1. Unit Standard 119350 (15 Credits) (NQF 5): Apply accounting principles and procedures in the preparation of reports and decision-making Module 4: Risk Management; Internal Control Framework Design and Audit Planning and Implementation Group 2: Municipal Accounting & Risk Management

2. The full programme GroupModules 1.Strategic Management; Budgeting Implementation & Performance Management 3. Strategic Planning & Multi Year Income & Expenditure Management 6. Budgeting Principles & Cycles 7. Financial Reports & Performance Management 2. Municipal Accounting & Risk Management 8. Cash, Investment, Asset, Liability Management 4. Risk Management; Internal Control Framework Design and Audit Planning and Implementation 3. Governance & Legislation 1. Stakeholder Consultation & Ethics in Municipal Finance 2. Intergovernmental Fiscal Relations, Legislation & Policies affecting Municipal Financial Mngmt 4. & 5. Costing & Capital Planning; Municipal IT Support & Project Management 9. Capital Planning & Financing & Costing Principles 5. Managing Information Technology Resources in Municipal Finance 6. Supply Chain Management & Public Private Partnerships 10. Municipal Supply Chain Management 11. Public Private Partnerships

3. The content 26 US - ID’s: 116339116340116341116342116343116344116345116346116347116348116351116353116357116358116360116361116362116363116364119331119334119341119343119348119350119352 NQF Le 66666666666666666665555555 Credits 1011121510 151015812 8158811128 15 121512 CMFM 48965 CCECFCCCCFECECEECCC Not applicable for CMFM KeyCertificate SAQA ID - 48965 - 166 credits; F = Fundamental; C = Core; E = Elective (1) AccOffXXXXXXXXXXXXXXXXXX CFOXXXXXXXXXXXXXXXXXXXX SnrMXXXXXXXXXXXXXXX MidFinXXXXXXXXXXXXXXX SCMHXXXXXXXXXXXXXXXX SCMMXXXXXXXXXX

4. GROUP 2 Municipal Accounting & Risk Management Module 4 Risk Management; Internal Control Framework Design and Audit Planning and Implementation Unit standard SAQA 119350 Apply accounting principles and procedures in the preparation of reports and decision-making 4

5. 7. UNIT STANDARD CONTENT 7.1. UNIT 1: Demonstrate an understanding of accounting principles and reporting requirements and nature of accounting functions in the public sector. 7.2. UNIT 2: Use accounting techniques and approaches to process financial information. 7.3. UNIT 3: Apply end of period accounting procedures in the preparation of financial statements. 7.4. UNIT 4: Apply procedures necessary for control over cash transactions and balances. 7.5. UNIT 5: Utilise procedures for reporting and recording accounts receivables. 7.6. UNIT 6: Utilise procedures for recording and reporting on liabilities in the public sector. 6

6. UNIT STANDARD OUTCOMES 4.1.1. Demonstrate an understanding of accounting principles and reporting requirements and nature of accounting functions in the public sector; 4.1.2. Use accounting techniques and approaches to process financial information; 4.1.3. Apply end of period accounting procedures in the preparation of financial statements; 4.1.4. Apply procedures necessary for control over cash transactions and balances; 4.1.5. Utilise procedures for reporting and recording accounts receivables; and 4.1.6. Utilise procedures for recording and reporting on liabilities in the public sector. 5

7. US 119350 ASSESSMENT PLAN: Project: 2 Date of contact session: 28 - 30 November 2012 NoType Start date & time Submission date & time Nature and contentOutcomes covered 1Individual assessment: Open book controlled class test Last day of contact session 08h30 Last day of contact session 11h30 Class test: Open book test. 3 Hours. 100 Marks. Test theory and application thereof. OUTCOME 1: Demonstrate an understanding of accounting principles and reporting requirements and nature of accounting functions in the public sector; OUTCOME 2: Use accounting techniques and approaches to process financial information; OUTCOME 3: Apply end of period accounting procedures in the preparation of financial statements; OUTCOME 4: Apply procedures necessary for control over cash transactions and balances; OUTCOME 5: Utilise procedures for reporting and recording accounts receivables; and OUTCOME 6: Utilise procedures for recording and reporting on liabilities in the public sector.

8. 2 Individual work- based narrative assignment Last day of contact session 12:00 One calendar month after last day of contact session at 23:59 Instructions follow below assessment plan. All 6 outcomes as above Notional hours: 15 credits, 150 hours: Class contact including class assessment: 24 hours. Take home preparation of individual and small group exercises and class assessment Learning Tasks of Learner Guide: 8 hours. Preparation of take-home assignment: 118 hours. Deviation from assessment as prescribed in learning material: There is no deviation with regards to the nature of the prescribed summative assessments, except that the group work is replaced with an open book test. Confirmation: I, __________________(first name, surname) confirm that I have noted the contents of the assessment plan, the submission dates and the assessment policy as provided below. Signature: _____________________ Date: _______________________________

9. Assessment Policy Assessment conditions summary (see full policy) Each Unit Standard will have at least two individual assessments that will contribute to the finding on whether a candidate is competent or not yet competent. One assessment will be scheduled to take place during the contact session and the other to be submitted one calendar month after the contact session The facilitator/assessor of the particular Unit Standard must prepare an assessment plan and explain it at the beginning of a Unit Standard contact session It is possible for a participant to only complete the Unit Standard registration form and do the assessments as scheduled, while not attending the rest of the contact time BUT A participant found not yet competent from the first assessments will only be given a second opportunity for assessment if he/she has attended at least eighty per cent of the contact time A participant that has – for proven work-related or serious health reason – not been present during the contact session assessment(s), will be given the opportunity to do so at the same opportunity scheduled for participants referred to above only if he/she has attended at least fifty per cent of the contact time The second assessment opportunity for the rewrite of the contact time assessment will be scheduled as a consultative process between facilitators of the Group (i.e. Group 1, 2, 3, 4/5 or 6 and SDF’s involved A participant that has completed the contact time assessment, but has for a proven work-related or serious health reason been prevented from submitting the take-home assessments by the set date, will be granted a maximum of two weeks extension of time to submit, where after no further extension will be given The second assessment opportunity for resubmission of the take-home assignment must be resubmitted within one calendar month of the release of results to the SDFs All communication with participants involved will be done through the municipal SDF

10. TIME MANAGEMENT Day 1: 28 November 2012 UNITS 1, 2, 3 & Group work (Slides 1 – 125) Day 2: 29 November 2012 UNITS 4, 5, 6 & Group work (Slides 126 – 204) Day 3: 30 November 2012 Open book test 08h30 – 11h30 Learner guide: 1-132 – 6 units Additional web-based reference material: 1-154 - 6 sections

11. UNIT 1 DEMONSTRATE AN UNDERSTANDING OF ACCOUNTING PRINCIPLES AND REPORTING REQUIREMENTS AND NATURE OF ACCOUNTING FUNCTIONS IN THE PUBLIC SECTOR 10

12. RSA’s performance According to RSG 11 Sept 2012 143 of 144: Maths & Science 122 of 144: Availability of Engineers 2 of 144: Bank Regulation

