Chapter 4c.ymcdn.com/sites/ · PDF file•GAAP for revenue recognition is GASB Stmt. No. 33 •Under modified accrual ... as the amount of revenue required from property taxes ...
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3/7/2016
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Granof, et al. – 7th edition Chapter 4 |
Chapter 4Recognizing Revenues in Governmental Funds
Governmental Funds•Measurement Focus: flow of current financial resources (focus is on expendable financial resources)• Revenues must be available to pay liabilities of current period before they can be
recognized.
• Current financial resources include cash, receivables, marketable securities, prepaid items, and supplies inventories
• Capital assets such as land, buildings, and equipment are NOT accounted for in governmental funds, but rather in governmental activities
Example of Revenue Recognition in CAFRThe following note on revenues in the basic financial statements of the City of Louisville, Ohio illustrates the city’s implementation of GASB Statement No. 33.
Revenues - Exchange and Non-exchange Transactions- City of Louisville, Ohio
Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is recorded on the accrual basis when the exchange takes place. On a modified accrual basis, revenue is recorded in the fiscal year in which the resources are measurable and become available. Available means that the resources will be collected within the current fiscal year or are expected to be collected soon enough thereafter to be used to pay liabilities of the current fiscal year. For the City, “available” means expected to be received within sixty days of year-end.
Derived Tax Revenues•These are derived from assessments on exchange transactions carried on by taxpayers.
• Include sales taxes and income and other taxes on earnings or assets
•Recognized as revenue when the underlying exchange transaction takes place.• Example: Sales taxes should be recognized in the period of the underlying sale.
•These occur when a government at one level (e.g. the federal or a state government) provides resources to a government at another level (e.g. a local government or school district).
•Requires the recipient to accept and use the resources for a specific purpose.
Two Types of Limitations on Nonexchange Transaction RevenueTime Requirements - These specify the period in which resources must be used or when use must begin (e.g. property taxes; certain grants).
Purpose restrictions (eligibility requirements) - These specify the purpose for which the resources must be used (e.g. dedicated taxes; restricted grants).
Property Taxes•Viewed as a residual source of revenues in an amount equal to the total revenue needs, less the sum of the beginning of year fund balance and revenues expected to be realized from all other sources
•The gross tax levy is calculated as the amount of revenue required from property taxes divided by the estimated collectible portion of the levy
The tax rate is the measure that is actually set by legislative action, once the required size of the levy is
determined.
Required tax rate (per $100 or per
$1,000 of assessed valuation)
Calculation:
Statutory or legislatively * assessed valuation of taxable
approved tax rate property (either real property or
personal property)
Another calculation:
Revenues required
Estimated collectible proportion
= tax levy
assessed valuation
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Granof, et al. – 7th edition Chapter 4 |
Property Taxes (cont’d)Assessed valuation is determined by an elected “Tax Assessor”
Calculation:
Estimated True Value * Assessment Ratio
In some jurisdictions the assessment ratio is 1.00 (i.e., full estimated market value), other jurisdictions it might be .30 or some other fraction of full value.
Pass -Through GrantsGrants a government must transfer to, or spend on behalf of, a secondary recipient.
GASB stated that as a general rule ‘cash pass-through’ grants should be recognized as (intergovernmental) revenue and expenditures/expenses in governmental, proprietary or trust funds of the primary government and in the government–wide financial stmts.
If government acts as a cash conduit-i.e., merely transmits money without having any administrative involvement-then these grants are reported in agency funds.
◦ Example: State govt. receives the grant from the Fed. govt. to support special education programs.
Licenses and permitsPrimary concern: Should the revenue be recognized when the license is issued and cash received or should it be spread out over the period covered by the license?
Characteristics of licenses:◦ Exchange transactions: License fees which cover the cost of services provided.
◦ Non-exchange transactions: License fees that bear little relation to the cost of services provided and imposed mainly as a source of general revenues.
◦ License fees are generally non-refundable.
◦ Includes items such as vehicle licenses, business licenses, liquor licenses, marriage licenses, animal licenses, building permits, zoning variances, etc.
Fees for licenses and permits, passenger facility charges, certain tap fees and certain developer contributions should be considered exchange rather than nonexchangetransactions, even though the party making the payment may receive less in value than it surrendered.
Charges for servicesMany governments have shifted much of their revenues from taxes on all taxpayers to charges to recipients of services, including charges for recreational services, building inspections, etc.
Accrue if the amount is known prior to the receipt of cash
Sales of Capital AssetsWhen a capital asset is sold, financial resources received are accounted for in a governmental fund, but the assets that are sold are NOT.
This concept is reinforced by the journal entry on page 170.
Remember that under Govt. wide model, the sale of capital assets is recorded under the full accrual basis of accounting.
SummaryPrimary objectives of financial reporting: Interperiod equity and budgetary compliance.
2 types of financial statements are prepared: Fund and Government-wide
GASB Std. #33 provides guidance for revenue recognition and is applicable to statements prepared on either the full accrual or the modified accrual basis.