Sessional_Paper_1938 — Page 192

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Note on the effects on Hong Kong Government Accounts of the changes directed by the Secretary of State's despatch of 25.11.37.

The changes in accounting procedure set out in the Secretary of State's circular despatch of the 25th November, 1937, are designed primarily to show more clearly the surplus balances actually available for appropriation to new expenditure. Under the present system considerable parts of the nominal surplus may be locked up in un- allocated stores or in long term advances or loans made by Government for various purposes so that the nominal surplus is a deceptive guide to the actual funds available for use. The changes proposed will also extend the control of the legislature over the utilization of surplus balances in the ways just referred to. These matters have not always in the past come directly before the legislature.

2. The following actual changes in Hong Kong Estimates will be involved :

(1) STORES. In the past original purchases of stores have normally been debited to an unallocated stores suspense account and only charged to Heads of expenditure when allocated to the use of particular departments or services. The effect was that part of the Colony's nominal surplus balance was used in the purchase of stores. The funds which could be so allocated were limited under instructions from the Secretary of State to approximately six months' supply but did not come directly under the control of the legislature. For the future it is proposed that the actual amount to be spent on stores during any financial year shall be authorized in the Estimates in a separate Head or sub-head and that when stores are allocated to individual depart- ments or services a transfer shall be made from that sub-head to the proper sub-head .of the department concerned. Sales of unallocated stores will be credited to revenue under a separate sub-head of miscellaneous revenue. The gross figures of expenditure on stores and the net expenditure will be shown in the Estimates in the form of paragraph 10 of the circular despatch.

In this Colony there have been two un llocated stores suspense accounts, one controlled by the Railway and one by the Public Works Department. A separate stores department has recently been set up to deal with stores at present under the Public Works Department and when the new system comes into operation in 1939 there will be two sub-heads for unallocated stores appearing in the Heads of expendi- ture of the Railway and the Stores Department.

In paragraph 11 of the circular despatch the question of transferring immediate- ly to votes the present balance of the unallocated stores suspense accounts is dis- cussed. It is thought that it would be preferable to make such transfers to the appro- priate heads of expenditure immediately in Hong Kong, involving a corresponding reduction in the nominal surplus of assets over liabilities; and it is proposed to submit the necessary votes to the Council at the end of the current year.

(2) LOANS AND ADVANCES made from Government surplus balances would also require to be authorized in the Estimates, with the exception of purely temporary advances and advances in the nature of investments. In this Colony there are no con- siderable long term advances by Government. Government has, however, made build- ing loans on special occasions to, for example, the Diocesan Boys' School and the Shek O Development Co.; and since 1933 long term building loans on mortgage have been made to officials to assist the building of houses. It is thought that all these loans should he treated in accordance with the new system. It is therefore proposed to take a vote before the end of this year to cover the outstanding building loans and to take further votes as may be required in future for any further similar advances. Repay- ments of such loans will be credited as revenue. The aggregate amount of such building loans outstanding at the 31st December, 1937, was $337,922.63.

(3) DEPRECIATION OR APPRECIATION OF INVESTMENTS held on general account has formerly appeared as either expenditure or revenue in the Estimates and depreciation has had to be voted as an item of expenditure after the end of the year concerned. The new system will obviate the necessity for a vote, which is a mere formality, while continuing the practice of revaluing investments every year in order