because:

-

It has its own stakeholders to report to

-

It is a legal entity in its own right with financial reporting

requirements

-

Reports its own performance to inform management decisions

-

Can be used to report cross subsidisation within the group

(3)

The group reports because:

- Shows the performance of the whole group- Demonstrates the influences the group has over the assets of other

organisations

- Can be used to help with planning- Can demonstrate how cross-subsidisation is used- Must meet accounting standards/legal requirements

(3)

(b) - Year ends across all parties must be consistent. UK GAAP allows

organisations not to make adjustments if the year end of the subsidiary

is within three months before or after the parent.

- Accounting policies must be consistently applied. This may cause

significant adjustments in order to provide a true and fair view to the

group stakeholders.

- Transactions between the group need to be excluded from the

accounts. The accounts must show the position with regard to the

outside world and relationships between the group entities do not

represent the groups financial standing and so must be excluded.

(up to 2 marks per point to a maximum of 6)

(c)

NHS Foundation trusts will apply IASs 27, 28 and 31 in determining

whether a group relationship exists and will produce consolidated

accounts on those occasions.

(1)

Other instances where consolidation is required are:

-

The Clinical commissioning group (CCG) accounts are consolidated

by the NHS Commissioning Board

-

All NHS Foundation trusts will be consolidated by Monitor


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-

Foundation trusts consolidate all charitable funds which are

considered subsidiaries

-

The Department of Health will consolidate its own accounts and

those of its agencies and other bodies, including the ConsolidatedFoundation Trusts accounts and the consolidated accounts of the

CCGs. (4)

(d)

Under FRS 9 a joint venture is a separate entity formed by two or more

entities each of which has the same degree of control over the assets

and activities of the joint venture. This may be in the form of equal

shareholdings or of appointments to the board or financing.

A JANET is where two or more entities come together in order to achieve

a common purpose but is not a separate entity. Each party contributes

assets and financing in accordance with what has been agreed and

accounts for their own share of expenses and income, assets and

liabilities.

Joint ventures will require the preparation of consolidated accounts;

JANETs will not.

(3)

( 2 0 )


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This question was an optional question on group accounting and was the leastpopular optional question.

The section on joint ventures and JANETs was very well answered, as was theadjustments for group accounts.

The section on why group accounts and single entity accounts are produced waspoorly answered, and the specific focus on NHS group accounting was very poor.Students must be able to consider the specific circumstances of the differenttypes of public sector bodies.

Summary

Successful candidates for this paper completed five questions, and spent anappropriate amount of time on parts of questions based on the marks available

for them. Weaker candidates failed to answer all parts of the questions and didpossibly did not read the question paper carefully enough and failed tounderstand the complete requirements.

A large proportion of the syllabus and learning materials do focus on the

preparation of the main sectors accounting statements and students are

generally well prepared for the computational questions. However, students once

again seem to lack knowledge of the breadth of the syllabus, focusing too much

on this one aspect, and answered poorly on some narrative questions on areas of

the syllabus outside the main sectors computational elements. Students must be

prepared to complete both computational and narrative questions on all thesectors and topics covered by the syllabus.

Documents

PSFR Exam Guide