governmental marriages, adoptions and divorces while signing your life away: gasb statements 69 and...

Governmental Marriages, Adoptions and Divorces While Signing Your Life Away: GASB Statements 69 and 70,

Governmental Combinations and Non-Exchange Guarantees

Government Combinations and

Disposals of Government Operations

GASB Statement 69

2

3

Issued January

2013

Effective for periods

beginning after

December 15, 2013

Consider the financial reporting requirements for government combinations that are accomplished through mergers, acquisitions, and transfers of operations Addresses government’s unique conditions and circumstances

Analysis of government combinations that have taken place in both the general government area (ex. city/county consolidations), and the business type activities area (ex. healthcare organizations)

Address certain spin-off issues (ex. A library district that was formerly a department in a primary government) – a transfer of operations

Project Objectives

4

Accounting Principles Board (APB) Opinion No. 16, Business Combinations This guidance was never intended for the public sector and its

application to the public sector has proven to be problematic Addresses conditions and circumstances that are not normally

encountered in government combinations Because a government combination project was already on the

GASB Board’s agenda, these were not incorporated in GASB Statement No. 62 APB 30 – Discontinued operations FASB 141 and revision – Business combinations FASB 164 – Not-for-profit entities, mergers, and acquisitions

Existing Guidance

5

Scope includes: Combinations in which NO consideration is

provided Government mergers Transfers of operations

Combinations in which consideration is provided Government acquisitions

Disposals of government operations

Scope

6

Scope does not include: Assets and liabilities comprising less than an

operation

Obtaining control of another organization that remains a legally separate entity (already addressed in Statement 14)

Acquisition of equity interest (already addressed in Statement 14)

Scope

7

To distinguish a combination from an acquisition of assets and related liabilities, consider:

“Operations” is defined as an integrated set of activities conducted and managed for the purpose of providing identifiable services with associated assets and liabilities

Service continuation: Obligation or responsibility (intent) to continue to provide the services that were provided by the previously separate governments, organizations, or operations

Government Operations

8

To be considered a government combination, the arrangement should result in the continuation of a substantial portion of the services provided by the previously separate entities or their operations after the transaction has occurred.

Terms of arrangement usually establish whether service continuation was intended

If not, professional judgment should be used

This distinguishes a combination from a contribution or purchase of assets and related liabilities

Government Combinations

9

The requirements distinguish between government combinations that involve significant (or lack) of financial consideration Government merger—combinations of legally separate

entities without the exchange of significant consideration Government acquisitions—transactions in which a

government acquires another entity, or its operations, in exchange for the payment of significant consideration

Combinations not involving entire legally separate entities and in which no significant consideration is exchanged (shared service arrangements, reorganizations, redistricting, annexations, arrangements where an operation is transferred to a new government created to provide those services) – transfer of operations

Overall Approach

10

Government Merger Insignificant or no consideration exchanged, and

either: Two or more separate legal entities combine to form a

new entity One or more of the prior entities cease to exist

Government Acquisition One government acquires another entity (or its

operations) in exchange for significant consideration

Transfer of Operations A government combination involving operations rather

than a legally separate entity Could be a transfer to a continuing entity or creation of a

new entity

Types of Government Combinations

11

Often guided by statute Some states have passed or considered

legislation to cause or encourage streamlining (too many layers)

Few successes for general purpose governmentsShared service alternative

Government Mergers

12

Government combination of legally separate entities in which insignificant or no financial consideration is exchanged and which includes one of the following:

An entirely new government is formed (A+B=C) or 2 or more governments (or one or more governments and one or

more nongovernmental entities) cease to exist as legally separate entities and are combined to form one or more new governments Merger date is the date the combination becomes effective Initial reporting period of the new government begins on the

merger date The assets, deferred outflows of resources, liabilities, and

deferred inflows of resources of the merging entities would be recognized and measured in the statement of net position at their “carrying value” as of the merger date

Government Mergers

13

If the merging entities decide before the merger date to dispose of capital assets and the new government will use those capital assets until the disposal occurs:Capital assets should be measured and reported at their

carrying values by the new government If the new government will not use the capital assets that

have been identified for disposal or if the merging entities decide before the merger date that the manner or duration of use of capital assets will change:Capital assets should be evaluated for impairment in

accordance with provisions of Statement 42, as amended to determine if the carrying values should be adjusted

