Government accounting Flashcards
The government-wide financial statements report on government as a whole and assist in assessing ____
The government-wide financial statements report on government as a whole and assist in assessing operational accountability – whether the government has used its resources efficiently and effectively in meeting operating objectives.
The GASB requires government-wide FS to use_________
accrual basis and flow of economic resources measurement focus.
Government-wide financial statements:
Two statements:
- the statement of net position
- the statement of activities
The format of the statement of net position of government-wide FS
Assets and deferred outflows of resources - <Liabilities> = Net position</Liabilities>
Net position in Government-wide financial statements is divided into________________
- Net Investment in Capital Assets – all capital assets, net of accumulated depreciation and net of related debt. Deferred outflows/inflows of resources that are related to these transactions are also included in this category.
- Restricted net position – restricted assets reduced by liabilities and deferred inflows of resources related to those assets. Restrictions are made by external requirements of creditors, grantors, contributors, or other governmental entities.
- Unrestricted net position is the net amount of the assets, deferred outflows of resources, liabilities, and deferred inflows of resources that are not included in the two other categories.
Infrastructure assets
- Type of capital assets such as highways, streets, sidewalks, storm drainage systems, and lighting systems that are stationary in nature and normally can be preserved for a longer life than most other capital assets.
- The GASB reporting model requires all state and local governments to report the cost of their infrastructure assets in the government-wide statement of net position.
- Required Approach
All assets meeting capitalization requirements should be recorded and depreciated.
Depreciation expense that can be specifically identified with a functional category should be included in the direct expenses of that function, such as depreciation expense on police cars would be classified as public safety. - Modified Approach
A government can elect not to depreciate certain eligible infrastructure assets, provided that two requirements are met. Ongoing infrastructure are typically reported as expense unless the outlays results in additions or improvements, in which case they would be capitalized.
The two requirements are
Government manages the eligible infrastructure assets using an asset management system that includes
an up-to-date inventory of eligible assets,
condition assessments of the assets and summary of results using a measurement scale, and
estimates each year of the annual amount needed to maintain and preserve the eligible assets at the condition level established and disclosed by the government
Eligible infrastructure assets are preserved approximately at (or above) condition level established and disclosed. Government must provide documentation that:
Complete condition assessments are made at least every three years
The three most recent condition assessments provide reasonable assurance that the eligible infrastructure assets are being preserved at or above the established condition level.
Under the modified approach, a government expenses all maintenance costs each year in lieu of recording depreciation.
Additions and improvements must be capitalized, but the cost of maintaining the infrastructure in proper working condition is expensed.
When modified approach is used, the following information should be disclosed in required supplementary information (RSI):
. A schedule reporting the condition of the government’s infrastructure;
. A comparison schedule of needed and actual expenditures to maintain the government’s infrastructure.
Changes between modified approach and depreciation approach is treated as a change in accounting estimates.
Capital asset in Government-wide financial statements _____________
- Reported assets include all types of governmental entity’s assets, including infrastructure such as roads and sewers.
- These capital assets are not reported in the governmental funds that, under current financial resources measurement focus, record costs of capital assets as expenditures of the period.
- GASB 34 requires that all capital and infrastructure assets be reported on the government-wide financial statements.
- Capital assets, such as buildings and equipment, are depreciated and that depreciation appears as an expense on the government-wide statement of activities.
- Under GASB 34, general governmental assets, including infrastructure assets, are capitalized and depreciated within the government-wide statements.
- GASB require that general capital assets be recorded at historical cost. Historical cost includes acquisition cost plus ancillary costs necessary to put the asset into use.
- If general capital assets are donated, they are recorded at acquisition value at the time of receipt, plus ancillary charges.
- Interest incurred during construction of capital assets used in governmental activities is not required to be capitalized.
Capital asset impairments in government-wide FS
Physical Damage: Measured using the restoration cost approach. Loss is equal to the estimated cost to restore the asset. The loss value is used to write down historical cost.
Enactment of Laws or Obsolescence: Measured using the service units approach. The loss is estimated based on the productive units available before and after the impairment. Unit values are used to quantify the impairment write-off.
