Demystifying Standard Chart of Accounts ( m SCOA) Chapter 2 – Key definitions and understanding the accountability reforms Presented by National Treasury:

Demystifying Standard Chart of Accounts (mSCOA)

Chapter 2 – Key definitions and understanding the accountability reforms

Presented by National Treasury: Chief Directorate Local Government Budget Analysis

Outcomes

• Explain the background and components within the municipal accountability cycle.

• Categorise revenue in accordance with reporting formats.

• Categorise expenditure (capital and operational) in accordance with the reporting formats.

• Have a general understanding of VAT in the municipal environment.

• Explain the outcome of non cash transactions and other transactions in “assets, liabilities and net assets” within the mSCOA classification.

2

Financial Reforms - Municipal Accountability Cycle NDP

MTSF

Financial Reforms - Municipal Accountability Cycle• NDP – National Development Plan

• MTSF – Medium Term Strategic Framework

• Integrated development plans (IDP)

– This sets out the goals and development plans, which need to be aligned with the municipality's available resources. Council adopts the IDP and undertakes an annual review and assessment of performance based on the annual report.

• Budget

– The three year budget sets out the revenue raising and expenditure plan for the municipality for approval by council. The allocation of funds needs to be aligned with the priorities in the IDP.

• Service delivery and budget implementation plan (SDBIP)

– Sets out monthly and quarterly service delivery and financial targets aligned with the annual targets set in the IDP and budget. It lays the basis for the performance agreements of the municipal manager and senior management.

• In year reports

– The administration reports to council on the implementation of the budget and SDBIP through monthly, quarterly and mid year reports. Council uses these reports to monitor both the financial and service delivery performance of the municipality's implementation actions.

Financial Reforms - Municipal Accountability Cycle• Annual financial statements

– Reports on the implementation of the budget, and reflect the financial position of the municipality. They are submitted to the Auditor General, who issues an audit report indicating the reliance council can place on the statements in exercising oversight.

• Annual Report– It is the primary instrument of accountability, in which the mayor and municipal

manager report on the implementation performance in relation to the budget and the SDBIP, and the progress being made in realising the IDP priorities.

• Oversight report– Council produces an oversight report based on outcomes highlighted in the

annual report and actual performance.

Budget process timelines – 2015/2016 – Pilot municipalities

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Budget process timelines

• Non pilot municipalities/municipal entities must prepare an mSCOA aligned budget to be adopted by 30 June 2017.– What are the implications of the above for you ?

• Refer to implementation of mSCOA in your municipality – last presentation

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Purpose of reports from the accountability cycle• The main purpose of the reports as stated in the accountability cycle is to provide

information about sources of revenue and use of funds. • Broadly, the main purpose of whole of government operations is to use public

resources to:

• regulate relevant aspects of society and the economy• provide services to the community in areas where there is market failure• build, improve and maintain infrastructure• redistribute wealth according to nationally determined criteria.

• To fulfil these functions effectively, whole of government must raise revenue and it must spend, and the reports (from the accountability cycle) provides the analytical presentation of local government revenue and expenditure.

