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Accounting > Chapter 7 > Flashcards

Chapter 7 Flashcards

0
Q

deferred maintenance costs

A

costs that an entity avoided in a current year or past years by failing to perform required routine maintance and repairs, but that will have to be incurred in the future.

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1
Q

collateralized debt obligation

A

an asset-back security whose value and payments are derived from a portfolio of fixed-income underlying assets; such as a pool of subprime mortgages.

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2
Q

derivatives

A

financial asset whose value is derived from the shift in the price of an underlying asset, such as a bond, or an index of asset values, such as the Standard & Poors’ index of 500 stocks, or an index of interest rates.

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3
Q

general capital assets

A

capital assets that are not assets of any particular fund, but of the government unit as a whole. Most often these assets arise from the expenditure of the financial resources of governmental funds.

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4
Q

infrastructure assets

A

public domain fixed assets such as roads, bridges, curbs, gutters, streets and sidewalks, drainage systems, lighting systems, and similar assets that are immovable and of value only to the government unit.

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5
Q

intangible asset

A

an asset that has a future benefit, but cannot be physically seen

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6
Q

investment pools

A

fiscal entities established to invest the resources of two or more funds or independent entities comparable to a mutual fund.

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7
Q

repurchase agreement

A

investment instrument in which an investor transfers cash to a broker-dealer or financial institution. The broker-dealer or financial institution transfers securities to the investor and promises to repay the cash plus interest in exchange for the same securities or for different securities.

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8
Q

reverse repurchase agreement

A

borrowing instrument by which a borrower receives cash from a broker-dealer or financial institution; in exchange the borrower transfers securities to the broker-dealer or financial institution and promises to repay the cash plus interest in exchange for the same or different securities.

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9
Q

Governments capitalize capital assets and depreciate them over their economic lives on government-wide statements. This is required by

A

GASB No. 34

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10
Q

GCAs

A

General Capital Assets

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11
Q

GASB STD. #34 requires

A

that in Government-wide statements, governments capitalize capitalize capital assets and depreciate them over their economic lives.

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12
Q

GCAs include

A

Land, buildings, improvements other than Buildings, machinery and equipment, construction in progress, infrastructure (roads, streets, bridges), Intangibel assets

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13
Q

Capital Assets can be acquired by

A

purchase, construction, contributed/donated, annexed, capital leases, foreclosure, eminent domain, escheat, financed by: tax-supported bonds, grants from other governmental units, transfers from other funds, special assessment bonds or taxes.

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14
Q

Capital Assets on Government-Wide Statements

A

Capitalized in the governmental activities column

Depreciated

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15
Q

Capital Assets in Fund Statements

A

Full cost debited to Expenditures in appropriate governmental fund when assets are acquired

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16
Q

Purchased Assets(accounting)

A
  • follow cost principle (subject to materiality threshold)
  • Invoice cost or historical cost
  • all other necessary and reasonable costs incurred to put an asset into use (less cash or other discounts and financing charges)
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17
Q

Constructed assets (accounting)

A
  • Direct labor and materials + overhead + architect fees + insurance premiums
  • Do Not Capitalize interest on constructed assets per GASB Std. #34
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18
Q

How to Place Value on GCAs

A

-Record at estimated cost
-Foreclosures:
Record at aggregate of accumulated taxes, interest, penalties, legal cost, or FMV (whichever is lower)
-Trade-Ins
Record at FMV of the new asset
-Donated assets are reported at estimated FMV

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19
Q

Infrastructure is:

A
  • Government’s capital assets
  • immovable, stationary in nature
  • preserved for a longer period. (roads, sidewalks, bridges, tunnels, etc.)
  • GASB # 34 requires that infrastructure be accounted in the same manner as the capital assets
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20
Q

GASB #34 governments are not required to depreciate infrastructure assets if they

A

preserve them at a specified “condition level”

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21
Q

To avoid depreciation of infrastructure assets

A
  • perform condition assessments at least every three years;
  • have an up-to-date inventory of eligible assets
  • estimate the amount to maintain and preserve the eligible assets.
22
Q

Approaches for infrastructure accounting

A

Tradition approach

modified approach

23
Q

Traditional approach

A

capitalize & Depreciate

24
Q

Modified approach

A
  • All expenditures incurred to maintain and preserve those assets should be expensed
  • additions and improvements should be capitalized
  • assessed condition of the assets and the basis of that assessment must be disclosed
25
Q

