Chapter Seventeen: Mcgraw-Hill/Irwin

Chapter Seventeen
Accounting for
State and Local
Governments,
Part II
McGraw-Hill/Irwin
Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
LO 1
Accounting for Leases

For accounting
purposes, leases must be
identified as either
Capital or Operating.
GASB has adopted the
same four criteria
applied by FASB to
identify a capital lease.
The lease transfers

ownership at the end of
the lease term.
The lease has a bargain
purchase option.
The lease term 75% of
the assets estimated
useful life.
The minimum lease
payments > 90% of the
PV of the asset.
17-2
Accounting for Capital Leases

Government-Wide Financial Statements:
Record an asset and a liability at the present
value of the minimum lease payments initially.
Record an expense for interest and a reduction in
the liability when the lease payment is made.
Fund Financial Statements:

Record the expenditure and other financing
source to record the lease.
Record an expenditure for interest and the
lease principal when the payment is made.
17-3
LO 2
Solid Waste Landfill

The operation of a solid waste landfill
creates long-term liabilities. The EPA
imposes requirements that will
require large outlays of resources to
close a landfill in the future and to
deal with such postclosure activities as
groundwater monitoring.
17-4
Solid Waste Landfill

Government-Wide Financial Statements
Record a portion of the expected closing
costs, pro-rated as a % of capacity used, each
year as an expense and a liability.
Fund Financial Statements
Make no entry to record a liability. Record
cash payments made to fund the future
obligation as expenditures.
17-5
LO 3
Works of Art and Historical

Treasures
Although optional reporting is allowed,
governments should capitalize works of art,
historical treasures, and similar assets at their
historical cost or fair value at date of donation.
Government-Wide
Financial Statements
Record the asset and the
payment (if purchased)
or revenue (if donated).
Fund
Record an expenditure
and the cash payment (if
purchased). No entry is
made if the item is
donated.
17-6
LO 4
Infrastructure Assets
Government-Wide Financial Statements:
Record all newly acquired assets.
Show approximate cost for all major assets
previously acquired that
Were acquired after June 30, 1980, or that
Had major renovations, restorations, or
improvements since that date.
Fund Financial Statements:
Record the acquisition as an expenditure.
17-7
LO 5
General Purpose
Three distinct sections:
1. Managements Discussion and
Analysis (MD&A)
2. Financial Statements
Government-wide Financial
Statements
Fund Financial Statements
Notes to the Financial Statements
3. Required Supplementary Information
17-8
External Reporting Process

Governments prepare a Comprehensive
Annual Financial Report (CAFR).
GASB Stipulates that the CAFR Include:
1.Introductory Section
2.Financial Section
3.Statistical Section
17-9
LO 6
Primary Government and

Component Units
Reporting entities must produce CAFRs. These
units start with a primary government unit
(town, city, county or state)
Primary government must then include all
funds, activities, organizations, agencies, offices
and departments that are not legally separate
from it
May be difficult to determine whether certain
activities should be included
The major criterion for inclusion is financial
accountability
17-10
LO 7
Government-Wide Statements Statement of Net Assets

Designed to report the economic resources of
the government as a whole (except for
fiduciary funds that serve a purpose outside
the primary government).
Include all assets, capital assets, and
liabilities (current and long-term).
Report investments at fair market value.
Assets Liabilities = Net Assets (not equity)
Show restrictions.
17-11
Government-Wide Statements Statement of Activities

Expenses are shown by function.
Interest on general long-term debt is
normally an indirect expense, frequently
shown as a separate function.
Related program revenues should be shown
for each function.
Show the net revenue figure for each
function.
General revenues are shown at the bottom
of the statement.
17-12
Fund Financial Statements Governmental Funds

Balance Sheet
Does not include proprietary funds,
component units, or fiduciary funds.
Reports only current financial resources and
uses modified accrual accounting.
Separate columns for the General Fund and
each major fund.
In the Fund Balance section, identify both
the reserved and designated amounts.
17-13
Fund Financial Statements Governmental Funds
Statement of Revenues, Expenditures, &

Changes in Fund Balances
Net revenues are not identified for specific
functions.
Report expenditures, not expenses.
Other financing sources and uses are shown
to reflect long-term debt, sale of property,
and transfers between funds.
Reconcile the ending fund balance and the
ending change in net assets.
17-14
Fund Financial Statements Proprietary Funds

Statement of Net Assets
Combined internal service funds.
Assets and liabilities are classified as current
and noncurrent.
Statement of Revenues, Expenses, & Changes
in Fund Net Assets
Same rules as for governmental funds.
Capital contributions and transfers are
reported here.
17-15
Fund Financial Statements Proprietary Funds

Statement of Cash Flows
1)
2)
3)
4)
5)
Four sections
Operating Activities
Noncapital Financing Activities
Capital and Related Financing Activities
Investing Activities.
Note that the Direct Method is required
for presentation.
17-16
LO 8
Public Colleges and Universities

Public colleges and universities
must follow the same guidelines as
state and local governments. (GASB
retains primary reporting
authority)
Their statements will differ from
those of private colleges and
universities, who are following
FASB accounting standards.
17-17

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Chapter Seventeen

Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

Accounting for Leases

The lease transfers

Accounting for Capital Leases

Fund Financial Statements:

Solid Waste Landfill

Solid Waste Landfill

Works of Art and Historical

External Reporting Process

Primary Government and

Government-Wide Statements Statement of Net Assets

Government-Wide Statements Statement of Activities

Fund Financial Statements Governmental Funds

Fund Financial Statements Governmental Funds

Statement of Revenues, Expenditures, &

Fund Financial Statements Proprietary Funds

Fund Financial Statements Proprietary Funds

Public Colleges and Universities

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