Question

1. How would you distinguish general long-term liabilities from other long-term liabilities of the government? How would financial reporting of general long-term liabilities' reporting differ from other long-term liabilities? Explain.

2. How would you describe the purpose and budgeting (if required or not) of a debt service fund? Explain.

3. How would you explain the concepts of debt limit and borrowing power or debt margin connections? Explain.

Answer 1

1) General long term liabilities arise from activities executed using general funds or other funds by the government. For the reporting purpose, General long term liabilties are reported in the Governmental Activities column of the government wide financial statements and not in any fund financial statements. However, in the case of other long term liabilities are reported in the fund financial statements of the appropriate proprietary or fiduciary fund in addition to being reported in the business type activites column of the governement wide financial Statements.

2) A debt service fund exist to record and manage not only payments of principal and interest related to general long term liabilites but also to record and manage revenue restricted for debt repayment and other funds, such as interfund transfers that will be used for those payments. Certain items such as premiums on long term debt, may have legal limitations related to how they are used. Budgeting also helps mangers remain compliant wih any legal restrictions.

3) Debt limit which is also known as debt ceiling refers to the maximum amount of money which can be borrowed by indivituals, banks corportes and governments. Borrowing power is the legal capacity of governmnets, corporates etc to put intself into debt. which usually depended on various factors like the asset capacity of the organisation compared to the liabilties in the case of corporates.