Government Mergers

14

A single continuing government remains (A+B=B+) One or more legally separate governments or

nongovernmental entities cease to exist and their operations are absorbed into, and provided by, one or more continuing governmentsMerger date is the beginning of the reporting period in which the

combination occurs, (as though the entities were already combined as of that date) regardless of the actual date of the merger

The assets, deferred outflows of resources, liabilities, and deferred inflows of resources of the merging entities would be measured in the statement of net position at their “carrying value” as of the merger date

Government Mergers

15

If the merging entities decide before the actual date of the merger to dispose of capital assets of the dissolving government but the continuing government will use those capital assets until the disposal occurs: Capital assets should be measured and reported at

their carrying values by the continuing government If the continuing government plans to dispose of the

capital assets that it will not use or if decisions are made before the actual date of the merger that the manner or duration of use of specific capital assets of the dissolving government will change: Capital assets should be evaluated for impairment in

accordance with provisions of Statement 42, as amended

Government Mergers

16

Acquisition date is the date the acquiring government obtains control of the acquired entity’s assets or becomes obligated for its liabilities or its operations (typically when consideration is paid)

Assets and liabilities normally would be recorded at their acquisition value as of the acquisition date – price that would be paid for acquiring similar assets, having similar service capacity, or discharging the liabilities assumed as of the acquisition date

Deferred outflows of resources and deferred inflows of resources should be brought forward at their carrying values

Government Acquisitions

17

Consideration Given: If exceeds the net position acquired, the difference

would be treated as a deferred outflow of resources Attributed to future periods in a systematic and rational

manner, based on professional judgment If net position exceeds the consideration given

Considered a contribution – if the seller accepted the lower amount for the purpose of providing an economic benefit to the acquiring government If not – the difference would be eliminated by reducing the

acquisition values assigned to noncurrent assets (other than investments reported at fair value).

If the difference exceeded the acquisition value of all noncurrent assets (other than investments reported at fair value), the remainder would be treated as a special item in the flows statement.

Government Acquisitions

18

Government combination involving the operations of a government or nongovernmental entity, rather than a combination of legally separate entities, and in which no significant consideration is exchanged.

Operation - an integrated set of activities with associated assets and liabilities that is conducted and managed for the purpose of providing identifiable services.

Transfers of Operations

19

Entered into for similar reasons as government mergers

Transfer date is the date the transferee government obtains control of the acquired operation’s assets or becomes obligated for its liabilities. If the transfer of operations results in the formation of a

new government – the new government’s initial reporting period begins at the effective transfer date

If the transfer of operations results in a continuing government – the continuing government should report the transfer as a transaction in the financial statements for the reporting period in which it occurs


20

Assets, deferred outflows of resources, liabilities, and deferred inflows of resources of the transferred operation would be incorporated at their carrying value as of the effective transfer date


21

The disposing government would report a special item for any gain or loss on the disposal of operations in the period in which the disposal occurs, based on either:Effective transfer date of the transfer of

operations, orThe date of sale for operations that are

sold

Disposals of Government Operations

22

The following disclosures are required for all government combinations: Brief description of the combination that:

Identifies the entities involved and the primary reasons for the combination

Mentions whether the entities combined were part of the same financial reporting entity

Discloses the date of the combination Additional disclosures for:

Mergers and transfers of operations Acquisitions Disposals of Operations

Disclosures

23

Carrying values recognized as of the merger date Current, capital, and other assets Deferred outflows of resources Current and noncurrent liabilities Deferred inflows of resources Net position by component

Description of significant adjustments Initial amounts recognized, if different from

adjusted carrying values

Disclosures: Mergers & Transfers

24

Acquisitions Brief description of consideration provided Total amount of net position acquired Brief description of contingent consideration

arrangements

Disposals of operations Description of the circumstances leading to the

discontinuation Operation’s revenues, expense, and non-operating

items

Disclosures: Acquisitions & Disposals

25

Effective for financial statements for periods beginning after December 15, 2013

Effective Date

26

Examples of combinations – GASB No. 69

Group Learning – GASB 69

27

Facts: On November 2, 2014, the citizens of Geary Township and the citizens of the surrounding Sample Village approved referendum 2015-01 to merge their legally separate governments into a single new government that will be incorporated as Sample City. The merger will enable the new government (Sample City) to take advantage of cost efficiencies by the elimination of redundancies in service. The referendum establishes that a governing body for Sample City will consist of four representatives from each of the merging governments and includes a plan for the merger, formally known as the Municipal Consolidation Plan (merger plan).

