Question

Transactions may have significantly different impacts on a government’s budget, governmental funds statements, and government-wide statements. A school district prepares its budget on a cash basis. It is contemplating the changes or actions that
follow.

For each, indicate the impact that the change would have:

(1) on year‐ending June 30 2017, general fund expenditures or transfers

(2) on year‐ending June 30, 2017, government‐wide expenses (e.g., “increase expenditures by $X” or “no impact”). Provide a brief explanation of your response, indicating that you are aware of the relevant financial reporting issue.

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1. Owing to a special discount offered by a supplier, the district will purchase $100,000 of supplies in June 2017 that they otherwise would not have purchased until July 2017. They will not, however, have to pay for the supplies until July. The district accounts for supplies on a purchases basis.
2. In fiscal 2017 the district increases the number of vacation days to which employees are entitled to take, thereby increasing the cost of vacation leave that employees earned in 2017 but will take in subsequent fiscal years by $250,000. The vacation days vest; they can be taken as termination benefits.
3. The district increased the number of sick days to which employees are entitled to take, thereby increasing the cost of sick days that employees earned in 2017 but will take in future years by $150,000. The sick leave can be taken only as employees are sick; it cannot be paid for as a termination benefit.
4. In 2017 the district established a sabbatical leave program for certain categories of teachers. Teachers will be granted one year of leave after each seven years of service. Teachers granted the leave will have to spend it engaging in various specified activities, such as research, aimed at improving their teaching. Teachers will first be eligible to take the leave in 2024. The district estimates that one‐seventh of the cost will be $1,500,000.
5. The district delayed from June to July the approval of a grant of $50,000 to a local health clinic that provides examinations to low‐income students. The funds are to be paid out of resources budgeted for the fiscal year ending June 30, 2017, and are intended for use by the clinic in that same period.
6. The district delayed from June to July purchasing, and paying for, 10 school buses at a cost of $750,000. The buses are expected to last for 10 years and have no salvage value. The district charges depreciation on a straight‐line basis and takes a full year’s depreciation in the year of acquisition

7. The district is required to transfer 50 percent of any annual surplus from the general fund to a “rainy day” fund (a special revenue fund). Usually the transfer based on the surplus of the fiscal previous year is made in December. The district proposes to delay the transfer that would ordinarily be made in December 2017 until July 2018, thereby decreasing its cash outlay for fiscal year 2017 by $3

Answer 1

Answer

Sl No	Transaction	Impact on General Fund Expenditure or Transfers	Impact on Govetnment-wide Expenses
1	Purchase of supplies in June 2017	No Impact	Increase in Cost of suppiers by $100,000. Increase in Accounts payable by $100,000. Explanation: Supplies purchased in June 2017. The same is reported in fiscal year ending June 30, 2017. Irrespective of whether the payment is made or not. Liability is accounted in the period in which it is accrued.
2	Increase in number of vacation days	No Impact	Increase in employee benefit expenses by $250,000. Increase in termination benefits payable by $250,000. Explanation: The district has increased the vacation days during the fiscal year ending June 2017. This will have impact of increase in terminal benefit costs by $250,000. Though the employees take the benefit in subsequent years, the cost shall be accounted in the year in which it is vested.
3	Increase in number of sick leaves	No Impact	No Impact Explanation: No additional cost incurred due to increase in sick leaves. Since the sick leave can be taken only if the employee is sick and cannot be paid for as a termination benefit.
4	Sabbatical leave program	No Impact	Increase in employee benefit expenses by $1,500,000. Increase in termination benefits payable by $1,500,000. Explanation: Since the district established a sabbatical leave program in the fiscal year ending June 2017. The cost involed shall be accounted on a straight line basis over the period of program. Therefore, one‐seventh of the cost will be accounted in the fiscal year ended June 2017.
5	Grant to local health clinic	No Impact Explanation: The district has delayed approval of grant from June to July. Hence, assuming the payment will be made after the approval, no accounting is required in the fincal year ending June 30, 2017.	No Impact
6	Purchase of 10 school buses	No Impact Explanation: The district has delayed both purchasing and paying for 10 school buses from June to July. Hence, no accounting is required in the fincal year ending June 30, 2017. It is to be noted that, if the buses are donated to the scool, then fovernment fund balance is transferred with the cost of buses and depreciation is not accounted.	No Impact
7	Transfer of annual surplus to a “rainy day” fund from the general fund	No Impact	No Impact Explanation: Since the district proposed to delay the transfer that would ordinarily be made in December 2017 until July 2018, there qill not be any imact in financial report for the fiscal year ending June 30, 2017.