Governmental Balance Sheet Accounts

1
Governmental Balance Sheet Accounts

• Chapter 4 Part 2
• Liabilities Fund Equity

2
Liability Basics

• Categories
• Current
• Obligations expected to be paid/liquidated in
  current fiscal period
• Accounts vouchers payable
• Tax anticipation notes
• Noncurrent
• Not expected to be paid/liquidated within current
  fiscal period
• Bonds
• Capital leases
• Pensions OPEB
• Compensated absences, claims judgments

3
Contract Accounting

• Contracts for long-term projects
• Construction
• Development etc.
• AIA example

4
Notes Bonds Payable

• Issued for short-term purposes
• Examples
• Tax/bond/grant anticipation notes
• Record as current liabilities
• Issued for long-term purposes
• Example
• Construction projects
• Pay as you use
• Governmental funds record other financing use

5
Bond Basics

• Types of bonds
• Term
• All principal due in full at end of specified
  term
• Sinking funds often used to obtain better rates,
  etc.
• Serial
• Bonds mature serially over entire term of the
  bonds
• Level debt service vs. level principal
• Conduit debt obligation
• Government issues debt for third party (not part
  of reporting entity)
• Not obligated to repay do not record, notes only

6
Bond Basics

• Types of bonds
• Demand
• Government issued bonds with a put option
• Bondholder can require government to pay
  principal accrued interest
• Government must usually within 1-30 days
  CURRENT LIABILITY
• Exceptions to recording as current liability
  relate to take-out agreements related terms
• Page 108

7
Bond Basics

• Debt refundings
• Pay off existing debt before due date
• Current refunding
• Use cash (available or bond proceeds) to
  immediately retire bonds
• Advance refunding
• Establish irrevocable trust for money set aside
  to retire bonds at early call date
• Requires original bond indenture to have a call
  provision
• Bond holders usually receive a premium for an
  early call

8
Bond Basics

• Illustrative journal entries
• Governmental fund fund level GWS
• Issuance of bonds
• Proceeds
• Issue costs
• Payment of debt service
• Cash
• Cash with agent
• Refunding
• Accrual of interest amortization of issue costs

9
Special Assessments

• Capital improvement-type
• Property owners assessed for improvements to
  their property
• Government obligated in some manner (page 105)
• Record payments in DSF
• Record LTD at GWS
• Government NOT obligated in some manner
• Use agency fund for receipt of annual assessments
  payment of related annual debt service
• Service-type
• Record in fund that would normally provide service

10
Pensions OPEB

• Accounted for in fiduciary funds
• Defined benefit pension plan
• Benefit upon retirement specified
• Contribution to plan varies
• Pension liability NOT recorded in pension trust
  fund
• Defined contribution retirement plan
• Benefit upon retirement not known
• Contribution to plan specified
• Liability recorded for employee vested employer
  contributions earnings
• Other post-employment benefits
• If not part of a defined benefit pension plan
• New GAAP GASB No. 43 45
• Requires actuarial valuations transition to any
  unfunded liability

11
Capital Leases

• Governmental assets fund level statements
• At inception
• Proceeds other financing sources
• Expenditure NPV of future MLP/fair value
• Payments made
• Debt service expenditure
• Governmental assets government-wide statements
• At inception
• Proceeds LTD
• Leased assets NPV of future MLP/fair value
• Payments made
• Debt service expenditure
• Proprietary fund same as private sector lease
  accounting

12
Bond Basics

• Debt refundings
• May do by issuing new debt
• Why do it this way?
• Better interest rate
• Free up pledged revenue stream
• Eliminate onerous covenants
• In-substance defeasance
• If not legally/in-substance defeased, can not
  remove old debt from books
• Irrevocable trust in-substance defeasance
• Adequate funds future earnings to repay old
  debt at early call date ( between then now)

13
Compensated Absences

• Liability for unused sick/vacation time
• Accrue as earned if
• Employee right to receive compensation relate to
  prior service
• Probable employer will compensate employee for
  benefits through
• Paid time off AND
• Cash at termination/retirement
• Separate between current noncurrent

14
Claims Judgments

• Liability for uninsured claim
• Examples page 109
• SFAS criteria
• Probable
• Reasonably estimable
• May be
• Current
• Expected to be paid in current budgetary period
• Noncurrent
• Both current noncurrent

15
Landfill Closure Postclosure Costs

• Municipal solid waste landfills (MSWLF)
• Capping, closure, postclosure care monitoring
  required by law
• Estimate cost of
• Monitoring equipment/facilities near/at closure
• Final capping
• Postclosure monitoring
• Amortize estimate over fill period on basis of
  capacity used during fiscal period
• Formula page 110

16
Fund Equity

• Assets liabilities fund equity
• Governmental fund level
• Fund balance
• Reserved, designated, unreserved undesignated
• Proprietary fiduciary fund level
• Net assets
• Invested in capital assets net of related debt,
  restricted, unrestricted
• Government-wide ALL activities
• Net assets
• Invested in capital assets net of related debt,
  restricted, unrestricted

17
Required Exercises Chapter 4

• Problems pages 118 119
• 4-3 4-8
• 4-7 4-11
• NOTE These ARE part of your required assignment
  for this chapter. Please have them ready to hand
  in at the beginning of the designated class.