13. RSA’s performance According to RSG 11 Sept 2012 Audit & Accounting Profession Financial Reporting

14. RSA’s performance According to RSG 11 Sept 2012 Audit & Accounting Profession Financial Reporting 1 st

15. INTRODUCTION Financial reporting = means of communicating financial information to users. Traditionally public sector utilise the cash basis of accounting In accordance with this methodology most assets are expensed when purchased and very few liabilities and provisions are recognised Statement of Financial Positions is not a fair presentation of the affairs of the Public Sector Entity. 15

16. INTRODUCTION (Cont) Need for reform: international standards, ENRON What is accounting standards? Need/purpose of accounting standards GAAP SA GAAP IMFO (IMTA) GAMAP GRAP IPSAS IFRS IAS 22

17. INTRODUCTION (Cont) KEY CONCEPTS ASB AFS GOING CONCERN ACCRUAL BASIS PRUDENCE CONSISTENCY CONSERVATISM 11

18. Difference between Cash Basis & Accrual Basis of Accounting Cash Basis of AccountingAccrual Basis of Accounting 1.Transactions and events are recognised when cash is received or paid 2.Cash receipts, disbursements and balances are measured at historical costs. 3.Assets are expensed when purchased. 4.Financial results are measured as the difference between cash received and cash disbursed 5.Information is provided about the sources of cash raised, the uses to which those funds are applied and cash balances at the reporting date. 6.It is not considered to provide a true and fair view of the financial performance and position of an entity under international performance and position of an entity under international accounting standards. 1.Transactions and events are recognised when they occur 2.All assets and liabilities are measured on the historical cost basis, sometimes with the re-measurement to the fair value or discounted present value of certain assets and liabilities. 3.Assets are capitalised when purchased. 4.The measurement focus is on economic resources or service potential and changes therein. 5.Information is provided about the resources controlled by the entity, the cost of operations or providing services, the financial position and changes in the financial position and operation efficiency. This accounting basis is required by GRAP. 18

19. ROLES AND RESPONSIBILITIES 5.1.4.4. The roles of responsibilities for the ASB, the National Treasury and the Auditor- General, can be summarised as follows The ASB sets the accounting standards, National Treasury assists in the implementation of the standards by, for example, developing the appropriate formats, making recommendations and regulating the approach to implementation, providing guidance and rendering support for implementation, including training, The Auditor-General audits annual financial statements in line with the standards and the formats. 24

20. Legal framework Const, sec 216: Est NT Transparency & exp control in gov Introducing GRAP Uniform exp classification Uniform treasury norms & standards NT must enforce above & may stop funds PFMA, sec 87:Empowers Min of Fin to appoint ASB ASB to develop GRAP PFMA, sec 91(1)(b): Prescribe GRAP

21. MFMA REQUIREMENTS REGARDING FIN STATEMENTS Section 122(1)Every mun & mun entity must prepare AFS for ea fin year Section 122(2)Prepare consolidated AFS, munic AFS + entity AFS & must comply with requirements as prescribed Section 122 (3)AFS & consolidated AFS: GRAP ito Sec 91(1)(b) of PFMA Section 123Disclosures on intergovernmental & other allocations Section 124Disclosures concerning councillors, directors & officials Section 125Stipulate the other compulsory disclosures, entity, SALGA, AG, pension, m/aid, o/s, bank a/c, investments, losses, non-compliance Section 126Submission & auditing of AFS 41

22. GRAP Statements (Standpunte) The following GRAP statements are approved & effective (1): Stat. no Description ObjectivePara’s 0Framework for the preparation & presentation of the AFS Not a Standard, just a framework 1Presentation of Financial Statements Prescribe basis for presentation Ensure comparability Statement of Financial Position Statement of Financial Performance Statement of Changes in Net Assets Cash Flow Statement A summary of Accounting Policies Notes to the Financial Statements 145 2Cash Flow Statements Identifies sources of cash inflows Identifies cash outflows Cash balance at end 55 3Accounting Policies, Changes in Accounting Estimates and Errors Prescribes accounting treatment & disclosure requirement when changing accounting policies & prior year errors 58

23. GRAP Statements (Standpunte) The following GRAP statements are approved & effective (2): Stat. no Description Objective 4The Effects of Changes in Foreign Exchange Rates Guidance on exchange rate to use when converting to Rand How to recognise financial effect of changes in exchange rate in AFS 5Borrowing Costs Guidance on borrowing cost that can be capitalised 6Consolidated and Separate Financial Statements Prescribe presentation of CAFS Consolidation procedures Disclosure requirements 7Investments in Associates Provides basis for accounting for interest in associates Associates=entity in which munic has influence but not a controlled entity or JV 8Interest in Joint Ventures Basis for accounting for interest in JV Reporting of JV’s assets, liabli, rev & exp in AFS 9Revenue from Exchange Transactions Prescribe accounting treatment of revenue Variety of revenue flows

24. GRAP Statements The following GRAP statements are approved & effective (3): Stat.n o DescriptionObjective 10Financial Reporting in Hyperinflationary Economies Deals with adj that need to be made to the historical cost of AFS of munics in hyperinflationary economies 11Construction Contracts Recognition, measurement & disclosure of inventory of AFS of entity that pursues construction activities Allocation of contract rev & exp to diff accounting periods 12Inventories Accounting treatment of inventories, including: costing, measurement of inventory, write down of inventory, disclosure in AFS. Measure lower of cost & net realisable value. 13Leases Operational lease: if it does not transfer substantially all the risks & rewards incidental to ownership. Payments are expensed, i.e. building, vehicle from Avis. Finance lease: if it transfers substantially all the risks & rewards incidental to ownership. Recognised as asset & liability. Lower of fair value & present value, i.e. vehicle purchased on lease. Measure at fair value or min lease payments. 14Events after the reporting date Events after reporting date & date of issue Two types: conditions existed, conditions arose afterwards 16Investment Property Property held to earn rentals or capital appreciation Cost model or fair value model if acquired at no or nominal cost. Subsequent: cost or fair value

25. GRAP Statements The following GRAP statements are approved & effective (4): Stat. no Description Objective 17Property, Plant & Equipment Timing of recognition of assets Measurement at cost or in case of properties re-valued amount Compilation of cost Useful lives & accounting for changes Depreciation methodology & changes (Movement of asset between categories) Reviewing of depreciation & changes Impairments Classification of PPE, infrastr, community, heritage, agricultural, other Disclosure of PPE in AFS 19Provisions, Contingent Liabilities & Contingent Assets Provisions: present legal obligation to transfer economic benefit at reporting date & reasonable estimate can be made Contingent liabilities: possible obligation from past event Contingent assets: possible asset from past event i.e. Environmental rehabilitation, Long service award, Perf. Bonus, Bonus, Post retirement M/A benefits.

26. GRAP Statements The following GRAP statements are approved & effective (5): Stat. no Description Objective 21Impairment of Non-cash-generating Assets Prescribed procedures to determine whether non- cash-generating asset is impaired. Specifies when impairment loss would be reversed. Prescribed disclosures. 23Revenue from Non-exchange Transactions Prescribed reporting procedures, recognition, measurement 24Presentation of Budget Information in AFS Comparison of budget amounts and actual amounts Disclosure of explanation of reason for material differences. 26Impairment of Cash-generating Assets Prescribed procedures for impairment, disclosures 27 (ex 101) Agriculture Prescribed accounting treatment, disclosure of agri activity. Fair value less estimated point-of-sale cost, except: Fair value cannot be measured, cost less depr & impairment.

