Professional Documents
Culture Documents
Chapter 11
Learning Objectives
Understand nature and usage of ISFs Understand applicable accounting principles Understand pricing policies and methods Prepare basic journal entries
Prepare financial statements Understand unique aspects of self-insurance funds Understand problems associated with significant accumulated increases or decreases in total net position
2
Purpose
To finance, administer, and account for departments or agencies whose exclusive or nearly exclusive mission is to provide goods and services to the governments other departments on a cost reimbursement basis.
Goals of ISFs
Attain greater economy, efficiency, and effectiveness in acquisition and distribution of common goods and services used by other departments Facilitate the equitable sharing of costs among departments served
Distribute common or joint costs telephone, radio, or other communication costs Acquire, distribute, and allocate costs of selected items of inventory, such as office supplies or gasoline Provide temporary loans to other funds
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Motor pools Data-processing activities Copying and printing facilities Repair shops and garages Cement and asphalt plants Purchasing, warehousing, and distribution services Insurance and other risk management services
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General Principles
50,000 50,000
50,000 50,000
50,000 50,000
50,000 50,000
(Page 445)
100,000
100,000
10
100,000 100,000
11
12
30,000
12,000 18,000
13
No entry in GF since capital asset is not accounted for there Reclassification is a Capital Contribution in ISFimpact on government-wide financial statements
Will be eliminated if ISF activity combined with governmental activities Will become a transfer if ISF activity combined with business-type activities
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Pricing Policies
Typical choices
ISFs usually have a monopoly, so pricing needs to be monitored closely Excessive charges must be avoided
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Pricing Methods
1.
2.
Predetermined ratesso much per page, mile, or order Charge departments based on actual cost
Predetermined rates preferred because Departments need to know charges at time work is done Actual cost charges may result in inequitable allocations among departments
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Relation to Budget
Budget may not be used since level of activity depends on demand, not predetermined spending by the fund
17
Financial Statements
Statement of Net Position Statement of Revenues, Expenses, and Changes in Fund Net Position Statement of Cash Flows
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Three funds in example: Central Automotive Equipment Fund (CAEF) Stores Fund (SF) Self-Insurance Fund (SIF)
19
Accounts for vehicular capital assets used throughout the government Bills other functions for use of vehicles on per-mile or per-hour basis Maintains records on actual costs for comparison with estimates to determine future cost allocations Records also useful for evaluating efficiency of management and economy of operation for various vehicles
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40,000
15,000 25,000
10,000 10,000
21
22
(Page 450)
2,000
2,000
23
ExpensesDepreciation Building ExpensesDepreciation Machinery and Equipment Accumulated Depreciation Building Accumulated Depreciation Machinery and Equipment
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2,400
9,200
2,400 9,200
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General Fund (Not shown in book) ExpendituresOperating Due to CAEF Enterprise Fund (Not shown in book) ExpensesAutomotive Due to CAEF
30,000 30,000
12,800 12,800
25
7,500
7,500
26
29,000 29,000
(Not shown in book)
10,000 10,000
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200
200
28
29
(Page 451)
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Used to centralize purchasing and warehousing operations Enhances economy, efficiency, and control Holds inventory until requested by departments Billings based on direct inventory cost plus overhead factor
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20,000
20,000
32
Department submits stores requisition Storekeeper issues requested supplies Cost of issuance determined using direct cost of supplies and overhead application Department billed for supplies issued
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Inventory Issued
(Page 455)
CSF Due from General Fund Cost of Materials and Supplies Issued Billings to Departments Inventory of Materials and Supplies
General Fund (Page 456) ExpendituresMaterials Due to CSF
2,704
2,704
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Overhead Expenses
Salaries and Wages Expense Vouchers Payable
(Page 455)
1,000
1,000
35
Physical Inventory
Should be done at least annually Adjust records to match physical count usually have a shortage due to breakage, theft, or improper recording Losses would be included in subsequent overhead charges
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2,000
2,000
37
Full insurance coverage for all types of risk can be prohibitively expensive Self-insurance used to cover some losses Amounts set aside should be actuarially determined
38
39
All claims and judgments recorded in GF/SRF when paid or due Remainder is recorded in GLTL accounts Amounts charged to other funds recorded as reduction of expendituresreimbursements, not revenues May not accumulate reserves for catastrophic losses
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All claims and judgments recorded in ISF when incurredmay be current or longterm liability GLTL accounts are not involved Amounts charged to other funds recorded as revenues May accumulate reserves for catastrophic losses
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Recognize all claims and judgments liabilities and expenses in ISF Charge other funds amounts that are reasonable and equitablepreferably actuarially basedso that ISF revenues and expenses are approximately equal Accumulated net position should be disclosed in notes as being designated for future catastrophic losses Determine whether amounts paid to ISFs that differ from required amounts are in substance interfund loans or transfers
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Revenues from billings to departments Investment of SIF resources Recognition and settlement of claims and judgments
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Revenue Recognition
If intended to cover next years contribution, record as deferred revenues If not so intended, payment may be a loan, advance, or transfer
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Expense Recognition
Information prior to issuance of financial statements indicate that it is probable that an asset was impaired or a liability was incurred at date of statements
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#1 Establish SIF
General Fund OFUTransfer to SIF Cash
Self-Insurance Fund Cash Transfer from GF
(Page 459)
500,000 500,000
500,000
500,000
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#2 Billings to Departments
(Page 459) General Fund ExpendituresOperating Due to SIF Enterprise Fund ExpensesClaims and Judgments Due to SIF Self-Insurance Fund Due from GF Due From EF RevenuesBillings to Departments
80,000
80,000
20,000
20,000
80,000 20,000
100,000
47
#3 Collections of Billings
General Fund Due to SIF Cash Enterprise Fund Due to SIF Cash Self-Insurance Fund Cash Due from GF Due from Enterprise Fund
(Page 459)
60,000 60,000
15,000 15,000
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#4 Purchase of Investments
(Page 460)
Investments Cash
460,000
460,000
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50
22,000
22,000
51
ExpensesClaims and Judgments ExpensesAdministrative Liability for Claims and Judgments Current Liability for Claims and Judgments Long-term Cash
70,000 3,800
35,000 35,000 3,800
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27,600
27,600
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1,200
1,200
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Charged or credited to billed departments based on usage Closed to Net Position with intention of modifying subsequent years charges Closed to Net Position with no adjustments assumes that fund will have profitable and loss years and will breakeven over time
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Accumulate resources for catastrophic losses Planned purchase of additional capital assets or expanded operations
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