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50. (10 Minutes) (Reporting by a government of a landfill)
a. True – The amount of the liability to be reported in each of the past years
would then have been based on $3 million rather than on $2 million.
d. False – Present value is not used for landfill closure costs. The current
cost of closure (rather than estimation of future cash payments) is the
basis for recognition so that present value is not necessary.
51. (12 Minutes) (Reporting the gift of a historical treasure to a government)
a. True – One of the requirements for being able to choose to not capitalize
an art work or historical treasure is that a formal policy must be in place
requiring that any proceeds from a future sale be used for a similar
purchase. Thus, the item is not actually a kind of disguised investment.
52. (8 Minutes) (The presentation of component units)
a. False – Although the city here appoints a majority of the board members,
nothing here indicates that (a) the city can impose its will on this board,
the government. In addition, a component unit will need to be blended if
its total debt will be repaid entirely, or almost entirely, from resources of
the primary government. That responsibility is not mentioned here.
53. (12 Minutes) (The basic reporting of a state or local government.)
a. False – The $900,000 will be added and not subtracted. On the fund-
based financial statements, an expenditure is reported which reduces the
fund balance. On the government-wide financial statements, the cost is
capitalized so that no change occurs in the government’s overall net
b. False – Appointing the governing board alone is not sufficient to be
labeled as a component unit. In addition, either the primary government
h. True – Both works of art meet the three criteria that are necessary before
such items can be recorded as expenses rather than as assets.
Develop Your Skills
Research Case 1
GASB 34 required the creation of government-wide financial statements which
necessitated the reporting of capital assets and other infrastructure items.
When released in 1999, one of the most controversial aspects of GASB 34 was
the capitalization of previously acquired and constructed infrastructure items
value to the readers of the financial statements.
Because of this criticism, GASB tempered this one reporting requirement more
than any other. First, only a limited number of these earlier assets had to be
reported. According to the GASB Codification, Section 1400.167, “governments
So, the reporting of only “major general infrastructure assets” is required. That
In addition, only assets acquired or renovated after June 30, 1980, had to be
assessed for reporting purposes. This parameter limited the required reporting
Finally, governments were given an extra four years beyond the required
implementation deadline for GASB 34 to report these previously obtained
For the actual computation of these figures, the GASB Codification explains:
“A government may estimate the historical cost of general infrastructure assets
by calculating the current replacement cost of a similar asset and deflating this
cost through the use of price-level indexes to the acquisition year (or estimated
Section 1400.173 goes on to provide additional guidance: “Other information
may provide sufficient support for establishing initial capitalization. This
Research Case 2
The reason for this question is rather obvious: The transit authority has lost
money and city officials are concerned by how those negative financial results
will impact the financial picture reported by the city.
The reporting rules for component units were first created by GASB Statement
No. 14, The Reporting Entity. Those rules are now part of the GASB Codification:
“Even though it is desirable for users to be able to distinguish between the
primary government and its component units, there are nevertheless some
component units that, despite being legally separate from the primary
known as blending.” (Section 2600.112)
In the case presented here, the facts should be easy to determine so that the
decision about reporting can be made. Is the transit authority fiscally dependent
on the city? Does the transit authority create a financial benefit or financial
The transit authority can also be a component unit of the city if city officials
appoint a voting majority of the transit authority’s board. In that case, the transit
The question of potential financial burden is especially relevant because the
transit authority has been losing money. Eventually, if that situation does not
improve, what responsibility will the city have?
Analysis Case 1
Students often appear to believe that the financial reporting presented in a
textbook has actually been applied, unchanged, for decades. They often do not
In looking at any source of information prior to 2000, several significant
differences should be evident:
--Only one set of financial statements was reported. Government-wide financial
statements did not exist.
--The financial statements prior to 2000 will look quite a bit like fund financial
statements that are still prepared.
--The columnar presentation will include fund types (General Fund, Special
Revenue Fund, Capital Projects Fund, and the like) rather than showing specific
major funds within these categories.
--Depreciation was not reported in connection with the reporting of capital assets
by the governmental funds.
--Infrastructure assets were reported as expenditures as those costs were
incurred and, then, probably in no other way. In most cases, no inclusion at all
could be seen of bridges, sidewalks, and the like.
Analysis Case 2
One of the most significant changes in governmental accounting created by
GASB 34 in 1999 was the requirement that the Management’s Discussion and
Analysis be included as part of the CAFR. This written report is meant to be a
discussion of the financial information for the government in a verbal rather
than a purely quantitative fashion. Students often do not understand the
range of information provided by the MD&A. In this assignment, the student
can read the MD&A for an actual city.
Here are just some of the pieces of information discussed in the 2012 MD&A
for the City of Phoenix, Arizona.
--On the Government-Wide Financial Statements, total assets of the City
exceeded its total liabilities at the close of the fiscal year by $8.5 billion (net
assets).
equipment, and infrastructure, less any related debt used to acquire those
assets that is still outstanding.
--The City had total long-term liabilities or obligations of $7.4 billion.
-- During fiscal year ended 2012, excise tax revenues and charges for services
increased by 4.6 and 3.1 percent, respectively due to continued growth in the
economy.
Communication Case 1
Students do not always fully comprehend the evolutionary nature of financial
accounting and reporting. In connection with for-profit businesses, ongoing
changes have occurred over a number of decades under the Financial
This assignment is simply intended to provide the student with an overview of
the recent history of governmental accounting. The listed articles (and any
others that the students may find through their own library and Internet searches)
Communication Case 2
If the city assesses a user charge, then officials always have the right to record
the landfill as an Enterprise Fund. However, such a classification is not required
unless the fee (a) is set at an amount intended to cover the various costs of the
service or (b) serves as the sole security for debts of the activity.
Conversely, if the landfill is recorded within the General Fund, there is no impact
on the government-wide financial statements except that all transactions and
Excel Case
This spreadsheet would be extremely helpful for a government attempting to
determine the historical cost (less depreciation) of infrastructure assets not
previously reported. This spreadsheet is designed along the guidelines
established in GASB Codification, Section 1400.167-175. There are a number of
different ways that a spreadsheet could be created to solve this particular
problem. Here is one possible approach:
In Cell A1, enter text label “City of Loveland—Reported Value of Each Mile of
Road”
Any of the above three variables can be changed to develop different schedules.
Enter Column Headings:
In Cell A7, enter text label of “# of Years.”
Enter Row Headings:
In Cell A8, enter text label “1” and in Cell A9, enter text label “2.” Once you
establish a pattern, Excel can automatically fill in a series of numbers. To
continue the numbering for Years 3-20, click and drag across Cells A8 and
A9. Once these cells are highlighted, you will see a small black box in the
Enter Formulas:
In Cell C8, enter formula to calculate Inflation Reduced Cost as of 12/31/2012.
Reduce Per Mile figure established on 12/31/2015 (in Cell E3) by Yearly
Inflation Rate (in Cell E4): =+E3/($E$4+100%) (NOTE: Absolute
references, which are cell references that always refer to cells in a specific
Format Cells to display currency. Click and drag across Cells C8 to E9.
Select Format, Cells, and under the Number tab, select Currency. Change
the Decimal places to 0 and click OK.
Copy Formulas:
Click and drag across Cell C9 through Cell E9. Place the cursor on the “fill
handle” in the lower right corner of this section box and drag the cursor down to
Cell E27 and release. The formulas are automatically adjusted to correspond to
the current year information.