27. GRAP Statements The following GRAP statements are approved & effective (6): Stat. no Description Objective 31 (ex 102) Intangible Assets =asset as identifiable non-monetary without physical substance, ie software, servitutes. Identify, measurement, useful lives, impairment. Initially at cost, revalued. 100Non-Current Assets Held for Sale & Discontinued Operations Accounting treatment of non-current, non-financial assets (PPE) held for sale Info to be disclosed if entity discontinue an operation 103Heritage Assets Prescribed accounting treatment, disclosures of heritage assets Cultural, environmental, historical, natural, scientific, technological, artistic Cost or revaluation at fair value 104Financial Instruments Establish principles for recognising, measuring, presenting, disclosure of financial instruments Any contract that gives rise to a financial asset of one entity and a financial liability of another entity. Cash debtors, creditors, contracts Fair value plus transaction cost amortised cost, cost (impairment review)

28. GRAP Statements The following GRAP statements are approved but not effective: Stat. no Description Objective 18Segment Reporting 20Related Party Disclosures 25Employee Benefits 105Transfer of functions between Entities under Common Control 106Transfer of functions between Entities not under Common Control 107Mergers

29. Unpacking GRAP 17 CHALLEGES WITH FIXED ASSET REGISTER (FAR) Show global amount, ie office furniture, roads & pavements, (How identified?) No acquisition dates (How depreciated & from when?) Vague descriptions (How classified & identified?) Finance sources not recorded (Determine accounting treatment of depreciation) Inadequate infrastructure detail (Different usefull life)

30. Unpacking GRAP 17 ASSET RELATED INFO TO BE INCLUDED IN ASSET RECORDS Summary of acquisition of PPE & Investment Properties Summary of disposals/ write-offs (Investment prop only if cost model was elected) Aggregate depreciation expense for the year (Investment prop only if cost model was elected) Impairment losses(Investment prop only if cost model was elected) Opening & closing balances of PPE & IP at cost Opening & closing balances of acc depr ((Investment prop only if cost model was elected) Movements in revalued portion of PPE & IP

31. EFFECTIVE DATES Type of entityStandards of GRAPEffective dates High capacity municipalities GRAP 1-3From 1 Jul ’05 GRAP 1-14, 16, 17, 19, 100-102 From 1 Jul ’08 Medium capacity municipalities GRAP 1-14, 16, 17, 19 & 100-102 From 1 Jul ’08 Low capacity municipalities GRAP 1-14, 16, 17, 19 & 100-102 From 1 Jul ’09 Municipal entitiesGRAP 1-14, 16, 17, 19, 100-102 From 1 Jul ‘09 24

32. 5.3.1. Appropriate accounting systems and procedures are derived and implemented in the public sector environment. Accounting systems Purpose of an accounting system Design and installation of accounting systems 27

33. Advantages of compiling financial statements from accounting records that are maintained & updated in a timely manner. Assessing ability to meet obligations Assessing ability to maintain level & quality of services & finance new programmes Understands future rates & revenue requirements Understands spending priorities Determining munics impact on economy Measure performance of management of financial resources Assessing legal compliance 33

34. 5.6.1. Understand the different financial reports to support management and decision-making in the public sector. Internal reporting – Monthly, quarterly and ad hoc reports – Cash flow forecast – SDBIP – Debtor collection and credit control – Exception reports External reporting – AFS – Budget 36

35. 10.1.1. List five organizations that influence the development of accounting practice in the public sector. (2.5) 45

36. The following five organizations influence the development of accounting practice in the public sector: National Treasury (NT) Accounting Standards Board (ASB) Auditor General (AG) International Accounting Standards Board (IASB) International Federation of Accountants (IFAC)

37. 10.1.2. What is the primary issue in accounting for revenue? Also list the two major recognition criterions for the recognition of revenue. (3) 45

38. The primary issue in accounting for revenue is determining when to recognise revenue. The two major recognition criterions for the recognition of revenue are as follows: Revenue is recognised when, it is probable that future economic benefits or service potential will flow to the entity; and these benefits can be measured reliably.

39. 10.1.3. List and briefly explain three challenges which may be encountered by an entity in preparing a GRAP compliant Fixed Asset Register. (3) 45

40. The following challenges may be encountered by an entity in preparing a GRAP compliant Fixed Asset Register: Some Fixed Asset Registers may show global amounts, such as office furniture rather than a detailed listing of individual assets contained in each global amount; Some Fixed Asset Registers may not include acquisition dates. These dates are crucial to the calculation of the carrying values of PPE at the date of implementing accounting standards.

41. Entities may discover that descriptions of some individual items in the fixed assets register are vague. The implication of these vague descriptions is that it will be difficult to categorise these items of PPE and to determine appropriate depreciation rates that will have to be applied to such items. The finance sources of all PPE included in the fixed assets register may not be recorded. These dates are required to facilitate the implementation process. The reason is that Loans Redeemed and Other Capital Receipts must be unbundled on the date of implementation for municipalities specifically. Most Fixed assets registers in respect of infrastructure assets are inadequate. This is due to historical factors and the use of the fund accounting system.

42. 10.1.4. Are the following statements true or false? Briefly explain. 10.1.4.1. When a provision involves a present obligation and satisfies the rest of the definition, it is not recognized as a liability unless the exact amount of the obligation is known. (1) 46

43. False. When a provision involves a present obligation and satisfies the rest of the definition, it is a liability even if the amount has to be estimated.

44. 10.1.4.2. Budgeting and accounting systems operate independently from each other, thus the budgeting process need not be in line with the GRAP requirements. (1) 46

45. False. Budgeting and accounting systems must be properly integrated, must be based upon the same accounting and coding structures, and must provide for budget comparisons and variances in applicable financial statements. The total budgeting process should be in line with the GRAP requirements.

46. 10.1.5. Name four advantages of compiling financial statements from accounting records that are maintained and updated in a timely manner. (4) 46

47. The advantages of compiling financial statements from accounting records that are maintained and updated in a timely manner include the following: Assessing the municipality’s ability to meet its long- and short-term obligations. Assessing the municipality’s ability to maintain the level and quality of its services and to finance new programmes. Gaining an understanding of future rates and other revenue requirements. Understanding spending priorities. Determining the municipality’s impact on the economy. Measuring performance in the management of financial resources. Assessing compliance with legislative requirements and the needs of regulatory authorities.

48. 10.1.6. Information updated in a timely manner in the asset records for PPE and Investment Properties will produce information which is vital for financial statement reporting. List and briefly explain 5 types of asset related information which these assets records should be able to provide annually. (5) 46

49. Information updated in a timely manner in the asset records for PPE and Investment Properties will produce the following information which needs to be provided on an annual basis: A summary of all acquisitions of PPE and Investment Properties. A summary of all disposals or write-offs of PPE and Investment Properties during the year. The disposals or write-offs information should include both cost and accumulated depreciation (applicable to Investment Properties only if the cost model had been elected in terms of IAS 40). The aggregate depreciation expense for the year (applicable to Investment Properties only if the cost model had been elected in terms of IAS 40).