Asset Life (Duration) or Reduced Utility: Measured using the service units approach.
Works of Art and Historical Treasures
While the GASB encourages capitalization of all collections or individual works of art or historical treasures, governments can opt not to capitalize if the collection meets all three of the following conditions:
- held for public exhibition, education, or research in furtherance of public service rather than for financial gain;
- protected, kept unencumbered, cared for, and preserved; and
- subject to an organizational policy that requires the proceeds from sales of collection items to be used to acquire other items for collections.
Government-wide FS program approach
- The government-wide statement of activities uses a net program cost format that is not consistent with commercial accounting.
- The format provides cost information about the primary functions of the government and indicates each program’s dependence on general revenues of the government.
- Total costs by function are compared to program revenue associated with each function to arrive at the net cost that must be defrayed by tax revenues.
Government-wide FS: The net expense or net revenue for each function or program is reported for three categories and a total column:
Primary government governmental activities
Primary government business-type activities
Component units (when discrete presentation is chosen)
Government-wide FS: program revenue
Program revenues are revenues directly associated with the function or program on the full accrual basis.
Exchange revenue is recognized when goods or services are transferred. Revenue recognition is similar to commercial business enterprises.
Non-exchange revenue (GASB 33 Accounting and Financial Reporting for Non-exchange Transactions) involves transactions in which a government gives (or receives) value without directly receiving (or giving) equal value in exchange.
Program revenues are usually classified as:
Charges for services
Charges to customers or others for both governmental and business-type activities, such as licenses, permits, operating special assessment.
Charges to other governments for services, such as incarceration of prisoners
Penalties, fines and forfeits
Operating grants and contributions
It reports resources received from outside grants and similar sources that were designated for some type of operating purpose.
Capital grants and contributions
It presents any outside grants and similar sources where the resources were designated for capital asset additions.
Government-wide FS: Net (Expense) Revenue and Changes in Net Position
The net expense or revenue is presented in three categories and a total column:
Primary government governmental activities column
Primary government business-type activities column
Total column (1 and 2)
Component unit column
Government-wide FS: General Revenues
General revenues are presented separately in the same three categories and a total column as above.
General revenues include taxes, interest earnings, and other revenues that are not specifically associated with a functional expense.
Government-wide FS: Change in Net Position
The change in net position is computed by deducting the general revenues from net (expenses) revenues.
The net difference is combined with beginning net position to arrive at ending netposition.
Government-wide FS: Eliminations
Generally, internal transactions that artificially “double up” on activity should beeliminated.
Interfund services, such as water and other utilities, should not be eliminated.
Internal activity associated with blended component units should be reclassified as interfund activity (eliminated).
Internal activity associated with discretely presented component units should be reported as external transactions (not eliminated).
Fund Financial Statements - major fund
Fund financial statements are presented by major fund rather than by fund type. Reporting by major fund provides more meaningful information
Major funds are specifically defined as follows: A major fund must meet the 10% criteria within its category and also meet the 5% criteria associated with both categories. Both rules must be met
10 Percent Test
To meet the 10 percent test, the individual Governmental funds are individually compared with the total of all governmental funds, and the enterprise funds are individually compared with the total of all enterprise funds.
- All governmental funds Or
- All enterprise funds
5 Percent Test
To meet the 5 percent test, the GRSPP funds are individually compared with the total of all the governmental funds and enterprise funds and each enterprise fund is individually compared with the total of all enterprise funds and governmental funds to meet the 5 percent test.
- All governmental funds And
- All enterprise funds
Fund Financial Statements - other major fund considerations
Government officials may elect to report a fund as major if they believe that the public interest is served by the reporting, regardless of the quantitative criteria.
The general fund is always considered a major fund.
Internal service funds are not considered in the evaluation of major and nonmajor funds. The only proprietary funds used in the determination of major and nonmajor funds are the enterprise funds.
Extraordinary items and transfers are not considered in major fund determinations
When determining whether a fund qualifies as a major fund, remember:
- Aggregate fund balance/equity is not used in either test.
- The general fund will always be a major fund.
- Internal service funds will not be considered in the evaluation of major and nonmajor funds.
