Quiz 5: Accounting for Other Governmental Fund Types: Capital Projects, Debt Service, and Permanent

Business

The solution to this and the first exercise of Chapters 1 through 8 will differ from student to student, assuming each has a different CAFR.

Like other governmental funds the capital projects, debt service funds and permanent funds also use an accrual basis of accounting and current financial resource measurement focus. These funds does not require to record the budgets. The governmental funds are used for various purposes including revenue generation and investing in other financial sources as well as meeting the expenditures of the trust. These funds are thus classified as the general funds, debt service funds, permanent funds, and other special revenue funds. Capital project funds report and accounts to the financial resources which are restricted or committed to a capital expenditure and are generally used to acquire major fixed assets. The funds that are restricted to meet the payments for expenditures of the principal and interest of debts are termed as debt service funds. The permanent funds are the resources which are restricted such that the principal should not be expended, and the revenue is used for the benefit of the government and its citizen. If the revenues and capital could be used for the activities of the organization, they must be reported as special revenue funds. The factors that are to be considered in determining the fund to be reported for the trust activities is if the resources of the trust are used for the benefit of the government or its citizenry or for the expenses related to the long-term debts or capital for the asset acquisition. If the concerned citizen, is benefitted by the funds from the trust activities in any manner, these funds are to be reported as the capital funds or the debt service funds. If the resources benefit the government or the citizen, they are to be classified as permanent funds or special revenue funds based on the requirement to restrict the principal of these resources.

Like other governmental funds the capital projects, debt service funds and permanent funds also use an accrual basis of accounting and current financial resource measurement focus. These funds does not require to record the budgets. Capital project funds report and accounts to the financial resources which are restricted or committed to a capital expenditure and are generally used to acquire major fixed assets. The funds that are restricted to meet the payments for expenditures of the principal and interest of debts are termed as debt service funds. The permanent funds are the resources which are restricted such that the principal should not be expended, and the revenue is used for the benefit of the government and its citizen. If the revenues and capital could be used for the activities of the organization, they must be reported as special revenue funds. As per the FASB accounting and financial reporting standards, the noncancelable leases are classified as operating leases and capital leases. As per the FASB standards, if a government acquires fixed assets through a capital lease agreement, these assets are to be recorded in the government-wide financial statements. Given that the government has acquired the equipment under noncancelable lease that qualifies to be classified as a capital lease. Therefore, the equipment will be reported in the government-wide financial statements.