CASE #1: Facts

28

Facts-continued: The merger is effective as of January 1, 2015. As part of the merger plan, Sample City officials agreed to sell some of the redundant capital assets as soon as possible after the merger date, and those capital assets will not be used pending their sale. Sample City officials determined these capital assets are impaired as a result of the decision to dispose of them. Sample City officials determined that the decision to sell the assets resulted in a decrease of $4 million in the capital asset account of the governmental activities related to the agreed-upon closing of the Sample Village’s public works facilities. Officials of Sample City also determined an adjustment to the carrying value of inventory is necessary to reflect a consistent method of accounting, resulting in a decrease of $80,000.

CASE #1: Facts

29

Question: Does this qualify as a government combination (merger, acquisition, transfer of operations)?

Answer: YES, this is a government merger.

CASE #1: Question and Answer

30

Question: What is the merger date (the initial reporting period)?

Answer: The date the merger becomes effective, 01/01/15


31

CASE #1: Initial BalancesSample Village Geary Township Total

ASSETSCash and cash equivalents 23,877,042$ 22,229,649$ 46,106,691$ Investments 27,365,221 29,314,866 56,680,087 Derivative instrument - rate swap - 1,040,482 1,040,482 Receivables (net) 16,442,747 15,402,265 31,845,012 Inventories 448,823 250,000 698,823 Capital Assets:Land, improvements, and CIP 153,408,694 34,843,175 188,251,869 Other capital assets, net of depreciation 168,002,817 282,572,377 450,575,194

Total assets 389,545,344 385,652,814 775,198,158

DEFERRED OUTFLOWS OF RESOURCESAccumulated decrease in fair value derivative - 127,520 127,520

LIABILITIESAccounts payable and accrued expenses 8,970,339 8,198,135 17,168,474 Advance from grantors - 1,435,599 1,435,599 Forward contract - 127,520 127,520 Long-term liabilities:Due within 1 year 13,662,286 9,547,351 23,209,637 Due in more than 1 year 157,784,651 91,463,340 249,247,991

Total liabilities 180,417,276 110,771,945 291,189,221

DEFERRED INFLOWS OF RESOURCESAccumulated increase in fair value derivative - 1,040,482 1,040,482

NET POSITION 209,128,068$ 273,967,907$ 483,095,975$

Statement of Net Position

32

Question: Are there any adjustments needed and if so for what categories?

Answer: YES, adjustments are needed for the impairment of capital assets and to reflect a consistent method of accounting for inventory.


33

CASE #1: AdjustmentsSample Village Geary Township Total Debit Credit Total

ASSETSCash and cash equivalents 23,877,042$ 22,229,649$ 46,106,691$ -$ -$ 46,106,691$ Investments 27,365,221 29,314,866 56,680,087 - - 56,680,087 Derivative instrument - rate swap - 1,040,482 1,040,482 - - 1,040,482 Receivables (net) 16,442,747 15,402,265 31,845,012 - - 31,845,012 Inventories 448,823 250,000 698,823 - - 698,823 Capital Assets:Land, improvements, and CIP 153,408,694 34,843,175 188,251,869 - 4,000,000 184,251,869 Other capital assets, net of depreciation 168,002,817 282,572,377 450,575,194 - - 450,575,194

Total assets 389,545,344 385,652,814 775,198,158 - 4,000,000 771,198,158

DEFERRED OUTFLOWS OF RESOURCESAccumulated decrease in fair value derivative - 127,520 127,520 - - 127,520

LIABILITIESAccounts payable and accrued expenses 8,970,339 8,198,135 17,168,474 - - 17,168,474 Advance from grantors - 1,435,599 1,435,599 - - 1,435,599 Forward contract - 127,520 127,520 - - 127,520 Long-term liabilities:Due within 1 year 13,662,286 9,547,351 23,209,637 - - 23,209,637 Due in more than 1 year 157,784,651 91,463,340 249,247,991 - - 249,247,991

Total liabilities 180,417,276 110,771,945 291,189,221 - - 291,189,221

DEFERRED INFLOWS OF RESOURCESAccumulated increase in fair value derivative - 1,040,482 1,040,482 - - 1,040,482