50. Any impairment losses incurred during the year (applicable to Investment Properties only if the cost model had been elected in terms of IAS 40). The opening and closing balances of PPE and Investment Properties at cost. The opening and closing balances of accumulated depreciation (applicable to Investment Properties only if the cost model had been elected in terms of IAS 40). Movements in the revalued portion of PPE and Investment Properties.

51. 10.1.7. Name and briefly discuss four types of basic information which should be included in financial reporting to ensure that it provides useful information for both internal and external financial reporting. (4) 46

52. Internal and external financial reporting should provide information that is useful to a wide range of users in making economic decisions. Financial reporting should therefore include the following basic information to ensure that it provides useful information: Financial reporting should provide clearly presented, understandable, timely and consistent information that is useful to present and potential resource providers and other users in making rational decisions about the allocation or resources, assessing the services provided and the ability to continue to provide them and assessing how councilors and officials have discharged their stewardship and accountability responsibilities. Financial reporting should provide all information required for the fair presentation of an entity’s financial position and financial performance i.e. it should be in accordance with GRAP. Financial reporting should also provide the following information:

53. Economic resources, obligations, net assets and the effects of transactions, events and circumstances that change resources and interests in those resources. The performance of an entity during a given period, for example the achievement of goals and objectives as well as the number and kind of resources used in the process. How cash and other liquid resources were obtained and spent. Financial reporting should provide information useful in assessing whether financial resources were administered in accordance with the limits established by legislative and regulatory authorities. Financial reporting should include, where applicable, a comparison of current period amounts with those of prior periods and a comparison of actual results with budgeted or planned results.

54. 10.1.8. What is the difference between the cash and the accrual basis of accounting? (2) 46

55. The difference between the cash and the accrual basis of accounting is as follows: Under the accrual basis of accounting, the effects of transactions and other events are recognized when they occur and they are recorded in the accounting records and reported in the financial statements of the period to which they relate. Under the cash basis of accounting, the effects of transactions and other events are recognized when the cash flow pertaining to the transaction takes place, i.e. when cash or its equivalent is received or paid.

57. UNIT 2 USE ACCOUNTING TECHNIQUES AND APPROACHES TO PROCESS FINANCIAL INFORMATION 47

58. 3. INTRODUCTION/OVERVIEW Comprehensive management information system comprises: Collection Storing Processing Reporting on all data & info. 48

59. 5.1.1. Cash book, general ledger and trial balance Cash book: detailed record of all payments & receipts General ledger: detailed record of all accounting transactions during a specific period Trial balance: summary of all balances at a certain date 49

60. 51

61. 5.1.2. Preparation of a Fixed Asset Register (FAR) for both PPE and Investment Properties 5.1.2.2. The Fixed Asset Register is not only a very important ledger within the accounting system; it is also one of the cornerstones for the implementation of GRAP. 52

62. GRAP 17 REQUIREMENTS 5.1.2.1. The mandatory accounting standard for PPE currently is GAMAP 17, whereas the replacing standard will be GRAP 17. The major differences between these two standards are as follows: GRAP 17 paragraph 61 requires an annual review of the expected remaining useful lives of all significant items of PPE GRAP 17 paragraph 61 requires an annual review of the residual value of all significant items of PPE GRAP 17 requires an annual review of the depreciation method for all classes of PPE to determine if they are still applicable 52

63. GRAP 17 REQUIREMENTS GRAP 17 paragraph 65 requires that depreciation for items of PPE should not cease during idle time of assets or low production periods; GRAP 17 paragraph 39 allows the revaluation model to be applied to all assets; and GRAP 17 paragraph 65 requires that items of PPE should be depreciated from the date when they are available for use. 52

64. 5.1.2.2. Minimum aspects in Asset Management Policy Objective of asset management policy Functional responsibilities of depts & staff re PPE & IP GRAP accounting policies re PPE & IP Funding sources of PPE & IP Admin requirements Legislative requirements Maintenance policy Insurance policy 52

65. 5.1.2.3. Minimum info FAR Acquisition dates Clear description Expected useful lives Depreciation rates Historical cost (or fair value) Location Department or service Identification reference (bar code) Accumulative depreciation Depreciation charge for current year Impairment loss (IP) Carrying value Funding source Revalued amount (Land & buildings) Residual values (IP) Insurance arrangements Whether pledged as security Classification 52

66. FIXED ASSET REGISTER Physical verification; Certificate issued re above Compare land & buildings with Deeds Office Fair value for land is market value Infrastructure & buildings to be componentised (unbundled) 54

67. 5.1.3. Stores ledgers GRAP 12: Inventory measured at lower of cost & net realisable value Net realisable value = estimated selling price less estimated completion cost & estimated cost to make the sale Cost components of inventory purchase price import duties taxes (other than VAT) transport, handling trade discounts, rebates are deducted (Settlement discount is classified as revenue and not deducted from purchase price) Wrong!! see page 126, IAS 18 58

68. 5.1.3. Stores ledgers Inventory impaired if: 1.Damaged 2.Wholly or partially obsolete 3.Their selling prices have declined; and 4.Estimated cost of completion or estimated cost of selling have increased 58

69. 5.1.3. Stores ledgers (Cont) Book entry, cash: dt Inventory, cr Bank Book entry, credit: dt Inventory, cr Creditor Write down: dt Write down of Inventory to NRV, cr Inventory Valuation of Inventory FIFO Weighted average 58

70. 5.1.3. Stores ledgers (Cont) Section 2 pages 6-15 web-based ref material 58

71. 5.2.1. Preparation and analysis of regular reports on the financial position, financial performance and cash-flow ActRequirement PFMA sec 32(1)NT publishes Actual Revenue & Expenditure Statement within 30 days after end of each month with regard to National Revenue Fund PFMA sec 32(2)PT quarterly Statement to NT on its Revenue Fund within 30 days MFMA sec 71AO/MM to mayor & PT monthly within 10 working days MFMA sec 71(6)PT to NT monthly within 22 working days MFMA sec 71(7)PT to publish consolidated statement within 30 after end of quarter MFMA sec 52d)Mayor to report to council re budget implementation within 30 days end of quarter 59

72. 5.2.1. Preparation and analysis of regular reports on the financial position, financial performance and cash-flow (Cont) ActRequirement MFMA sec 72(1)(a) By 25 January annually MM to assess performance of municipality MFMA sec 72(1)(b) MM to report to mayor, NT, PT MFMA sec 72(3)MM recommend whether adjustment budget is necessary MFMA sec 54(1)(c) Mayor revises SDBIP following adjustment budget 59

73. 5.2.1. Preparation and analysis of regular reports on the financial position, financial performance and cash-flow (Cont) 59 Particulars to be include ito Section 71 on state of municipality’s budget Actual revenue, per revenue source Actual borrowings Actual expenditure, per vote Actual capital expenditure, per vote Amount of any allocations received Actual expenditure on those allocations, excluding expenditure on: - equitable share - allocation exempted ito DoRA Explanation on material variances on revenue & expenditure Explanation on material variances on SDBIP Corrective steps taken to ensure revenue & expenditure remain within approved budget

