Public Sector & Not-for-Profit Accounting Flashcards

Under PSAB, tangible capital assets acquired by government entities are:

Answer: Capitalized and amortized over their useful lives

PSAB requires governments to capitalize tangible capital assets and amortize them over their estimated useful lives on a systematic and rational basis.

Which concept explains why a government's budget document is considered a legally binding authorization for expenditures?

Answer: Legislative appropriation

Legislative appropriation is the legal authority granted by the legislature authorizing the government to spend funds up to specified limits for designated purposes.

A municipality receives a $2 million provincial grant restricted to road repairs. Under the deferral method, when is this grant recognized as revenue?

Answer: As the related road repair expenditures are incurred

Under the deferral method, externally restricted contributions are recognized as revenue in the period the related expenditures are incurred, matching revenue with the funded activity.

What is the primary purpose of the Statement of Operations in a public sector entity's financial statements?

Answer: To report the annual surplus or deficit and cumulative accumulated surplus/deficit

The Statement of Operations presents revenues and expenses for the period and shows the resulting annual surplus or deficit, as well as the accumulated surplus/deficit position.

In public sector accounting, 'net debt' is defined as:

Answer: Financial liabilities minus financial assets

Net debt is a key public sector indicator calculated as financial liabilities minus financial assets, measuring the government's future revenues needed to pay existing obligations.

Which of the following is NOT a characteristic of a not-for-profit organization under Canadian accounting standards?

Answer: Its primary purpose is to provide goods or services at a profit

NPOs are formed for purposes other than profit — their primary purpose is to provide a service or further a social, educational, or other public-interest mission, not to earn profit.

Under PSAB, which of the following would be classified as a financial asset on a government's Statement of Financial Position?

Answer: Taxes receivable from citizens

Financial assets are assets that could be used to discharge existing liabilities or finance future operations, and taxes receivable qualify as they represent a right to receive cash.