Section 3, Chapter 5 - Federal Financial Accounting Standards And Illustrations

Question 1

What are financing sources?

Answer 1

Inflows of resources to the government or its component entities

Not all financing sources are revenues

Question 2

What are revenues?

Answer 2

Inflows the government to demands, earns, or receives from donation

Question 3

What two classifications is revenue divided into?

Answer 3

1. Non-exchange revenue.
2. Exchange revenue.

Question 4

Where does non-exchange revenue arise from?

Answer 4

It arises from the government power to demand payment from the public in the form of taxes, duties, fines, and penalties

Question 5

Where does exchange revenue (earned revenue) arise from?

Answer 5

It arises when the government entity provides goods or services to the public or another government for a price

Question 6

How are donations classified?

Answer 6

As non-exchange revenue

Question 7

Financing sources other than revenue, available to component entities of the government such as departments?

Answer 7

Yes

Question 8

What are appropriations referred to and why?

Answer 8

• appropriations are referred to as other financing sources
• appropriations are not revenue, but do result in the inflow of resources to component entities

Question 9

When do transfers occur?

Answer 9

• transfers occur when one entity gives a resource (such as excess property) to another entity without expecting anything in return
• Transfers among entities without reimbursement provide financing to the receiving entity

Question 10

For proprietary accounting, where is exchange revenue reported?

Answer 10

It’s reported on the statement of costs

Where feasible, is offset against the related program costs

Question 11

Using proprietary accounting, when is exchange of revenue recognized?

Answer 11

When goods and services are provided to an individual organization, and that individual or organization is obliged to pay for them

Question 12

Using proprietary accounting, how is exchange revenue measured?

Answer 12

Actual pace paid or to be paid less than an allowance for returns, allowances, price redeterminations, or other reasons the final account received will be less than owed apart from credit losses

Question 13

Using proprietary accounting, what are the disclosures required for exchange revenue?

Answer 13

Among others, disclosure is required for pricing policies if full cost is not charged.

Question 14

Using proprietary accounting, what is done if the entity does not retain the exchange revenue for its own use?

Answer 14

Because exchange revenue results from the entities operations, standards require the full amount of exchange revenue be recognized without regard to requirements to transfer collections to other entities

Transfer outs are then recognized as a negative financing source

Question 15

For proprietary accounting, where is nonexchange revenue reported?

Answer 15

On the statement of changes in net position

Question 16

Using proprietary accounting, when is nonexchange of revenue recognized?

Answer 16

When a specifically identifiable, legally enforceable claim to resources arises, and the amount is reasonably estimable

Question 17

Using proprietary accounting, how is nonexchange revenue measured?

Answer 17

Cash collections, less refunds, and including the accrual adjustment for the net changes in accounts receivable (net of allowance for debts and refunds) during the period

Question 18

Using proprietary accounting, what are the disclosures required for nonexchange revenue?

Answer 18

Among others, the basis of accounting should be described and changes in assets and liability balances shown

Question 19

Using proprietary accounting, what is done if the entity does not retain the nonexchange revenue for its own use?

Answer 19

Non-exchange revenue is most often collected by one entity, and transferred to the treasury. Collecting entities provide custodial reporting relative to the collections and receivables, but do not recognize non-exchange revenue.

Nonexchange revenue, is recognized by the entity, for which resources were received

Question 20

For proprietary accounting, where are appropriations used reported?

Answer 20

Appropriation used are reported on the statement of changes in net position

Question 21

For proprietary accounting, when are appropriations used recognized?

Answer 21

Appropriations become a financing source when used.

Until then, they should be recognized as an “expended appropriations” an element of net position

Question 22

For proprietary accounting, how are appropriations used measured?

Answer 22

Actual amount expended

Question 23

For proprietary accounting, what are the disclosures for appropriations used?

Answer 23

Most detailed information on appropriations, and their status is provided on the statement of budgetary resources

Question 24

What is done if the entity does not retain the appropriation used for its own use?

Answer 24

NA

Question 25

Classifying revenue as exchange, or non-exchange can be difficult, because relationships with the government often appear compulsory rather than voluntary. What is provided to auditors and prepares in making appropriate classifications?

Answer 25

A detailed appendix listing common revenues and other financing sources by type

The appendix also explains the reasons for the classification and maybe helpful in classifying, other, less common or new sources

Question 26

What are some transactions with the public?

Answer 26

• Non-exchange transactions with the public
• Exchange transactions with the public: revenue
• Exchange transactions with the public: gains and losses

Question 27

What are some examples of non-exchange transactions with the public?

