CH 8 Sol - CHAPTER 8: Answers to Questions 8-1. ACCOUNTING...

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CHAPTER 8: ACCOUNTING FOR FIDUCIARY ACTIVITIES— AGENCY AND TRUST FUNDS Answers to Questions 8-1. Although in law there is a clear distinction between an agency relationship and a trust relationship, in practice the legalistic distinctions are not sufficient to classify funds as agency funds or trust funds . As the introduction to Chapter 8 explains, the name given the fund is not a reliable criterion for identifying the types of transactions in which the fund may engage. All factors, such as the enactment that created the fund and pertinent regulations, must be examined to determine the nature of the fund and the transactions in which it may engage. Generally, trust funds are more complicated than agency funds, requiring greater representation and development of the beneficiary’s interest. 8-4. When an agency fund is used to account for assets, the assets belong to the party or parties for whom the government acts as an agent, and not to the government itself. Thus, agency fund assets are offset by liabilities equal in amount and no fund equity exists. 8-6. With an internal investment pool the pool participants are all within the same government, and thus accounting for the pool occurs in an agency fund. For external financial reporting purposes, each participant reports its proportionate share of the pooled assets and liabilities; that is, the agency fund is not reported in external financial statements. The accounting for an external investment pool differs in the type of fund used and the manner in which the pool’s assets and liabilities are reported. An external investment pool is reported in an investment trust fund and has participants that are outside the government administering the investment pool. As such, GASB standards require that a trust fund be used to account for the investment pool’s resources. The assets and liabilities of those participants external to the administering government are reported in the statement of fiduciary net assets and the statement of changes in fiduciary net
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CH 8 Sol - CHAPTER 8: Answers to Questions 8-1. ACCOUNTING...

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