PDS302V / FAC3703 / ACC3704 Exam Notes: Accounting for Revenue in the Public Sector (GRAP 9)

These exam notes focus on Accounting for Revenue in the Public Sector (GRAP 9) as examined in key South African university modules such as UNISA PDS302V – Public Sector Accounting, UNISA FAC3703 – Financial Accounting in Public Sector Entities, UNISA ACC3704 – Public Sector Accounting and Auditing, CUT PSA40A – Public Sector Accounting IV, and similar courses at institutions like Tshwane University of Technology (TUT) and Durban University of Technology (DUT). The guide links GRAP 9 concepts to typical exam questions, journal entries, and scenario-based problems frequently tested in South African public sector accounting modules.

1. Overview of GRAP 9 in the South African Public Sector

1.1 Location of GRAP 9 in the ASB Framework

GRAP 9: Revenue from Exchange Transactions is an Accounting Standard issued by the Accounting Standards Board (ASB), applicable to South African public sector entities such as:

National and provincial departments (under the PFMA, but when they prepare accrual-based GRAP financials for specific purposes)
Municipalities and municipal entities (MFMA)
Public entities listed in Schedules 2 and 3 of the PFMA
Trading entities of departments
Some constitutional institutions and specialised public bodies

In modules like UNISA PDS302V, UNISA FAC3703, UNISA ACC3704, and CUT PSA40A, students are expected to distinguish clearly between:

GRAP 9 – Revenue from Exchange Transactions, and
GRAP 23 – Revenue from Non-exchange Transactions (Taxes and Transfers).

Examiners often test whether students can classify a transaction correctly under GRAP 9 or GRAP 23, as this classification affects recognition timing, measurement, and presentation.

1.2 Objective and Scope of GRAP 9

Objective of GRAP 9:
To prescribe the accounting treatment for revenue arising from exchange transactions, i.e., transactions where each party gives and receives approximately equal value.

Scope of GRAP 9 in the public sector includes, among others:

Sale of goods (e.g. water, electricity, municipal consumables)
Rendering of services (e.g. refuse removal, licensing services, public transport services on a fee basis)
Interest, royalties, and dividends
Certain service concession arrangements from the operator’s perspective (when an entity earns fees as an operator, depending on the nature of the arrangement and link to GRAP 32/GRAP 109)
Rental income when contracts are not lease contracts under GRAP 13/GRAP 16/GRAP 17

Common exclusions from GRAP 9 scope (because they are covered by other standards):

Non-exchange revenue such as taxes, grants, and transfers → GRAP 23
Leases → GRAP 13 (or GRAP 16/17 for investment property/ PPE aspects)
Construction contracts → GRAP 11
Financial instruments revenue (e.g., fair value gains) → GRAP 104
Insurance contracts (where applicable) → relevant GRAP or IFRS-equivalent

In UNISA FAC3703 and ACC3704, exam questions frequently start with a mixed-scenario: a municipality receives grants (GRAP 23), sells water (GRAP 9), and earns interest on investments (GRAP 9). Students must separate each piece and apply the correct standard.

1.3 The Concept of Exchange vs Non-exchange Transactions

Correctly differentiating exchange from non-exchange is central for PDS302V and PSA40A exams.

Exchange transaction:
Each party to the transaction directly gives and receives approximately equal value.
Example: A municipality bills residents for water usage at approved tariffs. Residents receive water (service) and municipality receives cash or receivable.
Non-exchange transaction (GRAP 23):
Entity receives value without directly giving approximately equal value in exchange.
Example: Equitable share grant from National Treasury to a municipality; property rates may sometimes include an element that is more akin to taxation if the link between rate and services is not direct.

Borderline / mixed situations:

Some transactions contain both exchange and non-exchange elements; in such cases, entities must separate the transaction into components:

Exchange component → GRAP 9
Non-exchange component → GRAP 23

For example, in a lifeline water tariff:

First 6 kilolitres free: non-exchange (social policy) – GRAP 23
Additional consumption at standard tariff: exchange – GRAP 9

Exams in UNISA PDS302V often require students to allocate revenue components correctly and provide journal entries based on this split.

1.4 Key Definitions and Core Principles

Key GRAP 9 definitions often tested (definitions must be known verbatim or close for exams like ACC3704 and PSA40A):

Revenue:
Increases in economic benefits or service potential during the reporting period in the form of inflows or enhancements of assets, or decreases in liabilities, that result in an increase in net assets/equity, other than those relating to contributions from owners.
Fair value:
The amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.