74. 5.2.1. Preparation and analysis of regular reports on the financial position, financial performance and cash-flow (Cont) 59 Section 3 pages 16-20 web-based ref material

75. 5.3.1. Information presented to decision makers on the performance against the budget GRAP 1 requires: financial reporting to include info whether resources were obtained & used ito legally adopted budget Where AFS & budget are on the same basis of accounting, a comparison between budget & actuals for reporting period must be included in the AFS (GRAP 24) 64

76. 5.3.1. Information presented to decision makers on the performance against the budget REVENUE 2012 ACTUAL (R) 2012 BUDGET (R) 2012 VARIANCE (R) 2012 VARIANCE % Explanation of significant variance greater than 10% versus budget Property rates 11 263 86412 056 395-792 531-7Insignificant (or: Due to economic climate a commercial development was put on hold 64

77. 5.4.1. The use and role of the Standard Charts of Accounts (SCOA) in the public sector. Based on GFS & IPSAS Cater for new terminology Facilitates aggregate reporting LM to LM DM’s Provinces Nationally Internationally Section 4 pages 21-26 web-based ref material 70

78. 10.2.1. To which external source of information should an entity’s cashbook be reconciled to ensure that all transactions are processed in the accounting system? (1) 70

79. To ensure that all transactions are processed in the accounting system, it is very important that the entity’s cashbook is reconciled with its bank statements on a monthly basis.

80. 10.2.2. Briefly explain the meaning and purpose of an entity’s trial balance. (2) 71

81. The trial balance of an entity is a summary of balances of general ledger accounts as at a certain date. The trial balance is a key accounting record that is used for the compilation of annual financial statements.

82. 10.2.3. List five aspects which should be included in an entity’s asset management policy. (5) 71

83. An entity’s asset management policy should include, as a minimum, the following aspects: Objective of the asset management policy Functional responsibilities of departments and individuals regarding PPE GRAP accounting policies relating to PPE Funding sources of items of PPE Administrative requirements Legislative requirements Maintenance policy Insurance policy

84. 10.2.4. What are the characteristics of assets that are commonly described as “infrastructure assets”? (4) 71

85. In the case of municipalities, some assets are commonly described as “infrastructure assets”. While there is no universally accepted definition of infrastructure assets, these assets usually display some or all of the following characteristics: They are part of a system or network, They are specialised in nature and do not have alternative uses, They are immovable, and They may be subject to constraints on disposal.

86. 10.2.5. Give the definition of net realizable value for inventory. (2) 71

87. The net realisable value of inventory is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

88. 10.2.6. Is the following statement true or false? Briefly explain. 10.2.6.1. The cost of inventories must comprise only the cost of its purchase. (2) 71

89. False According to current accounting standards the cost of inventories must comprise the cost of its purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

90. 10.2.7. List the components of the purchase costs of inventories. (5) 71

91. The purchase costs of inventories comprise the: purchase price, import duties and other taxes (other than those subsequently recoverable by the entity from the taxing authorities for example VAT), and transport, handling and other costs directly attributable to the acquisition of finished goods, materials and services. Trade discounts, rebates and other similar items are deducted in determining the costs of purchase.

92. 10.2.8. Give four examples of circumstances indicating that inventory is impaired and needs to be written down to its net realizable value. (4) 71

93. The cost of inventories may not be recoverable and its cost would have to be written down to its net realizable value if: those inventories are damaged; if they have become obsolete; if their selling prices have declined; or if the estimated costs of completion or the estimated costs to be incurred to make the sale have increased.

94. 10.2.9. What are the minimum components which should be included in an interim financial report? (5) 71

95. The minimum components which should be included in an interim financial report are: a condensed statement of financial position, a condensed statement of financial performance, a condensed statement of changes in net assets, a condensed cash flow statement and selected explanatory notes.

96. 10.2.10. Is the following statement true or false? Briefly explain. 10.2.10.1. Where the financial statements and the budget are on the same basis of accounting, a comparison between actual and budgeted financial figures must be included in the financial statements. (2) 71

97. True GRAP 1 requires general purpose financial reporting by entities to provide information on whether resources were obtained and used in accordance with the legally adopted budget. Where the financial statements and the budget are on the same basis of accounting, a comparison with the budgeted amounts for the reporting period must be included in the financial statements.

98. 10.2.11. The Standard Charts of Accounts (SCOA) is a new structure of government accounts based on which principles? (2) 71

99. The Standard Charts of Accounts (SCOA) is a new structure of government accounts based on both Government Finance Statistics (GFS) and International Public Sector Accounting Standards (IPSAS) principles.

101. UNIT 3 APPLY END OF PERIOD ACCOUNTING PROCEDURES IN THE PREPARATION OF FINANCIAL STATEMENTS 72

102. 3. INTRODUCTION/OVERVIEW Delay in reporting info results in it losing its relevance Info is outdated Therefore reporting must be done timeously! 73

103. 5.1.1. General end of period accounting procedures applying to various transactions/ account balances Ensure cut-off times (receipts, payments) All registers reconciled regularly/monthly Suspense/ default accounts cleared monthly Regular data back-ups Verify assets at year-end Year-end stock take of inventory 74

104. 5.2.1. Appropriate end of period accounting procedures are used to finalise selected financial statements. Web-based ref material pages 26-143 75

105. 5.3.1. End of period transactions and events are recognized, measured and recorded in finalizing financial statements in accordance with the standards applying to the public sector. Web-based ref material pages 26-143 SECTION 5

106. 10.3.1. List appropriate end of period accounting procedures to facilitate the finalisation of the Housing Development Fund (HDF) in the entity’s financial statements. (4) 76

107. These procedures would typically include the following: Ensure that any contributions to or from the HDF are shown as transfers to or from the Accumulated Surplus (AS) in the Statement of Changes in Net Assets. Ensure that interest earned on the investments backing up the HDF is recorded as part of interest earned in the Statement of Financial Performance and is then transferred via the Statement of Changes in Net Assets to the Housing Development Fund. Ensure that only expenditure that relates to the HDF is charged to the housing operating account. Ensure that the net surplus or deficit on the Housing Operating Account is either credited or debited to the HDF respectively.

108. 10.3.2. Draft the journal that an entity would have to process in its Statement of Changes in Net Assets to offset additional depreciation resulting due to the revaluation of depreciable assets. (2) 76

109. A transfer is made from the Re-valuation Reserve to the Accumulated Surplus in the Statement of Changes in Net Assets in respect of additional depreciation brought about as a result of the revaluation of assets. This transfer would be journalized as follows: Dr Revaluation Reserve xxx Cr Accumulated Surplus xxx (Transfer from the Revaluation Reserve to the accumulated surplus to offset additional depreciation brought about as a result of the revaluation of assets)

110. 10.3.3. Which accounting entries can be affected in the Accumulated Surplus column in statement of changes in net assets? (3) 76

111. The following accounting entries can be affected in the Accumulated Surplus column in statement of changes in net assets: the effect of changes in accounting policies and correction of errors; the balance of retained earnings at the beginning of the period and at the balance sheet date, and the changes during the period; and transfers to and from the Accumulated Surplus from and to the other reserves in the statement of changes in net assets in terms of entity policy.

