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Flashcards in Fixed Assets & Governmental Accounting Deck (44):

How are Research and Development costs recorded?

They are expensed in the period incurred and are not capitalized.


Which expenditures are included in the cost of a building?

All expenditures to get the building into working condition are ready for use


Which expenditures are included in the cost of land?

All expenditures to get the land ready for its intended use:

Title & County Fees

Clearing of Land - Dirt work etc.

Demolition and removal of old buildings (minus any scrap or salvage)

Note: capitalized land costs are not depreciated


In an exchange of non-monetary assets how much gain is recognized if no additional cash is exchanged when there is no significant difference in resulting cash flows?

If the cash flows from the assets exchanged are not significantly different no gain or loss is recognized on a non-monetary exchange as it lacks commercial substance.

The new asset is recorded at the book value of the asset given up.

The only gain that can be recognized is any boot (cash) received.


In an exchange of non-monetary assets what gain is recognized if resulting cash flows are significantly different?

If resulting cash flows are significantly different then the transaction has commercial substance and a gain/loss is recorded on the exchange.

The new asset is recorded at the FAIR VALUE of the assets given up unless the asset acquired has a fair value that is easier to determine.


How is donated property recorded by the donee?

Recorded at Fair Value + costs associated with getting the property into working condition for its designed purpose

Exam Tip - Think of a charity holding afair and then donating the property which is then recorded atfair value


How is donation of property recorded by the donor?

Recorded at Fair Value of asset given up.

Gain or Loss is recorded.


How is double-declining balance (DDB) depreciation calculated?

1 / (Useful Life x 2 x Book Value)

Ignore salvage value.


How is Sum of Year's Digits (SYD) depreciation calculated?

(Cost - Salvage Value) x (Remaining Useful Life / SYD) : Depreciation expense

For example the depreciation factor for the third year of a 10-year asset would be:

: 8 / (10+9+8+7+6+5+4+3+2+1) : 8/55 : 14.5%

Remaining useful life : 8 SYD : 55


How is straight line depreciation calculated?

(Cost - Salvage Value) / Useful life : depreciation expense


When is an asset considered to be impaired? How is impairment loss calculated?

When the un-discounted future cash flows are less than the carrying value of the asset.

Carrying Value - Fair Value : Impairment Loss

Note: impaired assets that recover their value can't be written back up once written down


How are legal fees to defend a patent amortized?

If the patent is SUCCESSFULLY defended the legal fees are amortized over the patent's economic life.

If unsuccessful they are expensed immediately.


What are the two steps for testing goodwill impairment?

Compare the CV to the FV. If FV is greater than CV no impairment exists you're done.

If impairment appears to exist the assets and liabilities should be compared to the total value of the reporting unit. The difference is Goodwill. Compare this amount to the CV of the Goodwill and write it down accordingly.


How are costs for developing software recorded?

Expenses prior to technological feasibility are expensed as R&D.

After technological feasibility but prior to production costs are capitalized.

Expenses incurred during production are charged to inventory.

Expenses incurred training on internal use software are expensed.


What expenditures are included in the cost of equipment?

All expenditures to get the asset into working condition and ready for use:

Purchase price + liabilities assumed
Legal fees
Construction loan interest

Any alterations to existing facilities or equipment necessary for the new purchase and installation that extend the life or increase the efficiency of these assets are capitalized.


What are the three major types of funds in governmental accounting?

Governmental, Proprietary, Fiduciary


Which two accounting bases are used in governmental accounting?

Accrual basis - current economic resources focus (revenues recognized when earned)

Modified accrual basis - current financial resources focus (revenues recognized when available and measurable)


What is a budget appropriation?

The highest amount allowed for a particular expenditure under a budget.


What is an encumbrance?

Records purchase and reserves it for the encumbrance.


What is the opening budgetary entry?

Dr Estimated Revenues Control
Cr Appropriations Control
Dr/Cr Budgetary Fund Balance (plug)


What is the closing budgetary entry?

