chapter 91 business-type activities. chapter 92 learning objectives  why governments and nfps...

Download Chapter 91 Business-Type Activities. Chapter 92 Learning Objectives  Why governments and NFPs engage in business- type activities  Distinguish between

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  • Slide 1
  • Chapter 91 Business-Type Activities
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  • Chapter 92 Learning Objectives Why governments and NFPs engage in business- type activities Distinguish between Proprietary and Governmental activities Fundamental principles of Proprietary Fund Accounting Enterprise Funds Internal Service Funds Accounting for Insurance Activities GASB 34, special problems of reporting proprietary funds in government-wide statements
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  • Chapter 93 Reasons for use -To compare benefits and costs of the business-type activities of a government. -Enhances management of activities in which goods or services are provided on a cost-reimbursement basis to departments of the same government or to the general public on a user charge basis. Example: the city of Houston maintains two different types of proprietary funds. -Enterprise funds and Internal Service funds Proprietary Funds
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  • Chapter 94 Proprietary Funds Two types of funds are classified as proprietary: Internal service funds: -Provide services to other government departments on a user charge basis. -Example: City of Houston Health Benefit and Long- term Disability funds. Enterprise funds: -Provide services to the general public on a user charge basis. -Example: City of Houstons Airports (Bush, Hobby and Ellington Field), George R. Brown Convention Center, etc.
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  • Chapter 95 Governments: -Full accrual basis -Recognize revenues as earned and expenses as incurred. -Balance sheet recognition to both capital assts and long- term debt. Not-for-profits: -Full accrual basis -Capital assets and long-term liabilities accounted for within the funds. -Resources are donor-restricted and classified per FASB Statement No. 117 Proprietary Funds Accounting Characteristics
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  • Chapter 96 Business-Type Vs. Governmental Activities Business-type accounting used to account for proprietary funds: Full accrual basis Measurement focus on all economic resources is consistent with GASB Information on depreciation Facilitates comparisons with private enterprises
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  • Chapter 97 Similar to those for a for-profit entity: Statement of Net Assets (or Balance Sheet): -Invested in capital assets, net of related debt -Restricted Net assets -Unrestricted Net Assets Statement of Revenues, Expenses, and changes in Fund Net Assets: -comparable to income statement of a business -Reconciles beginning and ending net assets Statement of Cash Flows: -Required for proprietary funds but not governmental funds -Summarizes the entitys cash account Proprietary Funds Required Financial Statements
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  • Chapter 98 Statement of Cash Flows FASB Statement No. 95 classifies cash transactions into: Cash flows from operating activities Cash flows from financing activities Cash flows from investing activities This is not applicable to governments. GASB Statement No. 9: Cash flows from operating activities Cash flows from non capital financing activities Cash flows from capital and related financing activities Cash flows from investing activities
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  • Chapter 99 Assets = Liabilities + Net Assets Recall this is the same classification of net assets that is required under GASB 34. Proprietary Funds Accounting Equation Unrestricted Restricted (e.g., for payment of debt service) Invested in Capital Assets, Net of Related Debt
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  • Chapter 910 Enterprise funds are used to report the same functions presented as business-type activities in the government-wide financial statements. Reasons for use Used to -Account for services provided to the general public on a user charge basis or where the governing body has determined that periodic determination of revenues earned, expenses incurred, and/or net income is appropriate -For capital maintenance, public policy, management control, accountability, or other purposes The City of Houston uses enterprise funds to account for its aviation system, combined utility system (formerly called the water and sewer system), and the convention and entertainment facilities. Enterprise Funds
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  • Chapter 911 Common Types of Enterprise Funds Water and sewer (public utilities) Gas and electric utilities Transportation systems Airports (Bush, Hobby, Ellington Field) Ports (Port of Houston) Toll roads and bridges (Sam Houston Tollway Beltway 8) Parking garages and lots (Theater District parking garage) Golf courses (Hermann Park) Hospitals (Ben Taub) Liquor stores.