112. 10.3.4. Briefly discuss the correct accounting treatment of finance leases in the financial statements of the entity as lessee. (4) 76

113. The correct accounting treatment of finance leases in the financial statements of the entity as lessee is as follows: Assets obtained by means of a finance lease should be capitalised.; Annual depreciation on the leased asset should be expensed; Annual finance charges should be expensed; and The balance of the lease at year-end should be disclosed as a noncurrent liability, excluding the short- term portion transferred to current liabilities.

114. 10.3.5. List appropriate end of period accounting procedures to facilitate the finalisation of current provisions in the entity’s financial statements. (5) 76

115. These procedures would typically include the following: Identify all provisions that have to be raised by the entity at the date of implementation of GRAP where the entity has a present legal or constructive obligation to transfer economic benefits as a result of past events and a reasonable estimate of the obligation can be made. Ensure that the entity distinguish correctly between provisions, long-term liabilities, trade payables and accruals and that it is recorded in the financial statements accordingly. Ensure that provisions are classified into current and non-current liabilities. Ensure that provisions are reviewed at each balance sheet date and that adjustments to provisions are based on the current best estimates of management. Ensure that expenditure incurred during the financial year in relation to a provision that was raised at the previous year end, is allocated against the provision.

116. 10.3.6. Which completeness tests could be performed by an entity to ensure that all items of Property Plant and Equipment (PPE) are recognized in the financial statements? (2) 76

117. The following tests could be performed: Review the entity’s fixed assets register (FAR) and identify any PPE items which had not been recorded onto the entity’s accounting system; and Identify PPE purchased (expenditure that fits the definition of PPE above) by identifying all invoices paid relating to PPE. If PPE purchased is identified, capitalise the PPE.

118. 10.3.7. Describe the two measurement models allowed in terms of GRAP for the subsequent measurement of Investment Property. (3) 76

119. The subsequent measurement of Investment Property is done according to the entity’s accounting policy on Investment Property, being either of the following two measurement models allowed in terms of GRAP: Cost model – measure Investment Property at cost less accumulated depreciation and accumulated impairment losses; or Fair value model - If the entity elects the fair value model, ensure that all of its investment property is measured at its fair value at each Statement of Financial Position date. Ensure that a gain or loss arising from a change in the fair value of investment property is included in net surplus/deficit for the period in which it arises.

120. 10.3.8. What are the conditions for recognizing revenue relating to government grants and subsidies in the financial statements of an entity? (3) 76

121. Revenue relating to government grants and subsidies is recognized in the financial statements of an entity when: It is probable that the economic benefits associated with the transaction will flow to the entity, and The amount of the revenue can be measured reliably, and There has been compliance with any restrictions associated with the grant.

122. 10.3.9. Briefly explain the approach to be followed for the correction of a prior period error in terms of GRAP. (2) 76

123. If the prior period errors are material, correct retrospectively by: adjusting opening balance of accumulated surplus for the earliest period presented in which the error occurred; and Adjusting the previous year’s amounts for each prior period presented in which the error occurred (this need not be done if retrospective application is impracticable).

124. HOME WORK Activities Units 1, 2 & 3 77

125. Group Work ChapterGroup 1Group 2Group 3 1: Activities1, 4.1, 62, 4.2, 73, 5, 8 2: Activities1, 4, 7, 102, 5, 8, 113, 6, 9 3: Activities1, 4, 72, 5, 83, 6, 9 4: Activities1, 4, 62, 53, 5 5: Activities3, 61, 42, 5 6: Activities31, 42, 5

126. Thursday: 29 November 2012

127. UNIT 4 SOUND PROCEDURES FOR RECORDING OF CASH RECEIPTS AND PAYMENTS ARE APPLIED 77

128. 3. INTRODUCTION/OVERVIEW Financial viability requires proper cash management Objectives of cash management – Availability of adequate liquid resources – Optimal balance between cash & investments – Obtain highest return at lowest risk on investments – Proper stewardship & accountability 78

129. 5.1.1. Recording of receipts Section 64 – MFMA: AO/MM: Effective revenue collection system Revenue calculated on a monthly basis Accounts are prepared monthly All monies received must be promptly deposited Management, accounting and information system Internal control – debtors and revenue Charges interest on arrears All revenue received reconciled monthly 79

130. 5.1.1. Recording of receipts (Cont) Cash receipts, postal orders & cheques Every payment received-numbered official receipt Cancelled receipt filed Remittances received by post (cheque) register Post dated cheque register Direct deposits R/D cheques 79

131. 5.1.4. Recording of payments – legal requirements Section 65 – MFMA: AO/MM: Effective expenditure control Management, accounting and information system – accrual basis Internal control irf creditor payments Payments made to person to whom its due Payments made within 30 days Complies with statutory commitments; tax, pension, m/aid IGR payment disputes disposed of ito legislation Working capital managed eee SCM fair, transparent, competitive, cost effective Financial records closed & reconciled monthly 83

132. 5.1.5. Procedures for the recording of payments Page 84 84

133. 5.1.6. Month-end procedures for the recording of payments Page 86 86

134. 5.2.1. Prepare a cash and bank reconciliation Reconciling cash book balance to bank statement Page 86 86

135. 5.2.2. Authorisation of the bank reconciliation Senior official to review bank recon Page 88 88

136. 5.2.3. Review of the bank reconciliation by internal audit Surprise checks Page 90 90

137. The principles and procedures underlying procedures for petty cash funds in the public sector Page 91 91

138. Generally recognized internal controls or principles are applied in the handling of cash receipts and payments. Cash receipts Page 93 93

139. 5.4.2. Cash Payments Page 96 96

140. 5.4.3. Supply Chain Management System Page 98 98

141. 5.4.4. Authorisation of expenses. Steps to follow: Requisitions approved by supervisor Order issued after SCM followed Date of invoice Ensure supplier on data base Invoice in entity’s name Determine nature of goods: Capital/operating Invoice initialled as approved by appropriated staff member Match requisition, order, invoice, statement, grv & approved by appropriated staff Check invoice with contract, if applicable Page 99 99

142. 5.4.5. Payroll Procedures Page 100 100

143. 5.4.6. Overtime hours processed on payroll Page 101 101

144. 5.4.7. Payroll Journal entries Page 102 102

145. 5.4.8. Settlement of obligations Page 102 102

146. 10.4.1. List and briefly describe 5 sound procedures for the receipt of money by post. (5) 103

147. Sound procedures for the receipt of money by post: When money (including postal orders and cheques) are received with the entity’s mail, the Chief Financial Officer shall record all payment remittances as and when received in the cheque register in the presence of a witness. Post-dated cheques received in the entity’s mail must also be recorded, but in a separate cheque register. The cheque register shall be regarded as the register of remittances received by post; The cheque register together with all remittances received must be sent to a designated official in the finance department; The designated official on receipt of the cheque register together with the remittances will code all remittances and submit it to the cashier for receipting;

148. The cashier will receipt all remittances and issue official receipts to the designated official; A reconciliation should be performed between the receipts recorded in the mail register and the receipts allocated to the system. This reconciliation should be reviewed by the CFO and initialised as evidence of the review. The designated official will record all receipts in the cheque register and return same to registry. The Chief Financial Officer must ensure that all receipts are recorded in the cheque register; All documents relating to remittances received in the mail must be filed for audit purposes; A separate register for post dated cheques will be maintained by the Chief Financial Officer and all post dated cheques must be stored safely in the Registry Strong room; and The Chief Financial Officer will ensure that all post-dated cheques, which become due, are sent promptly to the designated official for receipting and recording of receipts in the post-dated cheque register.

