SU 10: Government Investments

Question 1

Types of government investments

Answer 1

1) general investments (directly or via investment pools)
2) derivatives (may be risky)
3) repurchase agreements & reverse repos

Question 2

sources of government funds for investments

Answer 2

1. Excess donations, tax collections, tolls, fees, etc.
2. Reserves maintained for debt repayments, etc.
3. Pension funds
4. Permanent endowments
5. Investment Pools -Multiple GOVs (GASB 31)

Question 3

Government investment recognition rules

Answer 3

1) investment reported at FMV
2) gains and losses go directly to income statment

Question 4

Fund accounting for government investments

Answer 4

only shows gains and losses on short term investments NO LT

Gains as revenue
losses as expenditures

Question 5

Government-wide accounting for government investments

Answer 5

Shows both ST and LT investments
Gains and losses recognized both with sales and with changes to FMV

Question 6

Gains and losses on derivatives that are effectively hedges

Answer 6

Gains = deferred inflows
Losses = deferred outflows

Question 7

Ways to approach investment FMV

Answer 7

• Market approach
• Cost approach
• Income approach

Question 8

Market approach of FMV valuation

Answer 8

uses prices and other relevant information generated by market transactions involving identical or similar assets/ liabiltiies

Question 9

Cost approach of FMV valuation

Answer 9

FMV = amount required to replace asset or service capacity of asset

Question 10

Income approach of FMV valuation

Answer 10

FMV = expected future cash flow/earnings discounted into a single PV amount