Core principles of GRAP 9 for revenue recognition:

Revenue should be recognised when:

Significant risks and rewards of ownership have been transferred (for goods), or the stage of completion can be reliably measured (for services);
It is probable that the economic benefits or service potential associated with the transaction will flow to the entity;
The amount of revenue can be measured reliably;
The costs incurred or to be incurred in respect of the transaction can be measured reliably;
Any remaining managerial involvement does not constitute control over the goods or services sold.

These conditions are applied differently depending on whether the revenue arises from sale of goods, rendering of services, or interest/royalties/dividends.

1.5 GRAP 9 in Key University Modules (UNISA, CUT, TUT, DUT)

Typical coverage in South African courses:

UNISA PDS302V – Public Sector Accounting
- Classification between GRAP 9 and GRAP 23
- Revenue recognition criteria and timing
- Basic journal entries for municipal services, public hospital fees, licensing revenue
- Short scenario questions focusing on exchange vs non-exchange
UNISA FAC3703 – Financial Accounting in Public Sector Entities
- Comprehensive GRAP 9 theory and application
- Detailed numerical questions on multiple-element arrangements
- Disclosure requirements in notes to the AFS
- Common exam pattern: one larger integrated question (municipality or public entity) involving GRAP 9, 11, 13, 17, 23, 104
UNISA ACC3704 – Public Sector Accounting and Auditing
- Auditing perspective: assertions related to revenue
- Internal controls over billing and collections
- Audit procedures to test revenue recognition (existence, completeness, accuracy)
CUT PSA40A – Public Sector Accounting IV
- Case-study driven: Free State municipalities’ water and electricity revenue
- Emphasis on accounts receivable, billing systems, bad debts, impairment under GRAP 104
- Treatment of interest on late payments, disconnections, and reconnection fees
TUT and DUT public sector accounting modules (names change over time, such as TUT’s PUB310A Public Sector Accounting and DUT’s PSA301 Public Sector Accounting):
- Focus on municipal accounts and public entity revenue streams
- Emphasis on practical journals, T-accounts, and trial balances for GRAP 9 transactions.

Understanding how GRAP 9 is examined in these specific modules helps students tailor their study focus: some modules stress theory and definitions, others focus more on journal entries, calculations, and integrated exam questions.

2. Classification and Recognition of Revenue under GRAP 9

2.1 Categories of Revenue under GRAP 9

Public sector entities engage in a wide range of revenue-generating activities. GRAP 9 groups major types as follows:

Sale of goods
Rendering of services
Interest
Royalties
Dividends

Each has specific recognition criteria, though the fundamental principles of probability, reliable measurement, and transfer of risks/rewards apply throughout.

Typical public sector examples (frequently tested in PDS302V and FAC3703):

Category	Public Sector Example
Sale of goods	Sale of water, electricity, prepaid meters, inventory items
Rendering of services	Refuse removal, licensing, testing services, public transport
Interest	Interest on bank deposits, investments, overdue municipal fees
Royalties	Royalties on intellectual property developed by a research entity
Dividends	Dividends from shareholdings by public entities (e.g. DBSA-type entities investing in equity instruments)

2.2 Sale of Goods – Recognition Criteria and Examples

Recognition criteria for sale of goods (GRAP 9 – commonly tested):

Revenue from sale of goods is recognised when all the following are met:

Transfer of significant risks and rewards of ownership to the purchaser.
Entity retains neither continuing managerial involvement nor effective control over the goods sold.
Amount of revenue can be measured reliably.
It is probable that economic benefits or service potential will flow to the entity.
Costs incurred or to be incurred in respect of the transaction can be measured reliably.

2.2.1 Example: Municipal Water Sales (UNISA PDS302V / CUT PSA40A)

Assume Makhanda Local Municipality sells water to consumers. Billing is done monthly based on meter readings. For October:

Water consumption billed: R5 000 000
Estimated unbilled consumption (from last meter reading date to month-end): R500 000
Historical data: 98% of billed water revenue is collectible.

Recognition analysis:

Water is continuously supplied; risks and rewards pass as consumers consume water.
Billing is done after consumption; at month-end, some consumption is unbilled but has occurred.
GRAP 9 allows the municipality to estimate revenue using reliable methods (e.g. historical consumption patterns, meter data).

