PSFR Exam Guide

Public Sector Financial Reporting
December 2014
Examination Guide
The Examination Guide contains all questions from the December 2014
examination paper together with the marking scheme answers and comments
from the examiner.
The answers detailed below show some but not all possible answers that were
accepted by the marking team. Marks were awarded for other valid answers
that might not be included in this guide.
The Examination Guide has been created and should be used as a study aid.
2014 Chartered Institute of Public Finance and Accountancy
PUBLIC SECTOR FINANCIAL REPORTING

Professional Diploma stage examination
28 November 2014
From 10.00 to 13.00
plus ten minutes reading time from 09.50 to 10.00
Instructions to candidates
There are six questions on this question paper.
Answer five questions in total:
Two compulsory questions from Section A
Three of the four questions from Section B
The questions each carry a total of 20 marks.
A formulae sheet containing standard ratios is appended to this exam paper for the
candidate 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 no
evidence 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 of
accounts, marks will be awarded for presentation and written communication.
2014 Chartered Institute of Public Finance and Accountancy
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:
Central services
Cultural, environmental and planning
Education and childrens services
Highways and transport services
Adult social care
Corporate and democratic core
Non-distributed costs
Property, plant and equipment
Long term loans received
Long term loans repaid
Inventories
Short term debtors
Short term creditors
000
000
547 391
45 390
431 950
341 849
254 658
490 800
130 379
550 712
145 769
5 055
96 486
52 840
1 263 288
53 850
42 761
394
47 830
42 354
Long term borrowing
821 746
Revaluation reserve
Cash and cash equivalents
Capital adjustment account
35 621
5 214
67 794
Capital receipts reserve
125 352
Capital grants unapplied at 01 April 2013
450
General fund
Interest payable and receivable
Net pension interest cost and expected return
on pension assets
Council tax
90 678
2 421
474 953
300 106
Non-ringfenced government grants
543 555
Liability related to defined pension benefit

Suspense
1 325
3 690
Non-domestic rates
Pension Reserve at 01 April 2013
63 809
437 200
87 350
87 350
500
3 846 435
3 846 435
December 2014
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 based
cost to the employer in contributions to the pension fund and the debit has been
taken to the suspense account. 2 750 000 has been debited to the pension
reserve 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 loss
of 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:
Direct revenue funding
Use of capital receipts
Government grant received in the year with no
conditions (see Note 2)
Government grant with no conditions received in
previous years and held as unapplied
000
75
125
250
200
650
No 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 land
was 600 000 and this was not received until May 2014. No entries have been
made 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 revalued
up 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 against
the cost of services as well as property, plant and equipment. The depreciation
charge was 540 000 more than it would have been if there had not been
revaluations.
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.
(a)
Requirement for question 1

Prepare Myatt County Councils comprehensive income and expenditure
statement for the year ending 31 March 2014 and the balance sheet as at
this date.
(20)
(20)
December 2014
CRK NHS Foundation Trust has the following balances on its Statements of Financial
Position for the past two years.
Property Plant and Equipment

Inventories
Trade and other receivables
Cash held at Government
Banking Service
Trade and other payables
Long term borrowing
Provisions
Donated asset liability
Net assets
Taxpayers' Equity
Public Dividend Capital
Retained earnings
Revaluation reserve
Total taxpayers equity
31 Mar 14
000
1 239 215
1 502
15 890
31 Mar 13
000
1 260 733
1 380
16 830
9 783
4 030
(17 086)
(16 393)
(23 665)
(127)
(45)
1 225 467
(22 487)
(110)
(20)
1 243 963
976 578
101 943
146 946
994 874
102 495
146 594
1 225 467
1 243 963

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.
December 2014
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
85 000.
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)
(b)

Calculate the amount of the revaluation of non-current assets and the
net book value of non-current assets disposed of during the year ending
31 March 2014.
(4)
Prepare the statement of cash flows for CRK NHS Foundation Trust for
the year ending 31 March 2014.
(16)
(20)
December 2014
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.
Property Plant and Equipment

