FAR SEC 18

Question 1

How is revenue recognition for a government [typically nonexchange transactions] unlike that for a private entity? (4 elements)

Answer 1

1) In nonexchange transactions, a government gives or receives value (e.g., goods or services) without directly receiving or giving something of equal value in exchange.
2) The timing of recognition of (a) assets, (b) deferred outflows of resources, (c) liabilities, (d) deferred inflows of resources, and (e) expenses or expenditures that result from nonexchange transactions is not affected by the basis of accounting (accrual or modified accrual).
3) But revenue recognition on the modified accrual basis requires that (a) the criteria for nonexchange transactions be met and (b) the resources be available. That is, the resources must be collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period.
4) The method of accounting for property taxes (recognition in the period for which they were levied) is not changed.

Question 2

What are the four categories of nonexchange transactions?

Answer 2

1) Derived tax revenues
2) Imposed nonexchange revenues
3) Voluntary nonexchange transactions
4) Government-mandated nonexchange transactions

Question 3

What are derived tax revenues? (3 elements)

Answer 3

1) Derived tax revenues result from assessments imposed on exchange transactions (such as sales and income taxes).
2) Assets are recognized at the earlier of (1) when the underlying exchange transaction occurs or (2) receipt of resources.
-Any resources received before the underlying exchange are reported as liabilities.
3) Revenues (net of estimated refunds and uncollectibles) are recognized at the same time as the assets if the underlying exchange has occurred.

Question 4

What are imposed nonexchange revenues? (5 elements)

Answer 4

1) Imposed nonexchange revenues result from assessments imposed on nongovernmental entities (such as property taxes, fines, and forfeitures).
2) Assets are recognized at the earlier of when (1) a legal claim to the resources exists or (2) resources are received.
3) Nonproperty tax revenues are recognized when the assets are recognized unless time requirements apply.
i) Given time requirements, revenues are recognized when (a) the resources are required to be used or (b) their use is first allowed.
ii) Resources received or reported as received before the time requirements are met are deferred inflows of resources.
4) Revenue is recognized in the governmental funds only if resources are available.
5) Property tax revenues (net of estimated refunds and uncollectibles) are recognized in the period for which they were levied.
i) The extension of time to meet the availability criterion ordinarily is not more than 60 days after year-end.
ii) Resources received or reported as received before the period for which property taxes were levied are reported as deferred inflows of resources.

Question 5

For imposed nonexchange revenues in the form of nonproperty tax revenues, how is revenue recognized? (3 elements)

Answer 5

1) Nonproperty tax revenues are recognized when the assets are recognized unless time requirements apply.
2) Given time requirements, revenues are recognized when (a) the resources are required to be used or (b) their use is first allowed.
3) Resources received or reported as received before the time requirements are met are deferred inflows of resources.

Question 6

For imposed nonexchange revenues in the form of property tax revenues, how is revenue recognized? (3 elements)

Answer 6

1) Property tax revenues (net of estimated refunds and uncollectibles) are recognized in the period for which they were levied.
2) The extension of time to meet the availability criterion ordinarily is not more than 60 days after year-end.
3) Resources received or reported as received before the period for which property taxes were levied are reported as deferred inflows of resources.

Question 7

What is shown on the timeline diagram for revenue recognition for imposed nonexchange revenue (figure 18-1)?

Answer 7

Question 8

What are voluntary nonexchange transactions? (4 elements)

Answer 8

1) Voluntary nonexchange transactions result from agreements entered into willingly by the parties. One party may be a nongovernmental entity.
2) They are not imposed on any party.
3) Fulfillment of eligibility requirements is essential.
4) Examples include private donations to municipal museums and grants from charitable organizations to build inner-city recreational facilities.

