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Government And Nonprofit Accounting > SU 11: Proprietary Funds > Flashcards

SU 11: Proprietary Funds Flashcards

1
Q

Types of proprietary funds

A
  • enterprise funds
  • internal service funds
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2
Q

Enterprise funds primary purpose

A

provide services to the general public

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3
Q

When must a government use an enterprise fund

A

If:
1) activity is financed solely with revenue-related debt instead of government-obligation debt (so not financed with taxes), or
2) cost of providing services is recovered by fees and charges, or
3) pricing polices are designed to recover costs

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4
Q

Primary purpose of internal service funds

A

to provide services to government departments

may also provide services to the public but that is not the main beneficiary

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5
Q

Financial statement focus for proprietary funds

A
  • operating net income
  • changes in net assets
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6
Q

What does it mean that funds coming in to a internal service fund are “revolving”

A

Funds are not expendable for other government purposes but rather go into the continued operation of the fund’s enterprise

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7
Q

are budgets required for proprietary funds?

A

No, legislative approval for funding is not required. But they are likely to have budgets anyway

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8
Q

Revenue sources for proprietary funds

A
  • ordinary revenue (payments for services)
  • internal & external capital contributions
  • non-routine receipts
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9
Q

What sort of non-routine receipts might a proprietary fund receive?

A
  • tap fees (hook-up fees)
  • impact fees
  • opportunity fees
  • external subsidies (grants)
  • internal subsidies
  • debt forgiveness
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10
Q

Type of accounting used for proprietary funds

A

accrual

means no adjusting journal entries required to convert to gov-wide statements

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11
Q

classification inflows and assets intended solely for proprietary fund’s use

A

Restricted

net position related to proprietary fund is also restricted

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12
Q

What type of funds are usually used for landfills/ should be used for landfills?

A

Enterprise funds

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13
Q

GASB statements for landfill remediation

A

18 and 49

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14
Q

Types landfill remediation costs

A

Closure
Post-closure

segregated for accounting purposes

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15
Q

Costs included in landfill pollution remediation costs

A
  • Estimated cost of equipment (closure & post-closure)
  • Estimated cost for final cover (closure)
  • Estimated cost for post-closure monitoring and maintenance
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16
Q

landfill Closure pollution remediation costs

A
  • Estimated cost of equipment
  • estimated cost for final cover
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17
Q

Post-closure landfill pollution remediation costs

A
  • Estimated cost of equipment
  • estimated cost for post-closure monitoring and maintenance
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18
Q

Allocation of estimated landfill remediation costs

A

allocated to the years the landfill accepts waste

  • recognize expense and increase liability
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19
Q

Amount of annual landfill remediation expense and liability to recognize

A

= (estimated total remediation costs * % of landfill used) - amounts previously recognized

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20
Q

what remediation estimates must be updated annually

A
  • total estimated remediation costs
  • landfill capacity
  • % of landfill used
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21
Q

Accounting treatment of recoveries for landfills

A

deducted from estimated remediation expense/ liability

22
Q

Is the funding for landfill remediation expense/ liability regulated

A

No

23
Q

Accounting effects if landfill is accounted for in governmental fund (vs enterprise fund)

A
  • no annual expense/ liability journal entries
  • no LT liabilities shown in fund (only government-wide)
  • Expenditures are recorded only when current financial resources are used
24
Q

Enterprise fund AJE to record landfill liability and expense

A

DR Landfill Expense
CR Liability- Landfill costs

25
Q

Recording closure costs when they occur

A

DR Liability- landfill costs (rather than an expense account)

26
Q

Weighted average approach to pollution remediation costs for pollution caused by operations

A

Sum of each potential estimate of remediation costs x probability of that cost

(total probabilities must = 100%)

27
Q

When to recognize pollution remediation costs as an expense/ liability

A
  • when pollution is known or reasonably believed
  • government is responsible for costs
  • a reasonable estimate is possible
28
Q

Amount of estimated cost to record as pollution remediation expense/ liability

A

Present value of weighted average estimated cost

reduced by any recoveries from other parties

estimates should be updated as new information warrants

29
Q

Accounting treatment of pollution remediation costs incurred with the purchase of an asset

A

Capitalize estimated remediation costs to the asset

30
Q

Where do most revenues for internals service funds come from?

