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CHAPTER 4.3.6
GAAP ADJUSTMENTS AND RECLASSIFICATION ENTRIES
LIABILITIES: LONG-TERM DEBT OBLIGATIONS
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GAAP POLICIES AND PROCEDURES
Below are the main financing sources that mainly comprise the Long-Term Debt Obligation in
the Statement of Net Position and related policies and procedures.
Systemwide Revenue Bond Program
The Systemwide Revenue Bond Act of 1947 (the “Act”) provides the CSU Trustees (Trustees)
with the ability to issue revenue bonds to fund specific self-supporting programs. The statute
has enabled the Trustees to finance student housing, student unions, parking facilities, health
facilities, continuing education facilities, and designated auxiliary organization facilities.
The Systemwide Revenue Bond program, formerly the Housing Revenue Bond program, was
approved by the Trustees in fiscal year 2003. This program provides funding for various
construction projects, including student residence and dining halls facilities, continuing
education buildings, student unions, parking facilities, health facilities, and auxiliary
organization facilities at certain campuses within the University system as specified by the
individual bond documents. It is designed to provide lower cost debt and greater flexibility to
finance revenue bond projects at the University. Rather than relying on specific pledged
revenues to support specific debt obligations, this program pools several sources of revenue as
the pledge for the revenue-producing projects.
In June 2014, the State enacted legislation that granted additional capital financing authorities
to the University. These new authorities include the ability to pledge the University’s annual
general fund support appropriation less the amount of that appropriation required to meet State
general obligation bond payments and State Public Works Board capitalized lease payments
to secure the payment of debt obligations issued by the University pursuant to the Act. No
more than 12 percent of the University’s annual general fund support appropriation, less the
amount of that appropriation required to meet State general obligation bond payments and
State Public Works Board capitalized lease payments, may be used for debt service for, or to
directly fund certain capital expenditures.
The University records the principal and related premium or discount as “Long-Term Debt
Obligation”. The related premium and discount are amortized over the life of the debt.
Liabilities that are reasonably can be expected, as part of normal University business operation,
to be liquidated within 12 months of the Statement of Net Position date are considered to be
current.
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GAAP Manual | GAAP Adjustments and Reclassification Entries – Liabilities: Long-Term
Debt Obligations | June 30, 2015
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The SRB program refinances outstanding bonds by issuing new bonds. Two reasons for
refunding: to reduce the interest expense or to remove the restrictive covenant imposed by the
terms of the bonds being refinanced. The proceeds of the new bonds are either deposited in
escrow to pay the debt service on the old bonds when due (an advance refunding) or used to
promptly (typically within 90 days) retire the outstanding bonds (a current refunding). Both
current and advance refunding result to defeasance of debt. The carrying value of the refunded
bonds are removed in the books of the University and the new bond with its related premium
or discount is recorded.
The difference between the reacquisition price and the net carrying amount of the old debt
should be reported as a deferred outflows of resources (loss on debt refunding) or a deferred
inflows of resources (gain on debt refunding), and recognized as a component of interest
expense in a systematic and rational manner over the remaining life of the old debt or the life
of the new debt, whichever is shorter. Refer to Chapter 4, Deferred Outflows of Resources and
Deferred Inflows of Resources for similar discussion.
Bond Anticipation Notes (BANs)
The Trustees have authorized the issuance of BANs to provide short term financing to the
University for certain projects. The BANs are purchased by the CSU Institute (Institute) with
proceeds from the commercial paper issued by the Institute. The BANs are generally issued
for periods of up to three years in anticipation of issuing permanent revenue bonds at a future
date. State law was amended in 2008 to allow BAN maturities to extend beyond three years
and the maturity date for the issuance of BANs to be determined by the Trustees. In fiscal year
2010, the Trustees authorized three projects for financing with maturities beyond three years
and they will remain in BANs until the debt is retired. BAN interest is variable and changes
based upon the cost of the Institute’s commercial paper program.
Liabilities that are reasonably can be expected, as part of normal University business operation,
to be liquidated within 12 months of the Statement of Net Position date are considered to be
current.
General Obligation Bond Program
The General Obligation Bond program of the State has provided capital outlay funds for the
three segments of California Higher Education through voter-approved bonds. Each of the
approved bond programs provides a pool of available funds, which is allocated on a
project-by-project basis among the University, the University of California, and the
Community Colleges. Financing provided to the University through State of California
General Obligation Bonds is not allocated to the University by the State. This long-term debt
remains the obligation of the State and is funded by state tax revenues.