Revenue recognised in October:

Billed water revenue: R5 000 000
Unbilled but consumed water (if reliably measured): R500 000

Total water revenue = R5 500 000

Journal entry (simplified):

Dr Trade receivables (billed) R5 000 000
Dr Accrued revenue (water) R500 000
Cr Water revenue (exchange) R5 500 000

Impairment for doubtful debts (2% of R5 000 000 = R100 000) is accounted for using GRAP 104 (financial instruments) and not deducted directly from revenue, but the gross revenue is still R5 500 000.

This type of question is standard in FAC3703 and CUT PSA40A: students must determine the correct revenue figure (including unbilled income) and then calculate impairment separately.

2.2.2 Example: Sale of Inventory by a Public Hospital (UNISA ACC3704)

A provincial hospital sells certain pharmaceuticals to private patients:

Cost of drugs sold: R200 000
Selling price: R260 000
At year-end, R40 000 is still unpaid and considered fully collectible.

Recognition:

Risks and rewards transfer at the point drugs leave the hospital pharmacy.
Revenue: R260 000, regardless of when cash is received.
Cost of sales: R200 000 (under GRAP 12 – Inventories).

Journal entries:

On sale:
- Dr Trade receivables / Cash R260 000
- Cr Pharmaceutical sales revenue R260 000
Cost of sales:
- Dr Cost of sales – pharmaceuticals R200 000
- Cr Inventories – pharmaceuticals R200 000

Exam questions in ACC3704 frequently ask for both the revenue and cost of sales entries, ensuring students link GRAP 9 with GRAP 12.

2.3 Rendering of Services – Recognition and Stage of Completion

Revenue from rendering of services is recognised by reference to the stage of completion at the reporting date if:

Amount of revenue can be measured reliably;
It is probable that economic benefits or service potential will flow to the entity;
Stage of completion can be measured reliably;
Costs incurred and costs to complete can be measured reliably.

If these conditions are not met, revenue is recognised only to the extent of recoverable expenses.

2.3.1 Methods to Determine Stage of Completion

Common methods:

Surveys of work performed (e.g., engineering assessment)
Proportion of services performed to date (e.g., number of tests completed)
Time-based methods (e.g., hours worked vs total estimated hours)

For exam purposes, UNISA PDS302V and FAC3703 typically give:

Total contract fee
Estimated total costs or total hours
Actual costs or actual hours to date

Students then calculate percentage of completion and multiply by contract revenue to get recognised revenue.

2.3.2 Example: Environmental Impact Assessment by a Public Entity

Assume the South African Environmental Services Agency (SAESA) (a hypothetical Schedule 3 public entity) enters into a 12-month contract with a state-owned company to provide environmental impact assessment (EIA) services:

Contract fee: R1 200 000 (exchange transaction)
Estimated total hours: 1 200 hours
By year-end, 600 hours worked; invoices issued for R500 000; collection is probable.

Stage of completion:

Hours worked / total hours = 600 / 1 200 = 50%

Revenue to be recognised:

50% of R1 200 000 = R600 000

Amount already invoiced: R500 000
Therefore, additional revenue (unbilled receivable) = R600 000 – R500 000 = R100 000

Journal entries at year-end:

To recognise total revenue to date:
- Dr Trade receivables R500 000
- Dr Accrued revenue – services R100 000
- Cr Service revenue – EIA contract R600 000
To recognise costs (if R480 000 incurred to date):
- Dr Contract costs / Expenses R480 000
- Cr Cash / Payables R480 000

Profit to date = R600 000 – R480 000 = R120 000

Exams in FAC3703 and PSA40A often test such calculations, assessing understanding of percentage of completion and differentiation between billing and revenue recognition.

2.4 Interest, Royalties, and Dividends

For these forms of revenue (important in public entities and municipalities with investments), GRAP 9 states:

Interest: Recognise using the effective interest method, as it accrues over time, based on the outstanding principal and applicable effective rate.
Royalties: Recognise on an accrual basis in accordance with the terms of the relevant agreement (e.g., percentage of sales, fixed fee per use).
Dividends: Recognise when the right to receive payment is established (e.g., when declared by the investee’s board).

