Section 1, Chapter 4 (part 2)

Question 1

How should pollution remediation liabilities be measured?

Answer 1

Based on the outlays expected to be incurred to settle the liabilities

Profits and risk premiums that another party would demand to perform. The work should be included in the measurement of the government liability, if the government expects to utilize another party to perform the work.

Question 2

How should pollution remediation liabilities be valued?

Answer 2

At their current value

Because settlement of liability is not always possible in the current period, settlements can involve future events. The current value of a remediation liability should be based on reasonable, and supportable, assumptions about future events that affect the eventual settlement of the liability.

Question 3

What technique should be used to measure pollution remediation liabilities?

Answer 3

They should be measured using the expected, cash flow technique which measures the liability as the sum of probability weighted amounts in a range of possible estimated amounts

Question 4

Under the expected cash flow technique, what should the measurement of a government pollution remediation include?

Answer 4

All remediation work that the government is expected to perform, including work expected to be performed for other responsible parties, whether or not the government is required to do that work.

Question 5

What should be done for expected recoveries from those other parties, and expected insurance recoveries from policies that indemnify the government for its pollution remediation obligations?

Answer 5

They should also be included in the measurement by reducing the expense, and if not yet realizable, the liability

If a recovery is realizable, it should be recorded as an asset, and an increase of the liability, similar to a prepaid construction contract

Question 6

In governmental funds, what happens to estimated recoveries?

Answer 6

They reduce any associated pollution remediation expenditures when the recoveries are available

Question 7

When should pollution remediation outlays, including outlays for property, plant, and equipment be reported as an expense?

Answer 7

When a liability is recognized (exceptions, apply)

Question 8

When should pollution remediation outlays, including outlays for PPE, be reported as an expense?

Answer 8

When a liability is recognized (exceptions, apply)

Question 9

Pollution remediation outlays should be capitalized when goods and services are acquired, if attained under what circumstances?

Answer 9

1. To prepare property in anticipation of a sale.
2. To prepare property for use when the property was acquired with known or suspected pollution that was expected to be remediated.
3. To perform pollution remediation that restores a pollution caused decline in service utility that was recognized as an asset impairment
4. To acquire PPE that has a future alternative use.

Question 10

When should governments capitalize property in anticipation of a sale?

Answer 10

Only those amounts that would result in a carrying amount of the property, not exceeding an estimated fair value upon completion of remediation

Question 11

When should governments capitalize property for use when the property was acquired with known or suspected pollution that was expected to be remediated?

Answer 11

Government should only capitalize those outlays expected to be necessary to place the asset in its intended location and condition for use, which may not include costs overruns

Question 12

For government wide and proprietary fund statements, where should pollution remediation costs (and revenues) be reported?

Answer 12

In the statement of activities and the statement of revenues, expenses, and changes in net position as a program or operating expense (revenue), special item, or extraordinary item

Question 13

How should pollution remediation liabilities be reported in government fund statements?

Answer 13

Liabilities are not reported

Rather, payables for goods and services used for pollution, remediation activities are recognized as liabilities upon receipt of those goods and services. In the statement of revenues, expenditures and changes and fund balances, any facilities and equipment acquisitions for pollution remediation activities should be reported as expenditures.

Question 14

What should governments disclose for recognized pollution remediation liabilities and recoveries?

Answer 14

• The nature and source of pollution remediation obligations
• The amount of the estimated liability
• Estimated recoveries reducing the liability

Question 15

What should governments disclose for pollution, remediation liabilities that are not yet recognized because they are not reasonably estimable?

Answer 15

Governments should disclose general description of the nature of the pollution remediation activities

Question 16

Why is the cost measurement of closure and post closure landfills complex?

Answer 16

• most of the cost will not be actually paid until 20 to 50 years in the future
• Timing makes it difficult to measure not only the inflation, but the impact of potential future regulations and changes in waste disposal technologies

Question 17

When does GAP require estimated closure and post closure cost to be recognized?