Budget tables – Revenue by source

9

2012/13

Audited

Outcome

Original

Budget

Adjusted

Budget

Monthly

actual

YearTD

actual

YearTD

budget

YTD

variance

YTD

variance

Full Year

Forecast

R thousands %

Revenue By SourceProperty rates 67,242 121,098 118,124 5,270 72,877 60,549 12,328 20% 121,098 Property rates - penalties & collection charges 3,509 2,811 1,971 271 1,566 1,406 160 11% 2,811 Serv ice charges - electricity rev enue 79,489 89,337 88,735 6,628 57,247 44,669 12,579 28% 89,337 Serv ice charges - w ater rev enue – – – – – – – Serv ice charges - sanitation rev enue – – – – – – – Serv ice charges - refuse rev enue 10,158 10,889 9,889 789 5,836 5,445 392 7% 10,889 Serv ice charges - other 2,186 1,240 1,700 133 978 620 358 58% 1,240 Rental of facilities and equipment 817 1,162 455 46 405 581 (176) -30% 1,162 Interest earned - ex ternal inv estments 432 450 650 72 740 225 515 229% 450 Interest earned - outstanding debtors – – 33 0 14 – 14 #DIV/0! – Div idends receiv ed – – – 368 – 368 #DIV/0! – Fines 1,049 1,000 300 6 223 500 (277) -55% 1,000 Licences and permits 2,957 3,000 3,500 256 2,111 1,500 611 41% 3,000 Agency serv ices – – – – – – – Transfers recognised - operational 53,729 52,851 50,390 37,425 50,923 26,426 24,497 93% 52,851 Other rev enue 8,613 2,135 1,325 91 534 1,068 (534) -50% 2,135 Gains on disposal of PPE 1,908 3,456 – – – 1,728 (1,728) -100% 3,456

Total Revenue (excluding capital transfers and

contributions)

232,090 289,429 277,072 50,988 193,821 144,715 49,106 34% 289,429

Description Ref

Budget Year 2013/14

KZN433 Greater Kokstad - Table C4 Monthly Budget Statement - Financial Performance (revenue and expenditure) - M08 February

SDBIP – Revenue by source

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Categorise revenue in accordance with reporting formats – S71 report

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KZN433 Greater Kokstad - Table C1 Monthly Budget Statement Summary - M08 February2012/13

Audited

Outcome

Original

Budget

Adjusted

Budget

Monthly

actual

YearTD

actual

YearTD

budget

YTD

variance

YTD

variance

Full Year

Forecast

R thousands %

Financial Performance

Property rates 70,752 123,909 120,095 5,541 74,442 61,955 12,488 20% 123,909

Serv ice charges 91,834 101,466 100,324 7,550 64,061 50,733 13,328 26% 101,466

Inv estment rev enue 432 450 650 72 740 225 515 229% 450

Transfers recognised - operational 53,729 52,851 50,390 37,425 50,923 26,426 24,497 93% 52,851

Other ow n rev enue 15,344 10,753 5,613 399 3,655 5,377 (1,722) -32% 10,753 Total Revenue (excluding capital transfers

and contributions)232,090 289,429 277,072 50,988 193,821 144,715 49,106 34% 289,429

Employ ee costs 87,030 89,181 83,774 8,238 57,046 44,591 12,455 28% 89,181

Remuneration of Councillors 4,268 4,880 4,845 341 2,864 2,440 424 17% 4,880

Depreciation & asset impairment 49,308 25,000 40,000 1,588 21,822 12,500 9,322 75% 25,000

Finance charges 1,092 2,990 1,407 69 1,095 1,495 (400) -27% 2,990

Materials and bulk purchases 63,070 70,960 74,778 4,416 49,120 35,480 13,640 38% 64,487

Transfers and grants 3,158 3,210 5,077 85 4,736 1,605 3,131 3,210

Other ex penditure 82,691 56,341 21,719 599 35,037 28,171 6,867 24% 50,914

Total Expenditure 290,618 252,562 231,601 15,336 171,719 126,281 45,438 36% 240,662

Surplus/(Deficit) (58,527) 36,867 45,472 35,652 22,102 18,434 3,668 20% 48,767

Transfers recognised - capital 35,210 94,104 49,369 2,209 9,748 47,052 (37,304) -79% 94,104

Contributions & Contributed assets – – – – – – – –

Surplus/(Deficit) after capital transfers &

contributions

(23,317) 130,971 94,841 37,861 31,849 65,486 (33,636) -51% 142,871

Share of surplus/ (deficit) of associate – – – – – – – –

Surplus/ (Deficit) for the year (23,317) 130,971 94,841 37,861 31,849 65,486 (33,636) -51% 142,871