Question 9

What are government-mandated nonexchange transactions? (5 elements)

Answer 9

1) Government-mandated nonexchange transactions occur when one government provides resources to a government at another level and requires that they be used for a specific purpose (such as federal grant money that state governments are required to spend on primary education).
2) Eligibility requirements must be met before these transactions (other than advance payments) can occur and be accounted for. They are conditions set by the provider or by law and include the following:
i) Time requirements
ii) Incurrence of costs if resources are offered as reimbursements
iii) Nature of recipient (e.g., a county or a school district)
iv) Fulfillment of a contingency (e.g., raising a certain amount of other resources)
2) If all eligibility (including time) requirements are met,
i)Providers recognize expenses and liabilities (or decreases in assets) and
ii) Recipients recognize revenues (net of uncollectible amounts) and receivables (or decreases in liabilities).
3) If resources are transmitted before all eligibility requirements (excluding time) are met,
i) Providers continue to report assets and
ii) Recipients report liabilities.
4) If resources are received before time requirements are met, but all other eligibility requirements are met,
i) Providers report deferred outflows of resources and
ii) Recipients report deferred inflows of resources.

Question 10

What are the attributes of exchange transactions? (2 elements)

Answer 10

1) Exchange revenues result from transactions in which each party receives benefits and incurs costs (each party receives and gives essentially equal values).
2) Exchange revenues should be recognized according to conventional business principles (i.e., when goods or services are provided to the public or to another governmental entity). Exchange transactions include the following:
i) A university receives funding for work described in an agreement.
ii) A sponsor shares research or receives benefits from the results of the research.
iii) A hospital provides medical services for a fee.

Question 11

What are the nonrevenue sources of funding? (3 elements)?

Answer 11

1) Bonds
2) Special assessments
3) Interfund activities

Question 12

For nonrevenue sources of funding, what are the attributes of bonds? (4 elements)

Answer 12

1) Issuance of debt
2) Use of bond proceeds
3) Retirement of debt

Question 13

For the nonrevenue source of funding called bonds, what are the four attributes of issuance of debt?

Answer 13

1) The proceeds of long-term debt are a nonrevenue source of funding.
2)The accrual basis of accounting is used in the government-wide financial statements. Thus, they report all resources and obligations, both current and noncurrent.
i) The receipt of cash and the related obligation are recognized. The inflow from a financing source is not.
ii) Any premium received or discount paid upon issuance is recognized. Premiums and discounts are separate items related to and amortized over the life of the new debt.
3) The modified accrual basis of accounting is used in the governmental funds. They have a current financial resources measurement focus, and bonds are not repaid with current financial resources.
i) The fund that will expend the resources recognizes the receipt of cash and the related financing sources. The entry is in the following form:

Cash $XXX
Other financing uses (discount) $XXX
Other financing sources (face amount) $XXX
Other financing sources (premium) $XXX

ii) The credit to other financing sources indicates that this inflow of resources is not a revenue.
iii) The premium is an inflow of additional resources. It is not amortized. But a bond indenture or law may require the premium to be applied to debt service.
4) Issue costs, debt insurance, etc., associated with the issuance of general long-term debt are recognized in governmental funds as expenditures (not as liabilities) when incurred. Thus, they are not capitalized and amortized.
i) Issue costs of proprietary fund debt (except amounts related to prepaid insurance costs) are expensed in the period incurred.
ii) In contrast, for-profit accounting amortizes debt issue costs over the debt term.

Question 14

For the nonrevenue source of funding called bonds, what are the four attributes of use of bond proceeds?

Answer 14

1) Payments for the project are made from the bond proceeds.
2) In the government-wide financial statements, the finished building (or construction-in-progress) is reported as a general capital asset.
3) In the governmental funds, payments to the contractor are recorded as expenditures.
-The building is not capitalized in the governmental funds.
4) Interest cost incurred before the end of construction is recognized when incurred as interest expense (government-wide statements) or an expenditure (governmental funds).

Question 15

For the nonrevenue source of funding called bonds, what is retirement of debt?

Answer 15

The government-wide financial statements recognize (1) the reduction in assets and liabilities and (2) interest expense. But multiple entries are needed in the governmental funds.

Question 16

For the nonrevenue source of funding called special assessments, what are the two attributes?

