Chapter 10
Objectives:
• Learn about permanent funds
• Learn about fiduciary funds
• Learn how gains and losses are treated
• How trusts guard against inflation
• Learn about benefits issues
• Learn about agency funds
Permanent Fund
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Trust fund but on behalf of the governmental
unit rather than external beneficiaries
Financial resources accounted for
Governmental fund so use modified accrual
Fund will have few depreciable assets
Nonexpendable resources
On government-wide statements combined
with other governmental funds
Fiduciary Funds
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Full Accrual
Separate column on governmental fund
financial statements
Excluded on government-wide
statements except as restricted net assets
Examples: pension, investment trust,
private purpose
Gains and Losses
• Use of income, gains and losses can be
stipulated by donor
• Otherwise free to be used
• If added to principal, guards against
loss of value due to inflation
•Governments mark to market and recognize
the unrealized gains (can be
transferred to other funds)
Closing Entries
Close revenue and expenditures for Permanent
Fund
Revenue
Expenditures
Income available for transfer
Income Available for transfer
Fund Balance
Closing Entries, con’t
Transfer to Special Revenue Fund:
Operating Transfer out
Cash
Closing:
Fund Balance
Operating Transfer out
Financial Statements
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Statement of fiduciary net assets
Statement of changes in fiduciary net
assets
See page 413
All fiduciary funds of a similar type
combined and reported in a separate
column on the fiduciary fund statements
Pensions
• Defined Benefit vs. Defined Contribution
• Actuarial determined
• Life expectancy
• Employee turnover
• Mortality
• Wage trends
• Estimated returns
• Discount rate
• Can have multiple employer plans
Formula for Pension Expense
• Actuarially determined expense/expenditure based
on all of the assumption
• Service cost +
• Interest on projected benefit obligation +
• Actual return on pension assets +
• Gain or loss on investments
• Difference between actual return and expected
return
• Amortization of the unrecognized net gain or loss
from previous periods
• Amortization of prior service cost
Expense vs. Expenditure
• Expenditure is the amount transferred to the pension
trust fund
• If not equal to actuarial amount then keep track
of the liability
• Expense is the actuarial determined amount
• If not fully funded, liability on the balance sheet
• See pension expense illustration problem
Pension Expenditures
Recognize as expenditure, the cash transfer
to the pension fund
Government-wide and proprietary funds
recognize pensions like corporations
Pension Liabilities
• Created when pension is not fully funded
• Liability created with transition losses
• Improvements in plan
• Change in estimates
• Can be amortized over a period
Disclosures
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Plan assets
Funded status
Contribution requirements
Assumptions made
Pension Reporting
Limitations:
• Since reported by fund, comprehensive amounts
usually not available
• Liabilities are only the unfunded portion
• So many estimates
•To compensate, numerous disclosures are required
Post Employment Benefits
• Treated similarly to pension funds
• Assumption include trend rate in
health care costs
Agency funds
• No Budget
• Modified accrual
• Objective is to hold
funds for other entities
• Pass through grants
• Collections of special
assessments if not
guaranteeing the debt
Agency Funds on the statements
• Separate column on the fiduciary fund
statement of net assets
• Not on government-wide statements
• Assets = Liabilities
Entries Agency Fund
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Cash
Due to …..
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Interest receivable
Due to ….
Due to…..
Cash
Review
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Learn the differences between
expendable and nonexpendable
trust funds
Know the transactions in each
type of trust fund
Know about permanent funds
Know what an agency fund is