Description

Budget Year 2013/14

Annual Financial Statements – Revenue by source

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STATEMENT OF FINANCIAL PERFORMANCEFOR THE YEAR ENDED 30 JUNE 2013

Note 2013 2012R R

CONTINUING OPERATIONS

REVENUE

Revenue from non-exchange transactionsProperty rates 19 236 380 463 219 939 596 Property rates - penalties imposed and collection charges 10 744 404 7 526 745 Fines 5 886 814 3 830 758 Government grants and subsidies 21 115 382 902 93 928 230 Licences and permits 8 571 183 7 655 052 Public donations - Property, plant and equipment 10 18 428 975 - Revenue from exchange transactionsService charges 20 510 312 319 441 168 185 Rental of facilities and equipment 1 056 156 1 063 235 Interest earned investments 21 098 672 15 922 541 Interest earned outstanding debtors 2 729 431 2 534 866 Other income 28 40 992 031 44 188 595 Fair Value Adjustment of investment properties 12 1 445 000 -

Total Revenue 973 028 348 837 757 802

Budget tables – expenditure (Operational)

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KZN292 KwaDukuza - Table A4 Budgeted Financial Performance (revenue and expenditure)

Description Ref 2009/10 2010/11 2011/12

R thousand 1Audited

Outcome

Audited

Outcome

Audited

Outcome

Original

Budget

Adjusted

Budget

Full Year

Forecast

Pre-audit

outcome

Budget Year

2013/14

Budget Year

+1 2014/15

Budget Year

+2 2015/16

Expenditure By TypeEmploy ee related costs 2 131,332 150,032 178,976 220,344 219,657 219,657 219,657 237,057 253,128 270,210 Remuneration of councillors 9,853 10,531 14,021 16,084 16,084 16,084 16,084 17,995 19,074 19,634 Debt impairment 3 – 2,149 429 15,708 10,000 10,000 10,000 14,136 20,001 22,296 Depreciation & asset impairment 2 31,853 38,038 46,997 49,193 57,791 57,791 57,791 61,170 64,848 68,869 Finance charges 11,133 9,855 4,940 14,791 11,091 11,091 11,091 18,026 25,204 24,235 Bulk purchases 2 183,539 236,753 310,409 362,712 362,712 362,712 362,712 394,048 417,784 444,775 Other materials 8 44,248 46,316 54,347 65,278 75,582 75,582 75,582 41,844 56,774 47,726 Contracted serv ices 26,138 21,943 21,256 29,155 29,523 29,523 29,523 33,229 35,375 37,516 Transfers and grants – – – 20,000 16,000 16,000 16,000 60,815 61,586 68,324 Other ex penditure 4, 5 128,280 114,894 109,000 137,580 136,972 136,972 136,972 153,996 167,195 198,263 Loss on disposal of PPE – 1,820 2,107 1,500 1,500 1,500 1,500 800 1,000 1,000

Total Expenditure 566,376 632,330 742,482 932,346 936,913 936,913 936,913 1,033,117 1,121,970 1,202,847

Current Year 2012/132013/14 Medium Term Revenue &

Expenditure Framework

Categorise expenditure in accordance with reporting formats – S71 report

14

2012/13

Audited

Outcome

Original

Budget

Adjusted

Budget

Monthly

actual

YearTD

actual

YearTD

budget

YTD

variance

YTD

variance

Full Year

Forecast

R thousands %

Expenditure By Type

Employ ee related costs 87,030 89,181 83,774 8,238 57,046 44,591 12,455 28% 89,181

Remuneration of councillors 4,268 4,880 4,845 341 2,864 2,440 424 17% 4,880

Debt impairment 13,228 5,000 15,000 265 11,917 2,500 9,417 377% 5,000

Depreciation & asset impairment 49,308 25,000 40,000 1,588 21,822 12,500 9,322 75% 25,000

Finance charges 1,092 2,990 1,407 69 1,095 1,495 (400) -27% 2,990

Bulk purchases 61,806 64,487 70,000 4,176 48,355 32,244 16,111 50% 64,487

Other materials 1,264 6,473 4,778 240 765 3,236 (2,472) -76% –

Contracted serv ices 33,096 14,170 6,719 335 4,019 7,085 (3,066) -43% 14,170

Transfers and grants 3,158 3,210 5,077 85 4,736 1,605 3,131 195% 3,210

Other ex penditure 36,367 37,171 – – 19,101 18,586 516 3% 31,744

Loss on disposal of PPE – – – –

Total Expenditure 290,618 252,562 231,601 15,336 171,719 126,281 45,438 36% 240,662

