Chapter Three
International Public Sector Accounting
Standards (IPSAS)
Introduction
Due to the inherent character of their activities,
public sector entities mainly hold non-cash
generating assets, but may also hold cash-
generating assets.
While cash-generating assets are generating
measurable future economic benefits based on
return from commercial transactions;
The value of non-cash-generating assets is
based on their service potential.
Asset Impairments
Impairment rules are included in two separate
standards:
Impairment of non-cash-generating assets (IPSAS21)
Impairment of cash-generating assets (IPSAS26)
IMPAIRMENT MECHANICS
Assess at each reporting date whether any
indication of impairment exists.
Consider both external indicators (e.g.
termination of the demand or need for services
provided by the asset) and internal indicators
(e.g. physical damage, evidence from internal
reporting that the service performance of an
asset is worse than expected).
Cont’d….
If an indication exists, estimate the recoverable
amount of the asset.
If the recoverable amount is lower than the
carrying amount, reduce the carrying amount to
its recoverable amount.
Recognize that reduction (impairment loss) as
an expense in the statement of financial
performance.
Depreciate/amortize the reduced carrying
amount over the remaining useful life of the
asset.
RECOVERABLE AMOUNT FOR
CASH- GENERATING ASSETS
Determination of the recoverable amount of an asset
is different depending on whether it is a cash
generating asset or non-cash generating asset.
For a cash-generating asset, it is the present value
of the estimated future cash flows, derived from
the continuing use of the asset and its sale at the
end of its useful life.
Cont’d….
Estimate the future operating cash flows:
Determine the level of the cash-generating unit,
Estimate the asset in its current condition.
Determine the discount rate to calculate the net
present value of those cash flows. (reflects the time
value of money and the risks specific to the asset).
RECOVERABLE AMOUNT FOR
NON-CASH GENERATING ASSETS
For a non-cash-generating asset, it is the present
value of the asset’s Remaining service potential.
DRC approach can be used to determine the
asset’s remaining service potential.
Depreciated replacement cost (DRC): cost replace
the gross service potential of an asset, depreciated
to reflect the asset in its used condition;
Key disclosures include:
The criteria developed by the entity to
distinguish cash-generating from non- cash-
generating assets;
The amount of impairment losses
recognized in surplus or deficit of the
period;
Information on the discount rate and other
assumptions used in calculating the
Recoverable amount of cash-generating
assets;
Cont’d….
for each material impairment loss recognized
during the period:
Explanation for the reason of the impairment,
The segment to which it belongs,
Cont’d….
IPSAS 22 requires disclosure of the following:
i. Consolidated financial statements, public
corporations, eliminations in consolidation;
ii.Minimum information that relates to: assets,
liabilities, revenue and expenses by major class,
revaluations, cash flows from operating activities,
investing activities and financing activities.
Cont’d….
iii. Changes in financial position:
• Transformation of an asset (e.g. converting raw
materials into finished goods; depleting an asset’s
service potential through use)
• Changes in the value of an asset or liability (e.g.
changes in the price of commodities; interest rate
changes)
DISTINGUISHING BETWEEN:
IPSAS 23 REVENUE FROM NON- EXCHANGE TRANSACTIONS;
IPSAS 9 REVENUE FROM EXCHANGE TRANSACTIONS
• An exchange transaction is one in which the
entity receives assets or services, or has
liabilities extinguished, and directly gives
approximately equal value (primarily in the
form of goods, services, or use of assets) to the
other party in exchange.
Cont’d….
Examples of exchange transactions include:
The purchase or sale of goods /services;
The lease of property, plant and equipment
at market rates.
Cont’d….
Examples of non-exchange transactions include:
Revenue from the use of sovereign powers (for
direct and indirect taxes, duties, and fines), grants,
and donations.
.
End of This Chapter