A

Other government or proprietary funds

31
Q

Revenue account used for ISFs

A

Billings to Departments

32
Q

Treatment of capital assets in ISFs

A

Depreciate

33
Q

Accounts used to close ISF revenues and expenses accounts at year end

A

either
- Excess of Net Billings to Departments over Costs
or
- Excess of Costs over Net Billings to Deparments

34
Q

Effect of government-wide consolidation on ISF funds

A

All activity between ISF and other GOV departments must be eliminated in Gov-wide statements

35
Q

Are resources from ISFs usually restricted from sponsoring Government’s other resources?

A

No

36
Q

ISF Journal Entry to establish ISF

A

DR Cash
CR Non-reciprocal transfer in from general fund

37
Q

Receivable account used by ISF

A

Due from X Fund

DR when billed, CR when payment received

38
Q

Basic philosophy of an internal service fund

A

The ISF should break even with regard to the sponsoring entity it serves

39
Q

How many ISFs should a government have

A

Separate ISF for each major, identifiable activity

40
Q

Calculating the break-even for ISF

A

does not include revenues and expenses from outsider’s are not part of the “break-even” for the sponsoring entity

41
Q

ISF investment and interest income on financial statements

A

included in ISF financial statement’s but not on those of the sponsoring entity

42
Q

Consequences in GOV-wide financial statements if ISF transactions are not eliminated

A
  • Revenues double counted (by ISF + by GOV in the purchase from ISF)
  • Costs double counted (by ISF + by GOV in the purchase from ISF)
  • Depreciation
    (more than double counted!)

distorts overall comparability of ISF vs other government funds

43
Q

Costing models

A
  • full direct and indirect costs (both variable and fixed)
  • direct costs only (variable and fixed)
  • variable costs only (assumes fixed costs are already covered)
44
Q

Cost-reimbursement approach

A

breakeven approach to ISF pricing for other government departments, services at cost so creates no profit.

(but then have to define cost)

45
Q

How can ISF pricing be used to manipulate picture of government finance

A
  • lower ISF pricing: reduces GOV fund expenditures, increases fund balances and decreases liabilities
  • Higher ISF pricing: increases GOV Fund expenditures etc… can be used to stash excess cash in ISF
46
Q

Full cost calculation

A

Fixed costs per month / cost basis per month = fixed costs/ basis + variable costs / basis = total cost / basis

47
Q

downside of full cost calculation

A

Fixed costs are often covered by standard operations and fill cost pricing may discourage other government departments from USING the ISF if the pricing isn’t competitive

ergo special order jobs should be based on variable costs only

48
Q

Service concession arrangements

A

Government contracts an outside operation to use infrastructure or government assets to provide services

49
Q

Financial arrangements of service concession arrangements

A

Government receives either up-front payment or a series of payments over time

government can set the rates charged for the services

50
Q

Accounting for service concession arrangements

A
  • Government capitalizes cash up-front payments OR the preset value of future payments as an asset
  • Government recognizes PV of future costs as a liability
  • any gain booked to deferred inflow and amortized to revenue over the period of the contract
  • new assets (purchased or built by operator) on government books and depreciated as usual
51
Q

Options for terminating an internal service fund

A
  • transfer the ISFs assets to another fund to continue same activity (Non-reciprocal transfer out to gov fund)
  • terminate the activity and distribute assets in kind to another fund/ funds
  • convert ISF’s assets to cash and distribute to other fund(s)

Government And Nonprofit Accounting (14 decks)

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