NET POSITION 209,128,068$ 273,967,907$ 483,095,975$ 4,000,000$ -$ 479,095,975$

Statement of Net Position Adjustments

34

CASE #1: Final Initial Balances

Sample Village Geary Township Total Debit Credit TotalASSETS

Cash and cash equivalents 23,877,042$ 22,229,649$ 46,106,691$ -$ -$ 46,106,691$ Investments 27,365,221 29,314,866 56,680,087 - - 56,680,087 Derivative instrument - rate swap - 1,040,482 1,040,482 - - 1,040,482 Receivables (net) 16,442,747 15,402,265 31,845,012 - - 31,845,012 Inventories 448,823 250,000 698,823 - 80,000 618,823 Capital Assets:Land, improvements, and CIP 153,408,694 34,843,175 188,251,869 - 4,000,000 184,251,869 Other capital assets, net of depreciation 168,002,817 282,572,377 450,575,194 - - 450,575,194

Total assets 389,545,344 385,652,814 775,198,158 - 4,080,000 771,118,158


LIABILITIESAccounts payable and accrued expenses 8,970,339 8,198,135 17,168,474 - - 17,168,474 Advance from grantors - 1,435,599 1,435,599 - - 1,435,599 Forward contract - 127,520 127,520 - - 127,520 Long-term liabilities:Due within 1 year 13,662,286 9,547,351 23,209,637 - - 23,209,637 Due in more than 1 year 157,784,651 91,463,340 249,247,991 - - 249,247,991



NET POSITION 209,128,068$ 273,967,907$ 483,095,975$ 4,080,000$ -$ 479,015,975$

Statement of Net Position Adjustments

35

Footnote Disclosure: Note X: Government MergerSample City began operations January 1, 2015, and was formed from the merger of the Geary Township and Sample Village to take advantage of the cost efficiencies based on the elimination of redundant services pursuant to the citizens’ approval of referendum 2015-01, including the Municipal Consolidation Plan. The initial opening balances of Sample City’s assets, deferred outflows of resources, liabilities, deferred inflows of resources, and net position, as of the beginning of the period, were determined on the basis of the carrying values reported in the separate financial statements of Geary Township and Sample Village as of December 31, 2014 as follows:

CASE #1: Disclosures

36

CASE #1: Disclosures

Sample Village Geary Township Total Debit Credit TotalASSETS

Current Assets 67,685,010$ 67,987,262$ 135,672,272$ -$ -$ 135,672,272$ Capital Assets 321,411,511 317,415,552 638,827,063 - 4,000,000 634,827,063 Other assets 448,823 250,000 698,823 - 80,000 618,823

Total assets 389,545,344 385,652,814 775,198,158 - 4,080,000 771,118,158


LIABILITIESCurrent liabilities 22,632,625 19,308,605 41,941,230 - - 41,941,230 Noncurrent liabilities 157,784,651 91,463,340 249,247,991 - - 249,247,991



NET POSITIONNet investment in capital assets 176,799,960 222,799,960 399,599,920 4,000,000 - 395,599,920 Restricted 24,203,913 49,985,155 74,189,068 - - 74,189,068 Unrestricted 8,124,195 1,182,792 9,306,987 80,000 - 9,226,987

Total net position 209,128,068$ 273,967,907$ 483,095,975$ 4,080,000$ -$ 479,015,975$

Adjustments

37

Facts: On September 30, 2014, the City of Ammon Creek (City) acquires the operations of Bridgens Golf, Inc., a privately owned golf course (Barkas Ridge), including water rights, in exchange for $3 million to obtain the course for public use. The water rights were obtained to maintain the course. At the date of acquisition, the corporation is dissolved and the City will account for the operations of a municipal golf course in a newly established enterprise fund. As of September 30, 2014 the financial position of Bridgens Golf Inc. was comprised of the following assets and liabilities:

CASE #2a: Facts

38

CASE #2a: Facts

Bridgens Golf Inc.ASSETS

Cash and cash equivalents 41,204$ Accounts receivable 4,239 Inventories 101,706 Land 3,161,975 Building and equipment (net) 4,081,972

Total assets 7,391,096

LIABILITIESAccounts payable and accrued expenses 19,473 Notes Payable 6,850,445

Total liabilities 6,869,918

NET ASSETS 521,178$

39


Answer: YES, this is a government acquisition.