Answer 27

• individual income tax, corporate income taxes, social insurance taxes and contributions, estate and taxes, and customs duties
• deposits by states for unemployment trust fund
• Customs service fees
• donations
• Fines and penalties

Question 28

What are some examples of exchange transactions with the public: revenue?

Answer 28

• sales of goods and services
• Interest (unless classified elsewhere), dividends, rents (except for mineral rights) on governmental property
• Proceeds from the auction of the radio spectrum
• regulatory user fees such as patent and copy rights; immigration and counselor fees; SEC registration and filing fees; nuclear regulatory commission fees
• Premiums for supplementary medical insurance and other insurance programs such as crop insurance
• Federal employee contributions to pension and other retirement benefit plans
• Reimbursement for collecting revenue
• Reimbursement for cleanup costs

Question 29

What are some examples of an exchange transaction with the public: gains and losses?

Answer 29

• Sales of government assets
• Acquisition of property, plant, and equipment through exchange
• Sales of receivables or direct loans
• Retirement of debt securities prior to maturity

Question 30

What are some intragovernmental transactions?

Answer 30

1. Nonexchange transactions—intragovernmental: revenue
2. Nonexchange transactions—intragovernmental: gains and losses
3. Exchange transactions—intragovernmental: revenue
4. Exchange transactions—intragovernmental: gains and losses
5. Other financing sources —intragovernmental

Question 31

What are some examples of Nonexchange transactions—intragovernmental: revenue?

Answer 31

• Interest on Treasury securities held by trust funds and special funds (except trust revolving funds)
• Interest received by one fund from another
• Employer entity contributions to social insurance programs

Question 32

What are some examples of Nonexchange transactions—intragovernmental: gains and losses?

Answer 32

• retirement of debt securities prior to maturity: trust funds and special funds (except trust revolving funds)
• cancellation of debt

Question 33

What are some examples of exchange transactions—intragovernmental: revenue?

Answer 33

• incremental sales of goods and services by revolving fund
• employer entities contributions to health benefit for current coverage of the federal employees
• employer payments for unemployment benefits, and workers compensation
• Interest on treasury securities held by revolving or trust revolving funds
• Interest interest on unvested funds received by direct loan and guaranteed loan financing accounts

Question 34

What are some examples of exchange transactions—intragovernmental: gains and losses?

Answer 34

-retirement of debt securities prior to maturity: revolving funds, and trust revolving funds

Question 35

What are some examples of other financing sources— intragovernmental?

Answer 35

• Appropriations
• Cost subsidies: difference between internal sales price (reimbursement) and full cost
• Cost subsidies: difference between the service cost of pensions (and other retirement benefits) less the employee contributions, if any, and the employer entity contributions
• Transfer of cash, and other capitalized assets without reimbursement

Question 36

What does the fund balance with treasury represent?

Answer 36

Aggregated amount of funds the entity is able to use to make expenditures and pay liabilities

Question 37

At the department level, the fund balance with treasury is what type of asset?

Answer 37

Intergovernmental asset

This is from the departments perspective, because it represents a claim to federal resources

Question 38

What does the US Department of treasury General fund financial statements, fund balance with treasury represent?

Answer 38

A commitment to make resources available to departments and would be recognized as governmental liability in the general funds financial statement

Both intragovernmental amounts would be eliminated in the government wide consolidation financial statements

Question 39

At the department level, what is the fund balance with treasury increased by?

Answer 39

• receiving appropriations, reappropriation, continuing resolutions, appropriation, restorations and allocations
• receiving transfers and reimbursements from other federal entities
• Borrowing from treasury
• Offset collections the entity is authorized to spend

Question 40

An entity’s fund balance with treasury is reduced by what

Answer 40

• disbursements to pay liabilities or to purchase assets, goods and services
• Investments in US securities
• Cancellation of expired appropriations
• Transfers and reimbursements to other entities or to the treasury
• sequestration or rescission of appropriations

Question 41

When are accounts receivable established?

Answer 41

When a federal entity has a claim to cash or other assets from other entities

Question 42

What should entity do if credit losses are more likely than?

Answer 42

the federal entity should establish allowance estimated losses and recognize bad debt expense

Question 43

A systematic method for estimating losses should be established. If individual accounts represent significant portion of the total receivable, the entry should estimate the loss for the individual accounts. What are some factors to consider?

Answer 43

• The debtors ability to pay
• The debtors payment record and willingness to pay
• Probable recovery of amounts from secondary sources, such as liens

Question 44

How should the estimated loss for groups of accounts be determined?

