Accounting for Government & NPO Removal Exam

Which of the following is an indication that the government is acting as a principal rather than an agent in a transaction?

• A. The entity does not have the discretion to determine pricing.
• B. The entity collects and remits all amounts to another entity.
• C. The entity bears the risk and rewards of the transaction.
• D. The entity earns a fixed percentage fee for the transaction.
• E. None of the Above

Answer explanation

A principal bears the significant risks and rewards of the transaction, unlike an agent who acts on behalf of another.

Which of the following is a required disclosure under PPSAS 1, Presentation of Financial Statements?

• A. Budget projections for the next fiscal year
• B. Entity's compliance with laws and regulations
• C. Explanation of the basis for going concern
• D. Management's compensation package
• E. None of the Above

Answer explanation

PPSAS 1 requires disclosure on assumptions such as going concern, especially if there's doubt on its validity.

In the context of fund accounting in NPOs, which fund is used to record income and expenses related to the general operations of the entity?

• A. Endowment Fund
• B. Special Revenue Fund
• C. General Fund
• D. Restricted Fund
• E. None of the Above

Answer explanation

The General Fund accounts for unrestricted resources used for day-to-day operations.

The power to govern the financial and operating policies of another entity so as to benefit from its activities is called:

• A. Oversight
• B. Regulation
• C. Control
• D. Supervision
• E. None of the Above

Answer explanation

In accounting, “control” implies the power to direct financial and operating decisions.

Which of the following statements best reflects the accrual basis of accounting?

• A. Revenues are recorded when received in cash
• B. Expenses are recognized when incurred, regardless of payment
• C. Revenues are recorded when services are requested
• D. Expenses are matched with budget releases
• E. None of the Above

Answer explanation

Accrual basis recognizes income and expenses when they are earned or incurred, not when cash changes hands.

A liability is recognized when:

• A. It is probable and measurable.
• B. It is disclosed in the notes.
• C. The related expense is deferred.
• D. A commitment is made, even if not contractual.
• E. None of the Above

Answer explanation

Recognition criteria under PPSAS include probability and reliable measurement.

Which of the following events would require recognition in the financial statements rather than mere disclosure?

• A. Contingent asset from an ongoing court case
• B. Contingent liability with a probable outflow
• C. Commitment to future construction not yet contracted
• D. Guarantee given for a third party's loan
• E. None of the Above

Answer explanation

A probable outflow that is measurable requires provision (recognition) under PPSAS 19.

Which of the following best describes the nature of an exchange transaction?

• A. Voluntary transfer without compensation
• B. Receipt of a donation from another government
• C. Transaction involving equal value of consideration
• D. Provision of services based on government policy
• E. None of the Above

Answer explanation

An exchange transaction involves equal value given and received.

Which statement below best describes a non-cash-generating asset?

• A. Asset held for investment return
• B. Asset used to provide services to the public
• C. Asset rented out to private sector
• D. Asset classified as inventory
• E. None of the Above

Answer explanation

Non-cash-generating assets are primarily held for service delivery, not for commercial gain.

The primary purpose of financial reporting by public sector entities is to:

• A. Show profitability of operations
• B. Disclose sensitive political information
• C. Provide information useful for accountability and decision-making
• D. Comply with private sector regulations
• E. None of the Above

Answer explanation

PPSAS emphasizes stewardship, transparency, and decision-usefulness in government reporting.