1. A government’s unassigned fund balance in the general fund at year-end should be indicative of the amount that the government has available for appropriation in future years. Explain and provide an example to support your answer.
The fund balance is simply the surplus of the capital assets above the liabilities. The general fund, as the government’s principle operating fund, in other instances tends to have net resources that are more than what can be grouped appropriately in any of the following categories: “non-spendable, committed, assigned and even restricted fund balance” (Tomes, Berger & Bassett, 2011). The surplus, in this case, is presented as the unassigned fund balance. It can be used in reporting a deficit balance emerging from government over expenditure on a particular function for which the amount is restricted, dedicated, or allocated. A positive amount of this balance might not be reported in the national fund, save for the general fund. This is the case because it has been established that GASB Statement No. 54 strictly forbids reporting funds in another fund except that they had been allocated for the purpose of the particular fund. All funds, well except the general fund, might report the negative sum of the unassigned fund balance if the sum of the restricted, committed or even non-spendable fund balance surpasses the fund’s sum net resources (Tomes, Berger & Bassett, 2011).
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2. What is meant by an in-substance defeasance, and how can a government use it to lower its interest costs? How must it recognize a gain or loss on defeasance if it accounts for the debt in a proprietary fund? How do the GASB standards pertaining to in-substance defeasances differ from those of the FASB?
An in-substance defeasance simply implies a situation whereby the government of a particular state has reserved certain resources that are equivalent to the loans it owes. This type of monetary debt is entered as a debt because the liability, even though it has been fulfilled, it has not repaid. In-substance defeasance can be utilized to repay previous loans through the access of new credit at lower rates, in the process, reducing an amount of the interest owed on the previous loan. Lastly, the recognized loss and gain from any of this is entirely recorded in the extraordinary commodities under the private money. The major distinction between FASB and GASB as regards in-substance defeasance is that FASB demands its own recognition as a debt (Tomes, Berger & Bassett, 2011).
References
Tomes, W. E., Berger, A. B., & Bassett, M. E. (2011). Using Unassigned Funds to Balance the Budget. Government Finance Review .