Surplus/(Deficit) (58,527) 36,867 45,472 35,652 22,102 18,434 3,668 0 48,767

Transfers recognised - capital 35,210 94,104 49,369 2,209 9,748 47,052 (37,304) (0) 94,104

Contributions recognised - capital – –

Contributed assets – –

Surplus/(Deficit) after capital transfers &

contributions

(23,317) 130,971 94,841 37,861 31,849 65,486 142,871

Tax ation –

Surplus/(Deficit) after taxation (23,317) 130,971 94,841 37,861 31,849 65,486 142,871

Attributable to minorities

Surplus/(Deficit) attributable to municipality (23,317) 130,971 94,841 37,861 31,849 65,486 142,871

Share of surplus/ (deficit) of associate

Surplus/ (Deficit) for the year (23,317) 130,971 94,841 37,861 31,849 65,486 142,871

KZN433 Greater Kokstad - Table C4 Monthly Budget Statement - Financial Performance (revenue and expenditure) - M08 February

Description Ref

Budget Year 2013/14

Annual Financial Statements – Expenditure - operational

15

STATEMENT OF FINANCIAL PERFORMANCEFOR THE YEAR ENDED 30 JUNE 2013

Note 2013 2012R R

EXPENDITUREEmployee related costs 22 201 310 424 171 959 546 Remuneration of councillors 23 15 130 157 14 021 010 Collection costs 4 366 191 3 424 576 Ammortisation 11 2 515 404 1 063 738 Depreciation 10 33 766 169 44 436 003 Repairs and maintenance 63 303 086 53 998 683 Finance costs 24 8 134 555 4 940 052 Bulk purchases 25 361 429 928 310 409 210 Retirement and long services benefits 4 5 709 431 15 070 959 General expenses 26 127 817 788 111 442 147 Contracted services 27.1 22 554 536 21 255 502 Transfer made: MIG funding paid to Ilembe District Municipality 27.2 20 619 944 - Adjustments to allowance for impairment 16 ( 499 019) 1 428 405 Adjustments to non-current provisions 3 3 301 593 1 739 589 Adjustments to current provision 6 100 000 - Bad debts written off 16 2 681 558 428 883 Fair Value Adjustment of investment properties 12 - 3 025 690 Loss on disposal of assets 4 537 732 2 003 908 Impairment loss on assets 10 5 705 346 - Less: Recharges ( 30 946 709) ( 25 690 571)

Total Expenditure 851 538 114 734 957 330

Budget tables – expenditure (capital)

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Description 2009/10 2010/11 2011/12

R thousandsAudited

Outcome

Audited

Outcome

Audited

Outcome

Original

Budget

Adjusted

Budget

Full Year

Forecast

Pre-audit

outcome

Budget Year

2013/14

Budget Year

+1 2014/15

Budget Year

+2 2015/16

Capital expenditure & funds sources

Capital expenditure 77,667 94,095 104,961 444,416 314,826 314,826 314,826 479,841 118,920 252,077

Transfers recognised - capital 29,280 18,390 20,824 91,874 61,130 61,130 61,130 89,345 60,577 49,018

Public contributions & donations – – 2,584 – – – – – – –

Borrow ing 8,019 – 34,771 193,566 112,219 112,219 112,219 178,534 3,154 150,815

Internally generated funds 40,367 75,705 46,782 158,976 141,477 141,477 141,477 211,962 55,189 52,244

Total sources of capital funds 77,667 94,095 104,961 444,416 314,826 314,826 314,826 479,841 118,920 252,077

