GASB Statement No. 56

When was GASB statement No. 56 initiated?

The Governmental Accounting Standards Board(GASB) was capable of issuing out the statement No 56 that took place on April sixteenth, 2009 and started an effective operation in March 2009. Technically, it is important to note that the statement No. 56 include financial reporting guidance and accounting that was contained in AICPA previously (GASB, Financial Accounting Standards Board.n.d.).

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In your own words, what is the essence of the new ruling?

Technically, the new ruling statement essence is to addresses three issues starting from the first issue being the literature of AICPA to the consideration concerns, and some of the issues which are related to subsequent events and party transactions. On the other hand, the statement forms part of GASB effort so that it can assist in the codification of all the accepted accounting principles for local government and both the state(Flesher, & Previts, 2018). This is important for the accountants regarding identifying and making application of the relevant accounting guidance.

Related Parties Transactions

On the other hand, the local and the State government are required to disclose certain related parties transactions. In case there is a difference in a specific transaction that it is because of a financial statement, parties involvement and other financial statements that are supposed to create the recognition of other transaction substance rather than the general legal form.

Subsequent Events

In some cases, the transactions and the events that impact financial statements normally take place in a period that is after the date of the statement of net asset. This typically takes place before the issuance of a proper financial report while other may be in need of disclosing the footnotes. The available information before issuance of financial statements is supposed to use in terms of conditional evaluation. On the other hand, the financial statement is supposed to go through various adjustments for any changes so that evidence can be formed. It is also significant to consider the non-recognized events that are supposed not to go through adjustments in the financial statements is supposed to be used when it comes to adjustment in the financial statements. However, such events, in the long run, require a proper disclosure in the financial statements notes. Technically, such adjustments involve the loss of a government facility due to tornado, fire, and flood and include issuance of bonds.

Going Concern Considerations

It is important to note that government entity is one of the growing concern in financial reporting in case there is no significant information to the contrary. Information that is contradicting the going concern assumption, for example, some of the bond defaults and the laws that are impacting noncompliance or unit activities with statutes and are supposed to be disclosed to the financial statements (Stewart, Hammon & Chapman,2018). On the other hand, the accountants are supposed to have a responsibility of evaluating substantial doubt concerning the growing concern of the company 's for twelve months after the financial statements growth.

Why did the GASB probably deem it as being necessary?

Technically, three issues are capable of changing the total financial complexion of a company. It demonstrates that the presence of issue could in a different way change the opinion of the reader. Hence the failure of not capable of informing the reader can be viewed to be misleading. Additionally, this is identified to be bringing the authoritative guidance of the state in terms incorporating one of the best practices that are significant for-profit literature.

How might GASB Statement No. 56 change the activities if any accountant was performing governmental Accounting?

For any accountant and auditor, identifying the applicable guidance is supposed to be a less complex task, and they are supposed to work with greater clarity and certainty. The accountant and the auditor who is preparing the financial statements would no longer take the job of searching for various sources when it comes to determining pronouncements that apply to local and state government.

1. On 10/1/2010, a for-profit Company A provides $100,000 of service to Company B. Company B plans to pay their bill 90 days later.

Solution: Computation of the following

Journal entry when the service is provided:

• Account Receivables $ 1,00,000
• Service revenue $ 1,00,000

Journal entry when the cash is received:

• Cash $ 1,00,000
• Account Receivables $ 1,00,000

2. On 12/1/2010, the city's recreation department receives a government grant of $100,000 specifically to use for next year's park upgrades, which will begin on 1/1/2011.

Solution: Computation of the following

Journal entry when the cash is received:

• Cash $ 1,00,000
• Deferred revenue $ 1,00,000

Journal entry to be made on 1/1/201:

• Deferred revenue $ 1,00,000
• Revenue - Grants $ 1,00,000

3. A for-profit retail store buys $200,000 of inventory on 9/1/2010.

Solution: Computation of the following

Journal entry to show inventory purchase:

• Inventory $ 2,00,000
• Accounts Payable $ 2,00,000

4. A local city park buys $200,000 of food merchandise for later resale. It uses the purchase method to account for inventory.

Solution: Computation of the following

Journal entry when the purchase is made:

• Expenditures, food merchandise $ 2,00,000
• Vouchers payable $ 2,00,000

Note: Purchase method records the expenditure at the time of purchase but not when consumed.

5. A nonprofit organization receives a $250,000 donation on 12/1/2011, but the donor specifically wants it spent in 2012.

Journal entry or entries are prepared to show the proper recording of revenue (this may require more than one journal entry).

Solution: Computation of the following

• Cash $ 2,50,000
• Temporarily restricted net assets, contributions $ 2,50,000

The subsequent journal entry is prepared to show spending of the funds.

Solution: Computation of the following

• Temporarily restricted net assets, contributions $ 2,50,000
• Unrestricted net assets, contributions $ 2,50,000
• Expenses $ 2,50,000
• Cash $ 2,50,000

References

Flesher, D. L., Flesher, T. K., & Previts, G. J. (2018). The Financial Accounting Standards Board: Profiles of seven leaders. Research in Accounting Regulation.

GASB, Financial Accounting Standards Board. (n.d.). Retrieved March 24, 2018, from http://www.gasb.org/cs/ContentServer?cid=1176156720515&d=&pagename=GASB/GASBContent_C/GASBNewsPage

Stewart, L., Hammon, J., & Chapman, B. C. (2018). State Oversight and Local Government Savings: An Analysis of Illinois County Fund Balance Politics.