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Chapter 9 LECTURE

Chapter 9 LECTURE. BASIS of accounting for various funds. Governmental. GOVERNMENT- WIDE. Proprietary. Fiduciary. 1. General 2. SRF 3. CPF 4. DSF 5. PERMANENT. 1. Agency 2. Trust. 1. Enterprise 2. Internal Service. New GAS 34 requirement (Chapter 14) Worksheets to

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Chapter 9 LECTURE

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  1. Chapter 9 LECTURE

  2. BASIS of accounting for various funds Governmental GOVERNMENT- WIDE Proprietary Fiduciary 1. General 2. SRF 3. CPF 4. DSF 5. PERMANENT 1. Agency 2. Trust 1. Enterprise 2. Internal Service New GAS 34 requirement (Chapter 14) Worksheets to convert GOVTL to GOV-Wide "modified-accrual" "full-accrual" "full-accrual" "full-accrual" requires non-funds: 1. GCA 2. GLTL which basically are full-accrual. Liabilities are set-up in GLTL and reported in Govt-Wide Assets are capitalized in the GCA, and reported in Govt-Wide Information from non-funds is used extensively in Govt-Wide

  3. General Capital Assets (GCA) General Capital Assets Cost of GCA acquired Cost of GCA disposed of Dr. Cr. Increase Decrease

  4. General Capital Assets RECORDED AT: Historic Cost. ESTIMATE OF acc/dep ACCEPTABLE for GASB. $160,000 (assume) 1. Calculate current REPLACEMENT COST. 2. DEFLATE current cost using price indexes to acquisition year. Suppose prices have risen 60% in last 5 years since asset was purchased. $160,000/1.60 = $100K 3. If asset is a 10-year asset, then retroactive accumulated depreciation is: $100,000/10 = $10,000 per yr $10,000 x 5 yrs = $50,000 acc/dep

  5. General Capital Assets ESTIMATE OF COST ACCEPTABLE for GASB. 4. If the asset's value is estimated before closing entries in year 5 then this entry would catch things up: Asset...................$100,000 Net Assets-Invested in GCA.....$100,000 Net Assets-Invested in GCA….. $50,000 Accumulated Depreciation………$50,000 This is done in the GCA non-fund, and NOT the GL.

  6. General Capital Assets CLASSIFICATIONS $ paid for land, and costs incidental to its acquisition, and expenditures to prepare land for its use. LAND $ paid for permanent structures used to house persons/ property AND fixtures that are permanently attached. BUILDINGS/ IMPROVEMENTS Long-lived improvements (other than buildings) that add value to land. (bridges, sidewalks, streets, dams, tunnels). INFRASTRUCTURE MACHINERY/ EQUIPMENT Moveable machinery and equipment. expenditures for construction work undertaken but incomplete at balance sheet date. CONSTRUCTION IN PROGRESS

  7. General Capital Assets INFRASTRUCTURE INFRASTRUCTURE Are long-lived assets that normally are stationary in nature and normally can be preserved for significantly greater number of years than most capital assets. OLD RULE: Did NOT have to capitalize. OLD RULES NEW (GAS 34) RULES Did not require capitalization. NEW RULES: DO have to capitalize major infrastructure. 1. Requires that SLGs capitalize MAJOR infrastructure NETWORKS (e.g., highways) and SUBSYSTEMS (e.g., interstate highways). Definition Exemption: If infrastructure asset is obtained earlier than June 30, 1980. subsystem cost at least 5% of total GCA. Smallest of SLG not required to do retro- active capitalization either. network cost at least 10% of total GCA.

  8. INFRASTRUCTURE Modified Approach Infrastructure assets (IA) that are part of a network/subsystem ARE NOT required to be depreciated provided (2) requirements are met: 1. Asset management program in place to oversee IA. 2. Documentation that IA are being preserved at/or above given condition level. If modified approach is used, expenditures made for IA are EXPENDED Additions/improvements to IA that increase capacity/efficiency (rather than just extend useful life) should be capitalized.

  9. WORKS OF ART AND HISTORICAL TREASURES RULE:Capitalize at their historical costorFMV at date of donation whether individual items or held as a collection. EXCEPTION:NOT required to capitalize (donated or purchased) if a collection is INEXHAUSTIBLE.