2.4.1 Example: Interest on Investments – Municipality (UNISA FAC3703)

Polokwane Municipality invests R10 000 000 in a fixed deposit earning 8% interest per annum, payable quarterly.

Interest per year = R10 000 000 × 8% = R800 000
Interest per quarter = R800 000 / 4 = R200 000

If the municipality has received R600 000 interest by 30 June (three quarters) but the financial year ends on 30 June and the last quarter’s interest (R200 000) has not yet been received, revenue must still be recognised:

Interest revenue for the year: R800 000
Received: R600 000
Accrued: R200 000

Journal entry:

Dr Cash R600 000
Dr Accrued interest receivable R200 000
Cr Interest revenue R800 000

Exam questions often require this adjustment for accrued interest at year-end.

2.4.2 Example: Dividends Received by a Public Entity

The Gauteng Infrastructure Agency (GIA) (a hypothetical Schedule 3 public entity) owns 100 000 shares in a listed company. On 15 March, the investee declares a dividend of R1 per share, payable on 30 April. GIA’s year-end is 31 March.

On 15 March, the right to receive the dividend is established.

Dividend revenue recognised for the year ending 31 March:

R1 × 100 000 = R100 000

Journal entries:

On declaration date (15 March):
- Dr Dividend receivable R100 000
- Cr Dividend revenue R100 000
On payment date (30 April, next financial year):
- Dr Cash R100 000
- Cr Dividend receivable R100 000

Students in ACC3704 are often tested on the timing of dividend recognition and the distinction between declaration and payment dates.

2.5 Reliability of Measurement and Probability of Inflow

Two standard conditions across all types of revenue recognition:

Reliable measurement
Probable inflow of economic benefits or service potential

Where there is significant uncertainty about collectability, GRAP 9 requires:

Revenue not to be reversed; instead, record an impairment loss (bad debt) under GRAP 104 if collectability of a receivable previously recognised becomes doubtful.
If, at initial recognition, collectability is not probable, revenue is only recognised when cash is received.

Example: High Bad Debt Rates – Municipal Billing (CUT PSA40A)

Suppose a municipality bills R10 000 000 for electricity, but due to historic collection issues, expects only 70% to be collected. However, the contractual right to receive full amount exists, and tariffs are enforceable.

GRAP 9 approach:

Recognise the full contractual revenue: R10 000 000
Recognise receivable: R10 000 000
Recognise an impairment (allowance for doubtful debts) = 30% of R10 000 000 = R3 000 000 under GRAP 104:

Journal entries:

Revenue recognition:
- Dr Trade receivables R10 000 000
- Cr Electricity revenue R10 000 000
Impairment of receivables:
- Dr Impairment loss – receivables R3 000 000
- Cr Allowance for doubtful debts R3 000 000

Exams in PDS302V and PSA40A often test whether students incorrectly try to net off revenue. The correct GRAP treatment is to show gross revenue and record a separate impairment expense.

3. Measurement, Presentation, and Disclosures for GRAP 9 Revenue

3.1 Measurement of Revenue at Fair Value

GRAP 9 states that revenue should be measured at the fair value of the consideration received or receivable.

If payment is deferred (e.g., long-term credit arrangements), the fair value is less than the nominal amount, and the difference is recognised as interest over the period using an appropriate discount rate.

3.1.1 Example: Deferred Payment Terms – Public Entity Sale

The National Equipment Agency (NEA) sells equipment to a technical college:

Nominal selling price: R1 000 000, payable in 2 years
If paid immediately (cash price): R860 000
Implicit interest: R1 000 000 – R860 000 = R140 000

Revenue at date of sale (fair value of consideration) = R860 000
The R140 000 difference is interest revenue over 2 years.

Journal entries at date of sale:

Dr Loan receivable (financial asset) R1 000 000
Cr Sales revenue (exchange) R860 000
Cr Deferred interest income R140 000 (or recognise via effective interest method over 2 years)

Each reporting period, part of the deferred interest income is recognised as interest revenue under GRAP 9, using effective interest calculations (a common examination angle in FAC3703 and ACC3704).

3.2 Consideration in Non-cash Forms (Barter Transactions)

If goods or services are exchanged:

For similar goods or services (e.g., water for water): no revenue recognised (this is not a revenue-generating transaction).
For dissimilar goods or services: revenue is measured at the fair value of the goods or services received, adjusted by any cash transferred, or, if that cannot be measured reliably, the fair value of the goods or services given up.

