In: Accounting
The government imposes a tax on Liquified Petroleum Gas (LPG) to compensate the loss in revenue due to decline in oil prices. This tax revenue is planned to be used exclusively for improving the health facilities in the local health centers. The tax revenue collected in Al Dakhiliyah Governorate until for the year 2019 amounts to RO 40,000. The governorate spent RO 37,000 for purchase of medical equipments in the local health centers.
1) what kind of government funds is used?
2) write the journal entries in each of the respective funds?
3)explain the Basis of accounting, the accounting treatment and the measurement focus of these transactions in the respective funds where these transactions are accounted.
1) |
GOVERNMENT SPENT RO 37000 ON PURHCASE OF MEDICAL EQUIPMENT IN THE LOCAL HEALTH CENTERS. GOVERNMENT HAD IMPOSED TAX ON LPG TO COMPENSATE THE LOSS IN REVENUE DUE OT DECLINE IN OIL PRICES AND GOVERNMENT HAD PLANNED THAT THIS TAX REVENUE TO BE USED EXCLUSIVELY FOR IMPROVING THE HEALTH FACILITY IN THE LOCAL HEALTH CENTERS. HENCE WE CAN SAY THAT THIS IS SPEACIAL REVENUE FUND. AS IT HAS BEEN ALREADY PLANNED BY THE GOVERNMENT THAT THIS COLLECTED TAX(FUND) TO BE USED EXCLUSIVELY FOR IMPROVING THE HEALTH FACILITY IN THE LOCAL HEALTH CENTERS. |
2. |
TAXES RECEIVABLE ACCOUNT DR RO 40,000 TO ALLOWANCE FOR UNCOLLECTABLE TAX ----- TO ALLOWANCE FOR DISCOUNT ----- TO SPEACIAL REVENUE FUND RO 40,000 (BEING AMOUNT OF TAX COLLECTION DUE) CASH/BANK ACCOUNT DR RO 40,000 TO TAXES RECEIVABLE ACCOUNT RO 40,000 (BEING AMOUNT OF TAX COLLECTED) PURCHASE OF MEDICAL EQUIPMENT A/C DR RO 37,000 TO CASH/BANK ACCOUNT RO 37,000 (BEING AMOUNT OF PURCHASE OF MEDICAL EQUIPMENT FOR LOCAL HEALTH CENTERS) |
3)
Governmental accounting maintains
complete control over resources, while also segregating into
different funds in order to clarify how resources are being
directed at various programs. This approach to accounting is used
by all types of government entities.
Given the unique needs of governments, a different set of
accounting standards has been developed for these organizations.
The primary organization that is responsible for creating and
updating these standards is the Governmental Accounting Standards
Board (GASB). The GASB is tasked with the development of accounting
and financial reporting standards for state and local governments,
while the Financial Accounting Standards Board (FASB) has the same
responsibility, but for all other entities not related to
governmental activities.
A fund is an accounting entity with a self-balancing set of
accounts that is used to record financial resources and
liabilities, as well as operating activities, and which is
segregated in order to carry on certain activities or attain
targeted objectives. A fund is not a separate legal entity. Funds
are used by governments because they need to maintain very tight
control over their resources, and funds are designed to monitor
resource inflows and outflows, with particular attention to the
remaining amount of funds available. By segregating resources into
multiple funds, a government can more closely monitor resource
usage, thereby minimizing the risk of overspending or of spending
in areas not authorized by a government budget.
Some types of funds use a different basis of accounting and
measurement focus. To clarify the difference between these
concepts, the basis of accounting governs when transactions will be
recorded, while the measurement focus governs what transactions
will be recorded.
The accrual basis of accounting is adjusted when dealing with
governmental funds. The sum total of these adjustments is referred
to as the modified accrual basis. Under the modified basis of
accounting, revenue and governmental fund resources (such as the
proceeds from a debt issuance) are recognized when they become
susceptible to accrual. This means that these items are not only
available to finance the expenditures of the period, but are also
measurable. The “available” concept means that the revenue and
other fund resources are collectible within the current period or
sufficiently soon thereafter to be available to pay for the current
period’s liabilities. The “measurable” concept allows a government
to not know the exact amount of revenue in order to accrue
it.
The key measurement focus in a government fund’s financial
statements is on expenditures, which are decreases in the net
financial resources of a fund. Most expenditures should be reported
when a related liability is incurred. This means that a
governmental fund liability and expenditure is accrued in the
period in which the fund incurs the liability.
The focus of governmental funds is on current financial resources,
which means assets that can be converted into cash and liabilities
that will be paid for with that cash. Stated differently, the
balance sheets of governmental funds do not include long-term
assets or any assets that will not be converted into cash in order
to settle current liabilities. Similarly, these balance sheets will
not contain any long-term liabilities, since they do not require
the use of current financial resources for their
settlement.
This measurement focus is only used in governmental accounting.
All these transactions were accounted by the central/state government of contry depending on the type of levey of taxes.