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GAAP Manual | GAAP Adjustments and Reclassification Entries – Liabilities: Long-Term
Debt Obligations | June 30, 2015
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In the State Budget Act for Fiscal Year 2015, the State included in the general fund support
state appropriation the amount to pay the general obligation bond debt service attributable to
the University’s capital projects financed by capital outlay funds. The long-term debt, as
mentioned above, remains the obligation of the State. The receipt and payment of general funds
for general obligation debt service are recognized as revenue and expense, respectively, in the
books of the University. This is recorded centrally at the Office of the Chancellor.
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RELEVANT ACCOUNTING LITERATURE
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GASB Statement No. 34 Basic Financial Statements – and Management’s Discussion and
Analysis – for State and Local Government
GASB Statement No. 65 Items Previously Reported as Assets and Liabilities paragraph 6
and paragraph 14
Concepts Statement No. 4 Elements of Financial Statements
OBJECTIVES OF GAAP ADJUSTMENTS
SRB and BAN Related GAAP Adjustments (via CO pass down schedules)
 To record additions to long-term debt including principal and net premium or discount for
new issuance of bonds and BANs.
 To record current year BAN activities such as rollover of interest payments.
 To record current year principal payments of long-term debt for bonds and BANs.
 To record current or advance debt refunding of long-term debt for bonds.
 To record amortization of net premium or discount.
 To reclassify the current portion of the long-term debt obligation as of year-end.
Note: The accounting records for the SRB debt and BANs are maintained by the CO during
the fiscal year and then passed down to the campuses as GAAP manual adjustments. Refer to
Chapter 5, GAAP Adjustments or Reclassifications that Require Information from CO.
GAAP Adjustments Not Passed Down by CO
 To reclassify the proceeds from new campus originated debt as derived from legal basis
into long-term debt obligation account (if legal object code does not automatically map to
long-term debt obligation).
 To reclassify current year principal payments of long-term debt for bonds recorded in legal
as an expense into a reduction of the long-term debt obligation account.
 To reclassify the current portion of the long-term debt obligation as of year-end.
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GAAP Manual | GAAP Adjustments and Reclassification Entries – Liabilities: Long-Term
Debt Obligations | June 30, 2015
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To reclassify the current portion of the long-term debt obligation spent to purchase or
construct capital assets from restricted net position to net investment in capital assets net
position as of year-end (Note: This applies to both SRB and non-SRB long-term debt. This
is to be included in the CO passed down entries as campuses should be able to quantify the
amount spent on capital assets.)
GAAP ACCOUNTING T REATMENT AND JOURNAL ENTRIES
4.1 RELATED GAAP ACCOUNT(S)
712107 – Long-term debt obligations – current portion
712205 – Long-term debt obligations – net of current portion
GAAP ACCOUNTING T REATMENT
4.2 SRB PASSDOWN SCHEDULE
All transactions related to SRB debt and BANs are accounted for in the CO’s legal ledger.
As such, during GAAP reporting period, the CO sends the SRB passdown schedules to
campus so they can record the transactions in their GAAP ledger. The passed down
transactions are reversed in CO’s books to facilitate the consolidation.
Below is a list of the information included in the SRB passdown schedule:
a. Long-Term Debt Rollforward – This tab shows the rollforward activities from prior
year-end to current year-end which include additions (i.e. new bond issuance or
interest rollover in the case of BAN), reductions (i.e. payments, amortization of
premium/discount and unamortized loss on refunding), and bond defeasances. The
debt is segregated by SRB program (i.e. Parking, Housing, Union, Auxiliary, CERF,
and Health Center) and project as this will distinguish the correct CSU fund to use.
The components of long-term debt obligation includes the principal and net
premium/discount. The unamortized loss/gain on refunding is also included in the
passdown schedule as they relate to SRB debt, however, this maps to Deferred
Outflows of Resources or Deferred Inflows of Resources. The information included
in the rollforward should be used to complete Note 8.1 input sheet in YES (TM1)
reporting package.
b. Amortization Schedule – This tab shows the amortization schedule for the net
premium/discount and loss/gain on debt refunding for the life of the debt. The
amortization of net premium/discount is over the life of the debt and charged as an
adjustment to interest expense. The amortization of loss/gain on debt refunding is
over the life of the old debt or the new debt, whichever is shorter.