Answer 44

1. Separating the accounts into groups of homogeneous accounts (for example, by debtor category, according to the reason for the receivable, such as trade account, erroneous, benefit, payment, geographic reasons)
2. Then stratifying the groups according to risk characteristics (for example, economic stability, payment history, alternative repayment sources, age of the receivables,
3. Finally, estimating the level of losses by taking into consideration, historic loss, experience, recent economic events, current forecast economic conditions, and inherent risks

This approach can be applied to either individual accounts or groups of accounts as a whole

Question 45

Federal entities are required to separate entity and non-entity assets for reporting purposes. What are entity assets? What are non-entity assets?

Answer 45

• entity assets are those assets available for use by the entity itself
• non-entity assets are those the entity collects on behalf of the US government or other federal entity. Or the is not authorized to spend the proceeds from collections

Question 46

What are non-entity accounts receivable?

Answer 46

• The entity collections on behalf of the United States government or other federal entities
• The entity is not authorized to spend the proceeds from collections

Question 47

What are advances?

Answer 47

Cash outlays made by the federal entity to its employees, contractors, grantees or others to cover all more part of the recipients anticipated expenses, or as advance payments for the cost of goods or services, the entity occurs

Question 48

Are advance payments allowed?

Answer 48

They are prohibited in appropriation law

Some exceptions are allowed for employee pay due to delayed pay or absence of travel card; tuition payments; intergovernmental transactions; grant awards; and contractors under specific authorities, and/or for national defense

Question 49

What are prepayments?

Answer 49

Payments made by a federal entity to cover certain periodic expenses before those expenses are incurred

For example, subscriptions are generally paid before the periodicals are reviewed

Question 50

How are advances and prepayments recorded?

Answer 50

They are recorded as assets until the condition of the advance or prepayment are satisfied

For example, by the provision of goods or services, or the incurring of travel expenses

Question 51

What happens once the conditions of the pants are met?

Answer 51

The advanced is reduced and an expense or asset is recognized as appropriate

For example, travel advances would be reduced and an expense recognized upon completion of the travel. If the full amount of travel was not used to fund allowable costs, a receivable would be established until the person traveling returns the excess advance (for federal entities, travel advances generally have been replaced by travel cards)

Question 52

What does the Federal Credit Reform Act (FCRA) of 1990 requires to be used to determine, and recognized the cost of estimated costs occurring in the future?

Answer 52

Present values

Question 53

What is present value?

Answer 53

Present value of future cash flows discounted to the present time at defined interest rate

Question 54

How is the estimated cost resulting from present value calculations captured?

Answer 54

The estimated cost resulting from these calculations is captured in the terms of the subsidy rate, which is subsequently applied when direct loans loan guarantees are issued

Question 55

How often is the subsidy rate reassessed?

Answer 55

Every year as part of the re-estimate process

Question 56

What does the subsidy reprocess and the use of the subsidy rate allow costs to do?

Answer 56

Allows cost to be determined and reported commensurate with the decisions to offer the loans or loan guarantees

Example: the education department help students obtain a college degree by providing them with direct loans or guaranteeing similar loans made by banks. The cost to the government for this financial support crisis primarily from 1. Differences in the interest rates paid by the government to obtain the funds and paid by the borrower to the government. and 2. Defaults on scheduled payments

Question 57

What does SFFAS 2, as amended by SSFAS 18 and 19, require for direct loans and loan guarantees?

Answer 57

The financial statements present assets, liabilities, and cost for these financial instruments in a manner consistent with the FCRA

Question 58

What has FASAB established accounting standards for investments by federal entities in treasury securities?

Answer 58

1. Nonmarketable par value treasury securities
2. Market based treasury securities expected to be held to maturity.
3. Marketable based treasury securities expected to be held to maturity.

The FASAB has not established standards for market based or marketable treasury securities not expected to be held to maturity or for investments in securities issued by other than the US treasury

Question 59

When is a treasury expected to be held to maturity?

Answer 59

Only if the investing entity has the ability and intent to hold to those securities to maturity

Question 60

When should investments not be classified as “expected to be held maturity?”

Answer 60

If the investing entity is likely to sell the securities a response to short-term cash needs, changes in market interest rates, or for other reasons

Question 61

What are the three types of treasury securities?

Answer 61

1. Nonmarketable par values of treasury securities.
2. Market based treasury securities.
3. Marketable treasury securities.

Question 62

What are non-marketable par value treasury securities?

Answer 62

A special series of debt securities that the US treasury issues to federal entities at face value (par value)

The securities are redeemed at face value on demand; thus investing entities recover the full amounts invested

Question 63

What are market-based treasury securities?

