Public Services International Research Unit

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FOCUS To understand the basic principles of company accounts To understand how the results can be altered TASKS: You represent workers in a municipal water department. The municipality wants to hand over the water concession to a multinational because it has the business expertise. You are meeting to draw up an alternative proposal to turn the department into a separate company, wholly owned by the municipality. As part of this, you have to prepare a 'business plan' showing how your proposed company which reliably breaks even. (1) Using the information about the department's finances, turn this into 'company' accounts. Work out: How much is paid by customers each year (Income) How much is spent on running the service each year (Expenditure) How much is spent on investment in the system each year (Depreciation) What is the overall 'subsidy' paid by - or to - the municipality each year. (Surplus) (2)The taxpayers are currently charged $2,000,000 for the water services. How much of this could be cut, and still leave the proposed company with a surplus? (3) Look at the information about customers. How could the company increase its income by without increasing prices? Are there any problems involved in doing this? RESOURCES: MUNICIPALITY OF ATLANTIS WATER DEPARTMENT 1997 A. Statement of accounts COSTS 1.Labour costs $4,000,000 2. Supplies $2,000,000 3. Improvement of system (pipes etc) $4,000,000 4. Contribution to municipal capital projects fund $3,000,000 5. Contribution to municipal passenger transport account $1,000,000 MISCELLANEOUS INCOME 6. Charges to customers: -$12,000,000 TOTAL NET COST (after miscellaneous income) $2,000,000 7. SUBSIDY FROM MUNICIPAL BUDGET (TAXPAYER) $2,000,000   B. Service statistics Number of households connected: 80,000 Water supplied and metered: 8,000,000 cubic metres Price per cubic metre: $2 Average annual water bill per household: $200 Number of bills paid per year: 60,000 Income from charges to customers: $12,000,000 TIME 2-3 hours Note for tutors The point of this exercise is to show that company accounts are basically simple. All the necessary figures for the business plan are in the case study. Students should realise that what is involved is re-arranging the figures to fit the company 'Income-expenditure-depreciation-surplus' structure. The third question highlights a typical 'commercial' approach, of collecting more money from consumers, which is an easy way of improving the accounts but may have adverse social consequences.