Answer 16

1) Governments may agree to construct physical improvements to benefit one or more property owners. The government issues debt, pays for the improvements with the proceeds, then repays the debt with reimbursements from the property owners.
2) In the governmental funds, resources are reported in the capital projects fund and the bonds are repaid from the debt service fund.

Question 17

For the nonrevenue source of funding called interfund activity, what are the three attributes?

Answer 17

1) Definition of transactions
2) Reciprocal interfund activities
3) Nonreciprocal interfund activity

Question 18

For the nonrevenue source of funding called interfund activity, what is the transactions definition?

Answer 18

Interfund activity involves internal events. Transactions are external events.

Question 19

For the nonrevenue source of funding called interfund activity, what are reciprocal interfund activities? (3 elements)

Answer 19

1) Reciprocal interfund activities are comparable to exchange and exchange-like transactions. They include interfund loans and interfund services.
2) Interfund loans result in interfund receivables and payables, not financing sources and uses.
i) Any amount not expected to be repaid reduces the interfund balances. It is reported as a transfer.
ii) Liabilities resulting from interfund activity are not general long-term liabilities and may be reported in governmental funds.
3) Interfund services provided and used are sales and purchases at prices equivalent to external exchange values.
i) Seller funds recognize revenues, and buyer funds recognize expenditures or expenses.
ii) Unpaid amounts are interfund receivables or payables.
iii) However, when the general fund accounts for risk-financing activity, charges to other funds are treated as reimbursements.
-Reimbursements are repayments to payor funds by the funds responsible for specific resource outflows. They are not reported in the financial statements.
iv) In the fund financial statements, all transactions (those between activities and those within activities) are recognized.
-Transactions within activities are those involving only governmental funds or only business-type funds.
-Transactions between activities involve both governmental funds and business-type funds.
4) In the government-wide financial statements, transactions within activities are not recognized.
-In Example 18-12, the transactions affecting the general fund and the enterprise fund are reported.
-The transactions affecting the internal service fund are entirely within the governmental activities section and are not reported.

Question 20

For the nonrevenue source of funding called interfund activity, what is nonreciprocal interfund activity? (2 elements)

Answer 20

1) Interfund transfers are one-way asset flows with no repayment required. They must be reported in the basic financial statements separately from revenues and expenditures or expenses.
i) In a governmental fund, a transfer is an other financing use (source) in the transferor (transferee) fund. It is reported after excess (deficiency) of revenues over expenditures in the statement of revenues, expenditures, and changes in fund balances.
ii) In a proprietary fund, the statement of revenues, expenses, and changes in fund net position reports interfund transfers separately after nonoperating revenues and expenses.
2) The government-wide and the fund financial statements report transfers differently.
i) Transfers within the governmental activities section are not reported in the government-wide statements. These transfers result in no overall change in governmental activities.
ii) Transfers between governmental activities and business-type activities are reported in both the government-wide statements and the fund statements. These transfers result in overall changes in both classes of activities.

Question 21

What is shown in the diagram depicting the comparison between government activities and business-type activities (figure 18-2)?

Answer 21

Question 22

In the governmental funds, is it relevant whether an expenditure is for services used immediately or for a general capital asset?

Answer 22

In the governmental funds, whether an expenditure is for services used immediately or for a general capital asset is irrelevant.

Question 23

What is the focus of governmental-fund reporting?

Answer 23

The focus of governmental-fund reporting is on the disposition of current-period resources. Thus, such outlays are expenditures rather than expenses.

Question 24

What is an expense?

Answer 24

An expense is a cost incurred during a period.

Question 25

What is an expenditure?

Answer 25

An expenditure is a payment made during a period.

Question 26

What is reported in the government-wide financial resources?

Answer 26

In the government-wide financial statements, all economic resources are reported.

Question 27

In the government-wide financial statements, what is the treatment of 1) the services used in the current period; and 2) the noncurrent assets?

Answer 27

1) The services used in the current period are debited to an expense,
2) and the noncurrent asset is capitalized.