Inventories
Trade receivables
Cash and bank
000
15 226
55
5 678
685
6 418
Payables
(5 674)
Assets less liabilities
15 970
Taxpayers equity
General fund
Revaluation reserve
Total taxpayers equity
7 777
8 193
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
13/14
108
112
2. The department drew down 750 000 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
December 2014
26 000.
6. The following balances are extracted from the Statement of Financial position as
at 31 March 2013.
Inventories
Trade receivables
Trade payables
General fund
000
76
4 989
(5 876)
7 296
(a)
Reconstruct the general fund to calculate the Net Operating Cost for the
year ending 31 March 2014.
(4)
(b)
Calculate the net cash outflow from operating activities for the year
ending 31 March 2014.
(5)
(c)
Both supply and non-supply financed Central government bodies may

have categories on their statement of financial position headed Financial
Assets and Financial Liabilities. Identify what could be reported under
these headings and the basis on which they are valued.
(6)
Discuss the basis of calculation and the purpose of the Historical Cost
Adjustment.
(5)
(d)
(20)
December 2014
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 working
in the private sector. He has sent you the following email which requires a response.
To: Trainee Accountant
From: New mentee
Date: December 2014
Subject: Local Authority Accounting
As you know I have only just joined the authority and am therefore unfamiliar with the
requirements of local authority financing, so it would be really good if you can help me
with 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 a
working 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 4 730 000 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.
December 2014
Prepare a response to the email addressing each of the issues. Marks are awarded
as follows;
a) Descriptions of what the accounts are used for
(5)
b) Heritage and community assets
(5)
c) Pension transactions
(10)
(20)
December 2014
The public sector is unique in the way that it is predominately funded, either directly or
indirectly, by the taxpayer. This means that in reporting financial performance in the
public sector, it is important that the reporting organisation demonstrates that funds
have been spent on the purposes intended and have not been wasted. A development
that public sector organisations also need to consider is the requirement for sustainability
reporting.
(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-financed

central government organisations with those available to non-supply
financed central government organisations.
(5)
(c)
Describe the specific frameworks that exist within local government for
performance measurement and evaluating performance.
(3)
(d)
Describe sustainability reporting, and the process public

organisations should follow to produce a sustainability report.
sector
(4)
(20)
December 2014
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 both

single entity and group accounts.
(6)
(b)
Identify and explain the adjustments that may be required when group
accounts are prepared.
(6)
(c)
Identify and discuss the circumstances under which NHS bodies and the
Department 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)
(20)
Ratio
December 2014
Basis of calculations
Return on capital
employed
Net profit before tax & interest

Capital employed
Profit margin (gross)
Gross profit
Sales
Profit margin (net)
Net profit before tax & interest

Sales
Turnover of capital
employed
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)
Gearing
Current assets stock

Current liabilities
Non-equity finance
All long-term finance
Interest cover
Operating profit/surplus
Interest
December 2014
Marking Scheme for question 1

Comprehensive Income and Expenditure statement for Myatt County
Council for the year ending 31 March 2014
Central services
Cultural, environmental and planning
Education and childrens services (+ 40)
Highways and transport services
Adult social care
Corporate and democratic core
Non-distributed costs
Cost of services
000
Gross Exp
(W1)
547,391
431,950
490,840
130,379
550,712
145,769
96,486
2,393,527
000
Gross
income
(45,390)
(341,849)
(254,658)
(63,809)
(437,200)
(5,055)
(52,840)
(1,200,801)
000
Net Exp
502,001
90,101
236,182
66,570
113,512
140,714
43,646
1,192,726
()
Other operating expenditure:

Net (gain) on the disposal of non-current
assets (600-420)
Financing and investment income and
expenditure:
Interest payable
Interest receivable
Net pension interest cost and expected
return on pension assets
(180)
()
2,421
(1,325)
3,690
Taxation and non-specific grant income:

Non-ringfenced government grants
NNDR
Council tax
Capital grants and contributions
Surplus on provision of services
Net loss on revaluation of property plant
and equipment
Actuarial loss on pension assets and
liabilities
Other comprehensive income and
expenditure
Total comprehensive income and
expenditure
(474,953)
(300,106)
(543,555)
(250)
()
(121,532)
75
60
135
(121,397)
()
()
December 2014
Balance Sheet for Myatt County Council as at 31 March 2014

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

Inventories
Short-term debtors (47,830 +600 85)
Cash and cash equivalents (5,214 - 650)
394
48,345
4,564
53,303
(42,269)
Short-term creditors (42,354 85)