Answer 63

Debt securities the US treasury issues to federal entities without statutorily determine interest rates

Although the securities are not marketable, their terms (prices, and interest rates ) mirror, the terms of the marketable treasury securities

Question 64

What are marketable treasury securities?

Answer 64

Treasury bills, notes, and bonds are initially offered by treasury to the marketplace, and can be bought and sold on security exchange markets

Their “bid and ask” prices are publicly quoted by the marketplace

Question 65

How treasury securities be recognized?

Answer 65

As an asset upon acquisition

The amount of recognized as an asset is the security’s acquisition cost

Question 66

How should the treasury security be recognized if the acquisition is made in exchange, or non monetary assets?

Answer 66

Recognized at the fair market value of the either the securities acquired or the assets given up whichever is more definitively determinable

Question 67

How should the security be recorded if the acquisition cost differs from the face/par value?

Answer 67

At the acquisition cost which equals the security’s face value, plus or minus the premium or discount on the investment

Question 68

What is a premium or discount?

Answer 68

Excess of the purchase price over the security’s face value

Question 69

How is the balance in the evaluation account treated?

Answer 69

As a contra account to the Security

Question 70

Subsequent to their acquisition, how should investments in treasury securities be carried?

Answer 70

At their acquisition cost, adjusted for amortization of any premium or discount

Question 71

How premium or discounts amortized over the life of the treasury security?

Answer 71

Using the effective interest method

Question 72

Under the effective interest rate method, what equals the interest income recognized during the period?

Answer 72

The Effective interest rate (the actual interest yield on amounts invested) multiplied by the carrying amount of the treasury security at the start of the accounting period, equals the interest income recognized during the period (the carrying amount changes each period by the amount of the amortized discount or premium)

Question 73

What is the amount of amortization of discount or premium?

Answer 73

The difference between the effective interest recognized for the period and the nominal interest for the period as stipulated in the treasury Security

Question 74

What is inventory?

Answer 74

Tangible personal property that is held for sale, used in the production of other goods to be sold, or in the process of being developed for sale

Question 75

Who do many federal entity sell inventory to?

Answer 75

• other federal entities
• The public

Question 76

What are operating materials and supplies (OM&S)?

Answer 76

• goods that have been acquired for use in normal operations. For example, fuel to be used by the fleet of vehicles.
• Most federal entities have this

Question 77

The accounting for inventory, and OMS is very similar. They are both accounted for under the consumption method. What does the consumption method require?

Answer 77

• Recognition of the historical cost, including all costs incurred to bring them to its current condition and location as an asset when the inventory or OMS is received by the entity
• Use of flow assumptions to assign cost to the items consumed: a) FIFO assumes that the first items added to the inventory or OMS or the first to be used b) weighted and moving averages places the same per item cost on each item at a point in time

Question 78

Do federal entities use LIFO?

Answer 78

No, it’s not permitted because selling goods in the market is not a factor for most entities, in inventory is not subject to lower cost for market valuation, as is used by private sector, entities and state local governments 

Question 79

Because of the nature of federal operations, inventory, and OMS holdings are not always governed by the most economical balances to hold. For example, many agencies must hold balances sufficient to meet emergency needs. To assist analyst in evaluating the inventory and OMS practices of federal agencies, disclosure of categories of inventory, and OMS are required, what are the categories?

Answer 79

• Regular or normal inventory levels
• held in reserves for future use or sale
• excess, obsolete, or unserviceable
• Held for repair

Question 80

How are the following valued?
- Regular or normal inventory levels
- Those held in reserve for future use or sale— access, obsolete, and unserviceable inventory, and OMS
- Inventory held for repair

Answer 80

• regular or normal inventory levels, and those held in reserve for future use or sale are valued at cost
• Excess, obsolete, and unserviceable inventory, and OMS are valued at net, reliable value
• Inventory held for repairs is valued at historical cost less an allowance for the cost to repair

Question 81

What is one critical difference between inventory held for sale and OMS?

Answer 81

OMS may be accounted for under the purchase method instead of the consumption method if certain criteria are met

Question 82

What is the criteria for accounting for OMS under the purchase method instead of the consumption method ?

Answer 82

• OMS or not significant amounts
• The end user controls OMS (for example, OMS are stored in a closet in a program office)
• It is not cost beneficial to apply the consumption method of accounting

Question 83

What can be done to OSM if the purchase method of accounting is used rather than the consumption method of OSM

Answer 83

The purchase method of accounting allows the entity to expense, OMS upon receipt of the OMS, rather than upon the consumption of OMS

Question 84

What are stockpiles?