  10. WORKS OF ART AND HISTORICAL TREASURES IF COLLECTIONS NOT CAPITALIZED IF COLLECTIONS CAPITALIZED in GCA accounts: in GCA accounts: ASSETS…….$XX.XX DONATION REVENUE..$XX.XX PROGRAM EXPENSE (NET ASSETS)……..…….$XX.XX DONATION REVENUE..$XX.XX

  11. Sale Retirement Replacement Disposition

  12. Sale Suppose that a vending machine with a cost of $5,000 and accumulated depreciation of $2,500 is sold for $850. GAIN OR LOSS? GENERAL FUND Book vs Cash received $2,500 Cash……….. $850 Other Financing Source-sale of equip…… $850 $850 LOSS……. $1,650 GENERAL CAPITAL ASSET NON-FUND GOVT-WIDE Net Assets…………………………. $2,500 (book removed) Accumulated Depreciation………. $2,500 (remove it) Vending Machine……………… $5,000 (CR for cost)

  13. Replacement(Trade-in): OUR TEXT IS SILENT ON GAINS/LOSSES WITH REPLACE- MENTS. Suppose instead that the vending machine with a cost of $5,000 and accumulated depreciation of $2,500 is traded in on a new vending machine costing $8,500. A trade-in allowance of $1,200 is given on the old vending machine. Cost of new $8,500 - $1,200 trade-in = $7,300 cash paid. GENERAL FUND EXPENDITURES-VENDING MACHINE……$7,300 CASH………………………………………….$7,300 GENERAL CAPITAL ASSETS NON-FUND NEW VENDING.. $8,500 NET ASSETS……$8,500 To record entry of new machine at FULL COST NET ASSETS……. $2,500 ACCUM. DEP….. $2,500 OLD VENDING MACHINE… $5,000 To remove old asset from non-fund records

  14. Retirement: Suppose instead that the vending machine with a cost of $5,000 and accumulated depreciation of $2,500 is retired and sold for salvage value of $500. Costs to ship the vending machine to buyer were paid by seller and amounted to $150. GENERAL FUND EXPENDITURES (SHIPPING)…..$150 CASH…………………………….$150 To record shipping costs LOSS equals: CASH……. $500 EXPENDITURES (SHIPPING)……………….. $150 OTHER FINANCING SOURCES-SALVAGE..$350 To record net proceeds from salvage BOOK.. $2,500 - SALV.. 500 -------------------- $2,000 + ship.. 150 ---------------------- LOSS $2,150 NET ASSETS………. $2,500 ACC/DEP………….. $2,500 VENDING MACHINE………$5,000 GCA-NONFUND GOVT-WIDE

  15. Intragovernmental Transfer of GCA

  16. Intragovernmental Transfer of GCA PROPRIETARY  GENERAL FUND Cost Acc/Dep BOOK $1,500 $500 $1,000 $10,000 $4,000 6,000 ---------- -------- --------- $11,500 $4,500 $7,000 * Suppose that the FMV of this equipment was $10,000. Transfer at lower of book vs fmv. PROPRIETARY FUND GCA-NONFUND Capital Contributions……. $7,000 EQUIP…. $11,500 ACC-DEP…………...$4,500 NET ASSETS……… $7,000 Accumulated Depreciation.. $4,500 Equipment…………………$11,500 NOT called "transfer".

  17. GENERAL FUND  PROPRIETARY Cost Acc/Dep BOOK $1,500 $500 $1,000 $10,000 $4,000 6,000 ---------- -------- --------- $11,500 $4,500 $7,000 * Suppose that the FMV of this equipment was $10,000. Transfer at lower of book or "use value" to proprietary fund. PROPRIETARY FUND GCA-NONFUND Equipment……… $7,000 (assume use value > or = book) Capital Contrib… 7,000 ACC/DEP…. $4,500 NET ASSETS..7,000 EQUIP…….$11,500 NOT called "transfer".

  18. Permanent Fund

  19. Account for resources held in TRUST by the government for the benefit of the government (or its citizenry). PURPOSE? Principal of the trust must be maintained intact. REQUIREMENTS? STATEMENTS? Same as other governmentals: 1) Balance Sheet, 2) Statement of Revenues, Expenditures and Changes in Fund Balance EXPENDABLE VS NONEXPENDABLE

  20. GAS 42 (NEW) Impairments As a SIGNIFICANT, UNEXPECTED, DECLINE in the service utility of a capital asset.

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