Question:
The Australian government has donated $50 million worth of food and medicine to Sri Lankan government. How does this donation record in Sri Lanka’s Balance of Payments Account according to double entry principle?
(1) Credit: Goods; Debit: Secondary Income (Govt)
(2) Credit: Secondary Income (Govt); Debit: Goods
(3) Credit: Services; Debit: Financial Account (Other)
(4) Credit: Goods; Debit: Capital Account (Transfers)
(5) Credit: Secondary Income (Govt); Debit: Financial Account (Portfolio)
Correct Answer:
(2)
Answer Explanation:
The physical arrival of food and medicine is an import, which is recorded as a Debit under the ‘Goods’ account. Because it is a donation (no money is owed back), the balancing entry is a Credit under ‘Secondary Income (Government)’ representing the transfer received.
Topic: Balance of Payments Year: 2022
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