Question

What is a private-purpose trust fund? There are two types of assets that can be held by a private-purpose trust; what are the two types of assets and how do the asset types compare to governmental permanent fund assets?

Answer 1

Answer :

Private-purpose trust funds are those funds which are used to report trust arrangements, other than pension and investment trusts, under which principal and income benefit individuals, private organizations, or other governments.

This are the funds used when the government administers funds used for beneficiaries other than the government and its citizens. For Example, endowment investments providing income to be used for scholarships.

There are two types of assets that can be held by a private-purpose trust which are cash and investments.

There comparison can be explained as below:

First of all let us understand the difference between Government Permanent Funds and Private Purpose Trust funds from which one can easily derive the comparison of the types of assets of private-purpose trust fund and governmental permanent fund assets.

Permanent Funds and Private Purpose Trust funds differ in both purpose and accounting treatment. The purpose of a Private Purpose trust fund is to generate income to benefit individuals, private organizations, or other governments. The purpose of a Permanent Fund is to provide income to benefit the government and its citizenry. This difference in purpose results in significant differences in the accounting. Permanent Funds are accounted for using the modified accrual basis and current financial resources measurement focus while Private Purpose Trust Funds are accounted for on the accrual basis and the economic resources measurement focus. Additionally, Permanent Fund balances are included in the government-wide financial statements, while Private Purpose Trust Funds (like all Fiduciary funds) are not.

So, as we can see that Permanent funds may serve to distribute money, such as dividends, or generate money from interest, so its comparison from the cash and investments of private purpose funds can be derived easily.