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I. Required Supplementary Information (RSI) other than MD&A

I. Required Supplementary Information (RSI) other than MD&A

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Module 21: Governmental (State and Local) Accounting

Employee

retirement plan

Liabilities

Accounts payable

Refunds payable and others

Total liabilities

Net Position

Held in trust for pension benefits and other

purposes



Private-purpose

trusts



-1,358

1,358



1,234

-1,234



$65,796,103



$80,776



Agency funds

-228,050

$228,050



SOURCE: GASB 34, page 235.



Sample City

STATEMENT OF CHANGES IN FIDUCIARY NET POSITION

FIDUCIARY FUNDS

For the Year Ended December 31, 2013

Employee

retirement plan

Additions

Contributions:

Employer

Plan members

Total contributions

Investment earnings:

Net (decrease) in fair value of investments

Interest

Dividends

Total investment earnings

Less investment expense

Net investment earnings

Total additions

Deductions

Benefits

Refunds of contributions

Administrative expenses

Total deductions

Change in net position

Net position—beginning of the year

Net position—end of the year



$ 2,721,341

1,421,233

4,142,574

(272,522)

2,460,871

1,445,273

3,633,622

216,428

3,417,194

7,559,768

2,453,047

464,691

87,532

3,005,270

4,554,498

61,241,605

$65,796,103



Private-purpose

trusts



$ ----4,560

-4,560

-4,560

4,560

3,800

-678

4,478

82

80,694

$80,776



SOURCE: GASB 34, pages 235-236.



The third type of information is to provide budgetary comparison schedules for the general fund and all

major special revenue funds for which an annual budget has been legally adopted by the governmental unit.

Governments may elect to report the budgetary comparison information in a budgetary comparison statement as

part of the basic financial statements, rather than as RSI. If the government has significant budgetary perspective

differences that result in it not being able to present budgetary comparison information for its general fund and

major special revenue funds, the government must present a budget comparison schedule based on the structure

of its legally adopted budget. Budgetary comparison schedules include the original budget, the final appropriated

budget, and the actual revenues and expenditures stated on the budgetary basis. A separate variance column to

report the differences between the final budget and actual amounts is encouraged but not required. The format

may be that of the original budget document or in the format, terminology, and classifications in the Statement of

Revenues, Expenditures, and Changes in Fund Balances. Information must be provided, either in this schedule or

in notes to the RSI, that reconciles budgetary information basis to GAAP information. An example of a Budget—

Actual Statement is included below.



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Sample City

STATEMENT OF REVENUES, EXPENDITURES, AND CHANGES IN FUND BALANCES—

BUDGET AND ACTUAL

GENERAL FUND

For the Year Ended December 31, 2013



Revenues

Property taxes

Other taxes—franchise and public service

Fees and fines

Licenses and permits

Intergovernmental

Charges for services

Interest

Miscellaneous

Total revenues



Budgeted amounts

Original

Final

$52,017,833

$51,853,018

12,841,209

12,836,024

718,800

718,800

2,126,600

2,126,600

6,905,898

6,571,360

12,392,972

11,202,150

1,501,945

550,000

3,024,292

1,220,991

91,043,549

87,078,943



Actual amounts

(budgetary basis)

$51,173,436

13,025,392

606,946

2,287,794

6,119,938

11,374,460

552,325

881,874

86,022,165



Expenditures

Current

General government (including contingencies and miscellaneous)

Public safety

Public works

Engineering services

Health and sanitation

Cemetery

Culture and recreation

Education—payment to school district

Total expenditures

Excess (deficiency) of revenues over expenditures



11,837,534

33,050,966

5,215,630

1,296,275

5,756,250

724,500

11,059,140

22,000,000

90,940,295

103,254



9,468,155

33,983,706

5,025,848

1,296,990

6,174,653

724,500

11,368,070

22,000,000

90,041,922

(2,962,979)



8,621,500

33,799,709

4,993,187

1,296,990

6,174,653

706,305

11,289,146

21,893,273

88,774,763

(2,752,598)



Other Financing Sources (Uses)

Transfers in

Transfers out

Total other financing sources and uses



939,525

(2,970,256)

(2,030,731)



130,000

(2,163,759)

(2,033,759)



129,323

(2,163,759)

(2,034,436)



1,355,250

(572,227)

3,528,750

$ 2,956,523



3,500,000

(1,496,738)

2,742,799

$ 1,246,061



3,476,488

(1,310,546)

2,742,799

$ 1,432,253



Special Item

Proceeds from sale of park land

Net change in fund balance

Fund balances—beginning

Fund balances—ending

SOURCE: GASB 34, pages 272-273. Budget to GAAP Reconciliation Omitted.



The fourth type of information is presented only when the government is using the modified approach for

reporting infrastructure. Governments have the option of not depreciating their infrastructure assets if they

adopt the “modified” approach for recording infrastructure. Two requirements must be met to adopt this approach.

