Frequently Asked Questions

How do you account for inventory in the fund financial statements issued for noncentralized cafeteria funds?

At the onset of the single inventory method for accounting for purchased inventory and commodities, certain costing assumptions were not defined by either the US or TN Department of Agriculture.  As a result, certain conventions have been established by the Division of Municipal Audit until the funding agencies set final policies.  The easiest approach is to assume that all commodities are used before purchased inventory is used.  This will generally result in ending inventory representing only purchased inventory and commodities inventory will be $-0-.  Disclosure of the total commodities received and used should be disclosed in the notes to the financial statements.

The financial statements would only include the fund financial statements described in GASB Statement 34 (AICPA Audit and Accounting Guide: State and Local Governments, Section 14.63 through 14.66). MD&A should be included as required supplementary information (RSI) for such audits in accordance with AICPA Audit and Accounting Guide - State and Local Governments, Section 14.65, which states: “…in developing an opinion on the separately issued GAAP-based financial statements for one or more individual funds, the auditor considers whether the financial statements include all relevant GAAP financial statements, note disclosures, MD&A topics, and other RSI.” Should the GASB or the AICPA issue further guidance related to this in the future, that guidance will prevail.

How should property taxes be accounted for at the fund level?

Please note that revenue amounts reported at the government wide reporting level will not be the same at the fund level, since much of the property tax revenue reported will not meet the availability test at the fund level.

Basic guidelines for accounting for property taxes can be found here

How should property taxes be accounted for in the government-wide financial statements?

Asset
Governments should recognize assets from imposed nonexchange revenue transactions in the period when an enforceable legal claim to the assets arises or when the resources are received, whichever occurs first. For property taxes, the date when an enforceable legal claim to the taxable property arises generally is specified in the enabling legislation (e.g., lien date). (Codification of Governmental Accounting and Financial Reporting Standards, Section N50.114)

Municipalities should record a receivable and related deferred revenue at the lien date (see question 4 above). Generally on this date, municipalities may not have information available to record the actual levy and therefore, an estimate is used.

Revenue
Governments should recognize revenues from property taxes, net of estimated refunds and estimated uncollectible amounts, in the period for which the taxes are levied, even if the enforceable legal claim arises or the due date for payment occurs in a different period. Resources received or recognized as receivable before that period should be reported as deferred revenues. (Codification of Governmental Accounting and Financial Reporting Standards, Section N50.115)

Generally the tax levy occurs in the fiscal year for which the property tax revenue is intended to fund. In this case, property tax revenue should be recorded (Example City A). If the tax levy were to occur prior to the fiscal year for which the property tax revenue is intended to fund, the levy should be recorded as deferred revenue (Example City B).


Example City A:

Current fiscal year end: June 30, 2005
Lien Date: January 1, 2005
Levy Date: October 1, 2005
Fiscal year end for which tax is levied: June 30, 2006

Receivable and deferred revenue would be reported for the entire lien in the June 30, 2005 financial statements.

Revenue would be reported for the entire lien in the June 30, 2006 financial statements.


Example City B:

Current fiscal year end: June 30, 2005
Lien Date: January 1, 2005
Levy Date: May 1, 2005
Fiscal year end for which tax is levied: June 30, 2006

Receivable and deferred revenue would be reported for the entire lien in the June 30, 2005 financial statements.

Revenue would be reported for the entire lien in the June 30, 2006 financial statements.

How should State Street Aid be reported in the government-wide financial statements and how should the reserve be calculated?

State Street Aid funds should be reported as program revenue (operating grants and contributions) in the government wide financial statements. Because the tax is not derived from the municipalities’ taxing authority and is not restricted to capital acquisition, the revenue represents an operating grant/contribution. If state street aid funds are reported in the general fund, the reserve calculation should be based on the revenues and expenditures recognized at the fund level (modified accrual basis of accounting). That is, expenditures include capital outlays but do not include depreciation expense. At the government wide financial statement level, restricted assets should be recorded based on the reserve established in the general fund or the ending fund balance in the separate special revenue fund established to account for state street aid funds. Please refer to the Codification of Governmental Accounting and Financial Reporting Standards, Section 2200, and GASB Comprehensive Implementation Guide – 2007-2008, Question and Answer 7.39.4, for applicable reporting guidance.

What is considered the enforceable legal claim date for property taxes in Tennessee?

Recently there has been some confusion regarding when the enforceable legal claim arises to the taxable property in Tennessee. We have consulted with GASB and they have indicated that the date of the enforceable legal claim may be interpreted differently by each individual state. Tennessee interprets this date to be the lien date of January 1. (Tennessee Code Annotated 67-5-2101)