Pass the AGA Government Financial Manager GAFRB Questions and answers with CertsForce

Comprehensive Detailed Explanation:

The notes to the financial statements serve the purpose of:

Providing narrative explanations for items presented in the financial statements

Offering additional disclosures to comply with GASB/GAAP requirements

Presenting detailed information not conveyed in the basic financial statements themselves

While comparability and timeliness are important qualitative characteristics of financial reporting, they are not the direct purpose of note disclosures. That responsibility lies more broadly with the financial reporting system as a whole.

Relevant References:

GASB Concepts Statement No. 1 – Objectives of Financial Reporting

GASB Codification Section 2300 – Notes to the Financial Statements

FASAB Handbook – Disclosure Objectives

Answer: D. provide information in a timely and comparable format

According to GASB Statement No. 51 – Accounting and Financial Reporting for Intangible Assets, costs associated with internally generated computer software can be capitalized only during the “application development stage.” Activities in this stage that are capitalizable include:

Coding

Software configuration

Testing (for functionality)

Non-capitalizable activities include:

Preliminary project planning (e.g., selecting between alternatives)

Data conversion not necessary for the software to operate

Training employees

Therefore, testing the software for functionality is an activity that should be capitalized.

Relevant References:

GASB Statement No. 51

GFOA Best Practices – Capitalization of Intangible Assets

Answer: C. testing the software for functionality and ease of use

Research and development (R&D) costs are generally expensed when incurred. However, capitalization may occur only if the asset has an "alternative future use." This means it can be used in other projects or for other purposes beyond the specific R&D effort.

This principle aligns with both federal and private-sector accounting under FASAB and FASB standards.

Relevant References:

FASAB SFFAS No. 10 – Accounting for Internal Use Software

FASB ASC 730 – Research and Development

GAO Red Book – Capitalization Guidelines

Answer: D. have alternative future use

Governmental fund financial statements (such as the General Fund, Special Revenue Funds, Capital Projects Funds) use the current financial resources measurement focus and the modified accrual basis of accounting. This focus reports inflows and outflows of current financial resources and excludes long-term assets and liabilities.

This differs from the government-wide financial statements, which use the economic resources measurement focus and full accrual basis.

Relevant References:

GASB Statement No. 34 – Basic Financial Statements

GASB Codification Section 1600 – Fund Accounting

GFOA Fund Accounting Guidance

Answer: C. current financial resources

The "pass back" is a step in the federal budget process during which the Office of Management and Budget (OMB) communicates to federal agencies what parts of their budget requests it has approved or rejected. It precedes the preparation of the President’s Budget and gives agencies a chance to appeal decisions before final submission.

Other options:

Allotment: An internal division of an appropriation.

Rescission: A cancellation of budget authority.

Apportionment: OMB’s formal distribution of funds over time, typically quarterly.

Relevant References:

OMB Circular A-11 – Preparation, Submission, and Execution of the Budget

GAO Glossary of Budgetary Terms

Congressional Budget Office (CBO) – Federal Budget Process

Answer: A. pass back

We calculate straight-line depreciation for each asset using the formula:

Depreciation = Cost ÷ Useful Life

Given:

Refrigerators: $150,000 ÷ 20 = $7,500

Heating system: $500,000 ÷ 15 = $33,333.33

Buses: $1,000,000 ÷ 5 = $200,000

Total Depreciation:

$7,500 (Refrigerators)

$33,333.33 (Heating system)

$200,000 (Buses)

= $240,833.33

So the correct depreciation expense (rounded to the nearest dollar) is:

Answer: D. $240,833

Note: Option B ($207,500) is incorrect because it does not reflect total depreciation based on the useful lives provided.

Relevant References:

GASB Statement No. 34 – Capital Asset Reporting

GFOA Best Practices – Capital Assets and Depreciation

FASAB SFFAS No. 6 – Accounting for Property, Plant, and Equipment

Answer: D. $240,833

Under OMB’s Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance), allowable costs under federal grants must be:

Necessary and reasonable for program performance

Allocable to the grant

In accordance with generally accepted accounting principles

Not otherwise unallowable

Materials and supplies directly benefiting the grant are generally allowable. In contrast, lobbying, interest payments, and general governmental costs not tied to the grant are explicitly unallowable.

Relevant References:

2 CFR Part 200 – Uniform Guidance (Subpart E – Cost Principles)

2 CFR §200.403 – Factors affecting allowability of costs

2 CFR §200.422 – Lobbying

2 CFR §200.449 – Interest

Answer: C. materials and supplies

Unemployment programs, such as those established by federal law (e.g., Unemployment Insurance), are typically funded through employment taxes and administered through federal trust funds. These funds are earmarked for specific purposes and are deposited into trust fund accounts, which are fiduciary in nature and maintained to provide benefits under the terms of a law or trust agreement.

The Unemployment Trust Fund is a specific example maintained by the U.S. Department of the Treasury.

Relevant References:

FASAB SFFAS No. 27 – Identifying and Reporting Earmarked Funds

Treasury Financial Manual – Trust Fund Accounts

GAO Glossary – Trust Fund Definition

Answer: C. trust funds

A special revenue fund is used to account for the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes (other than debt service or capital projects). In this case, 40% of the operation is funded by specific revenues, which triggers the use of a special revenue fund, provided those revenues are legally restricted or committed to the operation.

Even though 60% of the funding comes from the general fund, the existence of a dedicated revenue stream (40%) for a specific purpose qualifies it for reporting in a special revenue fund.

Relevant References:

GASB Statement No. 54 – Fund Balance Reporting and Governmental Fund Type Definitions

GASB Codification Section 1300 – Fund Types

GFOA – Fund Structure Guidance

Answer: B. special revenue fund

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According to GASB Statement No. 51 (Accounting and Financial Reporting for Intangible Assets), only costs incurred during the “application development stage” are capitalized for internally generated software. These include:

✔Development of the system – $500,000

✔Development of interfaces – $75,000

✔Data conversion necessary to make software operational – $50,000

✔Testing the software – $130,000

Excluded (should be expensed):

✘Evaluation of needs (preliminary) – $100,000

✘Selection of developer – $25,000

✘Staff training – $15,000

✘Ongoing maintenance – $20,000

Total Capitalizable Costs:

$500,000 + $75,000 + $50,000 + $130,000 = $755,000

Relevant References:

GASB Statement No. 51 – Paragraphs 6–12

GFOA Guidelines – Capitalization of Intangible Assets

Answer: C. $755,000