Example: Barter between Municipalities

Municipality A provides IT support services to Municipality B, and Municipality B provides vehicle maintenance services to A. The fair values of services:

IT services provided by A: R300 000
Vehicle maintenance received by A from B: R290 000

From Municipality A’s perspective (exam-style for PDS302V):

Revenue from IT services = R300 000 (fair value of services supplied)
Expense for maintenance = R290 000

Journal entries for Municipality A:

Dr Maintenance expense R290 000
Cr Payable to Municipality B R290 000
Dr Receivable from Municipality B R300 000
Cr Service revenue – IT R300 000

Later, settlement may be netted (R10 000 net receivable).

Students must be able to separate revenue and expense components and not merely ignore barter transactions.

3.3 Gross vs Net Presentation

GRAP 9 requires revenue to be presented gross of related expenses, except in rare circumstances where the entity acts merely as an agent.

Key exam issues (UNISA FAC3703 and CUT PSA40A):

Principal vs agent:
- If the entity acts as a principal, it recognises gross revenue and related expenses.
- If the entity acts as an agent, it recognises only the commission or fee as revenue.
Trade discounts, volume rebates, and VAT:
- Revenue is measured net of trade discounts and volume rebates.
- VAT is not revenue; it is a liability to SARS.

Example: Principal vs Agent – Licensing Fees Collected on Behalf of Province

A municipality (agent) issues learner’s licences and collects R300 per licence:

R250 is transferred to provincial department;
Municipality retains R50 as its fee.

From municipality’s perspective:

Revenue = R50 per licence (agent fee)
R250 collected is not revenue; it is a liability to the province.

Journal entry per licence:

On collection:
- Dr Cash R300
- Cr Licensing fee revenue R50
- Cr Payable to Province R250

Exams often ask whether R300 or R50 should be recognised as revenue; correct answer is R50 if the municipality is an agent.

3.4 Presentation in the Statement of Financial Performance

In GRAP-compliant financial statements (as covered in UNISA PDS302V and CUT PSA40A), revenue from exchange transactions is typically presented as:

Revenue from exchange transactions (with line items such as):
- Service charges (water, electricity, refuse, etc.)
- Rental of facilities and equipment
- Interest earned
- Agency services revenue
- Licences and permits
- Other exchange revenue

A simplified example of a Statement of Financial Performance – revenue section for Makhanda Local Municipality:

Description	Amount (R)
Revenue from exchange transactions
Service charges – electricity	120 000 000
Service charges – water	80 000 000
Service charges – refuse removal	20 000 000
Service charges – sanitation	25 000 000
Rental of facilities and equipment	5 000 000
Interest earned – external investments	10 000 000
Interest on outstanding debtors	8 000 000
Agency services	4 000 000
Other exchange revenue	3 000 000
Total revenue from exchange	275 000 000

Each figure must be supported by detailed underlying accounting records and aligned with GRAP 9 recognition principles.

3.5 Disclosure Requirements under GRAP 9

GRAP 9 requires entities to disclose, among others:

Accounting policy for revenue recognition, including:
- Basis for recognising revenue from sale of goods
- Basis for recognising revenue from services (e.g., percentage-of-completion)
- Policies on interest, royalties, and dividends
Amount of each significant category of revenue recognised during the period, such as:
- Sale of goods
- Rendering of services
- Interest
- Royalties
- Dividends
- Other revenue
Revenue from exchanges of goods or services (barter transactions), if material.
Any significant judgements and estimates (if required by GRAP 1 and GRAP 3), particularly around stage of completion and estimates of variable consideration.

Example of a policy note (commonly examined in UNISA FAC3703):

Revenue from the sale of goods is recognised when the municipality has transferred significant risks and rewards of ownership of the goods to the buyer, there is no continuing managerial involvement, the amount of revenue and costs incurred or to be incurred can be measured reliably, and it is probable that economic benefits or service potential will flow to the municipality. Service revenue is recognised by reference to the stage of completion of the transaction at the reporting date.

Students are often required to draft short disclosure notes or identify omissions in an exam scenario.

4. Distinguishing GRAP 9 from GRAP 23 and Other Standards

4.1 Core Differences Between GRAP 9 and GRAP 23

GRAP 9 applies to exchange transactions, while GRAP 23 applies to non-exchange transactions. Exam questions frequently mix these and test classification.

