Essentials of Accounting for Governmental and Not-for-Profit Organizations

1. Essentials of Accounting for Governmental and Not-for-Profit Organizations Chapter 8: Government-Wide Financial Statements; Fixed Assets and Long-term Debt

2. Overview of Chapter 8 • Overview of entity-wide conversion process • Example of conversion process • Reconciliation schedules • Fixed Assets • Long-term Debt

3. Overview of entity-wide conversion process • Basic entries made during the year on a fund by fund basis. • Entity-wide statements are prepared at year end by • converting government type funds to full accrual basis including inclusion of depreciation, long-term assets and long-term liabilities, and • consolidating fund statements (other than fiduciary funds).

4. Conversion adjustments • 1. Beginning of the year long-term assets of government funds net of accumulated depreciation added. • 2. New long-term assets acquired during the year - treat as asset instead of expenditure. • 3. Record this year’s depreciation expense and accumulated depreciation. • 4. Convert this year’s bond proceeds to bond liability • (Also enter prior years’ outstanding bonds similar to #1 above.) • 5. Convert bond payment expenditures to liability dr. • 6. Convert interest expenditure to ‘interest expense’ and premium/discount amortization • 7. Deferred Rev. = earned Rev. under accrual basis

5. Conversion adjustments • #8 & 9: long-term portion of compensated absences not recorded in government funds per current economic resources model - add the extra liability/expense on entity-wide statements • #10: Sale of land -- entire proceeds treated as OFS per modified accrual … need to show gain/loss per accrual • #11: Internal Service funds considered to serve a governmental purpose for entity wide stmts. Add in all net assets.

6. Conversion adjustments • #12 Add in external income/expense. • #13 Eliminate income stmt balances which double count ISF costs vs. charges to government funds. • #14-16 Eliminate transfers between ISF and government funds.

7. Statement of Net Assets • Illustration 8-2 • Separate columns for Government and Business type activities • Would have another column for component units if needed. • Government Activities column includes government type funds and ISF after eliminations to avoid double counting. • Fiduciary Net Assets are not included because the overall SLG cannot use these to fund day to day operations.

8. Statement of Activities • Net cost approach: • Functional expenses less allocable program revenues shows net cost. • Net cost less general revenues, special items and transfers shows overall change in net assets for Governmental and Business type activities. • Change plus beginning net assets = ending balance

9. RequiredReconciliation of Government Net Assets to Entity Wide • Starts with Government Net Assets • Summarizes all the changes made to get entity-wide government net assets • Note typical reconciliation items include: • Addition of long-term assets (+) • Inclusion of ISF net assets (usually +) • Handling of deferred revenue as revenue instead of as liability (+) • Addition of long-term liabilities (-)

10. Required Activity Statement Reconciliation • Shows difference in accrual vs. modified accrual • Examples: • Excess of depreciation over capital outlay expenditures • Gain/loss on sale of assets vs. full proceeds as a OFS • Deferred revenue items treated as revenues under accrual • Difference in bond proceeds and retirements • Net ISF profit from government funds • GF to ISF transfers • Difference in bond premium as OFS for government type fund vs difference in expense vs. expenditure because of premium amortizations

11. General Fixed Assets Accounting • While no specific method of keeping track of long-term assets is required, obviously some type of records should be kept on the cost, location, source of funding, and life of all fixed assets in order to support amounts reported in the Entity Wide Stmts. • During the transition to GASB 34 some governments will begin reporting Fixed Assets prospectively and add past assets later in a four year transition period. • Appraisals and other estimations may be needed to approximate original costs of existing assets back to 1980. • SLGs under $10 M will have the option of recording long-term assets on a prospective basis only … ignoring prior years’ long-term assets.

12. Collections • Capitalized, exhaustible • Record as asset and depreciate • Capitalized, inexhaustible • Record as asset, do not depreciate • Noncapitalization option • Must be held for public exhibit, education or research • Protected • Proceeds of any sale must be put back into other collections

13. Infrastructure • Examples include roads, bridges, drainage systems, sewer systems, dams, lighting … • Capitalization was optional before GASB 34 • p. 224 shows dates for capitalization phase-in by government size • Once capitalized may depreciation or use “modified approach” which does not require depreciation if assets adequately maintained

14. Modified Approach to Infrastructure Accounting • Must • Maintain inventory • Do condition assessments every 3 yrs • Estimate annual cost to maintain at target level • And, • Document that target maintenance level met • Under modified approach, cost of maintaining charged to expense rather than taking depreciation.

15. Long-term Debt • Common Types: • Most general obligation bonds • long-term lease obligation amounts • Compensated absence amounts • Claims and judgments • Pension liabilities • Landfill closure liabilities

16. LT debt reporting • P. 226 Schedule of Changes in Long-Term (LT) Debt • Shows difference in new debt vs. amount paid off. • p. 227 Schedule of Debt Service Requirements to Maturity • Helps users see any future ballooning of debt service that may require tax increases. • p. 228 Computation of Legal Debt Margin • (Shows additional debt that can be legally issued.) • p. 228 Schedule of Direct and Overlapping Debt • Helps citizens see their total debt obligation.

17. Slides prepared by • Dr. Louella Moore • Arkansas State University