Chapter 4.2: Income

4.2.1 Income disclosure

Income should be disclosed separately from expenses - not ‘netted off' - to help the reader of the financial statements understand what has happened at the school during the year. This includes locally raised funds, such as trading activities, hostel operations and fees from international students. The detailed breakdown of all income is usually provided in the notes to the financial statements rather than the Income Statement.

4.2.2 Operational funding

Operational funding is the money a board of trustees receives from the government to implement the goals of the school’s Charter and for the running of the school. Refer to the Funding, Staffing and Allowances Handbook for more information about components of operational funding, entitlement and instalment notices.

4.2.3 Property funding

The Ministry of Education provides funding to schools to maintain and upgrade existing property and to build new property through capital and grant funding programmes. Refer to the State Schools Property Management Handbook for more information about this funding for state schools.

For integrated state schools, refer to the web page: Integrated Schools - Ministry of Education.

4.2.4 Income received in advance

Income can be received in advance in situations such as:

• international students

International students

International student fees received must only be recognised as income when they are earned.

For example

Funds are received for an international student in December for the whole of the next school year. That money is all income received in advance when it is received. It must be reported as income in advance at 31 December. In the next year, a portion of those funds can be reclassified as income earned each term

Journal entry

Journal entry

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4.2.5 Grants received in advance

Some grants the ministry provides are for specific educational purposes. It is possible that at the end of a financial year (ie, 31 December) there may be funds unspent from these grants.

The unspent funds should be treated as a liability and carried forward to the next financial year. They should be shown as Grants Received in Advance as at 31 December. The funding meets the requirements of a liability, which means by receiving the funding the school must act in a certain way and there are controls on how the money must be spent.

Treat the following funds as a liability and carry the fund forward to the next accounting year:

• STAR – if the number of EFTS used is below the minimum available to the school
• Resource Teachers – RTLB; RTMāori; RTLit
• Enhanced Programme Funding
• Ongoing and Reviewable Resourcing Schemes (ORRS) and related special education funding
• ICT Professional Development Clusters
• Schooling Improvement Projects.

4.2.6 Teacher salaries – income equivalent

Schools must recognise the value of teacher salaries paid on their behalf as income, with the same amount recognised as an operating expense.

The amount is provided in the summarised Staffing Usage and Expenditure (SUE) report generated at the end of each financial year and sent to schools in mid-January.

Journal entry

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4.2.7 Use of land and buildings – income equivalent

Almost all schools have their land and building provided to them by the Crown or, in the case of integrated schools, their proprietors and no cash payment is made for the value of the property provided. Schools must recognise the value of the property provided as income, with the same amount recognised as an occupancy expense.

How is the value of the use of land and buildings calculated?

A few schools are in leased premises so there is an actual lease cost. For all other schools the ‘notional’ lease amount is calculated by applying the government capital charge rate to the value of the property provided. For 2007 and 2008 the capital charge rate was 7.5%.

For state schools the notional lease value is available on the Property Management Information System (PMIS).

Enter your school ID or search using your school name (or part of the name). At the top of the page click on the item called ‘Property Information’ (tip: you may need to scroll across for this to show on your screen), which will bring up a screen of ‘General’ information. Scroll down and you will find the Notional Lease Cost figures for your school for this year and last year. That page should be printed and included with your working papers for your auditor.

For state-integrated schools the notional lease value must be calculated by the proprietor and provided to each school.

To calculate the notional lease cost for a state-integrated school:

• obtain the most recent valuation document/s for the school property from Quotable Valuation
• check the integration agreement schedule for any apportionment of school property between education and other purposes. Look for the most recent school plan with your integration agreement. It will either state the proportion of the property that is integrated or you can estimate it from looking at that plan.
• apply the capital charge rate to the property valuation to calculate the notional lease cost, as per the example below.

Journal entry

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4.2.8 Donations, bequests and gifts received

The board may accept or decline gifts from any person. All accepted donations, bequests and gifts must be recorded as income according to section 68 of the Education Act.

Record cash donations at face value.  Record goods or services donations at the fair value of those goods or services.

Example

If a parent donates a new computer to the school, and the current price for purchasing that computer is $2,000, the accounting entries required are:

Journal entry

In the case of gifted services, if the value is not material then they can be disclosed by a note in the financial statements. For example, if grounds maintenance was achieved through voluntary effort it can be recorded that the work was completed with a stated number of non-waged hours.

Restricted donations

Schools receive donations or bequests from individuals or organisations for specific purposes. These purposes may be to create scholarships for pupils, to pay for specific building developments or for any other educational purpose in connection with the school. These gifts can only be used in accordance with the specific purpose stated.

Under section 68 (2) of the Education Act, the board is required to hold any bequest or gift received for a specific purpose. It cannot pass any gifts to an entity that it does not have control over. A school may pass a gift to a Trust that it controls and must ensure that the Trust uses the gift for that specific purpose.

Restricted income should be credited to a liability account. Once the conditions or restrictions governing the use of the donation are met, the donation should be transferred from the liability account into income. In some cases the donor or grantor may require a financial report to assess compliance. Appropriately detailed records need to be kept.

Journal entry

Journal entry

Bequest

Where a school board is left property under a will (a bequest) and the testator has specified that the property is to be applied for a particular purpose, the testator’s direction creates a Trust in respect of that property. The board will then hold the property on trust and must deal with it according to the terms of the Trust.

The Trust must at all times remain under board control.

Gifted securities and investments

Refer also to Investment in Securities in Chapter 2 - Financial Governance.

Schools are limited in their ability to acquire and hold securities and investments under section 73 of the Education Act. If a school is gifted securities or investments it would not have been allowed to acquire under section 73, then section 68 of the Education Act allows the school to hold those gifts for a period that is ‘reasonable in the circumstances’. If a school wants to keep those assets long term then the ministry recommends they seek approval within 12 months of receiving them.

In some circumstances a board may receive a gift or bequest where, as a condition of the gift or bequest, it must continue to hold a security in its current form, eg, the donor or testator specifies that the school should continue to hold the security and fund activities or prizes from any return on that security. In these circumstances, the acceptance of a conditional gift or bequest creates a Trust and section 161(2) of the Crown Entities Act states that the restrictions in section 160 regarding securities do not apply. The board may therefore continue to hold the gifted or bequeathed security in perpetuity without need to seek approval.