Answer 17

While the landfill is operating, regardless of when cash disbursements are made

Accordingly, a portion of the estimated total cost of closure and post closure should be recognized as an expenditure/expense, and as a liability in each period the landfill accepts solid waste

Recognition should begin on the date the landfill begins accepting solid waste and continue in each period it accepts waste, such as the total estimated costs will be fully recognized by the time the landfill stops accepting waste

Question 18

What is the closure and post closure cost formula for recognition?

Answer 18

(estimated total current cost X cumulative capacity used) divided by total estimated capacity less amounts previously recognized

Question 19

What does the estimated total current cost of closure and post closure care include?

Answer 19

A mixture of costs for monitoring, maintenance, and capital expenditures/expenses

Question 20

Is there a distinction between operating or capital components of the closure and post closure costs of landfills?

Answer 20

No

Because all cost related to landfill closure, including future capital acquisitions, were recorded as expenses as the landfill was being filled, the capital components are not reported as assets acquired, nor are they reported as capital expenditures. Once the costs have been associated with closure or post closure care, they lose the distinction between operating and capital.

Question 21

How should governmental funds report amounts to be liquidated with expendable available financial resources?

Answer 21

As fund liabilities

If expenditures have exceeded the accumulated liability, the prepaid amount is reported in the governmental fund

Question 22

What are asset retirement obligations (AROs) recognized for?

Answer 22

They are recognized for the retirement of a tangible capital asset or disposal of tangible capital asset, or environmental remediation associated with the retirement of a tangible capital asset, resulting from the normal operation of that capital asset, whether constructed or acquired

Question 23

When is liability recognized for asset retirement obligations (ARO)?

Answer 23

Only when there are external and internal obligating events

Question 24

What do external obligating events include?

Answer 24

Federal, state, or local laws or regulations, creation of illegally binding contract, or issuance of a court judgment

Question 25

What do internal obligating events include?

Answer 25

Occurrence of contamination because of normal operations, as in nuclear plants

Question 26

What is the recognition based on for non-contamination related AROs?

Answer 26

The usage of the asset or abandonment

If there are no external or internal obligating events, ARO is not recognized

Question 27

What is required in order to be considered a combination?

Answer 27

The arrangement should result in the continuation of substantial portion of services, provided by the previously separate entities, or their operations after the transaction has occurred

Question 28

What is a government merger?

Answer 28

Situation, where two or more governments cease to exist as legally separate entities, and or combined to form one or more new governments

OR

One or more legally separate entities cease to exist and their new operations are provided by one or more continuing governments, and no significant consideration is exchanged

Question 29

What is the merger date when a new government results from a merger?

Answer 29

The date on which the combination becomes effective

Question 30

What should new governments from mergers recognize?

Answer 30

Assets, deferred outflows of resources, liabilities, or deferred inflows of resources of merging entities

Question 31

What does the beginning net position of the merging government from?

Answer 31

Combining the caring values of assets, deferred outflows or resources, liabilities, or deferred inflows of resources of the merging entities

Question 32

What is the merger date for a continuing government merger?

Answer 32

The beginning of the reporting period in which the combination occurs, regardless of the actual date of the merger.

Question 33

What should the continuing government recognize?

Answer 33

Combined assets, deferred outflows, liabilities, or deferred inflows of resources of the emerging entities

Question 34

What is a government acquisition?

Answer 34

Where a government acquires another entity or operations of another entity, in exchange, for significant consideration

Question 35

What is the acquisition date?

Answer 35

Date on which the acquiring government obtains control of the assets, and becomes obligated for the liabilities of the acquired entity

Question 36

What should the acquiring government recognize?

Answer 36

Assets, deferred outflows, liabilities, or deferred inflows acquired or assumed at the acquisition date

Question 37

How should consideration provided by the acquiring government be measured?

Answer 37

Measured as of the acquisition date

It is the sum of the values of assets remitted or liabilities incurred to the former owners of the acquired entity

Question 38

What does consideration include?

Answer 38

Financial and non-financial assets, such as cash, investments, and capital assets

Question 39

What may a liability incurred represent?

Answer 39

An obligation to provide consideration to the former owners of the acquired entity, such as a note payable

Question 40

What should acquiring governments report when consideration provided exceeds the net position acquired?

