Preparation of Public Sector Accounting – SS3 Financial Accounting Lesson Note (First Term)

Public sector accounting records the money a government earns and spends. Government revenue comes from sources such as taxes, mining, fees, rent and interest on loans. Government expenditure is classified as capital expenditure, which adds to fixed assets, or recurrent expenditure, which covers the day-to-day costs of running government departments and ministries.

Behavioural objectives

By the end of the lesson, students should be able to:

1. List and explain the sources of government revenue.
2. List and explain the types of government expenditure.

Instructional techniques and materials

Instructional techniques

• Identification
• Explanation
• Questions and answers
• Demonstration
• Videos from source

Instructional materials

• Videos
• Loudspeaker
• Textbook
• Pictures

What are the sources of government revenue?

I. Direct taxes

• Personal income tax
• Company income tax
• Petroleum tax
• Capital gains tax

II. Indirect taxes

• Import duties
• Export duties
• Tariffs

III. Mining

• Royalties on mineral resources, e.g. tin, gold
• Revenue from the export of crude oil
• Quarrying licences
• Mining fees

IV. Fees

• Court fees
• International passport fees
• Visa fees
• Advertisement fees (billboard)

V. Earnings and sales

• Federal government investments
• Sales of government properties, e.g. land, buildings
• Proceeds from prison farms

VI. Licences and internal revenue

• Arms and ammunition licence fees
• Registration and licence fees, e.g. company registration and club registration fees
• Churches registration fees

VII. Interest and repayment

• Interest and repayment of loans granted to state governments and government workers
• General loan interest

VIII. Rent on government properties

• Income from rent of government quarters
• Rent of government offices
• Rent of government vehicles
• Federal government land fees

IX. Armed forces

• Income from armed forces educational receipts
• Sales of small weapons
• Sales of armoured tanks and aircraft

X. Miscellaneous

Any other income not mentioned above, e.g. money recovered from drug pushers.

What is government expenditure?

Government expenditure can be classified into two types:

• Capital expenditure
• Recurrent expenditure

Capital expenditure

This is expenditure incurred by the government which adds to the value of fixed assets. Examples are purchases of buildings, plant and machinery, and motor vehicles, and the construction of bridges, roads and railways.

Recurrent expenditure

These are the day-to-day costs of running the activities of government departments and ministries. Examples are wages and salaries, transportation, repairs of motor vehicles, maintenance of buildings and payment for services.

Illustration: preparing statements of capital and recurrent expenditure

The Federal Ministry of Works and Housing incurred the following in 2013.

You are required to prepare a statement of:

1. Capital expenditure
2. Recurrent expenditure

Suggested solution

Statement of capital expenditure

Statement of recurrent expenditure

Evaluation

1. Outline the major sources of revenue to:
   • Federal government
   • State government
   • Local government
2. Mention three sources of direct tax.
3. Mention two types of mining as a source of revenue for the government.

Classwork

As in the evaluation.

Assignment

1. Explain capital expenditure and recurrent expenditure, giving two examples of each.
2. List four fees that are a source of government revenue.