Financial positionTotal current assets 331,474 366,822 492,271 318,174 292,516 618,708 618,708 433,991 431,050 436,446 Total non current assets 761,565 774,866 823,907 1,169,795 1,031,607 811,766 811,766 1,229,137 1,281,409 1,462,817 Total current liabilities 173,437 165,999 219,592 175,748 107,748 210,164 210,164 188,164 181,164 179,164 Total non current liabilities 108,073 116,517 145,387 294,592 229,506 172,967 172,967 338,227 333,926 473,668 Community w ealth/Equity 811,529 859,172 951,199 1,017,629 986,869 1,047,344 1,047,344 1,136,737 1,197,369 1,246,431

Current Year 2012/13 2013/14 Medium Term Revenue &

Annual Financial Statements – Financial position- Capital

17

STATEMENT OF FINANCIAL POSITION AT 30 JUNE 2013

Note 2013 2012

R R

ASSETS

Non-current assets 892 233 509 821 752 280

Property, plant and equipment 10 812 608 558 746 169 565

Intangible assets 11 13 320 315 20 990 454

Investment properties 12 65 285 000 53 630 000

Heritage Assets 13 18 346 18 346

Long-term receivables 14 1 001 290 943 915

Current assets 621 647 538 492 702 990

Inventories 15 2 882 889 2 544 540

Receivables from exchange transactions 16 57 610 161 47 653 314

Receivables from non-exchange transactions 17 27 792 349 26 863 933

Value added taxation receivable 9 4 409 855 12 293 002

Current portion of long-term receivables 14 5 076 5 076

Cash and cash equivalents 18 528 947 208 403 343 124

Total Assets 1 513 881 047 1 314 455 269

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Current collection method and processes

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Intended collection method and processes

• The current reporting processes concentrate on people with the financial system as a side issue which can easily be ignored / used / abused.

• The new collection method will place the emphasis where is should be - the centralised financial system. This will ensure that reporting on budgets / in-year results / AFS is always aligned.

• The current process requires a lot of intervention from NT to ensure integrity and quality of data.

• With the implementation of mSCOA all quality checks and control reports will be generated in the municipality.

• NT is currently researching methods and technologies for the most effective collection of information being reported by municipalities.

• Non-piloting municipalities will continue to report using the current processes to ensure continued S71 publications.

• Piloting municipalities will start to use the new reporting method BUT must be able to fall back onto the old method if any problems or connectivity issues are experienced.

• NT will cater for both reporting methods until most municipalities have implemented mSCOA successfully.

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Key points in respect to change to data collection

Revenue

• What is revenue– The gross inflow of economic benefits or service potential during the

reporting period when those inflows result in an increase in net assets, other than increases relating to contributions from owners.

• 2 Categories of revenue• Exchange• Non-exchange

• 3 broad sources• Tax revenue• Transfers• Municipal activities

21

Revenue

22

Revenue

Contra Accounts Exchange Revenue

Cost of Free BasicServices

Revenue Cost ofFree Services

Property Rates -Revenue Foregone

Agency Services

Interest, Dividend &Rent on Land

Operational Revenue

Rental From FixedAssets

Sales of Goods &Rendering Services

Service Charges

Non-ExchangeRevenue

Fines, Penalties &Forfeits

Licenses or Permits

Property Rates

Surcharges &Taxes

Transfers &Subsidies

Share of surplus

Associates

Joint Venture

Minorities

Revenue - Key definitions

• Exchange transactions– Are transactions in which one entity receives assets or service, or has liabilities

extinguished, and directly gives approximately equal value (primarily in the form of cash, goods, services or use of assets) to another entity in exchange

• Non exchange transactions– The municipality either receives value from another entity without directly giving

approximately equal value in exchange or gives value to another entity without directly receiving approximately equal value in exchange.

• Contra Accounts - Revenue– Covers all rates rebates, exemption and discounts given to households and other

customer groups either in general or specifically. Covers all free services or service discounts given in relation to services for which the municipality normally charges. Must not include the cost of debt write offs.