Long term borrowing (821,746 +53,850 42,761)
Liability related to defined pension benefit
scheme (87,350 + 60)
Net assets
()
(87,410)
354,192
()
216,214
125,227
250
Unusable Reserves
Revaluation reserve(35,621 75 540 - 50)
Capital adjustment account (W3)
Deferred capital receipts
Pension Reserve (87,350 + 60)
Total reserves
Disposals
34,956
64,355
600
(87,410)
354,192
1,263,288
650
(115)
(420)
1,263,403
Working 2: General fund
Opening
MRP
Depreciation
Grant in year
DRF
Pension cash
Pension costs
Impairment
Disposal NBV
Disposal proceeds
Surplus on services
90,678
(20,351)
24,570
(250)
(75)
(2,500)
2,750
40
420
(600)
121,532
216,214
MRP & dep
Cash & costs
()
(832,835)
Usable Reserves
General fund (W2)
Capital receipts reserve (125,352 125)
Capital grants unapplied (450 200)
Working 1: PPE
Opening
Additions
Impairment
(1)
()
()
()
(1)
()
()
December 2014
Working 3: CAA
Opening
MRP
Depreciation
Impairment
Revaluation on disposal
Grant in year
DRF
Capital receipts
HCA
Disposal NBV
Previous year grant
67,794
20,351
(24,570)
(40)
50
250
75
125
540
(420)
200
64,355
MRP & dep
(Presentation of statements 1 mark)

(20)
December 2014
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 highest
average 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.
December 2014
Marking scheme for question 2

Question 2
(a)
(w1) RR
Opening
Impairment temp
Impairment perm
HCA
Disposal
146,594
-6
-7
-109
-12
Revaluation (balancing)
(both for
1/2)
(1/2)
(1/2)
486
146,946
(w2) PPE
Opening
Depreciation
Impairment (10+14)
Revaluation (w1)
Donated
Purchases
1,260,733
-22,368
-24
486
80
378
Disposal (balancing)
-70
(1/2)
(1/2)
(1/2)
(1/2)
(1/2)
1,239,215
(4)
(b)
(w3) RE
Opening
Disposal revaluation write
out
HCA
Impairment
Deficit for the year
(balancing)
Total
102,495
12
(1/2)
109
7
(1/2)
(1/2)
(680)
101,943
(w4) PDCD
Net assets
Add PDC payable
less donated
Net relevant assets
Average
Less average cash held
31/03/2014
000
1,225,467
25
(370)
31/03/2013
000
1,243,963
48
(306)
1,225,122
1,243,705
1,234,414
(6,900)
(1/2)
(1/2)
(1/2)
December 2014
1,227,514
42,963
PDCD at 3.5%
(w5) Operating surplus
Operating deficit (w3)
PDCD w4
Unwinding of discount (110 x
1.9%)
Interest receivable
Interest payable
Operating surplus
(680)
42,963
(2)
(32)
96
(1/2)
(1/2)
(1/2)
(1)
(both for
1/2)
42,345
Statement of cash flows for CKR NHS Trust for the year ending 31 March
2014
CASH FLOWS FROM OPERATING ACTIVITES
Operating surplus
w5
Impairment and reversals
(14-6)+10
Depreciation
Increase Inventories
(1380-1502)
Decrease trade and other receivables
(16830-15890)
Increase trade and other payables
(17086-25)-(16393-48)+(98-96)
Increase in provisions
(127-(1102))
Profit on disposal of NCA
(85-70)
Donated assets conditions met
Receipt of donated assets
(45-80)
Net cash inflow from operating activities
000
42,345
18
22,368
(122)
940
718
19
(15)
(20)
(35)
66,216
Cash flows from investing activities

Interest received
Proceeds of sale of property plant and equipment
Purchase of property plant and equipment
Net cash outflow from investing activities
Cash flows from financing activities
Receipts of loan
Repayment of PDC
Payment PDCD
Interest paid
(23665-22487)
(976578-994874)
(42963-(25-48))
Net cash outflow from financing activities
(1/2)
(1/2)
(1/2)
(1/2)
(1/2)
(1)
(1)
(1/2)
(1/2)
(1/2)
32
85
(378)
(261)
(1/2)
1,178
(18,296)
(42,986)
(98)
(1/2)
(1/2)
(1)
(1/2)
(both fo
1/2)
(60,202)
Net increase in cash & CE

Cash & CE at 31/3/13
Cash & CE at 31/3/14
Presentation
5,753
4,030
9,783
()
(16)
(20)
December 2014

This question was a compulsory NHS foundation trust cash flow statement. This
question 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 quite
complex and students are advised to carefully review the treatment of donations
and grants in particular as these areas are frequently incorrectly treated. One
student achieved the maximum 20 marks, and five students scored 18 and
above. However, there was again a very disappointing tail of 30 students scoring
5 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 Public
Dividend Capital Dividend was well answered. Part (a) which required balancing
figures in relation to non-current assets was well answered, with many students
scoring maximum marks. However, the additional complications of calculating the
deficit for the year and converting this to operating surplus, was frequently
missed out entirely.
December 2014