Dr Appropriations Control
Dr/Cr Budgetary Fund Balance (plug)
Cr Estimated Revenues Control


What are the types of governmental funds?

General Fund
Special Revenue Fund
Permanent Fund
Capital Projects Fund
Debt Service Fund


What is a General Fund?

The operating fund of the governmental unit

Records Significant Revenues: Taxes; Tickets; Fines; Licenses

Records Significant Expenditures: Police; Education; Fire Dept


What is a Special Revenue Fund?

Restricted for a specific purpose such as street repair.


What is a Permanent Fund?

Legally restricted fund; where only earnings can be used to fund programs.

Principal remains intact.


What is a Capital Projects Fund?

Used to acquire and build facilities.


What is a Debt Service Fund?

Handles repayment of long-term debt and related interest.


Which fund statements are issued in Governmental Accounting?

Balance Sheet

Statement of Revenues; Expenditures; and Changes in Fund Balance


When is Revenue recorded in Governmental Accounting?

When it is BOTH available and measurable; regardless of when it is spent.


What is Derived Tax Revenue?

Money collected from people doing things:

Sales tax (buying cars) or income tax (people working)


What is Imposed Tax Revenue?

Tax assessed just because things exist

Example: property tax on a car (even if it's never driven); real estate tax

Recorded as a revenue when BUDGETED.

Estimated uncollectible property tax revenues don't offset revenues; so don't net them.


What are the types of Proprietary Funds?

Internal Service Funds - to serve the needs of other governmental units (i.e. motor pool)

Enterprise Funds - provide goods or services to external users (i.e. post office)


What are the Fund Balance Types?

Restricted - Restricted by Contributor
Committed - Restricted by Government
Assigned - Intended for a purpose
Unassigned - Available to be spent
Non-spendable - Not in a spendable state


What are the types of Fiduciary Funds?

Agency Fund - government acts as an agent or custodian

Pension Trust Fund - Government is a trustee for a pension plan

Investment Trust Fund - Government is a trustee over a series of investments

Private Purpose Trust - Trust that benefits various individuals and entities


How are Assets & Liabilities presented on the Statement of Net Position?

Assets (Current & Non-Current)
Deferred Outflows of Resources
Liabilities (Current & Non-Current)
Deferred Inflows of Resources


How are Capital Assets shown on a governmental Statement of Net Assets?

They are shown net of debt

Asset Cost - Accumulated Depreciation - Asset Liabilities : Net Assets


How is infrastructure reported on a governmental Statement of Net Assets?

Modified approach:

Reported at cost; no accumulated depreciation


How is a Statement of Net Assets divided?

Into Governmental Activities and Business Activities


How are activities presented in a Statement of Activities?

They are divided by function

If the activities of a component are distinguishable from the rest of the governmental entity; then discreet presentation is required

If the activities of the component cannot be identified and separated from the rest of the governmental activities; then blended presentation is warranted.

Component units are reported in the Entity-Wide Financial Statements and not the Fund Financial Statements.


What is the primary objective of governmental accounting?

To provide information that is useful and benefits a wide range of users including:

Costs of services provided

Sufficiency of revenues to cover costs

Financial position of entity


What Financial Statements are required for Defined Benefit Pension plans?

Statement of Fiduciary Net Position and Statement of Changes in Fiduciary Net Position


What are the components of the Statement of Fiduciary Net Position for Defined Benefit Pension Plans?

Assets; Deferred Outfows; Liabilities; Deferred Outflows; Fiduciary Net Position


What are the components of the Statement of Changes in Fiduciary Net Position for Defined Benefit Pension plans?

Additions (Contributions and Net Investment Income) - Deductions (Benefits Payments and Admin Expense) : Net Change in Fiduciary Net Position


What should be included in the Financial Statement notes for Defined Benefit Pension Plans?

Types of Benefits; Plan Member Classes; Board Information; Investment Policies and FV Determination