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GAAP Manual | GAAP Adjustments and Reclassification Entries – Liabilities: Long-Term
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c. Footnote Schedule – This tab shows the information required in Note 7.1 and 7.3
input sheets in YES (TM1) reporting package. This includes the following:
 Interest Range
 Maturity Date
 Original Issue Amount
 Amount Outstanding
 Future Principal Payments by Fiscal Year
 Future Interest Payments by Fiscal Year
d. Journal Entries – This tabs lists all the GAAP journal entries that campus should
record as they relates to the SRB debt and BANs. It covers all transactions related to
the debt, investment held by CO, debt services, investment income. Although the
entries are provided by CO, each campus should review them for accuracy prior to
booking in the ledger. Campus should understand the objective of each entry and be
able to perform its own reconciliation. There is also a section to check account
balances after recording the journal entries, this is a way for the CO to see if the
ending balance agree with the rolled forward account balances.
e. Rollforward of Investments Held in State Funds 0576 and 0578 – This tab shows
the activities within the CSU funds in State Funds 0576 and 0578. The proceeds from
bond and BAN issuances are held in State Fund 0576 and campus withdraws funds
during construction of capital asset. The debt service activities are in State Fund 0578.
Some of the activities are already booked by the campus in legal ledger while the
others are through passdown journal entries. All the transactions are presented in this
tab to determine the ending balances of Investment in State Funds 0576 and 0578
which are reported in Note 3 of the YES (TM1) reporting package as Investment Held
by CO.
f. Transfers to escrow – This tab shows the details of the amounts transferred to escrow
relating to debt refunding. This will be used to complete the Statement of Cash Flows
and is only available when there is a new debt or a refunding of debt.
g. Loss on Debt Refunding Calculation – This tab shows the calculation of the loss on
debt refunding for all current and advanced refunding. This tab will only be available
if there are debt refunding in the current year.
h. Sources and Uses – This tab shows the breakdown of the sources and uses of the
funds received as a result of a new debt or a refunding of debt.
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GAAP Manual | GAAP Adjustments and Reclassification Entries – Liabilities: Long-Term
Debt Obligations | June 30, 2015
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Debt proceeds that are not related to the capital asset (e.g. unexpended portion of
bond proceeds, non-capitalizable expenses or debt service costs) should not be
recorded in fund 0997.501 to avoid understating the net investment in capital assets.
For both the BAN and SRB, campuses must analyze the interest expense and
investment income passed down from the CO to determine how much, if any, of the
interest expense in excess of investment income should be capitalized towards the
cost of each project’s CWIP. Refer to Chapter 4 Capital Assets, Depreciation and
Amortization.
Please note that pre-2008, the proceeds from SRB issuances used to finance capital
assets of auxiliary organization or refund bonds originally issued by auxiliaries are
covered by a capital lease agreement between the campus and auxiliary organization.
The campus shall carry the long-term debt obligation and capital lease receivable.
Refer to Chapter 4, Receivables, for accounting treatment for capital lease receivable.
Post-2008, the proceeds from SRB issuances used to finance capital assets of
auxiliary organization or refund bonds originally issued by auxiliaries are covered by
a note agreement between the CSU Trustees and auxiliary organization. The CO (as
the headquarters) shall carry the long-term debt obligation and note receivable.
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REFERENCE TOOLS
5.1 TABLES OF OBJECT CODE AND CSU FUND DEFINITIONS
http://www.calstate.edu/SFSR/standards_and_rules/2014/Tables-of-Object-Code-andCSU-Fund-Definitions-Updated-10-30-14.xls
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GAAP Manual | GAAP Adjustments and Reclassification Entries – Liabilities: Long-Term
Debt Obligations | June 30, 2015
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REVISION CONTROL
Document Title:
CHAPTER 4.3.6 – GAAP ADJUSTMENTS AND RECLASSIFICATION ENTRIES
– LIABILITIES: LONG-TERM DEBT OBLIGATIONS
REVISION AND APPROVAL HISTORY
Section(s)
Revised
Summary of Revisions
New in FY14/15
4.03.6-7
Revision
Date
April 2015
GAAP Manual | GAAP Adjustments and Reclassification Entries – Liabilities: Long-Term
Debt Obligations | June 30, 2015