Question 28

In the governmental fund financial statements, what are the two attributes of the accounting challenge posed by inventories of supplies and prepaid items?

Answer 28

1) They are not expendable available financial resources, but they represent economic benefits retained by the entity.
-The two methods in common use for accounting for supplies and prepayments are described below.
2) The purchases method is a modified accrual accounting treatment. It is used with a periodic system.

Question 29

What is the challenge posed by governmental fund financial statements?

Answer 29

In the governmental fund financial statements, inventories of supplies and prepaid items present an accounting challenge.

Question 30

For governmental fund financial statements, are inventories of supplies or prepaid items expendable available financial resources?

Answer 30

No. They are not expendable available financial resources, but they represent economic benefits retained by the entity.

Question 31

For governmental fund financial statements what do inventories of supplies and prepaid items represent?

Answer 31

They represent economic benefits retained by the entity

Question 32

For governmental fund financial statements, what are the two methods used for accounting for supplies and prepayments?

Answer 32

1) the purchases method
2) the consumption method

Question 33

For governmental fund financial statements, what is the purchases method for accounting for supplies and prepayments?

Answer 33

The purchases method is a modified accrual accounting treatment. It is used with a periodic system.

Question 34

For governmental fund financial statements, what is the consumption method for accounting for supplies and prepayments?

Answer 34

The consumption method is essentially an accrual accounting treatment. It is used with a periodic or perpetual system.

Question 35

In the government-wide financial statements, what method is used to account for supplies and prepaid items?

Answer 35

In the government-wide financial statements, the accrual method is used to account for supplies and prepaid items.

Question 36

In the government-wide financial statements, how is the accrual method used to account for supplies and prepaid items?

Answer 36

An asset is recognized at the time of purchase, and an expense (not an expenditure) is recognized for the usage of the asset or the passage of time.

Question 37

What is a lease?

Answer 37

A lease is a contract conveying control of the right to use another entity’s nonfinancial asset (the underlying asset) for a period of time in an exchange or exchange-like transaction.

Question 38

What is a lease term?

Answer 38

The lease term is the period during which a lessee has a noncancelable right to use an underlying asset, plus certain periods covered by lessee or lessor options to extend or terminate.

Question 39

What are the three attributes of short-term leases?

Answer 39

1) A short-term lease has a maximum term of 12 months (or less), including any options to extend.
2) Lessees and lessors should recognize short-term lease payments as outflows of resources or inflows of resources, respectively (for example, expenses or revenues, respectively).
3) If a lease is cancelable, the maximum term is the noncancelable period.

Question 40

How does the lessee account for the lease? (3 elements)

Answer 40

1) A lessee initially recognizes a lease liability and an intangible right-to-use lease asset (a capital asset) unless the lease
(2) is a short-term lease or
(3) transfers ownership of the underlying asset.

Question 41

How does the lessee measure the lease liability? (2 elements)

Answer 41

1) The liability is measured at the present value of payments expected to be made during the lease term (minus lease incentives).
2) The lease asset initially should equal the lease liability, plus any prepayments made to the lessor and certain direct costs.

Question 42

How does the lessee reduce the lease liability? (2 elements)

Answer 42

1) A lessee reduces the lease liability as payments are made and recognizes an outflow of resources (e.g., expense or expenditure for accrual or modified accrual accounting, respectively) for interest.
2) The lessee amortizes the lease asset systematically and rationally over the shorter of (i) the lease term or (ii) the useful life of the underlying asset.

Question 43

The lessee amortizes the lease asset systematically and rationally over the shorter of? (2 elements)

Answer 43

(1) the lease term or (2) the useful life of the underlying asset.

Question 44

What are the consequences if the lease transfers ownership? (3 elements)

Answer 44

1) If the lease transfers ownership, the lessee reports a financed purchase.
2) If the leased asset is properly classified as a general capital asset, it is reported only in the government-wide statement of net position.
3) General capital assets are not assets of proprietary or fiduciary funds. Thus, acquisition is debited as an expenditure and credited as an other financing source – lease liability in the general fund.

