Quiz 17: Accounting for State and Local Governments, Part II


Report highlighting the differences that are noticed between the process described before 2000 and that has been presented in the chapter: Due to the change in accounting evolution over the years, the accounting for state and local governments in the recent years provides be best example for the consequent change. The GASB 34 was issued in June of 1999 and became mandatory a few years later. That pronouncement provides a clear line of demarcation between the financial statements that are currently reported and those that were traditionally used for many decades. In looking at any source of information prior to 2000, several significant differences should be evident: (1) Only one set of financial statements was reported. Government-wide financial statements did not exist. (2) The financial statements prior to 2000 will look quite a bit like fund financial statements that are still prepared. (3) Because only current financial resources were reported, at least in the governmental funds, no capital assets or long-term liabilities are reported. (4) Some of the fund type names have changed over the years. For example, the Permanent Fund within the governmental funds did not exist prior the passage of GASB 34. (5) Depreciation was not reported in connection with the reporting of assets by the governmental funds. (6) Infrastructure assets were reported as expenditures as those costs were incurred and, then, probably in no other way. No inclusion at all could be seen of bridges, sidewalks, and the like. (7) Certain liabilities such as landfill costs were probably ignored. (8) Budgetary information is still reported but in a different type of format. (9) A management's discussion and analysis is now included in government financial statements to provide a verbal explanation of the financial events of the period.

Evolution of governmental accounting: As per the Financial Accounting Standards Board, Accounting principles board and other standard organizations, over the number of decades, there is a tremendous change in connection with the businesses acting for-profit. As comparing the financial accounting standard board with the governmental accounting standard board, the financial accounting standard board issues new standards and have shorter period of time. In order to overcome the unstructured reporting parameters, the governmental accounting is setting up an official set of generally accepted accounting principles for a structured reporting format.

Building a spreadsheet to determine the value of each mile of road based on the year of its operation: The required spreadsheet helps the government in determining the historical cost of unreported infrastructure assets. Section 1400.152-160 of GASB Codification, requires the compliance of various regulations in designing the spreadsheet in different ways. The following is one of the approaches in accordance with the guidelines of GASB Codification: Enter the following details in the cells: img It should be noted that to develop the different schedules, any of the above three variables can be changed as per the requirement. Further enter the column headings as below: img In the next step enter the Row Headings as below: Enter text labels in Cell A8, "1" and in Cell A9, as "2" and drag across the cells A8 and A9 to fill the text labels for the years 3-20. A small black box in the lower right corner will appear displaying "fill handle." Click on the small box "fill handle" and drag across Cells A10 through A27 and release to display numbers 3 through 20. Enter the text label in Cell B8, as "12/31/2014" and in Cell B9, as "12/31/2013." Perform the same procedure explained above to fill the date in Cells B10 through B27. In the next step enter the formulas as below: Enter the formula =+E3/($E$4+100%) in Cell C8, to calculate Inflation Reduced Cost as of 12/31/2014 and then reduce per mile on 12/31/2015 (in Cell E3) using the Yearly Inflation Rate (in Cell E4). Enter the formula =+C8*($E$5*A8) in Cell D8, to calculate total depreciation and the multiply the inflation reduced cost as on 12/31/2014 with the yearly depreciation rate: Enter the formula =+C8-D8 in Cell E8, to calculate the reported value of road for current year as reduced by the depreciation from inflation. Enter the formula =+C8/($E$4+100%) in Cell C9, to calculate the inflation reduced cost figure as of 12/31/2013 and then reduce the amount with inflation on 12/31/2014 (in Cell C8) with yearly inflation rate (in Cell E4): Use the fill handle option to copy the formulas from Cells D8 and E8 to Cells D9 and E9. In the next step copy the formulas: Use the "fill handle" option across for the Cell C9 through Cell E9. Hence, the formulas will be adjusted automatically and provides the current year information.

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