40

Facts: The City identifies the assets acquired and liabilities assumed from its purchase of Bridgens Golf Inc. as of September 30, 2014. In addition, the City identifies an intangible asset for water rights of $250,000 that meets the recognition criteria described in Statement No. 51, Accounting and Financial Reporting for Intangible Assets.

(Note: The water rights were not previously required to be reported by Bridgens Golf Inc.)

CASE #2a: Additional Facts

41

Facts: 2. The City determines the acquisition values of the assets acquired and liabilities assumed as of the acquisition date, as indicated below. The City renegotiated the financing from the local institution that held the note payable. The amount required to discharge Bridgen’s liability with the local institution was $6,720,970.

Inventories $95,000Land $5,000,000Buildings and equipment $4,250,000Water Rights $250,000


42

CASE #2a: Comparison

Acquisition Values for City of Ammon Creek Carrying Values for Bridgens Golf Inc.City Bridgens Golf Inc.

ASSETS ASSETSCash and cash equivalents -$ Cash and cash equivalents 41,204$ Accounts receivable - Accounts receivable 4,239 Inventories - Inventories 101,706 Land - Land 3,161,975 Building and equipment (net) - Building and equipment (net) 4,081,972 Intagible assets for water rights - Total assets 7,391,096

Total assets - LIABILITIES

LIABILITIES Accounts payable and accrued expenses 19,473 Accounts payable and accrued expenses - Notes Payable 6,850,445 Notes Payable - Total liabilities 6,869,918

Total liabilities - NET POSITION 521,178$

NET POSITIONNet investment in capital assets - Unrestricted -

Total net position -$

43



ASSETS ASSETSCash and cash equivalents 41,204$ Cash and cash equivalents 41,204$ Accounts receivable - Accounts receivable 4,239 Inventories - Inventories 101,706 Land - Land 3,161,975 Building and equipment (net) - Building and equipment (net) 4,081,972 Intagible assets for water rights - Total assets 7,391,096

Total assets 41,204 LIABILITIES



NET POSITIONNet investment in capital assets - Unrestricted 41,204

Total net position 41,204$

44



ASSETS ASSETSCash and cash equivalents 41,204$ Cash and cash equivalents 41,204$ Accounts receivable 4,239 Accounts receivable 4,239 Inventories - Inventories 101,706 Land - Land 3,161,975 Building and equipment (net) - Building and equipment (net) 4,081,972 Intagible assets for water rights - Total assets 7,391,096






45



ASSETS ASSETSCash and cash equivalents 41,204$ Cash and cash equivalents 41,204$ Accounts receivable 4,239 Accounts receivable 4,239 Inventories 95,000 Inventories 101,706 Land - Land 3,161,975 Building and equipment (net) - Building and equipment (net) 4,081,972 Intagible assets for water rights - Total assets 7,391,096






46



ASSETS ASSETSCash and cash equivalents 41,204$ Cash and cash equivalents 41,204$ Accounts receivable 4,239 Accounts receivable 4,239 Inventories 95,000 Inventories 101,706 Land 5,000,000 Land 3,161,975 Building and equipment (net) - Building and equipment (net) 4,081,972 Intagible assets for water rights - Total assets 7,391,096

Total assets 5,140,443 LIABILITIES



NET POSITIONNet investment in capital assets 5,000,000 Unrestricted 140,443

Total net position 5,140,443$

47



ASSETS ASSETSCash and cash equivalents 41,204$ Cash and cash equivalents 41,204$ Accounts receivable 4,239 Accounts receivable 4,239 Inventories 95,000 Inventories 101,706 Land 5,000,000 Land 3,161,975 Building and equipment (net) 4,250,000 Building and equipment (net) 4,081,972 Intagible assets for water rights - Total assets 7,391,096






48



ASSETS ASSETSCash and cash equivalents 41,204$ Cash and cash equivalents 41,204$ Accounts receivable 4,239 Accounts receivable 4,239 Inventories 95,000 Inventories 101,706 Land 5,000,000 Land 3,161,975 Building and equipment (net) 4,250,000 Building and equipment (net) 4,081,972 Intagible assets for water rights 250,000 Total assets 7,391,096






49





LIABILITIES Accounts payable and accrued expenses 19,473 Accounts payable and accrued expenses 19,473 Notes Payable 6,850,445 Notes Payable - Total liabilities 6,869,918

Total liabilities 19,473 NET POSITION 521,178$



50





LIABILITIES Accounts payable and accrued expenses 19,473 Accounts payable and accrued expenses 19,473 Notes Payable 6,850,445 Notes Payable 6,720,970 Total liabilities 6,869,918