Answer 84

Strategic and critical materials held due to statutory requirements for use in national defense, conservation, and national emergencies

Question 85

Why is the statutory requirements significant?

Answer 85

It is significant since it distinguishes stockpile materials from all other operating materials and supplies or inventory held for emergency use

Question 86

How are stockpile materials recognized?

Answer 86

They are recognized as an asset, upon receipt of title or goods, and as an expense upon disposal, use, or sale

Accounting is most similar to that of inventory, held for sale

Question 87

How are stockpile materials valued?

Answer 87

At historical cost, or any other valuation method, which approximate historical cost

However, this is not true of the raw materials have suffered a permanent decline in value, accounting, to less than their cost, or if there is damage or decay, in which case the value shall be reduced to net realizable value

Question 88

Seizer laws permit federal agencies to seize property, institute of forfeiture preceding and ultimately convert private property to federal ownership. Who are the agencies involved in seizing property?

Answer 88

• The seizing agency
• The seizing agency, they turn the property over to a custodial agency
• Financial records may be maintained by central fund, created to support the seizure activities of multiple agencies

They may also carry out one or both of the custodial agency or central fund roles

Question 89

What usually happens to forfeiture property?

Answer 89

It’s generally sold, converted for use by the government, or transferred to another governmental entity

Question 90

What’s the difference in policies for seized and forfeited property?

Answer 90

Because this property is first seized, then all portion of it forfeited, the accounting and reporting standards are different for seized and forfeited properties

Question 91

What does seized property include?

Answer 91

• Monetary instruments
• real property and the tangible personal property of others in actual or constructive, possession of the custodial agency

Question 92

For financial accounting purposes, what fund is used to account for seized property?

Answer 92

The central fund

Question 93

To ensure adequate controls over monetary instruments, seized monetary instruments, are recognized as what, when seized

Answer 93

Assets

And equal liability is established, since the asset is not fully available to their federal entity, until the forfeiture proceedings are completed

Question 94

Where is seized property other than monetary instruments reported

Answer 94

In note disclosures

Question 95

How is seized property valued?

Answer 95

It’s valued at market value when seized, or if market value cannot be determined, as soon as reasonably possible

Question 96

What is market value based on?

Answer 96

The property, assuming an active market exists for property

Question 97

Note disclosures will present an analysis of change and seized property, including the dollar value and number of seized properties that are what?

Answer 97

1. On hand at the beginning of the year.
2. Seized during the year.
3. Disposed of during the year.
4. On hand at the end of the year as well as no means or other claims against the property.

Question 98

What does forfeited property include?

Answer 98

1. Monetary instruments, intangible property, real property, and tangible personal property acquired through forfeiture proceedings.
2. Property acquired by the government to satisfy a tax liability
3. Unclaimed and abandoned merchandise.

Question 99

What is done to the seized monetary instrument once forfeiture is completed?

Answer 99

It is reclassified to forfeited monetary instruments on the balance sheet

At the time of the reclassification, revenue shall be recognized in an amount, equal to the value of the monetary instrument, and the liability recognized upon seizure, shall be removed from the balance sheet

Question 100

What is recorded when the forfeiture judgment is obtained?

Answer 100

Intangible property, real property, and intangible personal property shall be recorded as an asset, when the forfeiture judgment is obtained

Deferred revenue is recognized at that time as well

Question 101

What is the value of an asset and deferred revenue at the time of forfeiture?

Answer 101

The asset and deferred revenue are equal to the fair value of asset at the time of forfeiture

A valuation allowance, shall be established for liens or claims from a third-party. This all shall be credited for the amount of any excepted payments to third-party claimants

Question 102

What is done to for forfeited property that cannot be sold due to legal restrictions, but may be either donated or destroyed?

Answer 102

It is subject to disclosure requirements

However, no financial value shall be recognized for these items

Question 103

When is the revenue from the sale of property be recognized?

Answer 103

The property is sold

Question 104

What are the options for property not held for sale?

Answer 104

• Placed into official use
• Transferred to another federal government agency
• Distributed to a state or local law enforcement agency
• Distributed to a foreign government

Question 105

What is done with properties when it is determined that property not held for sale?

Answer 105

The property shall be re-classified as forfeited property held for donation or use

Revenues associated with property, not disposed of through sale shall be recognized upon approval of distribution, and the previously established deferred revenue shall be reversed.

Question 106

What are commodities?

