Revenue
Cash accounting policy
Revenue is recognized in the statement of cash receipt and cash payment when received. No asset is recognized when the revenue is not received at the reporting date.
Accrual accounting policy
Revenue is recognized when earned but not when received. Revenue receivable are treated as assets on the statement of financial position.

Capital asset
Cash accounting policy
Capital assets are recognized as expenditure for the year in which the asset was purchased or developed. No depreciation is charged to the determination of cost of service of the period.
Accrual accounting policy
The asset is recognized as an asset. The cost of the asset is written off over its useful life in the determination of financial performance.

Allowances and provisions
Cash accounting policy
No room for allowances and provisions since recognition is purely on cash basis.
Accrual accounting policy
Allowance and provisions are made on receivables, stock loss and non-current assets.

Expenditure
Cash accounting policy
Expenditures are recognized when paid for. Unpaid expenditures are not accounted for.
Accrual Accounting Policy
Expenditure is recognized in the determination of financial performance when incurred not when paid for. Expenditure outstanding is reported as liability in the financial position of the entity.

(1 mark for each policy explained= 4 marks)

When management is formulating accounting policy the guiding principle is that the policy should results in information that is:

• Relevant to the decision-making needs of users.
• Reliable, in that the financial statements:
  ** Represent faithfully the financial position, financial performance, and cash flows of the entity
  ** Reflect the economic substance of transactions, other events and conditions, and not merely the legal form
  ** Are neutral, i.e., free from bias
  ** Are prudent
  ** Are complete in all material aspects
  ** Consistent

IPSAS 3 insists on ensuring consistency of accounting policy. However, a change in accounting policy may occur under two accepted conditions:

• When the change is required by an IPSAS, or
• When the change is made by management on the grounds that it results in reliable and more relevant information.
  

• If a change in accounting policy is required by an IPSAS, follow that pronouncement’s transition requirements.
• If none is specified, or if the change is voluntary, apply the new accounting policy retrospectively by restating prior periods.
• If restatement is impracticable, include the cumulative effect of the change in net assets/equity.
• If the cumulative effect cannot be determined, apply the new policy prospectively.
  

Accounting policy relating to Land and Building covers cost measurement and recognitions and depreciation policies.
Cost Measurement and Recognition

• Initial recognition of land and building is at historical cost. Subsequent recognition is on carrying amount or revaluation.
• All acquisitions of land and building as well as improvements will be capitalized when the criteria of recognition in accordance with the IPSAS are met.
• Land and building should be derecognized when potential benefits cannot be expected to from to the entity.

Depreciation/impairment

• The depreciable/amortization amount of building be allocated over its useful life in accordance with the depreciation method.
• It is assumed that the residual value for all assets will be zero.
• The calculation of depreciation/amortization will stop where an asset is disposed of, held for sale or is fully depreciated.
• Impairment of building should be written off.
• The calculations of depreciation will commence in the year the asset is put to use for its intended purpose.
• Impairment loss shall be recognized immediately in the Covered Entity’s income statement, unless the asset is carried at a revalued amount.
• Where the impairment loss relates to a revalued asset, the impairment is firstly offset against its revaluation reserve balance. Any remaining impairment loss shall be recognized immediately in Covered Entity’s Income Statement.
• After recognizing the impairment loss, the depreciation charge shall be adjusted by taking into account the revised carrying amount, residual value and remaining useful life.

Accounting policy for inventory is as follows.
Measurement

• Inventory for sale shall be recognized at lower of cost and net realisable value.
• Inventory not for sale shall be recognized at lower of cost and current replacement cost.
• Inventory acquired through non-exchange transaction should be measured at fair value at the date of acquisition.

Recognition

• Inventory sold, exchanged or distributed shall be recognized as expense at carrying amount in the period in which the revenue relates, exchange or distribution is made.
• Write offs in inventory should be recognized as expense in the period it relates.
  

• Basis of accounts
• Revenue recognition
• Provision for bad debt
• Expenditure
• Transactions denominated in foreign currencies
• Consumption of fixed assets