GASB Statement 34 and Reporting of Expenditures †Free Samples

Questions: 1.Although Statement No. 34 requires that infrastructure assets be accounted for similarly to other capital assets, it allows for a major exception regarding depreciation. What is that exception? 2.A governments interest expenditure as reported in its debt service fund differs significantly from its interest expense, as reported in its government-wide statements. What is the most likely explanation for the difference? Answers: Introduction This report presents solutions to two questions which discuss major exceptions in reporting of government accounts. First solution discusses the exception regarding reporting of depreciation in infrastructure assets. Second solution presents a possible explanation to difference in interest reporting between two categories of government funds. 1.Solution GASB 34 sets out guidelines for reporting of accounts of all local and state governments in United States of America (GASB, 2018). In majority of cases, long lived assets are required to be depreciated over their lives. This solution explains a major exception in reporting of depreciation of infrastructure assets under GASB statement 34 guidelines. Capital assets are assets that can be used in operations of the business for more than one reporting period and are not intended for sale during normal operations of a company. Long lived assets with useful lives significantly more than majority of capital assets and immovable in nature are called as infrastructure assets. Normally all long lived assets are required to be depreciated over their useful lives. Modified approach of depreciation is applied to certain eligible infrastructure assets. These eligible assets are part of a network or subsystem of network. Under modified approach these infrastructure assets are not depreciated if two conditions are met (Ruppel, 2004). First, these assets are managed by the government with help of an asset management system that has following characteristics. Inventory levels of these assets are maintained up to date by the system. Conditional assessment of these assets is performed by the system and uses a measurement scale by which results are summarised. The system also calculates annual maintenance and preservation expenses of the assets. Secondly, the documentation process regarding maintenance of these assets at pre-defined minimum level is carried out. Professional discretion is required to decide about quantity of documentary evidence which required to be maintained by the system. GASB Statement No 34 species things that are required to be documented, such as given below Conditional assessment is conducted consistently at least once in three years using statistical samples. This assessment is considered to be appropriate and complete if carried out on a regular basis. Observations from these assessments ensure that these assets are being maintained at pre-defined minimum levels. Therefore, modified approach is an exception for recording of depreciation of assets, under it these assets are capitalized if above two conditions are met. 2.Solution: GASB 34 sets out condition for financial reporting of governmental accounts. Interest associated with various long term liabilities is reported differently under different circumstances. This solution provides for the possible explanation for difference in interest reporting between debt service fund and government wide funds Government wide statements are prepared using accrual basis of accounting and report financial performance of the government. They report all expenditures, revenues, losses, gains, assets and liabilities of the government. On the other hand governmental fund financial statements are prepared using modified accrual basis of accounting (Crawford Loyd, 2008). Current financial resources are taken into consideration for preparation of these statements. A cash reserve utilized for fulfilling interest and principal payments requirements on a particular category of debt is referred to as debt service fund. The purpose of such reserve is risk reduction for investors. Debt service fund also helps in reducing effective interest rate. Debt service fund is a part of governmental fund financial statements. Expenditures of debt service funds are reported under other expenditure classification. The main difference between the interest expense reported in the debt service fund and that reported in the government-wide statements is due to different accounting approaches being followed. While reporting the interest in the debt service fund, only cash payment is taken into consideration but the interest amount reported in the government-wide statements also takes into account the accrued amounts. The interest amount reported in the government-wide statements is inclusive of amortized amounts (Bogui, 2008). Thus, there is significant difference between the reporting of interest expenditure between government-wide funds and debt service fund. This solution provides the possible explanation for this difference. Conclusion GASB statement 34 sets the guidelines for reporting of accounts of government. However, there are some exceptions in various reporting procedures. The above two solutions discuss and throw light on the possible explanation of two such exceptions. In first solution, it is concluded that long lived infra assets are not depreciated under certain conditions. Second solution provides the explanation that due to different accounting approaches being followed, there is difference in interest reporting between debt service fund and government-wide funds. References Bogui, F. (2008). Handbook of governmental accounting. New York, USA: Crc Press. Crawford, M. A., Loyd, D. S. (2008). Governmental gaap practice manual. Chicago, USA: Cch. GASB. (2018). Summary of statement no 34. Retrieved from https://www.gasb.org/st/summary/gstsm34.html Ruppel, W. (2004). Governmental accounting made easy. New Jersey, USA: John Willey Sons.