Criticisms of Statement # 34s Approach to Infrastructure

A
  • No indication that data on the historical cost of infrastructure would be used
  • No need to capitalize those assets because they cannot be stolen or misused
  • comparison between measure of output and monetary value assigned to the assets is not meaningful
  • infrastructure assets seldom have alternative uses
  • past construction costs are of no significance
26
Q

GASB #34 does not require capitalization of artworks if they are:

A
  • Held for public exhibition or research and
  • protected and preserved and
  • the proceeds from sale of the collectibles are used to acquire other collectibles
27
Q

Revenue for donation must be recognized

A

upon receipt of gifts.

28
Q

Impaired Assets

A

Assets that have declined in their service utility significantly and unexpectedly are considered impaired

29
Q

How to account for impaired asset

A

portion of the asset’s historical cost representing the impairment must be written off

30
Q

Impairment amount measured by?

A

Restoration cost approach
Service Units approach
Deflated depreciated replacement cost approach.

31
Q

General Investment

A

Governments either directly invest stocks or bonds or small governments may participate in investment pools maintained by other governments

32
Q

Derivatives

A

Governments typically engage in derivative transactions not to speculate but, rather, to reduce the overall investment risk

33
Q

Repurchase Agreement & Reverse Repurchase Agreement

A
  • Repurchase agreement: short-term investment in which investor transfers cash in exchange for securities and the cash + plus interest is repaid in exchange for the same securities
  • Reverse Repurchase agreement: Here, government is the borrower rather than the investor.
34
Q

Types of Marketable Securities

A
  • General Investment
  • Derivatives
  • Repurchase Agreement & Reverse Repurchase Agreement
35
Q

General Investments Disclosure Requirements

A

Governments should organize disclosure by investment type

Governments should disclose thier vulnerability to specific types of risks

36
Q

Types of risks

A

Credit risks
Concentration of credit risks
Interest rate risks
Foreign currency risks

37
Q

Governments must explain the nature of derivative transactions including?

A

Reasons to enter
Significant terms of the transaction
Vulnerability to specific types of risks

38
Q

Custodial Credit Risk

A

Investments are exposed to custodial credit risk if the investments are uninsured, are not registered in the Count’s name and are held by the counterparty.

39
Q

Credit risk

A

is the risk that an issuer or other counterpary to an investment will not fulfill its obligations

40
Q

concentration of credit risk

A

is the risk of loss attributed to the magnitude of an investment in a single issuer

41
Q

Interest Rate Risk

A

all investments carry the risk that changes in market interest rates will adversely affect the fair value of an investment

42
Q

Foreign Currency Risk

A

is the risk that fluctuations in the exchange rate will adversely affect the value of investments denominated in a currency other than the US dollar.

43
Q

Land (Cost to be included)

A

amount paid for land, acquisition costs and costs incurred for preparation for intended use.

44
Q

Buildings (cost to be included)

A

Amount paid for permanent structures & fixtures that are permanently attached-does not include interest expense on funds borrowed/bonds issued

45
Q

Infrastructure (cost to be included)

A

Long-lived improvements to land that add value-streets, curbing, lighting, tunnels, bridges, etc

46
Q

Movable Property - Machinery & Equipment (cost to be included)

A

Furniture, fixtures, equipment. This category of assets should command the most attention because these items can be easily misplaced or stolen

47
Q

Construction in Progress(costs to be included)

A

Costs incurred to date at year-end on assets not yet completed. Once the asset is completed the CIP is removed from the schedule fixed assets and replaced by the cost of the asset constructed

48
Q

Value of Capital assets when purchased/constructed

A

cost-all normal and necessary capital outlays to bring the asset to a state of readiness for its intended use (does not include interest costs on borrowed funds/bond issues)

49
Q

Value of Capital assets when gifted/donated

A

fair market value when received

50
Q

Value of Capital assets when eminent domain

A

cost-typically determined by the court. Fiar amount of compesation paid to the owner

51
Q

Value of Capital assets when Escheat (owner dies without heirs)

A

Fair Market Value when received

52
Q

Value of Capital assets when foreclosure

A

Lower of:
Government’s claim against the property or
Fair market value of the property at foreclosure

Accounting (14 decks)

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