Questions 1. How is the same high school reported in government-wide financial statements? 2. Which of these two approaches best portrays the decision to acquire or construct this building? 3.Does providing two different approaches for the same building provide the information decision makers need?
During the long evolution of government accounting, many scholars have discussed its unique features. In the August 1989 issue of the Journal of Accountancy, R. K. Mautz described the reporting needs of governments and not-for-profit organizations (such as charities) in his essay “Not-For-Profit Financial Reporting: Another View.”
To illustrate the governmental accounting challenges, Mautz examined the method by which a city should record a newly constructed high school building. Conventional business wisdom would say that such a property is an asset owned by the government. Thus, the cost should be capitalized and then
Mautz reasoned that the school building cannot be considered an asset because it provides no net contribution to cash inflows. In truth, a high school requires the government to make significant
Consequently, Mautz then considered whether the construction of a high school is not actually the establishment of a liability because the government is taking on an obligation that will necessitate future cash payments. He also rejects this idea, once again based on the guidance of Concepts Statement No. 6 (para. 36), because a probable future transfer or use of assets is not required at a “specified or determinable date, on occurrence of a specified event, or on demand.”
Questions
1. How is the same high school reported in government-wide financial statements?
2. Which of these two approaches best portrays the decision to acquire or construct this building?
3.Does providing two different approaches for the same building provide the information decision makers need?
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