Governmental Accounting

Question 1

Why are separate fund financial statements for governmental and proprietary funds needed?

Answer 1

The purpose is to report additional & detailed information about the primary government.

Question 2

Which funds use the modified accrual basis of accounting and current economic resource measurement focus?

Answer 2

Governmental funds (incl general, permanent, and capital projects) = current resource measurement & modified accrual accounting
Proprietary & Fiduciary (includes internal service fund) = economic resource measurement & accrual basis

Question 3

What does the statement of revenues and expenditures show?

What does the balance sheet show?

Answer 3

Resources received & consumed during the current financial period (current financial resources focus).

Bal Sht shows available resources and financial obligations (financial position focus).

Question 4

What is GRaSPP SE PAPI?

Answer 4

GRaSPP = Governmental funds including General, Special Revenue, Debt Service, Capital Projects, and Permnanet
SE = Proprietary funds including Internal Service & Enterprise
PAPI = Fiduciary funds including Pension & other emp benefit trust, Agency trust funds, Private Purpose, and Investment

Question 5

What date should the salary rate be taken to calculate unpaid compensated absences?

Answer 5

The rate at the balance sheet date. (otherwise will be understated due to pay rises).

Question 6

What is the ‘non-spendable’ classification?

Answer 6

It’s when resources are in a form that cannot be spent, e.g. inventory or prepaids, or are legally required to remain whole.

Question 7

If a special fund has a deficit (spending exceeded amounts in committed, restricted, and assigned), how is this reflected?

Answer 7

It’s reflected as negative - unassigned. General fund subsidy to correct this is not necessarily guaranteed.

Question 8

In which fund should a gift of investment in perpetuity to a city be reported? Income from the investment can be used to support the library.

Answer 8

It should go in the permanent fund. Permanent funds are used to report resources where principal is restricted but income can be used to support govt. Library is community org, not specif individual/other govt/private org which is what private purpose trusts are used for.

Question 9

How many funds should be established for a new city?

Answer 9

Judgment: Accountant should set up the right funds to follow legal requirements (and segregate assets) and ensure sound financial administration to safeguard assets.

Question 10

What type of non-exchange transaction is a tax on hotel charges?

Answer 10

Derived tax revenue. (derived/imposed on exchange transactions such as commercial sales).

Others: imposed non-exchange = fines or property taxes.*
government mandated = funds for lower level, e.g. county to clean up environment.
voluntary non-exchange = govt receives resources not for equal value, e.g. grant agreements.

*if collected prior to period being used e.g. occupational licenses, report as deferred inflow

Question 11

When are these accounts used: appropriation, encumbrance and expenditure?

Answer 11

Encumbrance = after PO released
Appropriation = adoption/amendment of the budget at y/e,
Expenditure = when obligations incurred/paid or accounts closed at end of fiscal year
*Fixed assets not recorded in governmental funds

Question 12

What are these types of expenditure classifications used for: activity, object, program, and function?

Answer 12

Activity - used to calculate expenditures per unit of activity.

Object - resource expenditures are grouped by object classes per type of items purchased or services obtained. e.g. salaries & wages

Program - groups related activities, ops, org units used for specific purpose, meeting certain objectives

Function - groups related activities aimed at achieving major service/regulatory responsibility

Question 13

Where are encumbrances outstanding at y/e reported in a state’s general fund?

Answer 13

In the fund balance commitment in the general fund. Encumbrances represent unperformed contracts for goods or services, not liabilities or expenditures.

Question 14

What’s the presentation format for the governmental fund statement of financial position?

Answer 14

Must be presented in a balance sheet rather than net position format:

assets + deferred outflows = liabilities + deferred inflows + fund balance

Question 15

When will derivatives qualify for hedge accounting treatment (governmental)?

Answer 15

They qualify for hedge accounting treatment (when changes in value shown as deferred outflows or deferred inflows of resources) when they are effective.

Question 16

What kind of transactions are recorded in the General, Debt Service, Special Revenue, Permanent, and Capital Projects Funds?

Answer 16

General - Everything else not listed below that involves using financial resources
Debt Service - General long term debt principal & interest payments*
Special Revenue - specific revenue sources legally restricted for a purpose (other than perm funds or major capital projects)
Permanent - principal that is restricted, although earnings may be used to benefit public.
Capital Projects Funds - acquisition/construction of big capital facilities not in proprietary or trust funds.
*If acting as bond issuer, don’t record premium/discount amortization because of measurement focus. Interest & payable recorded when due & payable, not when accrued under modified accrual.

Question 17

Where should the portion of special assessment debt maturing in 5 years, to be repaid from general resources of the government, be reported?

Answer 17

It should be reported on the government-wide financial statement of net position in general LT liabilities (same with any debt to be repaid from general resources). The general fund doesn’t include LT debt - measurement focus is flow of financial resources.

If govt is not obligated on a special assessment debt, can set up an agency fund.

Question 18

MSWLF (municipal solid waste landfills) year 1 expenses must include a portion of what (even if expected to be active 20 years)

Answer 18

I. A portion of final cover cost to be applied to landfill

II. A portion of equipment costs used near to closure & during post-closure

Question 19

What criteria must be met to qualify as an enterprise fund?

Answer 19

1. ) Activity financed by debt secured by pledge of net revenue from fees & charges
2. ) Laws & regulations stipulate costs of providing services must be recovered through charging of fees
3. ) Pricing policies are designed so that cost recovery happens through charging of fees

Question 20

What is an example of expenditures from the general fund?

How is a contribution of enterprise fund capital by the general fund classed?

Answer 20

Employer contributions to the pension trust fund - the general fund bears the cost of funding the pension plan.

Interfund transfer. They do not give rise to revenues and expenditures.

Question 21

What are the required financial statements for an investment trust fund?

Answer 21

Statement of fiduciary net position (balance sheet), & statement of changes in fiduciary net position (income statement - required)

Question 22

How should the investment funds of a city’s pool be accounted for, both the ones invested on behalf of other government entities & its own?

Answer 22

Funds from other govts would be in an investment trust fund. City’s own funds in the pool would be treated as being invested with a trustee so would be assets of the fund.