Question

What are GASB requirements for bonded debt?

Town Oaks’ residents want to start a fund to improve their local community. Town Oaks, a gated community, has voted to create a neighborhood park with bonded debt. The bonds will be repaid by the residents and the following transactions are related to park debt:

• The community has a tax burden for the park of $5,000,000, which is imposed on January 1, 20X7.

• Payments start at the beginning of the current year and will be paid in 10 equal annual payments.

• 5% interest is due on the unpaid installments.

• Payments and interest on the unpaid payments was collected by December 31, 20X7.

• A small amount of the assessed receivables was reclassified to current in the amount of 20X8 installments.

• The initial principal payment of $500,000 and the interest on the debt was paid to bondholders on January 1, 20X8.

Required:

• Identify the type of fund the city should impose to account for this special assessed debt.

• Prepare journal entries for the city’s transactions.

• Identify how the city should report the fund in their financial statements?

• Identify how the city should report special assessed debt in their financial statements? •

Compare the treatments of special assessed debt from the United States with at least two other countries. Would the same reporting practices be used and why?

Answer 1

a. Town Oaks use Agency Fund to account for the special assessment debt.

b.  

LOCAL IMPROVEMENT DISTRICT FUND
Event	General Journal	Debit	Credit
1	Assessments Receivable - Current	$500,000
	Assessments Receivable - Non Current Due to special assessment	$4,500,000
	Bondholders - Principal		$5,000,000
2	Cash	$750,000
	Assessments Receivable - Current Due to special assessment		$500,000
	Bondholders - Interest		$250,000
	Assessments Receivable - Current	$500,000
	Assessments Receivable - Non Current		$500,000
3	Due to Special Assessment Bondholders - Principal	$500,000
	Due to Special Assessment Bondholders - Interest	$250,000
	Cash		$750,000

c. Assets and liabilities Other and Special assessment agency fund of reporting entity and appear in Statement of Fiduciary Net Position, in seperate column and also it will then appear in no other basic financial statements. If Town Oaks has multiple agency funds, then it can choose to provide combining statement of agency funds in its CFAR.

d. Since Town Oaks has no obligation in any manner for City special assessment debt, hence the debt will no be included in the Town Oaks financial statements, but it has to include the disclosure in its notes to accounts that the government is only acting as an agent to to property owners in collecting assessments, forwarding the collections to bondholders, and initiating foreclosure proceedings, if appropriate and government is not liable for the debt and its repayment.

Compare the treatments of special assessed debt from the United States with at least two other countries. Would the same reporting practices be used and why?

GASB US establishes financial reporting standards for state and local governments, including states, cities, towns, villages, and special-purpose governments such as school districts and public utilities. It establishes that the basic financial statements and required supplementary information (RSI) for general purpose governments should consist of:

• Management's discussion and analysis (MD&A). MD&A should introduce the basic financial statements and provide an analytical overview of the government's financial activities. Although it is RSI, governments are required to present MD&A before the basic financial statements.
• Basic financial statements. The basic financial statements should include:  
  • Government-wide financial statements, consisting of a statement of net assets and a statement of activities. Prepared using the economic resources measurement focus and the accrual basis of accounting, these statements should report all of the assets, liabilities, revenues, expenses, and gains and losses of the government. Each statement should distinguish between the governmental and business-type activities of the primary government and between the total primary government and its discretely presented component units by reporting each in separate columns. Fiduciary activities, whose resources are not available to finance the government's programs, should be excluded from the government-wide statements.
  • Fund financial statements consist of a series of statements that focus on information about the government's major governmental and enterprise funds, including its blended component units. Fund financial statements also should report information about a government's fiduciary funds and component units that are fiduciary in nature. Governmental fund financial statements (including financial data for the general fund and special revenue, capital projects, debt service, and permanent funds) should be prepared using the current financial resources measurement focus and the modified accrual basis of accounting. Proprietary fund financial statements (including financial data for enterprise and internal service funds) and fiduciary fund financial statements (including financial data for fiduciary funds and similar component units) should be prepared using the economic resources measurement focus and the accrual basis of accounting.
  • Notes to the financial statements consist of notes that provide information that is essential to a user's understanding of the basic financial statements.
• Required supplementary information (RSI). In addition to MD&A, this Statement requires budgetary comparison schedules to be presented as RSI along with other types of data as required by previous GASB pronouncements. This Statement also requires RSI for governments that use the modified approach for reporting infrastructure assets.

Special-purpose governments that are engaged in only governmental activities (such as some library districts) or that are engaged in both governmental and business-type activities (such as some school districts) generally should be reported in the same manner as general purpose governments. Special-purpose governments engaged only in business-type activities (such as utilities) should present the financial statements required for enterprise funds, including MD&A and other RSI.

Comparing it with India:

Indian Government Accounting Standards (IGAS)

Government accounting in India follows cash basis of accounting. Government Accounting Standards Advisory Board (GASAB) constituted by the Comptroller and Auditor General of India with support of Government of India has been working on migration to accrual basis of accounting in Union and States. Any decision to change the basis of accounting from cash to accrual would essentially be based on a decision of the President of India on the advise of Comptroller and Auditor General of India under Constitutional provisions.