Kế toán, kiểm toán - Chapter 5: Accounting for other government fund types

Essentials of Accounting for Governmental and Not-for-Profit OrganizationsChapter 5Accounting for Other Government Fund Types Capital Projects, Debt Service, and Permanent FundsCopyright © 2015 McGraw-Hill Education. All rights reserved.Chapter 5 – Learning objectivesApply the modified accrual basis of accounting in the recording of typical transactions of capital projects, debt service and permanent fundsPrepare the fund-basis financial statements for governmental fundsRecord capital lease transactions related to governmental operationsClassify and identify appropriate fund reporting for trust fundsReview of Capital Project, Debt Service and Permanent FundsUse Modified Accrual Basis and Current Financial Resources measurement focusIf an annual budget is used, may be recorded in the fund but is not requiredIf control of purchase orders is relevant to the fund, can use encumbrance accounting. Typically done with capital projects.Generally do not report long-term assets or long-term liabilities on fund balance sheetLong-term asset purchases are treated as expenditures, no depreciation. Long-term debt proceeds are treated as other financing sources.Capital Projects Funds: Account for and report financial resources that are restricted, committed or assigned to expenditure for capital outlays.Fund Definitions Capital Projects FundsCapital Project FundsUsed for construction or acquisition of major long-term assets such as buildings, bridges, etc. for government fundsProprietary type funds account for construction activities in proprietary funds. They do not require use of a capital project fund.Sources: Accounts for issuance of bonds and receipt of other financing sourcesUses: Accounts for construction or acquisition expendituresDoes not report the long-term asset in the CP fund—Treated as expenditure in the fundLong-term asset is listed in government-wide Statement of Net Assets(Position)Primary Sources of Funds for Capital ProjectsIssuance of bondsGrants from other government unitsDedicated taxesTransfers from other fundsOtherDonationsInterest earned on funds heldBond IssuesLong-term bonds are not fund liabilities in governmental type fundsAssume $12,000,000 of bonds are issued to fund a capital project: Cash $12,000,000 Other financing sources: Bond Proceeds $12,000,000Bond proceeds are considered an Other Financing Source on the Statement of Revenues, Expenditures and Changes in Fund BalanceBond proceeds is not a revenue per se, but is considered a current inflow on the activity statementNumber of Capital Project Funds to UseSome jurisdictions may require a separate fund for each building projectOtherwise, governments may account for all, or at least related construction projects, in a single fund using the ‘fund within a fund’ approachIn that case a government will use separate accounts for: Expenditures - Project 1, Expenditures - Project 2, etc.General rule—make sure you can demonstrate the funds intended to be used on a specific project are traceable to the projectLease Accounting for State and Local GovernmentsOperating leases—true rental situationCapital leases—these are ‘in-substance’ purchases of long-term assets on time with interestThe classification criteria to be treated as capital lease are the same as for commercial businesses:Transfers ownershipContains bargain purchase optionLife greater than 75% of asset’s lifePresent value of minimum lease payments greater than 90% of fair value of assetLease Issues cont’dAt the inception (beginning) of a capital lease, the present value of minimum lease payments is recorded as follows by governmental type funds: Expenditure Dr = PV of paymentsOther Fin. Source – Lease Cr = PV of paymentsLease Issues cont’dAt the inception of the lease the present value of lease payments is reported as an asset and liability in the government-wide statementsOver time, the leased asset’s value in the government-wide statement of net position is decreased by its accumulated depreciationOver time, the liability is decreased by the amount of the principal retired through each lease paymentSpecial Assessments“Special” Assessments are similar to property tax assessments, but are limited to taxpayers receiving direct benefitsCitizens in a limited area may vote or petition the government to provide a service or capital project and the government may then assess taxes for these benefitsSpecial Assessment TypesService type: Example, downtown merchants want enhanced police protection and are willing to pay for it through extra assessmentsConstruction type: Example, residents want their street paved and are willing to have the cost charged to them over a period of timeAccounting for Service AssessmentsThe government will use whatever fund they normally use for that service to record the special assessment tax revenueFor example, if the assessment is for extra policing and police costs are in the General Fund, then the assessments will be treated as General Fund revenuesIf the assessment were for service normally accounted for in a special revenue or enterprise fund, then use those fundsSpecial Assessments for Debt Financed Capital Assets The accounting treatment depends on the extent to which the government is liable for the debt. Types:The government is primarily or secondarily liable to pay off the special assessment construction loan in the event that taxpayer revenues are insufficientThe government is NOT liable, either legally or by choice, even in the event that taxpayer payments are insufficient to pay the debtConstruction Special Assessment Issues Government liable on the debtRecord construction in Capital Project fund as usualRecord repayment of debt (i.e. special assessment tax collections) in Debt Service fund as