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  • Chapter 912 GASB Statement No. 34 provides guidance on business-type activities: Use of enterprise funds when one of the following criteria is met: Activity financed solely with revenue debt instead of governmental obligation debt. Costs of providing services recovered by fees and charges Pricing policy establishes fees and charges to recover costs Previously, GASB standards allowed proprietary funds two options: Follow pronouncements of the FASB and its predecessors issued before November 30, 1989, unless they conflict with a GASB standard Follow all FASB and predecessor standards, both those issued before and after November 30, 1989, unless they conflict with a GASB standard Note that GASB standards always take priority Accounting for Enterprise Funds
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  • Chapter 913 Definition: Assets whose use is restricted by contractual agreements or legal requirements Typical examples: Customer deposits of utilities, assets set aside for repayment of revenue bond principal, reserves for maintenance of plant, and funding of depreciation Ideally liabilities to be paid from restricted assets should be reported separately from liabilities to be paid from unrestricted assets. Net Assets - Restricted assets should be reported in the Equity section of the Statement of Net Assets. Enterprise Funds Restricted Assets
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  • Chapter 914 Enterprise Funds Utility Plant - Construction in Progress Q: Should interest incurred on debt during construction be capitalized? A: Yes. Q: Should an imputed amount equivalent to interest be capitalized if a utilitys own funds are used for construction? A: Capitalizing an equity component of Allowance for Funds Used During Construction (AFUDC) is permitted both by utility regulators and the FASB.
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  • Chapter 915 In addition to the usual Accounts Payable and Accrued Expenses, use two special current liability accounts: Customers Advances for Construction Usually up-front deposits required to be made by builders to provide all or part of the cost of connecting new structures to utility lines. May or may not be refunded in part upon completion Customer Deposits Usually reported under the caption Liabilities Payable from Restricted Assets Enterprise Funds Special Current Liabilities
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  • Chapter 916 Key RAP definitions Original cost: The (depreciated) cost to the first owner to place the utility plant into public use Utility Plant Acquisition Adjustment: The difference between the purchase price of a utility plant less the net original cost of the plant on the sellers books. Enterprise Funds Regulatory Accounting Principles (RAP)
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  • Chapter 917 Accounted for either in governmental or enterprise funds If usage fees are chargedaccounted for in enterprise funds. Governments have to report both -- expense and liability. Liability of post closure costs reported only in government-wide. Pay-as-you-go basis Municipal Solid Waste Landfills
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  • Chapter 918 An EPA rule requires all municipal landfills to meet stringent location, design, and operating requirements to minimize the potential for environmental damage. Operators must also provide financial assurance they can properly close landfills when full and provide post-closure ground water monitoring for 30 years after closure. These stringent rules are designed to protect the environment from irresponsible handling of hazardous materials Estimate the current cost of hiring a qualified third-party to close the MSWLF and care for it for 30 years after closure Recognize a portion of this cost proportionate to the ratio of estimated capacity utilized during a year over the total capacity of the landfill as an expense of the enterprise fund and as a liability Annual adjustments are made as estimates change from year to year. Municipal Solid Waste Landfills (contd)
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  • Chapter 919 Enterprise Funds Segment Information When there are multiple enterprise funds Summary operating data, including extent of intra- governmental subsidies, should be disclosed in the notes for "major non-homogeneous enterprise funds."
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  • Chapter 920 Used to account for services provided by governmental units to other governments on a cost reimbursement basis. These funds are accounting entities. Promotes efficiency Usually accounted for in general fund or some governmental fund Authorized by legislative approval ISF resources are rarely restricted. Accounted for in general fund or other governmental fund. Reasons for use: Improve management of common resources by placing them under centralized management and control The City of Houston uses internal service funds to account for health and benefits and long-term disability activities. Because both of these services predominantly benefit governmental rather than business-type functions, they have been included within governmental activities in the g


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