Question 45

How does the lessor treat the lease? (4 elements)

Answer 45

1) A lessor initially recognizes a lease receivable and a deferred inflow of resources with certain exceptions (e.g., short-term leases and transfers of ownership).
2) A lessor does not derecognize the underlying asset.
-The lease receivable is measured at the present value of expected lease payments.
-The deferred inflow of resources is measured at the value of the lease receivable plus any prepayments received.
3) A lessor should recognize interest on the lease receivable and an inflow of resources (e.g., revenue) from the deferred inflows of resources over the term of the lease.
4) If the lease transfers ownership, the lessor reports a sale of the asset.

Question 46

What are the three attributes of compensated absences? (3 elements)

Answer 46

1) When governments grant their employees paid time off, the salary rate used to calculate the liability should be the rate in effect at the end of the fiscal period.
2) In governmental funds financial statements, only the portion of compensated absences that employees will use in the next fiscal period is recognized. This portion must be paid with current financial resources.
3) In government-wide financial statements, the entire liability must be recognized.

Question 47

What two factors determine how works of art and historical treasures are measured?

Answer 47

The accounting measurement of a work of art or historical treasure obtained by a government depends on whether the item is purchased or donated.

Question 48

For works of art, what is the measurement procedure if the art is purchased?

Answer 48

1) If the item is purchased, it is recorded at historical cost.
2) If the museum in which the item is displayed is operated as an enterprise fund, i.e., an admission fee is charged, the asset generates revenue.
3) If the museum is accounted for in the general fund, the modified accrual basis of accounting requires the transaction to be recorded as an expenditure.

Question 49

For works of art, what is the measurement procedure if the art is donated?

Answer 49

If a work of art or historical treasure is donated, it is recorded at acquisition value. This measurement attribute is defined in item 6.d. below.

Question 50

What is acquisition value?

Answer 50

Acquisition value is (1) the price that would be paid to acquire an asset with equivalent service potential in an orderly market transaction at the acquisition date or (2) the amount at which a liability could be liquidated with the counterparty at the acquisition date.

Question 51

How are works of art and historical treasures typically recognized?

Answer 51

Although the recognition of works of art and historical treasures as assets is encouraged, capitalization is optional in some circumstances.

Question 52

What are the four conditions for recognizing an acquisition of art of an historical treasure as an expense?

Answer 52

1) A government may record the acquisition (whether by purchase or donation) of a work of art or historical treasure as an expense if the collection to which the object is being added meets these three criteria:
2) The collection is held for public exhibition, education, or research in furtherance of public service rather than financial gain;
3) The collection is protected, kept unencumbered, cared for, and preserved; and
4) The collection is subject to an organizational policy that requires the proceeds from items to be used to acquire new collection items, to care for existing items, or both.

Question 53

Which items of art or historical treasure may be depreciated?

Answer 53

Only collections or items that are exhaustible are depreciated.

Question 54

What is the measurement focus for governmental funds?

Answer 54

Governmental funds have a current financial resources measurement focus.

Question 55

Which noncurrent items are not reported in governmental funds?

Answer 55

Such noncurrent items as capital assets and long-term liabilities are not reported in governmental funds.

Question 56

For proprietary funds, what is the measurement focus?

Answer 56

Proprietary funds have an economic resources measurement focus.

Question 57

For proprietary funds, how are the capital assets and long-term liabilities accounted for? How are they reported?

Answer 57

The capital assets and long-term liabilities specifically related to proprietary fund activities are accounted for on the accrual basis.
They are reported in those funds and in the government-wide statements.

Question 58

What is the function of fiduciary funds?

Answer 58

Fiduciary funds hold resources as a fiduciary activity in certain trust funds and custodial funds.

Question 59

Where are the capital assets and long-term liabilities specifically related to fiduciary funds reported?