23

Revenue – Rules to remember

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Tax receipts

Non exchange

Outside of the courts

Complying with law

Fees charged > cost

Fines, Forfeits, Penalties

Non exchange

Imposed by the court

Contravention of law

Fees not related to costs

Sale of goods and services

Exchange

Individual’s choice

Regulation/ Administration

Fees charged = cost recovery

Rates Traffic Fine Registration fee

Revenue – An example

• In the City of Cape Town , Mrs. Cole receives R100 from Mr. Xang in respect to sale of tender documents. Mrs Cole prepares a receipt to be handed to Mr. Xang.– How would you classify this revenue transaction?

25

Revenue – An example

26

Revenue





Agency Services


Operational Revenue



Service Charges

Non-ExchangeRevenue


Licenses or Permits

Property Rates

Surcharges &Taxes


Share of surplus

Associates

Joint Venture

Minorities

Revenue – The solution

27

mSCOA item - Exchange Revenue: Sales of Goods and Rendering of Services – Sale of Goods: Publications - Tender Documents

Revenue





Agency Services


Operational Revenue



Service Charges

Non-ExchangeRevenue


Licenses or Permits

Property Rates

Surcharges &Taxes


Share of surplus

Associates

Joint Venture

Minorities

Expenditure

• What is expenditure– Expenses are decreases in economic benefits or service potential during

the reporting period in form of outflows or consumption of assets or incurrence’s of liabilities that result in decreases in net assets, other than those relating to distributions to owners.

• 2 main categories of expenditure• Operational• Capital

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29

Expenditure

Contra AccountsRevenue Expenditure

Cost of free basicservices rendered

Revenue: Cost of freebasic services rendered

Bad debt written off

Bulk purchases

Contracted services

Depreciation andamoritisation

Employee related cost

Interest, dividend andrent on land

Inventory

Remuneration ofcouncillors

Operating leases

Operational costs

Transfers andsubsidies

Statutory paymentsother than taxes

Income tax

Discontinuedoperations

Share of Deficit

Associate

Joint venture

Minorities

Expenditure - Operational

Key definitions – Expenditure (operational)

• Contra accounts - expenses– Revenue forgone is reflected as “income” on the revenue side and “expenditure” on the

expenditure side.• Depreciation and amortisation

– Depreciation is the systematic allocation of the cost of an asset from the Statement of Financial Position to Depreciation Expense on the Statement of Financial Performance over the useful life of the asset. Amortisation is the systematic allocation of the discount, premium or issue cost of a financial instrument over the life of the instrument, or an intangible asset over a certain period. Amortisation is the systematic allocation of the depreciable amount of an intangible asset over its useful life.

• Operational Costs– An operating expense is a day-to-day expense such as sales and administration, or

research & development, accounting expenses, license fees, advertising, office expenses, utilities such as telephone, insurance, property management, travel and vehicle expenses.

• Transfers and subsidies– Unrequited payments made by the municipality. Unrequited has the same meaning as non

exchange transaction, however transfers and subsidies refers to payments being made. It includes both current and capital transfers.

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Expenditure (Operational) – An example

• Mrs Khumalo is a municipal manager in municipality Y. She has an invoice from ABS Consulting Services (Pty) Ltd for the sum of R125,350. The invoice was for a consulting firm conducting an empowerment exercise relating to the internal audit function at the municipality.– How would you classify this expenditure transaction?

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Expenditure





Bulk purchases

Contracted services




Inventory


Operating leases

Operational costs



Income tax


Share of Deficit

Associate

Joint venture

Minorities

Expenditure - Operational

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Expenditure – Operational - Solution

Expenditure





Bulk purchases

Contracted services




Inventory


Operating leases

Operational costs



Income tax


Share of Deficit

Associate

Joint venture

Minorities

mSCOA Allocation: Expenditure: Contracted Services - Outsourced Services: Business and Advisory - Organisational

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Cash & CashEquivalents

Construction Contracts& Receivables

Receivables from Non-exchange Transactions

Other CurrentFinancial Assets

Income TaxReceivable

Inventory

Trade & Other Receivables from Exchange

Transactions

VAT Receivable

Assets

Current Assets Net Assets Non-Current Assets

Refer to separate tree Biological Assets

Defined BenefitAsset

Deferred Tax Assets

Heritage Assets

Intangible Assets

Investment inAssociate

Investment in JointVenture

Investment Property

Investment inSubsidiary

Investments

Non-Current Receivablesfrom Non-Exchange

Transactions

Trade & Other Receivablesfrom ExchangeTransactions

Other Non-CurrentFinancial Assets

Property, Plant &Equipment

Expenditure – Capital

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Expenditure – Capital – net assets