(a)
7 296 Opening
Net operating cost

(balancing)
414
(1/2)
(1/2)
(1/2)
(1/2)
750
50
26
55
PF recd (cash)
PF due
HCA
Audit fee
Disposal write out
14 (w1)
Closing
w1
(112-108)/108=3.7%
3.7%*60=2 net indexation
Disposal write out 12+2=14
7 777
8 191
(1/2)
8 191
(1/2)
(1/2)
(1/2)
(b)
(4)
000
Net operating cost

Non cash adjustments
Depreciation
Audit fee
Profit on disposal of NCA (W2)
Decrease in inventories (76 55)
Increase in receivables ((5 678-(50+20)) 4
989))
Decrease in payables (5 876 5 674)
Net cash outflow from operating activities
w2
Profit on disposal
90-(60+2(w1))
(414) (1/2)
389
55
(28)
21
(1/2)
(1/2)
(1/2)
(1/2)
(619) (1)
(202) (1/2)
(798)
28 (1)
(5)
(c)
Financial assets:
Central government bodies are allowed to make investments in other
organisations within and outside the central government sector.
December 2014
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 service
organisations
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 financial
liabilities other than loans advanced from the NLF, the outstanding principal
elements of finance leases, and principal elements of on balance sheet PFI
arrangements.
Trading funds may also have finance lease liabilities but also the loans
advanced to them by either their parent department or the NLF (via their
parent department).
(1/2 mark per identified asset/liability if no reference to valuation up to maximum
of 3. Identification and valuation of assets and liabilities needed for full 6
marks)
(d)
The historical cost adjustment is calculated by taking the difference between

depreciation charged on the revalued amounts of depreciable assets and the
depreciation charge which would have been made had no revaluations taken
place. This is debited to the revaluation reserve and credited to the general
fund/I&E reserve.
(2)
The historical cost adjustment aims to ensure that over an assets life the
revaluation reserve is written down to nil. Therefore when the assets net
book value is nil, there will be no residual value relating to this asset in the
revaluation reserve which has not been recognised in the revenue account.
(2)
It also allows the general fund or income and expenditure reserve to be

compensated for the inflated depreciation expense which occurs as a result
of revaluing the non-current assets.
(1)
(1 mark per point up to maximum of 5 marks)

(20)
December 2014

This question was on Central Government, and included re-creation of the general
fund, a cash flow extract and a discussion of financial assets and liabilities within
Central Government and the Historical Cost Adjustment. This was the second
most 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 was
quite well answered, although many students did not calculate the disposal write
out correctly.
The Historical Cost Adjustment section was also well answered, however, the
section on financial assets and liabilities was extremely poorly answered with
many students discussing non-financial assets and liabilities such as property,
plant and equipment and few correctly identifying the basis on which these assets
and liabilities are held. This consistently poorly answered section meant that this
was the question with the lowest average marks.
December 2014

(a)
The donated asset account (DAA) is used to record the potential liability in
respect 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 the
potential liability in respect of any capital grants received where the conditions of
the 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 external
debt.
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 receipts
reserve.
If capital grants have been received and credited to income but not yet spent in
the acquisition of non-current assets they will be credited to the capital grants
unapplied (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 many
community assets will be held in perpetuity and may have restrictions on their
use and disposal. The key to distinguishing them is whether or not they are
preserved 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 be
disclosed in the notes to the accounts only..Heritage assets with indefinite lives
would not be subject to depreciation.
The Code gives local authorities the option to hold community assets on the same
valuation basis as heritage assets. If this option is exercised, all community
assets 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)
December 2014
(c)
Dr CIES: Cost of Services
Cr Pension Fund Liability
000
5,470
5,470
Dr CIES: Non-distributed costs

67
67
Dr CIES: Financial and investment income and expenditure

2,240
2,240
Dr Pension Fund Liability

Cr CIES: Financial and investment income and expenditure
2,300
2,300
Dr Pension Fund Liability

Cr Cash
4,730
4,730
Dr General Fund
Cr Pension Reserve
4,730
4,730
Dr Pension Reserve
Cr General Fund
*5,470 + 67 + 2,240 2,300
5,477 *
5,477
40
40
Dr Pension Reserve
Pension fund liability working
Expected return
Cash based cost
c/f
2,300
4,730
24,237
31,267
b/f
Current service cost
Past service cost
Unwinding discount
Actuarial loss
23,450
5,470
67
2,240
40
31,267
4,730
Pension Reserve working

b/f
IAS 19 costs
Actuarial loss
23,450
5,477
40
28,967
Cash based cost

c/f
24,237
28,967
(10)
(20)
December 2014

This question was an optional question about local government non-current
assets, balance sheet reserves and pensions. The question was quite well
answered 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 on
this part; however students should consider the number of marks available for
any question when allocating their time, as some spent much time expanding on
the descriptions in unnecessary detail. Students are again reminded to read the
question since many students failed to produce the requested working for the
pension reserve and pension liability accounts.
December 2014