Answer 40

The acquiring government should report the differences as a deferred outflow of resources, and attributed to the future periods in a systematic and rational manner.

Question 41

What should acquiring governments report when consideration provided is less than the net position acquired?

Answer 41

Acquiring government should eliminate the excess by reducing the acquisition, values assigned to the noncurrent assets, unless the conditions of the arrangement indicate that a contribution should be recognized by the acquiring government

Question 42

What should acquisition cost incurred to effect an acquisition be recognized as?

Answer 42

It should be recognized as a expense/expenditure in the periods in which the costs are incurred, and the services are received

Question 43

What is a transfer of operations?

Answer 43

A situation involving the operations of an entity, rather than a combination of legally separate entities, which no significant consideration is exchanged

Operations may be transferred to another existing entity, or to a new entity

Question 44

When does a transfer of operations to an existing entity occur?

Answer 44

When a government transfers, one or more operations to another existing government

The transfer may result from arrangements such as re-organizations, redistricting, and annexations which operations are combined through jurisdictional change in boundaries. Also, a transfer of operations may occur in shared service arrangements in which governments agree to combine operations.

Question 45

When does the transfer of operations to a new government occur?

Answer 45

In shared service arrangements in which government agreed to combine operations and transfer assets and liabilities to a new government

The transfer to a new government occurs when an operation of a single government is re-organized as a new government to provide those services

Question 46

What should be disclosed in the notes about government combinations?

Answer 46

• A brief description of the combination
• The date of the combination
• A description of the primary reasons for the combination

Question 47

What should be disclosed in the notes for government mergers and transfers of operations?

Answer 47

• The amount recognized for total assets
• total deferred outflows of resources
• total liabilities
• total deferred inflows of resources
• total net position by component

Question 48

What should the acquiring government disclose for acquisitions?

Answer 48

• A brief description of the consideration provided
• The total amount of net position acquired
• description of contingent arrangements, including the basis for determining the amount of payments that are contingent

Question 49

For disposables of government operations, what should the disposing government disclose?

Answer 49

• A brief description of the facts and circumstances leading disposal of these operations
• identify and disclose the total expenses and revenues, distinguishing between operating and non-operating, and the total governmental fund revenues and expenditures, if applicable

Question 50

What are some of the ways property escheats to the government?

Answer 50

• if a person dies without a will and there are no known hairs at the time the estate settles
• Individuals who leave deposits for utilities and other services that remain unclaimed
• Bank accounts idle for an extended period of time

Question 51

Can owners of the escheat property take claim and receive the property?

Answer 51

Yes, since it’s rightfully theirs

Question 52

If the abandoned property results from deposits with the government, then where is the escheat property reported?

Answer 52

In the appropriate governmental or proprietary fund as revenue

However, a liability should be established based on the amount of refund, if any, which may be claimed

Question 53

What fund should be used if the property belongs to an individual, private organization, or another government?

Answer 53

A private purpose trust fund or custodial fund

Question 54

What should governments do when they use unclaimed or abandoned property for public purposes? (Common)

Answer 54

They should estimate the amount that might be claimed and establish a liability

For example, a government receives $20 million in unclaimed funds. Experience has shown that 6% has been claimed by rightful hiers. The government would record an addition of $20 million and a fund liability of $1.2 million

Question 55

Most of the accounting and financial reporting for pensions and post employment benefits other than pensions (OPEB) which are provided to the employees of the state and local governmental employers, managed through pension plans, administered through trusts that have what characteristics?

Answer 55

• contributions from employers and non-employer contributing entities, to the pension or OPEB plan and earning on those contributions are irrevocable
• pension or OPEB assets must provide pensions or OPEB to plan members in accordance with the benefit terms
• pension or OPEB planets are legally protected on the creditors of employers, non-employer, contributing entities, and the pension or OPEB plan administrator. If the plan is a defined benefit pension plan, the plan assets are also legally protected from creditors of the plan members.

Question 56

What are the different categories in which employers can be classified?

Answer 56

1. Single employers
2. Agent employers.
3. Cost sharing employers.

Question 57

What are single employers?