Answer 106

Items acquired, held, sold, or analyzed, disposed of to stabilize or support market prices 

Question 107

How are commodities recognized?

Answer 107

They are recognized as an asset upon receipt

Question 108

How are commodities valued?

Answer 108

At the lower of cost or net realizable value

Question 109

When is the commodities loss recognized?

Answer 109

• upon receipt, if the net realizable value is less than the cost of acquiring the goods

Like inventory, and expense is recognized upon disposal or use

Question 110

What are PPE?

Answer 110

Tangible assets, including land

Question 111

What characteristics must to be PPE?

Answer 111

• they have an estimated useful life of two years or more
• They are not intended for sale in the ordinary course of operations
• They have been acquired or constructed with the intention of being used or being available by the entity

Question 112

What are the three types of PPE?

Answer 112

1. Heritage assets.
2. Stewardship Land.
3. General PPE.

Question 113

What are characteristics of general PPE?

Answer 113

• Could be used for alternative purposes, but is used in government operations to produce goods and services
• used in a business type activity
• Used by entities in activities whose cost can be compared to those of other entities performing similar activities

Question 114

What does general PPE include?

Answer 114

• assets acquired through a lease
• Leasehold improvements
• Land rights
• federally owned property in the lands of others (such as colleges and universities or contractors)

Question 115

Beginning in FY 22, what will happen to land in permanent land rights classified as general PPE?

Answer 115

They will no longer be recognized as an asset on the balance sheet

Instead, acquisitions of land and land rights will be expensed for both stewardship land and general PPE land

Question 116

What are capital leases?

Answer 116

Leases that transfer substantially all of the benefits and risks of ownership to the leasee

Criteria are used to assess whether a particular lease is a capital lease

Question 117

What will happen in FY 24 lead standards are implemented?

Answer 117

• capital leases will go away
• Agencies will be expected to distinguish between intra-Governmental leases, and leases with private entities
• intra-governmental leases will be expensed
• Most assets available available through private leases will be capitalized

Question 118

Until the new standards are implemented in FY 24, what type of leases will be capitalized?

Answer 118

Only general PPE acquired through capital leases will be capitalized

Question 119

What does PPE exclude?

Answer 119

Any items for which the federal government only holds a reversionary interest

Question 120

What does a reversionary interest arise?

Answer 120

Arise in many federal grant programs when the grant recipient acquires PPE

Such PPE is owned by the grant recipient, but would revert to federal ownership if the grant recipient does not continue to use the PPE for the purposes allowed under the terms of the grant

This is a contingent asset, so it is not recognized as an asset of the federal government

Question 121

How is general PPE recognized on the balance sheet?

Answer 121

Unlike stewardship PPE and general PPE,
Land, and permanent land rights, general PPE is recognized (capitalized) on the balance sheet

Question 122

How is general PPE recognized?

Answer 122

It is recognized at the cost encouraged to bring the PPE to form and condition suitable for its intended use

Question 123

What do general PPE costs include?

Answer 123

• payments to vendors
• Transportation charges
• Handling and storage costs
• Direct labor
• Engineering or other outside services for design, plans, and surveys
• A share of the cost of equipment used in construction
• Legal feeds as well as other associated costs

Question 124

How is the expense resulting from the gradual use of general PPE recognized?

Answer 124

Through depreciation

Question 125

How is depreciation calculated?

Answer 125

Through the systematic and rational allocation of the cost of general, PPE, less it’s estimated salvage or residual value over its estimated useful life

Question 126

What happened to the depreciation of land and land rights of unlimited duration before fiscal year 2022 and after?

Answer 126

• before 2022, land and land, rights of unlimited, duration or not subject to depreciation under 2022 accounting standards, since they are expected to last indefinitely
• after 2022, land and permanent land rights will be expensed at acquisition

Question 127

What does estimates of the useful life of general PPE consider?

Answer 127

Factors such as likely physical wear and tear and technology changes

Question 128

What happens if useful life changes?

Answer 128

The effect of the change is treated prospectively

Only the amounts for the period of change and future periods are effective— previously recognized amounts are not altered

Question 129

What happens when general PPE is removed from service?

Answer 129

The amount of any unappreciated cost in excess is expected salvage value (or net realizable value) would be considered a loss

Question 130

What happens if general PPE is removed from service in anticipation of disposal?

Answer 130

The asset is re-classified as held for sale and revalued to its expected net realizable value

Question 131

What happens at actual disposal?

Answer 131

Any differences between the estimated amounts of salvage or net, realizable values, and the actual proceeds would be recognized as a gain or loss

However, in many cases, the transaction occurs within the same accounting. And entity simply recognize the total gain or loss on disposal or sale.

