In: Accounting
CT3: Please answer the following:
1) What is the difference between Permanent Funds and Private Purpose Trust Funds?
2) The General Fund is always considered to be a major fund. When are other governmental funds considered major?
3) What is a bond refunding and why do governments refund bonds?
4) What is the difference between a current refunding and advance refunding?
1) Permanent funds and private purpose trust funds differ in purpose & accounting treatment.
The purpose of a private purpose trust fund is to generate income to benefit individuals, private organizations or other governments. Whereas the purpose of a permanent fund is to provide income to benefit the government and its citizens.
Private purpose funds are accounted for on the accrual basis & the economic resource measurement focus.Whereas permanent funds are accounted using for using the modified accrual basis & the current financial resources management focus.
2) Other governmental funds are considered major when both the following exist:
- Total assets, liabilities, revenues or expenditures of that fund constitute 10% of either the governmental or enterprise category.
- Totals assets, liabilities, revenues or expenditures of that fund are 5% of the total of the governmental and enterprise category.
3) A bond refunding is issuing new debt to replace the old debt. An example of why governments refund bonds are to obtain better interest rates or to change the maturity of the debt, etc.
4) Current refunding is when new debt is issued and the proceeds are used to call the existing debt.
Advance refunding is when the proceeds are placed in an escrow account pending the call date or maturity date of the existing debt.