Total liabilities 6,740,443 NET POSITION 521,178$



51

Facts:

After assigning the acquisition values to the assets acquired and the liabilities assumed the City determined that the consideration provided ($3 million) exceeded the acquisition value of the net position acquired ($2.9 million) by $100,000. The City recognized a deferred outflow of resources for the excess consideration provided and establishes an attribution period for the deferred outflow of resources over future reporting periods. Because a substantial portion of operations acquired consists of capital assets, the City determines that it will attribute the excess amount of consideration provided over the next 15 years based upon its estimate of the remaining service lives of the capital assets the City has acquired.


52

CASE #2a: Initial Financials

Acquisition Values for City of Ammon CreekCity

ASSETSCash and cash equivalents 41,204$ Accounts receivable 4,239 Inventories 95,000 Land 5,000,000 Building and equipment (net) 4,250,000 Intagible assets for water rights 250,000


DEFERRED OUTFLOWS OF RESOURCESExcess consideration provided for acquisition 100,000





53

Footnote Disclosure: Note X: Government AcquisitionOn September 30, 2014 the City of Ammon Creek (City) acquired Bridgens Golf Inc., which owned the Barkas Ridge golf course and substantial water rights that attach to the golf course property in exchange for $3 million. The City will operate and maintain the golf course as a municipal golf course for public use and account for its operations in an enterprise fund. The acquisition included all of the assets of Bridgens Golf Inc., consisting of 160 acres of land; water rights; golf facilities; driving range; and inventories. In addition, the City assumed the liability for the accounts payable and accrued expenses of Bridgens Golf Inc. and renegotiated the terms and conditions of a bank note payable. The acquisition value of the net position acquired as of the acquisition date was determined to be $2.9 million.

CASE #2a: Disclosures

54

Facts:The basic facts of the preceding case study are the same except that the City gives less consideration and receives net assets in excess of the consideration provided. In this case, the City purchased Bridgens Golf Inc. for $2.5 million.

CASE #2b: Facts & Question

55

CASE #2b: Comparison




LIABILITIES Accounts payable and accrued expenses 19,473 Accounts payable and accrued expenses 19,473 Notes Payable 6,850,445 Notes Payable 6,720,970 Total liabilities 6,869,918

Total liabilities 6,740,443 NET POSITION 521,178$



56

Facts:In this case study, because the net assets received exceed the consideration the City provided by $400,000, the City allocates this excess to the acquisition values of noncurrent assets, other than financial assets. The City allocates the excess based upon a proportionate share of the acquisition value assigned to each noncurrent asset.

CASE #2b: Additional Facts

57

CASE #2b: Allocation

Acquired Assets Acquisition Value

Allocation of Excess Net

Position

Adjusted Acquisition

Value

Cash and cash equivalents 41,204$ 0 41,204$ Accounts receivable 4,239 - 4,239 Inventories 95,000 - 95,000 Land 5,000,000 (210,500) 4,789,500 Buildings and equipment 4,250,000 (179,000) 4,071,000 Intangible assets 250,000 (10,500) 239,500

Total acquired assets 9,640,443$ (400,000)$ 9,240,443$

58

CASE #2b: Initial Financials

Acquisition Values for City of Ammon CreekCity

ASSETSCash and cash equivalents 41,204$ Accounts receivable 4,239 Inventories 95,000 Land 4,789,500 Building and equipment (net) 4,071,000 Intagible assets for water rights 239,500






59

Footnote Disclosure: Note X: Government AcquisitionOn September 30, 2014 the City of Ammon Creek (City) acquired Bridgens Golf Inc., which owned the Barkas Ridge golf course and substantial water rights that attach to the golf course property in exchange for $2.5 million. The City will operate and maintain the golf course as a municipal golf course for public use and account for its operations in an enterprise fund. The acquisition included all of the assets of Bridgens Golf Inc., consisting of 160 acres of land; water rights; golf facilities; driving range; and inventories. In addition, the City assumed the liability for the accounts payable and accrued expenses of Bridgens Golf Inc. and renegotiated the terms and conditions of a bank note payable. The acquisition value of the net position acquired was determined to be $2.9 million. The acquisition values of the land, buildings, equipment, and water rights were reduced to eliminate the $400,000 excess net position received.