Question 132

What happens if the asset is improved through upgrades that enhance capabilities or rehabilitation that extends the useful life? (during the life of the general PPE)

Answer 132

The cost would be capitalized and appreciated over the remaining useful life

These are called additions or betterments

Question 133

What is internal use software?

Answer 133

Software that is internally developed, contractor developed, or purchased as off the shelf

Question 134

How is internal use software accounted for?

Answer 134

In a similar manner as other general, PPE

The cost that is capitalized and appreciated is the full cost incurred to develop the software, that is, the cost from the time management, authorizes, and commit to a software project through the final accepting testin

FASAB standard provide the data conversion cost should be expensed when incurred. The cost should be amortized in the systematic and rational manner over the expected useful life of the software.

Question 135

What is a liability?

Answer 135

Probable future outflow sacrifice resources resulting from past transactions or events

Question 136

Federal financial statements include liabilities, recognize as a result of what?

Answer 136

• past exchange transactions (for example, accounts, payable for goods and services acquired, salaries payable)
• nonExchange transactions that, according to current law and applicable policy, our unpaid amounts due as of the recipients reporting date (for example, welfare, benefits, payable to qualified recipients at the end of the qualifying period
• Government related events (cleanup, costs related to operation of government programs)
• Government acknowledged events (commitment to restore, non-federal property damaged in a hurricane)

Question 137

When are liabilities arising from exchange transactions recognized?

Answer 137

When one party receives goods or services in exchange for a promise to provide money or other resources in the future, and the liability is both probable and measurable

Question 138

In the federal model, what does probable mean?

Answer 138

More likely than not

Question 139

What does measurable mean?

Answer 139

Reasonably estimable

Question 140

What are non-exchange transactions?

Answer 140

One way flows of resources, services or promises between two parties

Question 141

Non-exchange programs are varied, but what is the largest and most visible?

Answer 141

Social insurance programs, such as Social Security, Medicare, unemployment insurance

Question 142

What is the amount of recognized as a liability for social insurance and other non-exchange programs?

Answer 142

The amount “ due and payable” at the end of the period

For example, at September 30, the amounts are due for the September benefits under Social Security, but remain unpaid. Such unpaid amounts are recognized as account payable.

Question 143

What type of transactions are grants?

Answer 143

Non-exchange transactions

Question 144

When are Grant liabilities recognized?

Answer 144

For amounts owed to grant recipients, who have performed under the terms of the grant since this is the amount due and payable at the point in time

For example, grant recipients may incur expenses that are eligible for reimbursement under the terms of a grant.

Question 145

How are grants recorded if eligible expenses have not been paid by the grant agency

Answer 145

If these eligible expenses had not been paid by the grant agency, an accounts payable
would be recorded at the end of the reporting.

Question 146

Liabilities from government related events are not transaction based. What do they arise from?

Answer 146

Events that involve the federal government and its response to that event. The event may be beyond the control of the federal entity.

For example, environmental damage at federal facilities and claims arising from negligent activities of the federal government are government related events

Question 147

When are liabilities from government related events that are not transaction based recognized?

Answer 147

A liability is generally recognized in the period. The government related event occurs, provided it is probable, the federal entity will sacrifice cash or other resources, as a result of the event, and the amount is measurable

If the amount is not measurable, recognition would occur when the amount becomes measurable

Question 148

What are government acknowledged events?

Answer 148

Those non-transaction based events that are of federal consequence to the federal government, because the government chooses to respond to the event 

Question 149

When do cost associated with government acknowledge events (non-transaction based events) Become liabilities?

Answer 149

They do not become liabilities until, and to the extent that, the government formally acknowledges financial responsibility for the cost of the event, and an exchange transaction or non-exchange transaction has occurred

Question 150

For government acknowledged events (non-transaction based events), what criteria should be met to recognize a liability and expense?

Answer 150

• Congress has appropriated and authorized resources
• an exchange occurs (for example, when a contractor performed repairs) or non-exchange amounts are unpaid as of the reporting date (direct payment to disaster victims) whichever applies

Question 151

What are accounts payable?

Answer 151

Amounts owed by a federal entity for goods and services received from other entities. Other liability accounts are often established for large, ongoing continuous expenses, such as employees, salaries and benefits.

Question 152

How must federal entities report intra-governmental liabilities?

Answer 152

They must report them separately from liabilities to non-federal entities

Question 153

When do government incur accounts payable?