Answer 59

The capital assets and long-term liabilities specifically related to fiduciary funds are reported in the fund financial statements but not in the government-wide statements.

Question 60

For governmental funds, what is the definition of capital assets?

Answer 60

Capital assets are tangible and intangible assets used in operations that have initial useful lives beyond one reporting period.

Question 61

For governmental funds, how is depreciation accounted for? (2 elements)

Answer 61

1) Depreciation of capital assets is required except for (a) land, (b) works of art and historical treasures that are inexhaustible, and (c) infrastructure assets accounted for using the modified approach.
2) Depreciation is recognized in the government-wide, proprietary fund, and fiduciary fund statements.

Question 62

For governmental funds, what are the three exceptions to the requirement to record depreciation for capital assets?

Answer 62

Depreciation of capital assets is required except for (a) land, (b) works of art and historical treasures that are inexhaustible, and (c) infrastructure assets accounted for using the modified approach.

Question 63

For governmental funds, how are purchased capital assets reported?

Answer 63

Purchased capital assets are reported at historical cost, including other charges (e.g., freight-in or site preparation).

Question 64

For governmental funds, how are donated capital assets reported? (2 elements)

Answer 64

1) Donated capital assets are measured at acquisition value (an entry price).
2) Acquisition value is (1) the price that would be paid to acquire an asset with equivalent service potential in an orderly market transaction at the acquisition date or (2) the amount at which a liability could be liquidated with the counterparty at the acquisition date.

Question 65

For donated capital assets, what is the definition of acquisition value?

Answer 65

Acquisition value is (1) the price that would be paid to acquire an asset with equivalent service potential in an orderly market transaction at the acquisition date or (2) the amount at which a liability could be liquidated with the counterparty at the acquisition date.

Question 66

What are infrastructure assets?

Answer 66

Infrastructure assets are stationary capital assets that can be preserved for a longer time than most capital assets.
Examples include roads, bridges, tunnels, sidewalks, water and sewer systems, drainage systems, and lighting systems. But buildings are not infrastructure assets unless they are ancillary parts of a network or subsystem of a network.

Question 67

What is the accounting treatment for public infrastructure assets? (3 elements)

Answer 67

1) The treatment of public infrastructure assets is similar to that for other capital assets.
2) In government-wide financial statements, they are reported as assets.
3) In governmental funds financial statements, they are reported as expenditures. They are not current financial resources.

Question 68

Are all infrastructure assets depreciable?

Answer 68

No. Like works of art and historical treasures, some infrastructure assets may have lives so long that they are in effect inexhaustible and therefore nondepreciable.

Question 69

What is the modified approach to depreciation for infrastructure assets? (4 elements)

Answer 69

1) The modified approach is an alternative to depreciation for very long-lived infrastructure assets.
2) Infrastructure assets that are part of a network or subsystem of a network (eligible infrastructure assets) need not be depreciated. However, the government must (a) use an asset management system with certain characteristics and (b) document that the assets are being preserved approximately at an established condition level disclosed by the government.
3) The modified approach allows a government to record maintenance costs instead of recording depreciation expense.
4) Additions to and improvements of infrastructure assets still are capitalized.

Question 70

What are general capital assets?

Answer 70

General capital assets are all capital assets not reported in the proprietary funds or the fiduciary funds. Thus, they usually result from expenditure of governmental fund financial resources.

Question 71

How are general capital assets accounted for?

Answer 71

General capital assets are reported only in the governmental activities column of the government-wide statement of net position.

Question 72

What are the attributes of general long-term liabilities? (3 elements)

Answer 72

1) General long-term liabilities are secured by the government’s general credit and revenue-raising powers. They include all unmatured long-term liabilities not directly related to, and not expected to be paid from, proprietary funds and fiduciary funds.
2) The following are examples of general long-term liabilities:
i) Unmatured principal amounts of general obligation debt (such as bonds, warrants, and notes)
ii) Noncurrent portions of liabilities for leases, compensated absences, claims and judgments, and pensions
iii) Special assessment debt for which the government is obligated in some manner, except for any portion to be paid from an enterprise fund
iv) Other commitments not recorded as current liabilities in governmental funds
3) General long-term liabilities are reported only in the governmental activities column of the government-wide statement of net position.

