Question

QUESTION TWO
Below is the complete set of Financial Statements of Take-Home University (THU), a Public
University of Ghana, issued on 1st May 2020.
Statement of Financial Performance for the Year Ended 31 December, 2018
Revenue Notes
GOG grant 1,540,000,000
Internally Generated Funds 2 14,427,492,000
Donations and other income 9,278,258,000
25,245,750,000
Expenditure
Compensation for employees 3 8,385,270,000
Goods and services 4 2,238,083,000
Social benefit 1,720,000
Interest 1,720,000
Capital expenditure (CAPEX) 5 25,542,515,000
Other expenses 6 79,100,000
36,248,408,000
Net Operating Result – Deficit (11,002,658,000)
Statement of Financial Position as at 31 December 2018
Notes
Current Assets
Cash and cash equivalent 294,233,000
Receivable (468,050 -10,000) 458,050,000
Inventory 155,254,000
907,537,000
Liabilities and Fund
Payable 7 696,325,000
20% Loan 8,600,000
704,925,000
Accumulated fund 8 202,612,000
907,537,000
Cash Flow Statement for the Year ended 31st December 2018
Cash Inflows
GOG grant 1,540,000,000
Internally Generated Funds 14,427,492,000
Donations and other income 9,278,258,000
25,245,750,000
Cash Outflows
Compensation of employees 6,385,270,000
Goods and services 1,989,112,000
Social benefit 1,720,000
Interest 1,720,000
Capital expenditure (CAPEX) 15,542,500,000
Other expenses 79,100,000
23,999,422,000
Increase in Cash and Cash Equivalent 1,246,328,000
Cash and Cash Equivalent as 1/1/18 -952,095,000
Cash and Cash Equivalent as 31/12/18 294,233,000
NOTES TO THE FINANCIAL STATEMENTS
Accounting policy
a) Basis of accounting
The financial statements are prepared on accrual basis of accounting.
b) Inventory valuation
Inventory is valued at lower of cost and net realisable value.
c) IPSAS
The financial statements are prepared in compliance with the IPSAS and all
relevant financial legislations.
Internally Generated Fund
Fees income 4,575,622,000
Consultancy fees 655,600,000
Admission forms 9,196,270,000
14,427,492,000
1. Employees Compensation
Allowance 856,670,000
Establish post 5,312,430,000
Non establish post 1,253,600,000
Books and Research allowance 150,765,000
Project work allowance 48,500,000
Superannuation 278,500,000
End of service benefits 298,040,000
Books and Research allowance arrears 186,765,000
8,385,270,000
Use of Goods and Services
Legal cost 25,059,000
Consultancy cost 800,000,000
Seminar cost 500,000,000
Training and Workshop Cost 104,000,000
Utilities 560,053,000
Increase in Provision for doubtful debt 5,060,000
Opening inventory 399,165,000
Closing inventory
(155,254,000)
2,238,083,000
Capital expenditure
Property, plant and equipment 17,292,500,000
Work in Progress 8,250,015,000
25,542,515,000
Other expenses
Trial balance 71,000,000
Sponsorship 8,100,000
79,100,000
Payables
Payables 182,840,000
Consultancy cost 234,500,000
Book & Research All. 186,765,000
Interest payable 1,720,000
Tax withholding 90,500,000
696,325,000
3. Accumulated Fund
Balance at start 11,205,270,000
Net operating result (11,002,658,000)
202, 612,000
Required:
a) Using the Qualitative Characteristics (QCs) of General-Purpose Financial Report as a
Framework, evaluate the information usefulness of the set of financial statements
presented by the THU.
b) Based on the relevant IPSASs, explain the significant observations you have made
about the financial statements of THU and suggest improvement, if any.

Answer 1

REQUIREMENT

a) Using the Qualitative Characteristics (QCs) of General-Purpose Financial Report as a Framework, evaluate the information usefulness of the set of financial statements presented by the THU.

Answer - These are the following qualitative characteristics of Financial statements -

• UNDERSTABILITY - Understability is the quality of information that enables users to perceive its significance. The financial statements must be easily understandable , therefore the standard format prescribed under the regulations must be prepared for the preparation of financial statements.Therefore the financial statements should be understandable by the users of information.

• RELEVANCE - Relevance implies that all those items of information should be reported that may aid the users in decision making . The information published in the financial statements must have relevance. Therfore all the necessary information that is relevant should be disclosed.

• RELIABILTY - Reliabilty is described as one, of the two primary qualities ( relevance & reliability) taht make accounting information useful for decision making. Reliabilty is a quality which permits users of information to depend upon it with full confidence.Therfore the financial statements should disclose true and fair position of the company without any misstatements.

• COMPARABILITY - Economic decision requires making choice among possible courses of action. It is the quality of having enough like characteristics to make comparisons appropriate. The financial statements should be such that it can be compared with financial statements of another company across different time period , so that analysation of financial statements becomes easy.

BASED ON THE ABOVE FRAMEWORK , LISTED BELOW ARE THE OBSERVATION ON THE PERUSAL OF FINANCIAL STATEMENTS OF THU (TAKE HOME UNIVERSITY)

• The usage of account headers are not at all simple enough for the users to understand the nature of expense.
• Comparable numbers for the previous year are not given , so there is no relevance to the numbers for the year
• It is difficult to place any reliability because there is no mention of accounting policies used for preparation of financial statements.
• Very unorganised presentation of financial statements to make any relevance

b) Based on the relevant IPSASs, explain the significant observations you have made about the financial Statements of THU and suggest improvement, if any.

Answer - What is IPSAS ?

Full form - INTERNATIONAL PUBLIC SECTOR ACCOUNTING STANDARDS . These are developed by IPSAB (International Public Sector Accounting Board) for the preparation of public sector around the world. IPSAS are based on IFRS (International Financial Reporting Standards).

Significant observations about Financial statements of THU are as follows-  

• The income statements provided contains both capital and revenue items without any clarification.

• Reference to notes is given in financial statements but the notes are not disclosed.
• Nomenclature of disclosure of assets and liabilites could be improved.
• Disclosures in notes to accounts can be done in a more organized manner.

THANK YOU

AND HAVE A NICE DAY!