Kế toán, kiểm toán - Chapter 8: Government-Wide financial statements; capital assets and long - term debt

Essentials of Accounting for Governmental and Not-for-Profit OrganizationsChapter 8 Government-Wide Financial Statements; Capital Assets and Long-term DebtCopyright © 2015 McGraw-Hill Education. All rights reserved.Chapter 8 – Learning ObjectivesPerform the steps necessary to prepare government-wide financial statements:Prepare worksheet entries to convert the governmental funds records to the accrual basis of accountingPrepare worksheet entries to include internal service funds with governmental activitiesPrepare required schedules reconciling the government-wide and fund-basis statementsRecord events and transactions related to general capital assets and long-term debtOverview of Entity-Wide Conversion ProcessEntity-wide statements are prepared at year end by converting government type funds to the accrual basis; including inclusion of depreciation, long-term assets and long-term liabilities, Adding in the asset and liability balances from internal service funds along with any income earned through transactions with external parties, consolidating fund statements (other than fiduciary funds). Fiduciary Funds are not included in government-wideEnterprise funds are entered directly into the business activities columns of the government-wide statements. Governmental funds are converted to the Accrual Basis and Economic Resource Measurement Focus through worksheet entries and then appear in the Governmental Activities columns of the government-wide statements.Internal Service Funds are added to Governmental Activities through worksheet entries. Government-wideStatement of Net Position and Statement of ActivitiesWorksheet ApproachEnter amounts from governmental funds fund-basis statements hereEnter journal entries to convert to the accrual basis hereEnter journal entries to incorporate internal service funds hereCarry these amounts into the governmental activities column of the government-wide statementsWorksheet ApproachLong-term assets and liabilities now appearExpenditures for Capital Assets and Principal Repayments are eliminatedInterfund balances are eliminatedConversion Adjustments: Capital Assets1. Beginning of the year capital assets of governmental activities (net of accumulated depreciation) are recorded through worksheet entry.2. The balance in “Capital expenditures” is eliminated and replaced with assets acquired during the year .3. Depreciation for the current period is recorded. 4. The balance in “Proceeds from sale of capital assets” is eliminated, the assets and accumulated depreciation are removed, and the resulting gain or loss is recorded.Conversion Adjustments: Capital Assets1Capital Assets (net)Dr. Net Position beginning of yearCr.2Capital Assets (net)Dr. Capital ExpendituresCr.3Depreciation ExpenseDr. Capital Assets (net)Cr.4 Proceeds from sale of capital assetsDr. Capital Assets (net)Cr. Gain on sale of capital assetsCr.Conversion Adjustments: Long-Term Debt 1. Beginning of the year long-term liabilities of government activities are recorded through worksheet entry.2. Convert this year’s “bond proceeds” to bond liability (and premium if applicable)3. Eliminate balance in “expenditure - bond principal” and reduce the balance of the liability 4. Amortize premium/discount on bondsConversion Adjustments: Long-term Debt1Net Position beginning of yearDr. Bonds PayableCr.2Proceeds from sale of bondsDr.Proceeds from bond premiumDr. Bonds payableCr. Bond Premium Cr.3Bonds payableDr. Expenditure - principle on bondsCr.4Bond premiumDr. Interest expenseCr.Conversion Adjustments: OtherDeferred Inflows of Resources – Property taxes = Property taxes deferred under the 60 day rule may need to be recognized under the accrual basis (and prior year’s accrual reversed)2. Expenses not recorded in government funds under their current economic resources model may need to be accrued (e.g. the long-term portion of compensated absences ) 3. Accrue interest on bonds outstanding and other accruals as necessary4. Eliminate interfund transfersConversion Adjustments: Other1.Deferred Inflows - property taxesDr. Property tax revenueCr. (current year deferred taxes)Property tax revenueDr. Net Position beginning of yearCr. (reverse previous year deferred taxes) 2.ExpendituresDr. Liability for compensated absencesCr.Conversion Adjustments: Other3.Interest expenseDr. Interest payableCr. (current year accrual)Net Position –beginning of yearDr. Interest expense (prior year accrual – reversal)Cr.4.Transfers InDr. Transfers outCr.What to Do with Internal Service FundsInternal Service Funds: Generally they are included with the Governmental Activities. HoweverAlthough internal service funds are reported as proprietary funds, the activities accounted for in them are usually more governmental than business-type in nature. If enterprise funds are the predominant or only participant in an internal service fund, however, the government should report that internal service fund’s residual assets and liabilities with the business-type activities. (GASB 34)Worksheet entries for