Key differences:

Aspect	GRAP 9 – Exchange	GRAP 23 – Non-exchange
Nature of transaction	Approximately equal value given & received	Value received without directly giving equal value
Examples	Water sales, service charges, hospital fees	Taxes, fines, unconditional grants, donations
Recognition basis	Risks & rewards; stage of completion; interest accrual	Control of resources, binding arrangement, eligibility criteria

4.2 Borderline Transactions: Property Rates, Fines, and Fees

Some municipal revenues are tricky:

Property rates: Usually treated as non-exchange under GRAP 23 because the amount is based on property value, not directly linked to specific services.
Traffic fines and penalties: Non-exchange – no voluntary exchange; revenue under GRAP 23.
Licence fees:
- If designed simply to recover administrative costs (e.g., drivers’ licence), often exchange.
- If they have a regulatory or punitive purpose, may have non-exchange characteristics. Some modules (e.g., UNISA ACC3704) examine arguments for classification.

Exams tend to provide facts and require students to justify which standard applies.

4.3 Multiple-element Transactions and Allocation

Sometimes a transaction includes both goods and services or a mix of exchange and non-exchange. GRAP requires:

Identify separable components.
Allocate the transaction price based on relative fair values.
Apply GRAP 9 to the exchange components and GRAP 23 to non-exchange components.

Example: Service Package Including a Subsidised Component

A municipality offers a waste collection package to commercial customers:

Monthly fee: R2 000
Fair value of weekly bin collection service: R2 500
This indicates a subsidised element funded by general taxation (non-exchange) and a portion that is a genuine exchange.

If analysis shows:

Exchange portion fair value: R1 800
Non-exchange subsidy element: R200

The billing of R2 000 is apportioned:

GRAP 9 revenue: R1 800
GRAP 23 revenue: R200 (non-exchange support)

However, in practice, many municipalities treat the entire R2 000 as exchange revenue unless reliable measurement splits are available. Exams (especially at CUT PSA40A) may present such theoretical examples and ask how they should be treated ideally.

4.4 Links to GRAP 11 (Construction Contracts) and GRAP 32 / GRAP 109 (Service Concessions)

GRAP 11 – Construction Contracts and GRAP 9 – Revenue from Exchange Transactions are closely related:

GRAP 11 deals with construction contracts for third parties (e.g., a public works entity constructing a building for another entity for a fee). Revenue is recognised using a percentage-of-completion approach, conceptually similar to rendering of services in GRAP 9.

Service concession arrangements (public-private partnerships) may involve:

An operator providing public services and receiving exchange revenue (tolls, user fees) → GRAP 9 for operator revenue.
A grantor (e.g., a municipality, province) may receive a portion of revenue or regulate tariffs – this can be non-exchange.

In advanced modules like UNISA ACC3704, exam questions might combine GRAP 9 with GRAP 32 / GRAP 109 by showing:

Operator’s rights to charge users
Fixed-fee arrangements
Variable revenue-sharing arrangements

Students must identify which streams are exchange (operator charging customers) and which are non-exchange or service concession assets on the grantor’s side.

4.5 Integration with GRAP 104 (Financial Instruments) – Impairment and Modifications

GRAP 9 focuses on revenue recognition, while GRAP 104 focuses on:

Initial recognition and subsequent measurement of trade receivables arising from revenue.
Impairment of receivables (expected credit losses).
Modifications to contractual terms (e.g., payment arrangements for debtors).

Exam connection:

Recognise revenue at gross amount under GRAP 9.
Assess receivable under GRAP 104 for impairment – if credit risk is high, recognise loss.

Example: Payment Arrangement for Overdue Municipal Accounts

A consumer owes R50 000 for water and electricity. The municipality agrees to a structured payment plan over 2 years with reduced interest, in line with its credit control policy.

Analysis:

Revenue already recognised under GRAP 9 remains unchanged.
The receivable may be modified; the present value of expected cash flows may be less than the carrying amount, leading to an impairment loss under GRAP 104.
Future interest (if any) recognised under GRAP 9 using the effective interest method.

Students must be able to distinguish:

Revenue recognition vs
Impairment / modification accounting

especially in modules like FAC3703 and CUT PSA40A.

