[jberrier]

My question relates to NINJA MCQ 1257 (FAR). I don’t understand why none of the revenue is recognized in 2001. According to my review course text, property tax revenue is recognized when it is available to spend, which includes the 60 days after the fiscal year end. I didn’t think it mattered that the tax was levied for 2002 (in 2001), since some of it is “available” to spend, as the question makes it clear that some of it will be collected within the first 60 days of 2002. The problem is that the question doesn’t specify how much of that will be collected by February 28, 2002. Perhaps that is why nothing is accrued? Otherwise, I would assume that you would accrue all estimated amounts that are expected to be collected in January and February of the following year. In this case, it just mentions that 90% are estimated to be collected between January 2002 and February 2003–no detailed breakout is given.

Or is it perhaps because the levy doesn’t necessarily imply that the property owners were billed on September 01? Looking back in my text it states that a receivable (not necessarily any accompanying recognized revenue) is recognized at billing. This question just mentions that 50% of the levy is due in January 2002, but doesn’t explicitly mention when people were actually billed.

Q:

“Halderman County levies an imposed nonexchange form of tax in the year prior to the year of its intended collection and use. An enforceable legal claim does not arise until the period after the period of its intended collection and use. The following facts apply:

On September 1, 20X1, the county levied $2 million of tax for FY 20X2—50% of the tax is due on January 15, 20X2, and the remainder is due July 15, 20X2.

It is estimated 5% of the levy will be uncollectible.

An enforceable legal claim for the September 1, 20X1, levy does not attach until January 15, 20X3.

It is estimated 90% of the September 1, 20X1, levy will be collected during the period January 1, 20X2, through February 28, 20X3. The balance will be collected at a later date, or go uncollected.

The County uses an “availability period” equal to two months following the close of the fiscal year, and has a fiscal year-end of December 31.

How much revenue would be reported at the fund level in 20X1?

A) $0

B) $1,500,000

C) $1,900,000

D) $2,000,000

Answer: A: $0

“Governmental entities 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. All other imposed nonexchange revenues should be recognized in the same period that the assets are recognized unless the enabling legislation includes time requirements. If so, revenues should be recognized in the period when the resources are required to be used or when use is first permitted.” (GASB N50.115)

The year taxes are levied is 20X1 for use in 20X2. The due dates for payment of the taxes are January 15, 20X2, and July 15, 20X2. With the schedule of payments, no revenues are recognized in 20X1. (GASB N50.115)

[AlexCPA]

“All other imposed nonexchange revenues should be recognized in the same period that the assets are recognized unless the enabling legislation includes time requirements. If so, revenues should be recognized in the period when the resources are required to be used or when use is first permitted.”

In the question it states: “Halderman County levies an imposed nonexchange form of tax in the year prior to the year of its intended collection and use”

So they will recognize revenue in the period it will be used which is not until the following year.

FAR - 89
AUD - 88
REG - TBD
BEC - TBD

Using Becker and Ninja MCQ

[jberrier]

Thanks for the quick response Alex. Here's what's confusing me–the GASB statements seem to be different from my review course text. I don't know if I'm allowed to mention my review course text here on the forums, but my text states that revenue that is expected to be collected in the first 60 days of the following fiscal year may be considered available to spend in the current year, and thus accrued. An example in the text follows whereby a tax for X2 is levied for November X1, then the entire receivable for the levy is debited, following credits for revenues for specific amounts expected to be collected in November, December X1, and January, February X2. The amounts for March X2 are credited as deferred revenues.

So, my text seems to imply that “availability” of use is what matters, not intended collection and use. So, this seems to contradict GASB, or else I'm just completely reading something incorrectly. I would have asked this question to the moderators on the exam forum for my review course, but this specific question is not in the MCQ for their course, so they don't like to answer questions about materials from other sources. Again, maybe I'm just misunderstanding the text.

[AlexCPA]

Modified accrual recognizes revenues when they are “measurable and available” Time requirements and purpose restrictions will affect whether or not revenues can be recognized due to their availability. Think about it this way, the tax revenue for Halderman County will not be ‘available' since they are restricted for use at a future date. In this case they are recognized as a deferred inflow of resources.

Property taxes that have no restriction on time of use can be recognized as revenue when levied. According to GASB 33 they are classified as non-exchange imposed transactions -Imposed taxes such as property tax and fines, can be treated this way.

Check out this for clarification https://www.gasb.org/st/summary/gstsm33.html. Hope it clears it up for you.

FAR - 89
AUD - 88
REG - TBD
BEC - TBD

Using Becker and Ninja MCQ

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