CGA Public Sector & Not-for-Profit Accounting 2 — Questions and Answers
Question 1: Under PSAB, tangible capital assets acquired by government entities are:
- Expensed immediately in the period of acquisition
- Capitalized and amortized over their useful lives (Correct answer)
- Capitalized but never amortized
- Recorded off-balance-sheet in a memorandum account
Correct 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.
Question 2: Which concept explains why a government's budget document is considered a legally binding authorization for expenditures?
- Going concern principle
- Legislative appropriation (Correct answer)
- Matching principle
- Fiscal neutrality
Correct 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.
Question 3: A municipality receives a $2 million provincial grant restricted to road repairs. Under the deferral method, when is this grant recognized as revenue?
- When the grant agreement is signed
- When cash is received from the province
- As the related road repair expenditures are incurred (Correct answer)
- At fiscal year-end regardless of spending
Correct 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.
Question 4: What is the primary purpose of the Statement of Operations in a public sector entity's financial statements?
- To present changes in net debt
- To report the annual surplus or deficit and cumulative accumulated surplus/deficit (Correct answer)
- To reconcile budget to actual results
- To disclose all contingent liabilities
Correct 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.
Question 5: In public sector accounting, 'net debt' is defined as:
- Total liabilities minus total assets
- Financial liabilities minus financial assets (Correct answer)
- Long-term debt minus current assets
- Total debt minus cash and equivalents
Correct 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.
Question 6: Which of the following is NOT a characteristic of a not-for-profit organization under Canadian accounting standards?
- It is a nonprofit entity
- It has no individual ownership interests
- Its primary purpose is to provide goods or services at a profit (Correct answer)
- Surpluses are not distributable to members
Correct 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.
Question 7: Under PSAB, which of the following would be classified as a financial asset on a government's Statement of Financial Position?
- Land held for a public park
- Equipment used by a government department
- Taxes receivable from citizens (Correct answer)
- Prepaid expenses
Correct 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.
CGA Public Sector & Not-for-Profit Accounting 2
Under PSAB, tangible capital assets acquired by government entities are: