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Option #2: GASB 34 and Moral ObligationBonds

Instructions:
Provide complete answers to the following two questions.

1. Per the provisions of Statement No. 34, governments mustreport their capital assets similarly to businesses in theirgovernment-wide statements. Yet the information provided is stillinadequate to facilitate the major types of decisions and judgmentsmade by statement users. Do you agree? Explain.

2. What distinguishes moral obligation bonds from other types ofdebt? Why would one government assume a moral obligation foranother government’s bonds?

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Collen Von
Collen VonLv2
28 Sep 2019

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Questions 2 (20 marks)

A school district receives a grant from the federal governmentto support programs directed at special needs students. The grantis a matching grant in which each dollar spent by the schooldistrict on teacher salaries for special needs education will bematched up to $1 million by the federal government. The federalgovernment agrees that it will advance monies to the schooldistrict so that the school district will be able to pay a portioneach month of teachers’ salaries from federal funds. The grant’scontractual terms stipulate that the school district must notcommingle the federal monies that it has been advanced with othermonies of the school district. The school district also is requiredto file quarterly and annual reports showing the amounts that theschool district has spent on special needs education and theresultant amount that is either a receivable from or payable to thefederal government.

As a new comptroller, you must decide which funds should be usedto account for the federal grant and the school district match.After some research, you believe that the school district has someoptions as to the governmental funds that it will use for financialreporting purposes. What are the options? In which funds would youreport the transactions associated with the federal grant andschool district match? Should they be accounted for in the samefund? What factors influenced your decision?

GASB Statement No. 34 has been widely criticized for mandatingthe preparation and presentation of government‐wide statements.Mainly, the critics contend that the benefits of the statements arenot commensurate with the costs of preparing them. They argue thatthe statements provide little information that is“decision‐useful.” Do you agree? For what types of decisions arestatement users most likely to use the government‐wide statements?If you have difficulty identifying such decisions, then is the GASBrequirement defensible?

1. A school district receives a grant from the federalgovernment to support programs directed at special needs students.The grant is a matching grant in which each dollar spent by theschool district on teacher salaries for special needs educationwill be matched up to $1 million by the federal government. Thefederal government agrees that it will advance monies to the schooldistrict so that the school district will be able to pay a portioneach month of teachers’ salaries from federal funds. The grant’scontractual terms stipulate that the school district must notcommingle the federal monies that it has been advanced with othermonies of the school district. The school district also is requiredto file quarterly and annual reports showing the amounts that theschool district has spent on special needs education and theresultant amount that is either a receivable from or payable to thefederal government. As a new comptroller, you must decide whichfunds should be used to account for the federal grant and theschool district match. After some research, you believe that theschool district has some options as to the governmental funds thatit will use for financial reporting purposes. What are the options?In which funds would you report the transactions associated withthe federal grant and school district match? Should they beaccounted for in the same fund? What factors influenced yourdecision? 2. GASB Statement No. 34 has been widely criticized formandating the preparation and presentation of government‐widestatements. Mainly, the critics contend that the benefits of thestatements are not commensurate with the costs of preparing them.They argue that the statements provide little information that is“decision‐useful.” Do you agree? For what types of decisions arestatement users most likely to use the government‐wide statements?If you have difficulty identifying such decisions, then is the GASBrequirement defensible?

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