5. Exam Strategy, Worked Examples, and Common Pitfalls (UNISA, CUT, TUT, DUT)

5.1 Typical GRAP 9 Exam Question Types by Module

UNISA PDS302V – Public Sector Accounting

Short scenarios requiring classification of revenue (exchange vs non-exchange).
Simple journal entries for water and electricity billing.
Multiple-choice questions on recognition criteria.

UNISA FAC3703 – Financial Accounting in Public Sector Entities

Long, integrated questions (often 40–50 marks) involving:
- Multiple types of revenue (services, sale of goods, interest).
- Adjustments for accruals, prepayments, and impairments.
- Preparation of Statement of Financial Performance extracts and note disclosure.

UNISA ACC3704 – Public Sector Accounting and Auditing

Theory and application questions on:
- Judgements in revenue recognition.
- Audit assertions (existence, completeness, accuracy, cut-off) for revenue.
- Internal control evaluation of billing and collection systems.

CUT PSA40A – Public Sector Accounting IV

Highly practical, case-based questions involving:
- Municipal revenue cycles (water, electricity, refuse).
- Reconciliations between billing system reports and the general ledger.
- Detailed impairment calculations for receivables.

TUT PUB310A / DUT PSA301 (or similar)

Mix of medium-length calculation questions and narrative aspects.
Emphasis on public sector context: PFMA/MFMA requirements, municipal examples.

5.2 Comprehensive Worked Example – Municipal Revenue (FAC3703 / PSA40A Style)

Assume the following information for Makhanda Local Municipality (year ended 30 June 20X5):

Service charges – electricity (billed): R120 000 000
Service charges – water (billed): R75 000 000
Unbilled consumption at year-end:
- Electricity: R5 000 000 (reliably estimated)
- Water: R3 000 000 (reliably estimated)
Interest on unpaid accounts (to 30 June): R8 000 000
Bad debts written off during the year: R4 000 000 (relates to prior years)
Allowance for doubtful debts at 1 July 20X4: R15 000 000
Municipality policy estimates year-end allowance as 12% of gross trade receivables. At 30 June 20X5, gross trade receivables total R110 000 000.
All service charges are exchange transactions under GRAP 9.

Required (typical exam requirements):

a) Calculate and journalise service charges revenue for the year.
b) Calculate the impairment expense for the year according to GRAP 104.
c) Show the Statement of Financial Performance extract for revenue and impairment.

a) Service charges revenue

Electricity:

Billed: R120 000 000
Unbilled: R5 000 000
Total electricity revenue: R125 000 000

Water:

Billed: R75 000 000
Unbilled: R3 000 000
Total water revenue: R78 000 000

Total service charges revenue = R125 000 000 + R78 000 000 = R203 000 000

Add: Interest on outstanding debtors (exchange revenue): R8 000 000

Total revenue from exchange transactions (service-related) = R211 000 000

Journal entries (simplified):

Record billed consumption:
- Dr Trade receivables – electricity R120 000 000
- Dr Trade receivables – water R75 000 000
- Cr Electricity revenue R120 000 000
- Cr Water revenue R75 000 000
Record unbilled consumption:
- Dr Accrued revenue – electricity R5 000 000
- Cr Electricity revenue R5 000 000
- Dr Accrued revenue – water R3 000 000
- Cr Water revenue R3 000 000
Record interest on arrears:
- Dr Trade receivables – interest R8 000 000
- Cr Interest revenue – debtors R8 000 000

b) Impairment expense (GRAP 104)

Year-end required allowance:

12% × R110 000 000 = R13 200 000

Existing allowance at beginning of year: R15 000 000

Bad debts written off during year: R4 000 000

To reconcile:

Carrying amount of allowance before adjustment = Opening allowance – write-offs ± current year expense

Let current year impairment expense = X

Then:

Opening allowance (R15 000 000)
– Bad debts written off (R4 000 000)

Impairment expense (X)
= Closing allowance required (R13 200 000)

So:

R15 000 000 – R4 000 000 + X = R13 200 000
R11 000 000 + X = R13 200 000
X = R2 200 000

Therefore:

Impairment expense for the year = R2 200 000

Journal entries:

To write off bad debts:
- Dr Allowance for doubtful debts R4 000 000
- Cr Trade receivables R4 000 000
To adjust allowance:
- Dr Impairment loss – receivables R2 200 000
- Cr Allowance for doubtful debts R2 200 000

Note that revenue remains R211 000 000; the impairment expense is recognised separately.