Question 73

What are deferred outflows and inflows of resources? (3 elements)

Answer 73

1) Some items accounted for as assets and liabilities by nongovernmental entities must be reported by a governmental entity as deferred outflows and inflows of resources.
-For example, in nongovernmental accounting, revenues received but not earned are liabilities, and prepayments of expenses are assets.
2) A deferred outflow of resources is a consumption of net assets that applies to a future reporting period.
3) A deferred inflow of resources is an acquisition of net assets that applies to a future reporting period.

Question 74

What is a deferred outflow of resources?

Answer 74

A deferred outflow of resources is a consumption of net assets that applies to a future reporting period.

Question 75

What is a deferred inflow of resources?

Answer 75

A deferred inflow of resources is an acquisition of net assets that applies to a future reporting period.

Question 76

How are deferred outflows presented? (2 elements)

Answer 76

1) Deferred outflows of resources are presented separately following assets, and deferred inflows of resources are presented separately following liabilities, in a statement of net position or a governmental fund balance sheet.
2) A statement of net position is presented in the (a) government-wide statements, (b) proprietary fund statements, and (c) fiduciary fund statements.

Question 77

What are the conditions for classification as a deferred outflow or inflow? (5 elements)

Answer 77

1) Classification as a deferred outflow or inflow of resources is limited to items specifically identified in GASB pronouncements. The following are examples of transactions that generally qualify for this treatment:
2) Certain nonexchange transactions
i) Imposed nonexchange revenue transactions (e.g., property taxes collected prior to the period for which they are levied)
ii) Government-mandated nonexchange transactions and voluntary nonexchange transactions (e.g., government grants received for which all eligibility requirements have not yet been met)
3) Certain leases
-Any gain or loss recognized in a sale-leaseback transaction must be accounted for as a deferred inflow or outflow of resources and recognized in a systematic and rational manner over the lease term.
4) Assets associated with unavailable revenues in governmental funds
-Governmental fund resources should be recognized when they are measurable and available. Thus, if an asset is recognized in a governmental fund but the revenue is not available, a deferred inflow of resources (a credit) is reported.
5) Assets and liabilities associated with pensions (e.g., long-term obligations for pension benefits)

Question 78

For governmental funds, how are investments treated? (3 elements)

Answer 78

1) Investments ordinarily are measured at fair value.
i) An investment is a security or other asset that
-Is held primarily for income and profit and
-Has a service capacity based only on the ability to generate cash or be sold for cash.
2) The GASB has adopted the FASB’s definition of fair value and approach to fair value measurement as described in Study Unit 4, Subunit 7. The following are examples of items measured at fair value:
i) Equity securities
ii) Debt securities
iii) Land and other real estate held by endowments, including permanent and term endowments, and permanent funds
3) Examples of items not required to be measured at fair value are the following:
i) Money-market investments
ii) Held-to-maturity debt securities
iii) Equity-method investments in common stock

Question 79

For governmental funds accounting, how are investments measured?

Answer 79

Investments ordinarily are measured at fair value.

Question 80

For governmental funds accounting, what are investments?

Answer 80

An investment is a security or other asset that
1) Is held primarily for income and profit and
2) Has a service capacity based only on the ability to generate cash or be sold for cash.

Question 81

What definition of fair value has GASB adopted for investments?

Answer 81

1) The GASB has adopted the FASB’s definition of fair value and approach to fair value measurement as described in Study Unit 4, Subunit 7. The following are examples of items measured at fair value:
-Equity securities
-Debt securities
-Land and other real estate held by endowments, including permanent and term endowments, and permanent funds

Question 82

What are three examples of items measured at fair value under GASB?

Answer 82

1) Equity securities
2) Debt securities
3) Land and other real estate held by endowments, including permanent and term endowments, and permanent funds