149. 10.4.2. What are the typical procedures that an entity could apply in the management of cheque payments? (6) 103

150. Typical procedures for cheque payments The creditors section should prepare a list all cheque payments, together with supporting documentation, for a specific period. No cheques should appear on the list dated for following periods. Ensure that the cheques appearing on the list are in numeric sequence and that no cheques are omitted from the list. The list should be updated on the accounting system by the creditor section. The list of cheques should be posted to correct vote numbers (according to vote numbers appearing on the supporting documentation) in the entity’s accounting system. The cheque and the supporting documentation should be stamped as evidence of it being processed on the accounting system. Before the batch is updated on the accounting system, a hard copy of the batch should be reviewed to ensure correctness of each posting and initialed as evidence of being reviewed.

151. 10.4.3. How can an entity ensure that large and/or unusual transactions are accurate, valid, authorised and correctly allocated from the cashbook? (4) 103

152. In order to ensure that large and/or unusual transactions are accurate, valid, authorised and correctly allocated from the cashbook, an entity can select a sample of large and/or unusual transactions in the cashbook and perform the following procedures: Agree the transaction through inspection to valid and appropriate supporting documentation. Inspect signatures to ensure that the transaction has been reviewed and approved by management for processing. Ensure that capital expenses during the financial year are not posted to expense (repairs and maintenance) vote numbers. Ensure that the transactions have been correctly allocated to relevant General Ledger accounts by inspecting the accounting entries in the General Ledger.

153. 10.4.4. During the performance of a cash and bank reconciliation, what are the typical transactions and amounts that should be matched? (6) 103

154. The following transactions and amounts should be matched: Each electronic payment from the batch transfer report to the cashbook and bank statement; Each manual cheque payment to the cashbook and bank statement; Each deposit from the cashier’s deposit book to the cashbook/receipts listing and the bank statement; The bank charges from the bank statement to the cashbook; The interest earned on investments from the bank statements to the cashbook; and All other direct debits from the bank statements to the cashbook.

155. 10.4.5. Is the following statement true or false? Briefly explain. (2) The official responsible for the management of the petty cash should be somebody who is also responsible for other cash functions. 103

156. False The official responsible for the management of the petty cash should be independent of all other cash functions, such as cashiering.

157. 10.4.6. List and briefly explain four detailed steps that an entity should take in the authorisation of expenditure. (4) 103

158. Detail steps to be taken in the authorization of expenditure: Requisitions should be approved by Supervisors after it was ensured that funds are available on the budgets for the expenditure that will be incurred. Purchase orders must be captured only after all the prescripts of the Supply Chain Management System has been adhered too. Ensure that the date of the invoice falls within the current accounting period. Ensure that the name of the supplier is on the entity’s approved supplier list/creditors list. Ensure that the invoice is made out in the entity’s name. Determine the nature of the goods and services charged. (capital or operating expenditure) Ensure that the invoice has been signed or initialed as passed for payment by the appropriate member of staff. Ensure that each invoice has a corresponding order form and goods received note. Match the details with the orders and goods received notes, which have been signed by the appropriate staff. Where applicable, check invoice details with the agreement or contract.

160. UNIT 5 UTILISE PROCEDURES FOR REPORTING AND RECORDING ACCOUNTS RECEIVABLES 104

161. 3. INTRODUCTION/OVERVIEW AO responsible for management of revenue (Sec 64, MFMA & Sec 38 PFMA) Systems Act, Sec 11(3)(i): An entity exercises its legislative or executive authority by “imposing and recovering rates, taxes, levies, duties, service fees and surcharge on fees, including setting and implementing tariff, rates and tax and debt collecting policies”. 107

162. SOUND PROCEDURES FOR ISSUING INVOICES FOR SERVICES RENDERED Page 108 108

163. Minimum detail contained in standard invoice Consumer name Consumer account number Consumer postal address Residence/erf details to where service(s) have been supplied Details of services supplied, ie rates, elec, water, refuse, etc. o/s balance c/o Reconnection/connection charges Interest/fines accrued Rates component ito sec 27 of MPRA; pto 108

164. Minimum detail contained in standard invoice Rates component ito sec 27 of MPRA: Amount due for rates payable Date on/before amount is payable How amount is calculated Market value of the property Amount of discount if rates phased-in Additional rates ito sec 22 108

165. ACCOUNT RECEIVABLE LEDGERS ARE MAINTAINED AND RECONCILED. Page 110 110

166. AN AGE ANALYSIS AND OTHER REPORTS ARE PREPARED TO MONITOR DEBTOR PAYMENTS. Classification of debtors: Per service indicating ageing Per debtor classification/type Page 111 111

167. COLLECTIONS OF BAD DEBTS AND REPORTS RELATED THERETO ARE COMPLETED Page 112 112

168. ALL LEGALITIES PERTAINING TO THE HANDLING OVER OF BAD DEBT ACCOUNTS ARE ADHERED TO. Page 116 116

169. DISCOUNTS AND INTEREST CALCULATIONS ARE DETERMINED FOR ACCOUNTS RECEIVABLE ACCORDING TO AGREED PAYMENT TERMS. Page 117 117

170. 10.5.1. List the minimum details which should be contained in a standard invoice issued by an entity to its consumers. (9) 118

171. The invoice/ account must be printed on a standard form and should contain the following details: Consumer name; Consumer account No.; Consumer postal address; Residence/Erf details to where the service(s) have been supplied. All details of services that have been supplied i.e. electricity, water, rates, refuse removal, etc.; Any outstanding balance from the previous periods Any reconnection/disconnection charges that may have been charges; and Any interest or fines that may have accrued; The rates component should be according to Section 27 of the Property Rates Act.

172. 10.5.2. If post balance sheet accounts receivable related transactions are recorded in an entity’s accounting system which cannot be processed onto the entity’s accounts receivable sub-ledger (due to its closing off at balance sheet date), what procedures can an entity perform to balance its accounts receivable as per the accounting system to the entity’s accounts receivable sub-ledger? (2) 118

173. The following procedures could be performed: Ensure that a manual reconciliation of the debtors sub-ledger to the general ledger is performed and that large or unusual reconciling items are investigated. Ensure that the reconciliation is reviewed by a senior official and initialised as evidence thereof.

