Question

71) Prior to closing the accounts at the end of the most recent fiscal year, the Town of Sonora reports the following amounts (in thousands):

	Assets			Liabilities				Revenues				Expenditures or Expenses
General fund	$	200			$	100			$	700			$	540
Special revenue fund		100				70				70				60
Capital projects fund		800				500				0				2,000
Internal service fund		50				40				130				400
Enterprise fund - Solar		150				100				400				300
Enterprise fund - Hydro		1,700				1,000				4,000				3,500

Required:

Applying the criteria specified in GASB 34, determine which of the above funds should be classified as major funds for reporting purposes.

Answer 1

Answer:

Major funds are funds whose revenues, expenditures/expenses, assets, or liabilities (excluding extraordinary items) are:

1. at least 10 % of corresponding totals for all governmental or enterprise funds and

2. at least 5 % of the aggregate amount for all governmental and enterprise funds.

Internal service funds are excluded from the major fund reporting requirements.

10% and 5% threshold calculations:

Conditions are as follows:

Now we need to evaluate the funds:

Government funds (Special revenue fund and capital project fund) need to meet both the conditions 1A and 2 either for Asset or for Liabilities or for Revenues or for Expenditures (anyone these but both conditions have to be met).

Enterprise Funds (Enterprise Fund - Solar and Enterprise fund - hydro) need to meet both the conditions 1B and 2 either for Asset or for Liabilities or for Revenues or for Expenditures (anyone these but both conditions have to be met).

Let us evaluate:

Special Revenue fund:

As we observe above it meets 10% threshold for liabilities but did not meet 5% threshold for liabilities. For Assets, Revenues and Expenditure it did not meet either criteria, Hence it is not classified as major.

Evaluation of Capital Project fund, Enterprise Fund - Solar and Enterprise Fund -Hydro are as below:

As we observe Capital projects Fund and Enterprise Fund-Hydro meets the criteria and hence are classified as major funds. Special Revenue fund - Solar although meets condition 2 but does not meet condition 1 for any of Asset, Liability, Revenue or Expenditure and hence is not classified as major fund.

General fund need not be evaluated as it will always be major fund. Further as stated above , Internal service funds are excluded from the major fund reporting requirements.

As such:

The following will be classified as major funds for reporting purposes as they meet the criteria:

1. General Fund

2. Capital Projects Fund

3. Enterprise Fund - Hydro

Special revenue fund does not meet the 5% criteria

Internal service funds are excluded from the major fund reporting requirements.

Enterprise fund - Solar does not meet 10% criteria