c) Statement of Financial Performance – Extract

Year ended 30 June 20X5:

Description	Amount (R)
Revenue from exchange transactions
Service charges – electricity	125 000 000
Service charges – water	78 000 000
Interest earned – outstanding debtors	8 000 000
Total revenue from exchange transactions	211 000 000

Expenses
Impairment loss – receivables	(2 200 000)
Bad debts written off (included in loss or disclosed separately, depending on policy)	(4 000 000)

Exam markers in FAC3703 and PSA40A look for:

Correct gross revenue figures (including unbilled consumption).
Correct impairment expense computation (taking into account write-offs).
Separate presentation of revenue and impairment in the performance statement.

5.3 Common GRAP 9 Mistakes in Exams (and How to Avoid Them)

Confusing GRAP 9 with GRAP 23
- Always ask: “Did the entity receive approximately equal value in return?”
- If yes → GRAP 9. If no → GRAP 23.
Ignoring unbilled revenue
- Many services (water, electricity, ongoing contracts) are consumed before billing.
- End-of-year adjustment for accrued revenue is crucial.
Netting revenue with impairment
- Revenue must be recognised gross.
- Impairment is an expense, not a reduction of revenue.
Incorrect timing for service revenue
- For long-term services, revenue must be recognised using stage-of-completion, not just when invoiced.
Treating agent revenue as gross
- If the entity is an agent, only the commission/fee is revenue (e.g., licensing fees shared with a principal).
Forgetting the time value of money
- Long-term credit terms → recognise revenue at present value; difference is interest.
Not linking policies to transactions
- Exam questions may require applying the entity’s own accounting policies, as given in the scenario, not generic ones.

5.4 Study Strategy for GRAP 9 in UNISA PDS302V, FAC3703, ACC3704 and CUT PSA40A

1. Master the definitions and recognition criteria

Be able to write down (or explain clearly) the five conditions for revenue from sale of goods and four conditions for rendering services.
Understand the terms fair value, exchange transaction, probable inflow, reliable measurement.

2. Practise classification questions

Work through past papers and tutorials for PDS302V, FAC3703, ACC3704, and PSA40A.
For each transaction, decide: GRAP 9 vs GRAP 23 vs other standard.

3. Do full worked examples

Simulate an exam:
Take a municipal revenue scenario, calculate revenue, adjust for accruals, compute impairment, prepare financial statement extracts.

4. Understand integration with other topics

Link GRAP 9 to:
- GRAP 12 (Inventories) for cost of sales.
- GRAP 17 (PPE) for assets used to generate revenue.
- GRAP 104 (Financial instruments) for receivables and impairment.
- GRAP 1 & GRAP 3 for presentation and accounting policies.

5. Focus on disclosure requirements

Be prepared to write accounting policy notes and identify missing disclosures.

6. Past exam patterns

For UNISA FAC3703: Expect at least one integrated question combining GRAP 9 with GRAP 23 and GRAP 104.
For UNISA PDS302V: Expect shorter, more focused questions on basic recognition and classification.
For UNISA ACC3704: Be ready for conceptual questions on judgement, internal control, and audit procedures around revenue.
For CUT PSA40A: Emphasis on practical municipal examples, reconciliations, and impairment.

5.5 Quick Revision Checklist for GRAP 9

Before a PDS302V, FAC3703, ACC3704, or PSA40A exam, confirm that you can:

Define:
- Revenue, fair value, exchange transactions, probable inflow, reliable measurement.
Classify correctly:
- Water/electricity sales, property rates, licence fees, traffic fines, grants.
Apply recognition criteria:
- For sale of goods.
- For rendering services (stage-of-completion).
- For interest, royalties, dividends.
Measure and record:
- Unbilled revenue at year-end.
- Deferred payment arrangements (separate revenue from interest).
- Barter transactions (similar vs dissimilar goods/services).
Present and disclose:
- Distinguish revenue from exchange and non-exchange in the Statement of Financial Performance.
- Draft basic accounting policy notes.
Integrate with GRAP 104:
- Compute allowance for doubtful debts.
- Record impairment losses on receivables without adjusting revenue figures.

A solid grasp of GRAP 9, combined with consistent practice on realistic public sector examples, is essential for success in UNISA PDS302V, FAC3703, ACC3704, CUT PSA40A, and equivalent public sector accounting modules at TUT and DUT.