In: Accounting
What is meant by "combining statements"? Why is it especially appropriate to present combining statements for internal service funds?
combined financial statement is a financial statement giving information on the assets,liabilities,profits and losses of a corporation containing multiple companies.each company financial statement is given individually and come together.this give the stakeholders including investors and shareholders an view if the standing of each affliated company and subsidiary,and thus the prospectus for the corporation as a whole.a combined financial statement is different from a consolidated financial statement in which numbers are reconciled.
Even though internal service funds are classified as proprietary funds, the nature of the activity accounted for in them is generally governmental and should normally be reported as governmental activities. The exception to this presentation is when the internal service funds serves predominantly1 external parties or enterprise funds. Then they should be reported together with the business-type activities. There may be cases where internal service funds provide services for both governmental and enterprise funds. In that situation the internal service fund should be consolidated in the same activities column as its predominant customers. The fund should be consolidated entirely within either governmental or business-type activities column (i.e., one fund cannot be allocate between two columns).
Before allocating any of the balances, the government needs to consider their materiality. Also, instead of prorating balances to different functions, it may be sufficient to allocate the entire amount to a predominant function. The revenues and expenses associated with services provided to external customers should be excluded from this allocation. The government has to use its professional judgment to determine if the failure to allocate the internal service fund balances would materially affect the government-wide financial statements. The allocations and adjustments do not need to be posted to the general ledger. They are matters of spreadsheet calculations.
The internal service fund asset and liability balances that are not eliminated2 should be reported in the governmental activities column (unless the enterprise funds are predominant or only user of its services). The amounts reported in the internal service funds are added to the net position of the governmental funds and then included in the statement of net position.