CASE #2b: Disclosures

60

Facts: Mountain Region Fire Authority (MRFA) is a separate municipal corporation, organized as a regional fire protection service authority. Under an intergovernmental agreement between the City of Price River (City) and the MRFA, the City will combine its fire protection operations with the MRFA for the purpose of providing services to the City’s citizens. On March 15, 2015, the City transferred the assets and liabilities comprising its fire service operations to the MRFA. The City transferred an administrative building, fire stations, engines, trucks, and various other equipment having a carrying value of $6.3 million. The MRFA will also assume $3.4 million of the City long-term debt related to fire service operations. There are no deferred outflows of resources or deferred inflows of resources associated with the City’s fire service operations.

CASE #3: Facts

61

Facts: The assets and liabilities transferred to the MRFA represent an integrated set of assets and liabilities managed for the purpose of providing fire services, thus meeting the definition of an operation. In addition, service continuation is presumed because the assets used by the City to provide fire services will be used in a similar manner by the MRFA to provide a similar service. There is no consideration given in the transaction.

CASE #3: Facts

62


Answer: YES, this is a transfer of operations.


63

The MRFA recognizes the carrying values of assets and liabilities of the City’s fire service operations as of March 15, 2015, and a special item of $2.9 million representing the inflow of resources for the net position received. The MRFA determines that adjustments to the carrying values of assets related to the City’s fire service operations are not necessary to reflect a consistent method of accounting or to reflect the impairment of capital assets. The MRFA discloses the transfer of operations in the notes to its financial statements.

CASE #3: Accounting for MRFA

64

Footnote Disclosure: Note X: Transfer of OperationsUnder an intergovernmental agreement between the City of Price River (City) and the MRFA, the City agreed to combine its fire protection services with the MRFA for the purpose of enhancing the provision of those services to the City’s citizens. On March 15, 2015, the City transferred the assets and liabilities comprising its fire service operations to the MRFA. As a result of the transfer, the MRFA recognized the following assets, liabilities, and net position:

CASE #3: Disclosures for MRFA

65

CASE #3: Disclosures for MRFA

Carrying ValuesTransferred Assets (Net)

Buildings 4,300,000$ Vehicles (trucks and fire engines) 1,700,000 Equipment 300,000


Transferred LiabilitiesLong-term debt 3,400,000


Net Position of Transferred Fire Protection OperationNet investment in capital assets 2,900,000$

66

The City derecognizes the assets and liabilities related to its fire service operations as of March 15, 2015, and recognizes $2.9 million (plus any costs directly associated with the disposal) as a special item representing the loss on disposal of operations. The City discloses the disposal of operations in the notes to its financial statements. None of the assets or liabilities disposed of were recognized in the City’s governmental funds. Expenditures directly associated with the disposal, if any, would be reported as a special item.

CASE #3: Accounting for City

67

Footnote Disclosure: Note X: Disposal of OperationsOn March 15, 2015, the City transferred the assets and liabilities comprising its fire service operations to the Mountain Region Fire Authority (MRFA) for the purpose of enhancing emergency fire services. As a result of the transfer, the City recognized a loss of $2.9 million on the disposal of its fire service operations as a special item. The City’s 2015 expense related to its fire service operations totaled approximately $11.2 million. 2015 revenues associated with the City’s fire service operations, consisting of both program and general revenues, totaled approximately $9.6 million. Expenditures and revenues of the fire service operations reported in the general fund were $10.9 million and $9.7 million, respectively.

CASE #3: Disclosures for City

68

Accounting and Financial Reporting for Nonexchange Financial Guarantees

GASB Statement 70

69

Issued April 2013

Effective for periods

beginning after

December 15, 2013

70

To improve the recognition, measurement, and disclosure guidance for state and local governments that have extended or received financial guarantees that are nonexchange transactions.

Project Objective

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LIMITED TO NONEXCHANGE TRANSACTIONS Some governments extend financial guarantees for the

obligations of another government, a not-for-profit entity, or a private entity without directly receiving consideration in exchange (a nonexchange transaction).

As part of this nonexchange financial guarantee, a government commits to indemnify the holder of the obligation if the entity that issued the obligation does not fulfill its payment requirement.

Some governments issue obligations that are guaranteed by other entities in a nonexchange transaction.