Answer 153

• as they acquire supplies, furniture, and equipment
• Contractor services
• Any good or service acquired for which payment is not concurrent with receipt of goods and services would result in an account payable

Question 154

How are other current liabilities recognized?

Answer 154

In a manner similar to accounts payable

For example, salaries payable to employees are recognized any amount owed to employees with services have been provided, but payment has not been made

Question 155

What is a contingency?

Answer 155

In existing condition, situation, or set of circumstances involving uncertainty to a possible gain or loss to the entity

Question 156

When is uncertainty resolved?

Answer 156

When one or more future events occur or failed to occur

Question 157

What can resolution from the uncertainty do?

Answer 157

• May confirm a gain (acquisition of an asset or reduction of a liability)
• May confirm a loss (loss, or impairment of an asset, or incurrence of a liability)

Question 158

When a loss contingency exists, the likelihood that the future event or events will confirm the loss or the occurrence of liability can range from what?

Answer 158

• Probable
• Reasonably possible
• Remote

Question 159

What does probable mean?

Answer 159

The future confirming event or events are more likely than not to occur

Question 160

What does reasonably possible mean?

Answer 160

The chance of the future confirming event or events occurring is more than remote, but less than probable

Question 161

What does remote mean?

Answer 161

The chance of the future event, or events occurring is slight

Question 162

What is done if a loss contingency exists, and it is probable loss will occur, and the loss can be estimated?

Answer 162

A liability should be recognized, and reported in the financial statements

Question 163

If the amount of a probable loss is not estimatable, what should happen?

Answer 163

The nature of the contingency should be disclosed

A loss contingency does not require a budgetary entry. Budgetary entry would be appropriate when the claim is final and uncertainty regarding what appropriation will be used to settle the claim is resolved.

Question 164

What happens if a specific appropriation has already been established for a claim?

Answer 164

Existing budget authority of that fund would be obligated

Question 165

What is done if the claim is the responsibility of the agencies general appropriations (adjudicated discrimination settlements)?

Answer 165

The claim is considered a necessary expense and existing budgetary authority in the agencies operating appropriation, would be obligated

Question 166

What is done if the claim is responsibility of the treasury judgment fund (payment is not legally available from any other source of funds)?

Answer 166

Reverse the agencies initial contingent liability entry

Question 167

What is the judgment fund?

Answer 167

A permanent, indefinite, appropriation, and treasury will make the appropriate proprietary and budgetary entries

Question 168

What is done if a loss contingency exists, and it is reasonably possible that a loss will occur?

Answer 168

The existence of the possible loss should be disclosed in the notes to the financial statements, and, if measurable, an estimate of the loss or range of loss

Question 169

What is done if a loss contingency exists, and it is remote to the loss will occur?

Answer 169

No reporting in the financial statements or disclosure in the footnotes is needed

Question 170

What do employee benefits include?

Answer 170

• Pensions and post employment
• Retirement benefits, other than pensions for which employees including civilian and military personnel as well as other veterans may qualify

Question 171

Who records the cost of civilian employee benefits?

Answer 171

Civilian employee benefits are administrated by OPM, the administrative entity, even though there cost to the agency for which the employee works

Question 172

What do accounting standards require a pension and other benefits?

Answer 172

Require the annual expense associated with accruing retirement benefits be reported on employees, entities financial statements, without regard to whether the employee entity must fund the full cost

Question 173

Why are actuarial methods supplied?

Answer 173

To determine the accrued liability for retirement, benefits, including pensions, healthcare, and other benefits

Question 174

Why is there a legal mandate to transfer resources from the employee entity to OPM for a portion of these retirement benefits?

Answer 174

It ensures that the budget, which measures the deficit, primarily based on cash outlays, incorporates some information about these costs, despite the fact that payments to the employee are deferred until retirement

Question 175

What does requiring a boy entity to transfer cash to OPM do

Answer 175

Increases the cost of the program

The receipt of cash by OPM reduces the cost of OPM reports. The net effect on the budget deficit (or surplus) is zero. Resources. I also be with health from the employees salaries and transferred to OPM to cover the employees required contribution to his or her pension.

Question 176

The amount paid OPM, on average, is less than actual cost of the benefits. To ensure the employee entity recognizes the full cost of the goods and services produced by employees, what do accounting standards require?

Answer 176

They require the recognition of the actuarial, determined cost of benefits.

The difference between the actual resources transferred to OPM to fund future payments to retirees and the actuarially determine cost is considered “ imputed interest” to be reported on the statement of that cost

A financing source, equal to the imputed cost, is reported on the statement of changes in net position