174. 10.5.3. What are the two typical classifications of a debtors age analysis? (2) 118

175. The two typical classifications of a debtors age analysis are as follows: A comprehensive analysis of all debtors in respect of services (water, electricity, refuse, sewerage, rates, etc.) showing the current amount owing and accounts outstanding for 30 days, 60 days, 90 days, and 120 days and longer. The above-mentioned age analysis should also be done per Customer classification.

176. 10.5.4. If any amount owing in respect of services rendered by an entity to a consumer, or any portion thereof, remain unpaid after the date of payment indicated on the consumer’s account, what action should such an entity take pertaining to the continued services to such a consumer? (4) 118

177. Should any amount owing in respect of services rendered by the entity, or any portion thereof, remain unpaid after the date of payment indicated on the account, the electricity supply to those premises should be disconnected, and the CFO should exercise his discretion to restrict the supply of water to those premises by installing a water control mechanism on the service connection to those premises which will allow the passage of approximately 6 kiloliter water per month; or disconnect the provision of water; or with due consideration of the particular debtor’s payment record, postpone the restriction or disconnection of the water supply for a period not exceeding 14 days.

178. 10.5.5. List and briefly explain the factors an entity should consider before writing off any bad debts. (5) 118

179. Bad debts should only be written off on the authority of the Council after all reasonable steps have been taken to recover the debt, in accordance with the credit control and debt collection policy, and when management is satisfied that: The debtor cannot be traced; All legal and other measures have been exhausted, but there is still a balance of the debt remaining; Recovery of the debt would be uneconomical; Recovery would cause undue hardship to the debtor or his/her dependants; It would be an advantage to the entity to effect a settlement of its claim or to waive the claim.

180. 10.5.6. Describe the matters pertaining to interest on arrear accounts of debtors which should be addressed in an entity’s credit control and debt collection policy. (4) 118

181. An entity’s credit control and debt collection policy should address the following matters pertaining to interest on arrear accounts of debtors: The standard rates of interest to be applied; Determination of the calculation of interest on daily, monthly or another basis; Determination of whether interest will be calculated on unpaid interest and penalty charges; Conditions for annual review of outstanding debt and interest related matters.

183. UNIT 6 UTILISE PROCEDURES FOR RECORDING AND REPORTING ON LIABILITIES IN THE PUBLIC SECTOR 120

184. 3. INTRODUCTION/OVERVIEW Two types of liabilities: Current Non-current Current to meet following criteria: To settled in normal operating cycle Held for primary purpose of being traded To be settled within 12 months Items like: consumer deposits, provisions, creditors, VAT, bank o/d, CPLTL 121

185. Non-current liabilities consist of long-term liabilities such as loans and non-current provisions. Trust funds are funds maintained for specific purposes and are therefore not regarded as liabilities. 122

186. Trust Funds: - Trust Funds are separate legal entities where the Municipality is trustee. As separate legal entities, separate financial statements should be prepared for each Trust Fund. The various Trust Funds must be included in the consolidated financial statements of the municipality where the municipality controls the various Trust Funds. No transactions of the fund may be accounted for in the books of the municipality. 122

187. Info recorded in Loan Register Name of institution Loan number Interest rate Commencement date Redemption period Expiry/ maturity date Method of redemption Opening balance, interest paid during year, instalments paid, closing balance Disclosure of STPLD 123

188. RECORDS OF LIABILITIES AND THEIR MEASUREMENTS ARE COMPILED AND RECONCILED. For more detailed guidance on this topic refer to Section 6 of the additional web based reference material, found on the NT web site for Unit standard 119350. Pages 144-156 123

189. INTEREST IS CALCULATED ON LIABLE AMOUNTS Annuity method: periodically paid Redemption reduce o/s balance Interest expensed through Statement Fin Perf Redemption fund method: no more Nominal interest rate: rate quoted by bank Effective interest rate: effect of compounded interest 124

190. DISCOUNTS ARE CALCULATED ACCORDING TO PAYMENT TERMS AND CONDITIONS Cash discount: IAS 18 Settlement discount: IAS 18 Rebates: MPRA 126

191. 5.3.5. Cost of credit 2/10 net 30 2% If paid within 10 days Full payment due within 30 days Calculate effect if interest not utilised 20/980*100=2.0408 365/20=18.25 44.6% 131

192. 10.6.1. List the information that is normally recorded onto a loan register for external borrowings. (9) 132

193. All external borrowings must be reflected in a loan register. The following information is normally captured in such a loan register: The name of the investing institution The number of the loan The interest rate of the loan The commencement date of the loan The redemption period The expiry date of the loan The method of redemption Opening balance of the loan, interest paid during the year, instalments paid and the closing balance at the end of the period Disclosure of the short-term portion of long term loans (Capital repayments within 12 months after year-end.

194. 10.6.2. Explain the difference between a nominal and an effective interest rate. (4) 132

195. The difference between a nominal and an effective interest rate can be explained as follows: The nominal interest rate is the interest rate you are quoted by a bank for a year that has not been adjusted for frequency of compounding. Compound interest is interest paid on any previous interest as well as the principal debt. When you borrow money, the loan can be compounded at different intervals such as daily, monthly, annually, and so on. When you take this compounding effect into account, you get an effective interest rate. In other words, the effective annual interest rate is the interest compounded annually that provides the same annual interest as the nominal rate does when compounded x times per year.

196. 10.6.3. What is meant by the “annuity method” of calculating interest on liable amounts? (3) 132

197. The annuity method of calculating interest on liable amounts means the following When external loans are redeemed according to this method, payments of interest and capital redemption are periodically made on the external annuity loan. Only the redemption portion of the payment is allocated to reduce the outstanding balance of the loan. The interest component is considered as the cost for the use of the loan and is debited to the operating account.

198. 10.6.4. Is it correct of an entity to account for all rebates received as ‘other income’ when received? If not, what is the correct method of accounting? (4) 132

199. No, this not the correct treatment of rebates received in terms of SAICA circular 9/2006. The correct treatment in terms of SAICA circular 9/2006 is as follows: The terms of the agreement are a very important starting point. Grantors of rebates may account for the rebates as ‘other operating expenses’ when paid. These rebates may need to be estimated at the time of sale and be shown as a reduction in revenue.

200. 10.6.5. If an entity’s credit terms are expressed as “2/10 net 30”, what is the period credit granted to a customer and the discount, if any, given for early payment? (3) 132

201. Credit terms specify the length of time over which credit is extended to a customer and the discount, if any given for early payment. If an entity’s credit terms are expressed as 2/10 net 30, it means the following: the term 2/10 means that a 2 percent discount is given if the bill is paid within 10 days of the invoice date, whereas the term “net 30” implies that if a discount is not taken, the full payment is due by the 30th day from invoice date. Thus the credit period is 30 days.

202. HOME WORK Activities Units 4, 5 & 6 77

203. Group Work ChapterGroup 1Group 2Group 3 1: Activities1, 4.1, 62, 4.2, 73, 5, 8 2: Activities1, 4, 7, 102, 5, 8, 113, 6, 9 3: Activities1, 4, 72, 5, 83, 6, 9 4: Activities1, 4, 62, 53, 5 5: Activities3, 61, 42, 5 6: Activities31, 42, 5

204. End Danie van Zyl