Scope of the Project

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Does not apply to guarantees related to special assessment debt

within the scope of Statement 6 Exchange transactions Exchange-like transactions

Scope Exclusions

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A school district that receives a financial guarantee from the state government for the district’s debt service payments on construction bonds it has issued.

Financial Guarantees-Example

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A nonexchange financial guarantee is a guarantee of an obligation of a legally separate entity, including a blended or discretely presented component unit, which requires that guarantor to indemnify a third-party obligation holder, under specified conditions.

-Pledges of future revenues are not financial guarantees as they are contingent upon the collection of future revenues.

What is a Nonexchange Financial Guarantee

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A government should recognize a liability and expense - when qualitative factors or historical data indicate that it is more likely than not that the government will be required to make a payment related to the nonexchange financial guarantees it extended for liabilities of other entities or individuals. Initiation of the process of entering into bankruptcy or financial reorganization Breach of a debt contract in relation to the guaranteed obligation, such as

failure to meet rate covenants or coverage ratios, or default or delinquency in interest or principal payments

Indicators of significant financial difficulty, such as failure to transfer deposits from debt service funds to paying agents or trustees on a timely basis or drawing on a debt service reserve fund to make debt service payments.

A government that has historical data on the default frequency of a group of guarantees

Liability Measurement – Economic Resources Measurement

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The amount of the liability recognized should be: The best estimate of the discounted future outflows

related to the guarantee expected to be incurred, or If there is no best estimate but a range of estimated

future outflows can be established— Discounted present value of the minimum amount within the

range.

Expenses related to nonexchange financial guarantees should be classified in the same manner as grants or financial assistance payments to other entities or individuals.

Liability Measurement – Economic Resources Measurement

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A government should recognize a fund liability and an expenditure to the extent the liability is normally expected to be liquidated with expendable available resources (when payments are due and payable on the guaranteed obligation) - when qualitative factors or historical data indicates that it is more likely than not that the government will be required to make a payment as a result of nonexchange financial guarantees it extended on liabilities of other entities or individuals

Expenses related to nonexchange financial guarantees should be classified in the same manner as grants or financial assistance payments to other entities or individuals.

Liability Measurement – Current Financial Resources Measurement

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Under both the economic resources measurement focus and the current financial resources measurement focus If a government is required to repay a guarantor for

nonexchange financial guarantee payments made on the government’s obligations, the government should reclassify that portion of its previously recognized liability for the guaranteed obligation as a liability to the guarantor.

The government that issued the guaranteed obligation should continue to report its liability until that portion of the liability is legally released, such as when a plan of adjustment is confirmed by the court. When a government is legally released as an obligor from the obligation and

from any liability to the guarantor, the government should recognize a revenue to the extent of the reduction of its guaranteed liabilities.

Governments Issuing a Guaranteed Obligation

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Any government that extends nonexchange financial guarantees should disclosure the following by type of guarantee: Description of the nonexchange financial guarantee:

Legal authority and limits for extending the guarantees and types of obligations guaranteed.

The relationship to the entity or entities issuing the obligations that are guaranteed

Arrangements for recovering payments from the issuers of the obligations that are guaranteed

Length of time of the guarantees The total amount of all guarantees extended that are

outstanding

Disclosures

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A government that recognizes a nonexchange financial guarantee liability or has made payments during the reporting period on the guarantees extended:

Brief description of the timing of recognition and measurement of the liabilities and a table presenting the changes in recognized guarantee liabilities including: Beginning of year balances Increases, including initial recognition and adjustments increasing

estimates Guarantee payments made and adjustments decreasing estimates End of year balances

Cumulative amounts of indemnification payments that have been made on guarantees extended that are outstanding

Amounts expected to be recovered from indemnification payments that have been made

Disclosures

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Governments that have outstanding obligations that have been guaranteed by another entity as part of a nonexchange transaction should disclose the following information about the guarantees by type of guarantee: Name of the entity providing the guarantee The amount of the guarantee Length of time of the guarantee Amount paid, if any, by the entity extending the guarantee on

obligations of the government during the current reporting period The cumulative amount paid by the entity extending the guarantee on

outstanding obligations of the government Description of requirements to repay the entity extending the

guarantee The outstanding amounts, if any, required to repay the entity

providing the guarantee

Disclosures

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Effective for periods beginning after June 15, 2013

Earlier application would be encouraged

Effective Date

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Documents

primary government

government combination

governmental combinations

general government area

discontinued operations

separate entities

acquisition of assets

separate governments