Answer 57

Those whose employees are provided with divine benefit pensions, or OPEB through single employer pension or OPEB plans—pension or OPEB plans in which pens or OPEB are provided to the employees of only one employer

note a government and the government component units may be part of a single employer plan, even if component units are paying into the same plan through the government

Question 58

What are agent employers?

Answer 58

Those whose employees are provided with divine benefit pensions or OPEB, through agent multiple-employer pension or OPEB plans— pension or OPEB plans in which plan assets are pooled for investment purposes, but separate accounts are maintained for each individual employer so that each employers share of the pooled assets is legally available to pay over the benefits only of its employees

Question 59

What are cost sharing employers?

Answer 59

Those whole employees are provided with defined benefit pensions or OPEB, through cost sharing multiple employer pension, or OPEB plans— pension or OPB plans in which the pension or OPEB liabilities to the employees have more than one employer are pooled and plan assets can be used to pay the benefits of the employees of any employer that provides pensions or OPB through the pension or OPEB plan.

Question 60

How does GAAP require the liability (or asset) of employers and employers contributing entities to employees for defined benefit pensions (net pension or OPEB liability or asset) to be measured?

Answer 60

• The portion of the present value of projected benefit payments to be provided through the pension plan to current active and inactive employees that is attributed to those employees’ past periods of service (total pension liability), less
• The amount of the pension or OPEB plan’s fiduciary position (held in an irrevocable trust solely for plan benefits)

Question 61

An employer, whose employees are provided when to find contribution pensions, or OPP is required to recognize pension or OPP expense, for what?

Answer 61

The amount of contributions to employees’ accounts that are defined by the benefit terms as attributable to employees’ service in the period, net forfeited amounts that are removed from employees’ accounts

Question 62

A change in the person or OPEB liability is required to be recognized for the difference between what?

Answer 62

• amounts recognized in expense
• amount paid by the employer to a defined contribution pension or OPEB plan

Question 63

In governmental fund financial statements, pension or OPEP expenditures should be recognized equal to the total of what?

Answer 63

• amounts paid by the employer to a pension or OPEB plan
• The change between the beginning and any balances of amounts normally expected to be liquidated with expendable available financial resources

Question 64

How should a pension liability be recognized?

Answer 64

To the extent liability is normally expected to be liquidated with expendable available financial resources

Question 65

In the government wide financial statements, and the proprietary financial statements (where applicable) a single or agent employer that does not have an arrangement where another government has a legal responsibility to pensions on their behalf, directly to a plan (a special funding situation), what are they required to recognize?

Answer 65

A liability (or asset) equal to the net pension liability (or asset)

Question 66

What is the net pension liability, or asset required to be measured at? (when)

Answer 66

As of the date no earlier than the end of the employers prior fiscal year (the measurement date) consistently applied from period to period

Question 67

The pension or OPEB expense and deferred outflows of resources and deferred inflows of resources related to pensions that are required to be recognized by an employer primarily result from what?

Answer 67

Changes in the components of the net pension or OPEB liability (or asset)— that is, changes in the total pension or OBEB liability and in the pension or OPEB plan’s with fiduciary net position

Question 68

When does GAAP require that most changes in the net position or OPEB liability (or asset) be included in pension, or OPEB expense?

Answer 68

In the period of the change

For example, changes in the total pension, or OPEB liability resulting from the current period service cost, interest on the total pension or OPEB liability, or changes of the benefit terms are required to be included in the pension or OPEB expense immediately. Projected earnings on the pigeon. Plants investments also are required to be included in the determination of pension or OPEB expense immediately

Question 69

The effects of certain other changes in the net pension or OPEB liability are required to be included in the pension or OPEB expense over the current and future periods. What are the effects on the total pension or OPEB liability?

Answer 69

• changes of economic and demographic assumptions or of other inputs
• differences between the expected and actual experience required to be included in the pension expense in systematic and rational manner over a disclosed period equal to the average of the expected remaining service lives of all employees that are provided with benefits through the pension plan (active employees and inactive employees) beginning with the current period