(a)
Fees and charges local authorities have the power to levy a fee for nonstatutory 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 be
retained locally.
Council tax generally used to fund revenue expenditure but can be used to
finance capital. Subject to gearing effect.
Government grants General
government or from EU.
or
specific
grants
available,
Borrowing and leasing eg from PWLB or other sources.

limits apply.
from
central
Prudential borrowing
Capital receipts from the sale of assets. Can be used to finance the purchase of
new assets or for the repayment of debt.
Donations Donations may have conditions attached which would affect their
use.
Investment income eg rents from commercial properties such as shops or light
industrial units.
Rents from council housing stock where authorities have housing stock this is
accounted for through the Housing Revenue Account.
(1 mark per well described 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)
December 2014
(c)
(d)
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)
The principle of sustainability is that we should not use resources today which
compromise quality of life for future generations. Sustainability reporting is
about organisations showing that they are following sustainabile principles
in pursuing their strategic objectives.
The CIPFA Framework for Sustainability Reporting for Public Sector Organisations
guides organisations to set their own targets in relation to sustainability to
fit 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)
(20)
This question was an optional question on public sector funding, frameworks and
sustainability reporting. It was the most popular optional question and was
generally well answered with the second highest average mark.
The local authority funding section was particularly well answered, but again, in
many cases, the question was over answered with students spending more time
on this section than the marks suggested. It is, however, important that
students are not too brief; one word answers will not attract marks. Students
were also, in general, quite vague on sustainability reporting with answers
frequently clearly guesses.
Students are reminded to pay attention to the wording of the questions; they
were asked to compare and contrast supply and non-supply financed central
government bodies and some students simply described elements of the funding
for each.
December 2014

(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
December 2014
Foundation trusts consolidate

considered subsidiaries
all
charitable
funds
which
are
The Department of Health will consolidate its own accounts and

those of its agencies and other bodies, including the Consolidated
Foundation 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)
(20)
December 2014

This question was an optional question on group accounting and was the least
popular optional question.
The section on joint ventures and JANETs was very well answered, as was the
adjustments for group accounts.
The section on why group accounts and single entity accounts are produced was
poorly answered, and the specific focus on NHS group accounting was very poor.
Students must be able to consider the specific circumstances of the different
types of public sector bodies.
Summary
Successful candidates for this paper completed five questions, and spent an
appropriate 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 did
possibly did not read the question paper carefully enough and failed to
understand 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 the
sectors and topics covered by the syllabus.

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Public Sector Financial Reporting

2014 Chartered Institute of Public Finance and Accountancy

PUBLIC SECTOR FINANCIAL REPORTING

2014 Chartered Institute of Public Finance and Accountancy

PSFR Examination Guide

Long term borrowing

Capital receipts reserve

Capital grants unapplied at 01 April 2013

Non-ringfenced government grants

Liability related to defined pension benefit

Pension Reserve at 01 April 2013

PSFR Examination Guide

Additional information for the year ending 31 March 2014:

Requirement for question 1

PSFR Examination Guide

Property Plant and Equipment

Additional information for the year ending 31 March 2014:

PSFR Examination Guide

Requirement for question 2

PSFR Examination Guide

SECTION B (Answer THREE from four questions)

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

Property Plant and Equipment

Assets less liabilities

Additional information for the year ending 31 March 2014:

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

PSFR Examination Guide

Requirement for question 3

Both supply and non-supply financed Central government bodies may

PSFR Examination Guide

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

PSFR Examination Guide

Requirement for question 4

b) Heritage and community assets

PSFR Examination Guide

Requirement for question 5

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

Compare and contrast the sources of finance available to supply-financed

Describe sustainability reporting, and the process public

PSFR Examination Guide

Requirement for question 6

Discuss the reasons why organisations working in groups prepare both

Explain the difference between a joint venture and a joint arrangement

PSFR Examination Guide

Net profit before tax & interest

Profit margin (gross)

Profit margin (net)

Net profit before tax & interest

Stock turnover period

Average stock x 365

Debtors collection period

Average debtors x 365

Average creditors x 365

Current assets stock

PSFR Examination Guide

Marking Scheme for question 1

Other operating expenditure:

Taxation and non-specific grant income:

PSFR Examination Guide

Balance Sheet for Myatt County Council as at 31 March 2014

Property, plant and equipment (W1)

Short-term creditors (42,354 85)

MRP & dep

Cash & costs