First, the government must manage the eligible infrastructure assets using an asset management system that

has certain characteristics. These characteristics include (1) keeping an up-to-date inventory of infrastructure

assets, (2) performing condition assessments of eligible infrastructure assets, summarizing the results using a

measurement scale, and (3) estimating the costs each year to preserve the infrastructure assets at the condition

level established and disclosed by the government. Second, the government must document that the infrastructure

assets have been preserved at the condition level prescribed by the government. Two schedules are required: (1) a

schedule reflecting the condition of the government’s infrastructure, and (2) a comparison of the needed and actual

expenditures to maintain the government’s infrastructure. Disclosures that should be included in notes to the RSI

are (1) the basis of the condition measurement and the measurement scale used to assess and report the condition

of the government’s infrastructure assets, (2) the condition level at which the government intends to preserve its

eligible infrastructure assets reported using the modified approach, and (3) factors that significantly affect trends in

the information reported in the required schedules.



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Module 21: Governmental (State and Local) Accounting

An example is provided to illustrate the difference between the “depreciation approach” and the “modified

approach” to record infrastructure. Assume a government had $1,000,000 in ordinary maintenance expenses,

$2,000,000 in expenditures to extend the life of existing infrastructure, and $3,000,000 in expenditures to add to or

improve existing infrastructure. Depreciation (if recorded) amounted to $2,500,000. If the “depreciation approach”

were used, $3,500,000 would be charged to expense ($1,000,000 + $2,500,000). If the modified approach

were used, the amount charged to expense would be $3,000,000 ($1,000,000 + $2,000,000). In both cases, the

$1,000,000 would be charged to expense, and the $3,000,000 would be capitalized. Under the “modified approach,”

the $2,000,000 in expenditures to extend the life of infrastructure is substituted for depreciation expense.







J. Measurement Focus and Basis of Accounting (MFBA)

GASB Standards require two types of measurement focus: economic resources measurement focus and current

financial resources measurement focus and two types of basis of accounting: accrual and modified accrual. The

measurement focus and basis of accounting varies depending upon the financial statement being reported. The

economic resources measurement focus and accrual basis of accounting is a method similar to accounting

for business enterprises. The objective is to measure all of the economic resources available to the governmental

entity, including fixed assets and subtracting long-term debt. Full accrual accounting is used, where revenues are

recognized when earned and expenses are recognized when incurred. Fixed assets are recorded and depreciated.

The economic resources measurement focus and accrual basis of accounting is used for the government-wide

statements, the proprietary fund statements, and the fiduciary fund statements.

The objective of the current financial resources measurement focus and modified accrual basis of

accounting is to measure only the current financial resources available to the governmental entity. As a result

governmental funds (i.e., general fund) do not account for fixed assets or long-term debt within the fund. Modified

accrual accounting is used by governmental funds. Under modified accrual accounting, revenues are recognized

when measurable and available to finance expenditures of the current period. Property taxes may be considered

“available” when collected within sixty days of the end of the fiscal year. The recognition of expenditures (not

expenses) is modified in the following way. First, expenditures may be recorded for current items (salaries,

supplies), capital outlays (purchase of a police car, construction expenditures), or debt service (matured interest,

matured principal). Second, payment of principal and interest on long-term indebtedness, including bonds, notes,

capital leases, compensated absences, claims and judgments, pensions, special termination benefits, and landfill

closure and postclosure care are recorded when due, rather than accrued. However, a government may accrue

an additional amount if it has provided financial resources to a debt service fund for payment of liabilities that

will mature early in the following period (not more than a month). As noted previously, the current financial

resources measurement focus and modified accrual basis of accounting are used in the governmental fund financial

statements and will be illustrated later.

NOW REVIEW MULTIPLE-CHOICE QUESTIONS 26 THROUGH 53







K. Accounting by Governments for Certain Events and Transactions



1.

Accounting for nonexchange transactions. The previous section indicated that, under the accrual basis

of accounting, revenues are recognized when earned. Revenues and inflows of resources include exchange

transactions, in which goods or services of equal or approximately equal values are exchanged, and

nonexchange transactions. GASB indicates that revenues from exchange transactions are to be recognized

in accordance with generally accepted accounting principles as those principles have evolved over the years

and provides no special guidance. However, GASB Statement No. 33, Accounting and Financial Reporting for

Nonexchange Transactions, defines nonexchange transactions as transactions “in which a government gives

(or receives) value without directly receiving (or giving) equal value in exchange.” GASB Statement No. 33

is written under the presumption that an entity is following full accrual accounting. When governmental fund

financial statements are issued, modified accrual accounting “modifies” the provisions of GASB Statement No.

33 to require that resources must be measurable and available to finance the expenditures of the current period,

as described in Section H. above.