Net Assets

AccumulatedSurplus/(Deficit)

Equity Minority Interest Reserves & Funds

Capital Contributed byOther Government Links

Ordinary Shares

Preference Shares

Opening Balance

Movement duringthe year

Closing Balance

Opening Balance

Changes inAccounting Policy

Correction of PriorPeriod Error

Transfers to/fromAccumulated Surplus

Transfers to/fromReserves

COID Reserve

Housing &Development Fund

RevaluationReserve

Self InsuranceReserve

Share Premium

Key definitions

• Assets– Assets are resources controlled by the municipality as a result of past events and

from which future economic benefits or service potential are expected to flow to the municipality.

• Current Assets– Refers to assets which would recover in no more than 12 months after the

reporting date or if the normal operating cycle is more than 12 months the longer period.

• Net Assets– Retained earnings or accumulated deficit being the cumulative effect of

differences between assets and liabilities as per statement of financial position.• Non-current assets

– Refers to assets which would recover after 12 months or after the normal operating cycle of the municipality

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Key definitions

• Receivables from Non-exchange Transactions– This account is used for recording amounts receivable due from non-exchange

transactions, such as insurance claims, rates and other taxes, subsidies, road reinstatements, repayments resulting from unauthorised expenditure.

• Trade and Other Receivables from Exchange Transactions– A current asset resulting from selling goods or services on credit (on account)

such as water, electricity• Property, Plant and Equipment

– A major classification on the statement of financial position. Included are land, buildings, leasehold improvements, equipment, furniture, fixtures, delivery trucks, automobiles, etc. A distinction is made between "owned assets" and assets subjected to financial leases labelled as "leased assets".

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Expenditure (Capital ) – An example

• Mrs Hendriks is a municipal official responsible for capital spending. She authorises an invoices to be paid for the purchase of a office furniture for the value of R 228,000. – How would you classify this expenditure transaction?

38

39






Inventory


Transactions

VAT Receivable

Assets




Deferred Tax Assets

Heritage Assets

Intangible Assets



Investment Property


Investments


Transactions




Expenditure – (Capital) - An example

40






Inventory


Transactions

VAT Receivable

Assets




Deferred Tax Assets

Heritage Assets

Intangible Assets



Investment Property


Investments


Transactions




Expenditure – (Capital) - Solution

mSCOA allocation : Non-current Assets: Property, Plant and Equipment - Owned: Cost - Furniture and Office Equipment: All or excl NERSA - Acquisitions

VAT in municipalities

• SARS have issued VAT guide 419 on the 30 March 2011.• mSCOA does not change the way the municipality accounts for VAT.• Within the classification system you budget for VAT as you account for it.• System vendors will need to configure the systems to deal with the

following type of VAT transactions.

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Abbreviation Definition

EOut Exempted from Output Tax

N/a Not applicable to VAT transactions

StdOut Standard Output Tax

ZOut Zero Rated Output Tax

EIn Exempted from Input Tax

StdIn Standard Rated Input Tax

ZeroIn Zero Rated Input Tax

CapIn Capital Input Tax

Non cash transactions

• The municipality has many non cash transactions for example• Depreciation• Free services – contra accounts• Gains• Losses

• These will be dealt with during the training of financial management practitioners, we focus on some of the key definitions.

42

Non cash transactions - Key definitions

• Gains– represent other items that meet the definition of revenue and may, or may not

arise in the course of the operating activities of the municipality. Gains represent increases in economic benefits or service potential and as such are no different in nature from revenue.

• Losses– represent other items that meet the definition of expenses and may, or may not,

arise in the course of the operating activities of the entity. Losses represent decreases in economic benefits or service potential and as such, they are no different in nature from other expenses.

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Questions

44