CDFM Accounting and Financial Reporting 4 — Questions and Answers
Question 1: Under GAAP for federal entities, how are general property, plant, and equipment (G-PP&E) assets depreciated?
- They are not depreciated
- Using only the straight-line method over their useful life
- Using any method that systematically allocates cost over useful life (Correct answer)
- Only when fair value drops below book value
Correct answer: Using any method that systematically allocates cost over useful life
SFFAS No. 6 allows various depreciation methods (straight-line, declining balance, etc.) as long as the method systematically allocates cost over the asset's estimated useful life.
Question 2: In federal accounting, 'imputed financing' from costs paid by other federal entities is recorded to:
- Reduce the agency's gross costs
- Recognize the full cost of an agency's operations (Correct answer)
- Increase the agency's budgetary resources
- Offset the agency's intragovernmental revenues
Correct answer: Recognize the full cost of an agency's operations
Imputed financing (e.g., OPM-paid benefits, Treasury borrowing costs) is recognized so that the agency's Statement of Net Cost reflects the full economic cost of its operations.
Question 3: A DoD installation discovers environmental contamination from prior operations. Under SFFAS No. 5, the cleanup liability should be recorded when:
- Congress appropriates cleanup funding
- The contamination is discovered and cleanup costs can be reasonably estimated (Correct answer)
- A cleanup contract is awarded
- The site is listed on the EPA's National Priorities List
Correct answer: The contamination is discovered and cleanup costs can be reasonably estimated
Environmental liabilities are recognized when the obligating event (contamination from prior operations) has occurred and cleanup costs can be reasonably estimated.
Question 4: Which concept explains why DoD must report the cost of military equipment used in operations even if it was purchased in a prior fiscal year?
- Budgetary accounting
- Accrual accounting and expense matching (Correct answer)
- Cash-basis accounting
- Obligation-based accounting
Correct answer: Accrual accounting and expense matching
Accrual accounting requires matching expenses (depreciation on assets) to the periods in which the assets provide service, regardless of when cash was paid.
Question 5: The Reconciliation of Net Cost of Operations to Budget (formerly the SBR Schedule P) is used to:
- Identify differences between proprietary (accrual) and budgetary accounting results (Correct answer)
- Reconcile intragovernmental transactions with trading partners
- Adjust prior-year financial statements for errors
- Calculate the agency's net position
Correct answer: Identify differences between proprietary (accrual) and budgetary accounting results
This reconciliation bridges proprietary accrual-based net cost of operations and the budgetary obligated amounts, explaining differences due to timing and other factors.
Question 6: Under federal standards, a 'stewardship asset' such as national defense assets (weapons systems) is reported:
- On the balance sheet at historical cost
- On the balance sheet at fair market value
- As required supplementary information, not on the balance sheet (Correct answer)
- As an expense in the year of acquisition
Correct answer: As required supplementary information, not on the balance sheet
National defense assets are not capitalized on the balance sheet but are reported as required supplementary stewardship information due to their unique nature.
Question 7: When a federal entity transfers assets to another federal entity at no cost, what accounting treatment is required by the transferring entity?
- Recognize a gain equal to the book value of the asset
- Record a financing source (transfer-out) and remove the asset (Correct answer)
- No entry is required because no cash changed hands
- Record the transaction as a reduction in expenses
Correct answer: Record a financing source (transfer-out) and remove the asset
Non-exchange transfers of assets between federal entities are recorded as financing sources/uses (transfers-in/out), with the asset removed from the transferring entity's books.
CDFM Accounting and Financial Reporting 4
Under GAAP for federal entities, how are general property, plant, and equipment (G-PP&E) assets depreciated?