usualReport the assets constructed and the special assessment debt in the government-wide statement of Net PositionThe effect is to treat the debt and related project as if it were undertaken by the governmentConstruction Special Assessment Issues cont’dGovernment is not liable on debt No debt is reported in the government-wide Statement of Net Position since it not an obligation of the governmentCollections of special assessment taxes from the taxpayers and remittance to debtholders are handled in an agency fundDebt Service Funds: Account for and report financial resources that are restricted, committed or assigned to expenditure for principal and interest.Fund Definitions Debt Service FundsUses of Debt Service FundsSinking fund and payments on bonds Payments on long-term notes Payments on capital leasePurpose of Debt Service FundThe debt service fund accumulates resources to pay principal and interest on long-term debts of the overall governmentDebt service funds are not used for proprietary fund debts, those funds carry their own long-term debtWhile the debt service accumulates money and makes principal and interest payments, bonds payable is not a liability of the fund because the Debt Service Fund uses the modified accrual basis/ current resources measurement focusThe Bond Liability is in the government-wide Statement of Net PositionSources of Debt Service FinancingTransfers Typically from the General fund, but also:Premiums or accrued interest at the time of issuance are often transfer to DSF from Capital Project fund (CPF) Residual equity transferred from CPFTaxes earmarked for debt service (including special assessments) Refinancing bond proceedsModified Accrual Basis & Debt Service FundsException to expenditure recognition under the modified accrual basis:Most expenditures are recorded when the liability is incurredEXCEPT for interest and principal on long term debt: Interest and principal on long term debt is record in the DSF as an expenditure when DUEBut, there is an exception to the exception:Example: When year ends December 31, 20X1 bond payments is due January 1, 20X2 ( or within a month), and the money for the payment was provided in the 20X1 budget—then an expenditure and liability for the upcoming payment may be recorded in fiscal year 20X1Key issue—put expenditure in the year it was budgeted Types of DebtFor serial bonds, money is transferred in, payments are made, and little or no balance exists at year endTerm bonds: All the principal of the bond comes due at end of the term (perhaps after 30 years). Interest may be paid over time, or all at the end as wellDeferred serial bonds: these may not start the payments for 2 to 5 years after the bonds are usedAllows time for property taxes to begin coming in before payments startTypes of Debt cont’dIn term bond and deferred serial bond situations, the Debt Service Fund acts as a sinking fund:Money is moved into the fund and invested in revenue generating investmentsPresent value techniques and amortization tables are used to plan the amount of money that must be invested so that original money plus revenue earned over time equals required bond principal and interest paymentsDSF and Lease PaymentsDebt Service Funds are commonly used for capital lease payments, although the General Fund may sometimes be usedIn governmental funds, both the payment of principal and payment of interest result in an EXPENDITUREHowever, journal entries should keep the amounts separate, because only the principal portion reduces the net liability on the government-wide Statement of Net PositionPermanent funds should be used to account for and report resources that are restricted to the extent that only earning, and not principal, may be used for purposes that support the reporting government’s programs.Fund Definitions Permanent FundsPermanent FundsPermanent fund characteristics:Contribution of a principal amount from a donor which is to be invested in perpetuityEarnings in the fund are designated to a purpose that benefits the government or its citizensSummary: Accounting for TrustsPurpose of TrustTrust Description Appropriate FundTrust is to be used to benefit the government or its citizenry. Examples: Cemetery perpetual care or funds established to support libraries, museums or zoos.Expendable: Trust does not distinguish between earnings and principal. Both may be expended for the purpose provided.Special Revenue FundNon-expendable: Trust stipulates that earnings only (not principal) may be expended for the purpose providedPermanent FundTrust is to benefit individuals, private organizations, or other governments. Examples: Scholarship funds or funds intended to benefit families of police or firemen killed on duty.Although these are most commonly non-expendable, there is no requirement that they be so.Private Purpose Trust FundReview of Fund Financial Statements for Government Type FundsBalance SheetMust present separate columns for the General Fund, each major fund, and a single column for nonmajor fundsGovernments may show nonmajor funds separately, if it does not make the reports too cumbersomeThe difference between assets and liabilities is termed Fund Balance and is reported as Nonspendable, Restricted, Committed or Assigned. Only the General Fund reports Unassigned fund balance.Statement of Revenues, Expenditures, and Changes in Fund BalanceThe Statement will have columns for the same GF, Major, and Nonmajor funds used in the Balance SheetFormat: Revenues - Expenditures + or - Other Finance Sources/Uses + or - Special Items = Change in Fund Balance + Beginning Bal = Ending Fund BalanceShould agree with Balance SheetStatement of Revenues, Expenditures, and Changes in Fund Balance, cont’dExpenditures are displayed by Character Classifications: Current, Debt Service, Capital Outlay