ACC-410-Review and Discussion Chapter 6

ACC-410-Review and Discussion Chapter 6 - Chapter 6...

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Chapter 6 Accounting for Capital Projects and Debt Service Questions for Review and Discussion 1. Budgets, and hence budget comparisons, are not as essential for capital projects and debt service funds because they are often on a project, rather than an annual, basis and spending is typically authorized on that basis. 2. When bonds are issued for more than their par value, the premium can be interpreted as an adjustment of the interest rate and transferred to the debt service fund — the fund in which resources for the payment of debt will be accumulated. Although the same interpretation can be placed upon bond discounts, there may be no funds available in the debt service fund (or any other fund) for transfer to the capital projects fund. Therefore, the project must be scaled back or additional means of financing secured. 3. Interest (on investments) is generally recognized as revenue is earned, i.e., on a full accrual basis. Interest expenditure, by contrast, should not be accrued; it should be reported as an expenditure only as due. The rationale for recognizing the expenditure only as the interest is due is that most jurisdictions will not appropriate the resources to pay the interest, or transfer them to the debt service fund, until then. “To accrue the debt service fund expenditure and liability in one period but record the transfer of financial resources for debt service purposes in a later period would be confusing and would result in overstatement of debt service fund
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This note was uploaded on 01/04/2012 for the course ACC 410 ACC 410 taught by Professor Professor during the Fall '11 term at Strayer.

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ACC-410-Review and Discussion Chapter 6 - Chapter 6...

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