Section 2 - Ch3 Flashcards
Internal service funds break-even question(test)
Charges for services to other 23 epts. - operating expense - depreciation Do not include interest earnings or expense in this calculation.
II-98 As previously mentioned, internal service fund assets and liabilities are usually reported with governmental activities. However, if the primary customers of internal service funds are enterprise funds, then the assets and liabilities are reported with business-type activities. The change in net position of internal service funds attributed to internal sales is eliminated so that the funds “break even” for the fiscal year.
II-66 - Internal service funds can never be major even if the government believes one is important. Thus, they are aggregated and reported as a single fund type. Similarly, no fiduciary fund can ever be reported as major. Fiduciary funds are reported by fund type.
Required statements for gov wide reporting.
The two required statements for government-wide reporting are the statement of net position and the statement of activities.
GASB Statement 34
- Added requirement for “Government-Wide” reporting for state and local governments.
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Does NOT focus on funds, focuses on ACTIVITIES
- Distinguish between and report on governmental activities and business-type activities
- Added requirement for MD&A.MD&A is RSI, however, MD&A is presented BEFORE the financial statements unlike RSI.
Overview of Government-wide Financial Reporting
- Prepared using the “Economic Resources Measurement Focus” à ACCRUAL!
- Governmental Activities = associated with governmental funds
- Business-Type Activities = associated with enterprise funds
- Interfund Transactions à eliminated within governmental activities and business-type activities (more accurate picture of government as a whole)
- NO Fiduciary Funds are presented in “government-wide” statements
- REQUIRED statements = “statement of net position” & “statement of activities”
Management’s Discussion and Analysis (MD&A)
*Management’s Discussion and Analysis (MD&A)
- Is RSI that is presented before financial statements
- Should discuss current year results compared to prior years AND distinguish between primary government and component units.Primary focus is primary government.
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MD&A Should include:
- Brief discussion of financial statements
- Analysis of revenues, exp, contributions of capital, transfers, change in net position, etc.
- Does NOT include Cash Flows information in MD&A
- Auditors should review the MD&A à failure to include required components will be mentioned in the audit report, BUT will NOT affect the auditor’s opinion.
- If a gov’t used a “modified approach for infrastructure” (expensed infrastructure instead of capitalizing; req up to date inv, perform condition assessments using measurement scale, estimate annually amount needed to maintain), then need to report significant changes in condition assessments.
- MD&A information should only be included “up to the date of the auditor’s report”
Measurement Focus and Basis of Accounting (MFBA)
*Measurement Focus and Basis of Accounting (MFBA)
- Use ACCRUAL… no adjustment necessary for “business-type” activities since enterprise funds use accrual
- “Governmental” activities use MOD. ACCRUAL and MUST be Adjusted.
Adjusting Entry
Example Purchase of a vehicle for 250
Adjusting Entry
Example Long-Term Debt Transaction where gov’t borrows 250
Example Long-Term Debt Transaction where gov’t borrows 250
Adjusting Entry
Example Revenue Transaction
~EXAMPLE: Revenue Transactions — Property Tax levy of $1,000. Gov’t receives $900 by end of year. Gov’t receives $50 over first 2 months of next year. Receives $50 over next year.
~EXAMPLE: Revenue Transactions — Property Tax levy of $1,000. Gov’t receives $900 by end of year. Gov’t receives $50 over first 2 months of next year. Receives $50 over next year.
Statement of Net Position
(required for gov-wide statements)
Statement of Net position (required for government-wide statements)
Assets + deferred outflows – Liabilities – deferred inflows = Net position
- Present assets and liabilities in order of liquidity
- Liabilities with maturity > 1 year à LT Debt – noncurrent
Net position should be displayed in 3 components:
- Investment in capital assets, net of related debt (and net of depreciation)
- Invested in Capital Assets = Capital Assets – Acc Dep – (LT Debt – Unspent Bond proceeds)
- Restricted assets:constraints on asset use from creditors, grantors, laws, or unspent LTD
- Unrestricted assets (or deficit)
Modified Approach for Infrastructure
- Instead of reporting depreciation, a gov’t can use this approach IF it meets these requirements:
- It has current inventory of infrastructure
- It performs condition assessments using a measurement scale
- It annually estimates amounts need to maintain assets based on condition level
- If met, can expense all maintenance expenditures and no depreciation is recorded.
*Statement of Activities (required for government-wide statements)
*Statement of Activities (required for government-wide statements)
- “Net Cost Format” à identify the extent to which a particular function requires financial support.
- All expenses and revenues are reported by FUNCTION
- Interest on LT liabilities = indirect expense (reported as a separate line)
- Depreciation = direct expense for function that it relates to.
- NO Deferred Revenue on Statement of Activities (only on “governmental fund” financial statements)
Revenues (all functions have expenses; SOME have revenues)
Revenues (all functions have expenses; SOME have revenues)
Government programs are financed through 4 sources
Government programs are financed through 4 sources:
- Those who purchase goods or services (building permit) (Program Revenues)
- Other governmental entities (Restricted Grants, funded by other gov’t taxes = Program Revenues)
- Taxes (General Revenues)
- Financing from the government itself, such as investment earnings, asset sales (General Revenues)
Program Revenues (3 categories)
Program Revenues (3 categories)
- Charges for services (exchange/exchange-like transactions) (licenses, permits, fines)
- Also included in program revenues are “taxes” levied by another government and distributed to the local government.Taxes levied by the local gov’t can never be program revenue.
- Program specific operation grants
- Program specific capital grants (entire grant must be restricted for capital purposes)
General Revenues = all other revenues (taxes, unrestricted grants, investment earnings, gain on sale of assets)
General Revenues = all other revenues (taxes, unrestricted grants, investment earnings, gain on sale of assets)
Special and Extraordinary Items
- Special Items:significant transactions within the control of management that are EITHER unusual OR infrequent. (sale of a major capital asset)
- Extraordinary Items: transactions that are BOTH unusual AND infrequent (damage from tornado).
- “Near Special item”: either unusual or infrequent, but NOT in control of management.