internal service funds included in governmental activities1. Add Internal Service Fund’s Assets and Liabilities to the Governmental Activities section of the Government-wide Statement of Net Position2. Income of the Internal Service Fund with entities external to the governmental activities should be brought into the Statement of Activities. Most commonly this is interest expense or investment income.3. Reduce (increase) governmental expenditures by the amount of ISF operating income (deficit)4. Eliminate Interfund activities between the Internal Service Fund and other Funds represented within Governmental Activities.Worksheet entries: Internal Service Funds1.CashDr.Due from other fundsDr.Supplies InventoryDr.Capital Assets (net)Dr. Accounts payableCr. Note payableCr. Net PositionCr. 2Net PositionDr Investment incomeCr.3. Net PositionDr. General government expensesCr. 4Net PositionDr. Transfers InCr.This will be eliminated against “transfers out”Government-wide Statements:Statement of Net PositionStatement of ActivityNo cash flow statementGovernment-wide Statements: Statement of Net PositionSeparate columns are presented for Government and Business type activities (statements are ‘consolidated’ within columns)Would have another column for component units if the government has any (discretely presented).Government Activities column includes government type funds and (most) Internal service funds.Fiduciary Assets and Liabilities are not includedGovernment-wide Statements: Statement of ActivitiesNet cost approach:Start with functional expenses less allocable program revenues shows net cost.From the net cost add general revenues, special items and transfers to show the overall change in net position for Governmental and Business type activities.Change plus beginning net position = ending balance (this should agree with Statement of Net Position)Reconciliation of Governmental Fund Balances to Government-Wide Net PositionStarts with Government fund balances Summarizes all the changes made to get entity-wide governmental activities net positionNote typical reconciliation items include:Addition of long-term assets (+)Inclusion of ISF assets & liabilities (usually +)Handling of deferred revenue as revenue instead of as liability (+)Addition of long-term liabilities (-)Activity Statement ReconciliationReconciles changes in fund balances to changes in net position for the governmental activities (Shows difference in accrual vs. modified accrual)Examples:Excess of depreciation over capital outlay expendituresGain/loss on sale of assets vs. “proceeds”Deferred revenue items treated as revenues under accrualDifference in bond proceeds and retirementsNet Internal Service Fund profit from government fundsBond premium amortizationCapital Assets: Record KeepingWhile no specific method of keeping track of long-term assets is required by GASB, obviously some type of records should be kept on the cost, location, and life of all fixed assets in order to support amounts reported in the government-wide statements.Historically this was done in the General Fixed Asset Account GroupAn account group is merely a listing of balances of capital assetsCapital Assets: CollectionsPlant, infrastructure and equipmentRecord as asset and depreciateLandRecord as asset, do not depreciateCollections (reported as expense if not capitalized)Must be held for public exhibit, education or researchProtectedProceeds of any sale must be put back into other collectionsCapital Assets: InfrastructureExamples include roads, bridges, drainage systems, sewer systems, dams, lighting Capitalization was optional before GASB 34Once capitalized, governments may depreciation or use “modified approach” which does not require depreciation if assets adequately maintainedModified Approach to Infrastructure AccountingTo quality for the modified approach, a government must:Maintain an inventory of infrastructureDo condition assessments every 3 yearsEstimate annual cost to maintain at target levelAnd,Document that target maintenance level is being metUnder the modified approach, the cost of maintaining charged to expense rather than taking depreciation. The cost to extend the life of existing assets is charged to expense, rather than capitalized under either optionLong-Term DebtCommon Types:Most general obligation bondsLong-term lease obligation amountsCompensated absence amountsClaims and judgmentsLandfill closure liabilitiesLong-term Debt: Record KeepingSimilar to capital assets, some record must be maintained of the balances and changes to long-term liabilities.Historically this was done in the General Long-term Debt Account GroupAn account group is merely a listing of balances of long-term liabilitiesLong-Term Debt: Additional ReportingSchedule of Changes in Long-Term DebtShows difference in new debt vs. amount paid off.Schedule of Debt Service Requirements to Maturity Helps users see any future ballooning of debt service that may require tax increases.Computation of Legal Debt MarginShows additional debt that can be legally issued.Schedule of Direct and Overlapping DebtHelps citizens see their total debt obligation.