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Tuesday, July 24, 2018

BOOK KEEPING: FORM TWO: Topic 5 - SOURCES OF GOVERNMENT FUNDS AND EXPENDITURE ESTIMATES



TOPIC 5: SOURCES OF GOVERNMENT FUNDS AND EXPENDITURE ESTIMATES

Sources of Government Funds and Expenditure Estimates
Identify sources of government funds and Expenditure Estimates
Government revenue refer to the income generated by the government through various income sources inside and outside the particular government, As to any other person one will be eager to know where government earn money to finance its activity as well as expenditure of the government. The following are the source of revenue of various government including united republic of Tanzania (URT):-
  • Taxation, Like we have discussed in the previous tutorial that taxation is a compulsory levy imposed by the government where by no direct benefit citizen will receive from the government, The levy is usually payable by citizen at different rate depending on the nature of economic activity conducted by an individual or firm the obtained amount is the revenue for the government and is used to meet various expenditure causing taxation to be the first source of government revenue.
  • FEES, These are payment made by users of public services on government cost sharing in health and education, That is to say the payment made by user of public services i.e health and education is not the actual cost that they were required to pay rather than contribution on cost already payable government.
  • FINES, Refer to the penalties imposed by government against law breaches,i.e any person or firm which ha been proved guilt by law must be exposed to specific fine as the compensation for the destruction made by a person or firm and the collected amount being the revenue for the government
  • GRANTS, Refer to non-payable money provided by the government to another government with the aim of helping such government either to improve or to start a project which are of great importance.to the society of such government.
  • FOREIGN INVESTMENT, Sometime government may decide to invest beyond its boundary provided there is a proof for sustainable and profitable cash flow, the obtained amount after operation being the revenue for particular government.
Other sources are: revenue obtain from borrowing, grants, Divident etc
Distinguish between revenue and capital expenditure estimates
Difference between Revenue and Capital Expenditure Estimates
capital expenditure is an amount spent to acquire or improve a long-term asset such as equipment or buildings. Usually the cost is recorded in an account classified as Property, Plant and Equipment. The cost (except for the cost of land) will then be charged to depreciation expense over the useful life of the asset.
Revenue expenditure is an amount that is expensed immediately—thereby being matched with revenues of the current accounting period. Routine repairs are revenue expenditures because they are charged directly to an account such as Repairs and Maintenance Expense. Even significant repairs that do not extend the life of the asset or do not improve the asset (the repairs merely return the asset back to its previous condition) are revenue expenditures.
Thus, the differences between these two types of expenditures are as follows:
  • Timing. Capital expenditures are charged to expense gradually via depreciation, and over a long period of time. Revenue expenditures are charged to expense in the current period, or shortly thereafter.
  • Consumption. A capital expenditure is assumed to be consumed over the useful life of the related fixed asset. Revenue expenditure is assumed to be consumed within a very short period of time.
  • Size. A more questionable difference is that capital expenditures tend to involve larger monetary amounts than revenue expenditures. This is because expenditure is only classified as a capital expenditure if it exceeds a certain threshold value; if not, it is automatically designated as revenue expenditure. However, certain quite large expenditures can still be classified as revenue expenditures, as long they are directly associated with sale transactions or are period costs.


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