GASB Statement No. 33 classifies nonexchange transactions into four categories, and revenue recognition

depends upon the category. The categories are: (1) derived tax revenues, (2) imposed nonexchange revenues,

(3) government-mandated nonexchange transactions, and (4) voluntary nonexchange transactions. For the

government-wide financial statements, revenue from nonexchange transactions is considered to be an increase

in unrestricted net position unless the revenue is restricted by the grantor, donor, or legislation. For example, a



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hotel-motel tax may have to be used, by legislation, for promotion of tourism. Purpose restrictions do not affect

the timing of revenue recognition.

In order for a receivable and revenue to be recognized, four types of eligibility requirements must

be met. First is the required characteristics of the recipients. The recipient of resources must have the

characteristics required by the provider. For example, the recipient of certain state funds allocated for road

repairs may have to be a county government, a municipality, or a township. Second, time requirements must

be met, if a provider specifies that resources must be expended in a certain future period. For example, if a state

indicates that funds are appropriated for water system improvements for the fiscal year ended June 30, 2012,

then neither a receivable nor revenue would be recognized by the local governments receiving the funds until

that fiscal year. In the absence of specified time requirements, a receivable and revenue would be recognized

when a promise is unconditional. Third, certain grants from one government to another cannot be provided

until the receiving government has expended the funds. This is a condition the GASB calls a reimbursement.

Reimbursement grant revenues are recognized only when expenditures are recognized. Finally, resources

pledged that have a contingency attached are not to be recognized until that contingency is removed.

Derived tax revenues result from taxes assessed by governments on exchange transactions. Examples

include sales taxes, income taxes, and motor fuel taxes. Receivables and revenues are to be recognized when

the underlying transaction (the sale, the income, etc.) takes place. For example, under accrual accounting, if

a state imposed a sales tax of 6%, the state would record a revenue of $6 when a merchant recorded a sale of

$100. If resources are received before the underlying transaction takes place, then the asset would be offset by

revenues received in advance, a liability.

Imposed nonexchange transactions are taxes and other assessments by governments that are not derived

from underlying transactions. Examples include property taxes, special assessments, and fines and forfeits. Assets

from imposed nonexchange transactions should be recognized when an enforceable legal claim exists, or when

the resources are received, whichever occurs first. In the case of property taxes, this would normally be specified

in the enabling legislation, such as the lien or assessment date. Revenues for property taxes should be recognized,

net of estimated refunds and estimated uncollectible taxes, in the period for which the taxes are levied, regardless

of when the enforcement date or collection date might be. All other imposed nonexchange transactions should be

recognized as revenues at the same time as the assets, or as soon as use is first permitted. On the modified accrual

basis, property taxes may not be recognized unless collected within sixty days after the end of a fiscal year.

Government-mandated nonexchange transactions exist when the providing government, such as the

federal government or a state government, requires the receiving government to expend funds for a specific

purpose. For example, a state may require school districts to “mainstream” certain children by including them

in regular classes and also to provide additional assistance in the form of extra aides. Funding for this purpose

would be considered to be a government-mandated nonexchange transaction. Receiving governments should

recognize assets and revenues when all eligibility requirements have been met.

Voluntary nonexchange transactions include grants, entitlements, and financial guarantees provided from

a government to another entity (usually another government) where the providing government does not impose

specific requirements upon the receiving entity. For example, a state provides a grant for new technology for

school districts but does not require those school districts to accept the grant or utilize that technology. Even

though the use of the grant is restricted, it is a voluntary nonexchange transaction. It also includes voluntary

contributions from individuals and other entities to governments. An example of this type of transaction would

be the gift of funds from an individual to a school district or a college. Voluntary nonexchange transactions

may or may not have purpose restrictions. The recognition of assets and revenues would be when all eligibility

requirements have been met, the same as government-mandated nonexchange transactions.

If after a revenue has been recognized by a governmental entity (in a later fiscal year), and those funds must

be returned to the provider, then the recipient government must record an expense and liability (or reduction

of cash). If there is a difference in the provider government’s and recipient government’s fiscal year, then

the provider’s fiscal year would govern for purposes of determining eligibility requirements. If the providing

government, a state, has a biennial fiscal year, then half of the grant would be recognized by the recipient

government in each of the providing government’s two fiscal years.

A government may voluntarily extend a financial guarantee for the obligations of another entity. GASB

Statement No. 70 requires the government to recognize a liability when qualitative factors or historical

data indicate that it is more likely than not that the government will be required to make a payment on the

guarantee. The statement also requires the government to disclose the potential obligation until the government

is released from its obligation.

2.

Accounting for intangible assets. GASB Statement No. 51, Accounting and Financial Reporting for

Intangible Assets, allows only identifiable intangible assets to be recognized as capital assets in the statement



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