Accounting Q&A · Government Accounting · Topic 9
Practise 25 government accounting questions on debt service, guarantees and stress tests using five worked public-sector cases. Try each answer before revealing it. The cases are illustrative. Check the applicable reporting framework and local budget rules.
A government borrows 500,000 at a fixed annual coupon of 4%
1. What should the accountant establish?
Calculate annual cash coupon of 20,000 before principal payments.
2. What evidence should be obtained?
Inspect the contract and debt register.
3. What calculation or procedure would help?
Reconcile coupon dates and payment amounts.
4. What limitation or alternative matters?
Effective interest can differ from the coupon.
5. What should happen next?
Update debt-service forecasts and the ledger.
Debt of 200,000 falls due next quarter
6. What should the accountant establish?
Assess liquidity and refinancing risk.
7. What evidence should be obtained?
Obtain maturity schedules and cash forecasts.
8. What calculation or procedure would help?
Compare scheduled payments with available funding by date.
9. What limitation or alternative matters?
An expected refinancing is not cash already available.
10. What should happen next?
Report funding gaps and test delayed refinancing.
A government guarantees another entity’s borrowing
11. What should the accountant establish?
Assess recognition and disclosure under the applicable requirements.
12. What evidence should be obtained?
Obtain guarantee terms, exposure and borrower information.
13. What calculation or procedure would help?
Determine whether financial guarantee or other rules apply.
14. What limitation or alternative matters?
A guarantee does not automatically equal a loss of its full face value.
15. What should happen next?
Monitor exposure and explain measurement assumptions.
A 100,000 foreign-currency liability is translated at 1.20 domestic units per foreign unit
16. What should the accountant establish?
Measure the liability at 120,000 domestic units under the stated rate.
17. What evidence should be obtained?
Confirm denomination and the relevant exchange rate.
18. What calculation or procedure would help?
Stress test the balance at 1.30, which gives 130,000.
19. What limitation or alternative matters?
Cash debt service also depends on future rates and timing.
20. What should happen next?
Report currency sensitivity and planned responses.
A public-private partnership includes minimum revenue support
21. What should the accountant establish?
Identify exposure beyond the annual cash payment.
22. What evidence should be obtained?
Collect contracts, forecasts and guarantee clauses.
23. What calculation or procedure would help?
Model payments under several demand scenarios.
24. What limitation or alternative matters?
A single forecast can hide downside fiscal risk.
25. What should happen next?
Report material exposures and track trigger conditions.