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27 January, 16:02

A governmental fund's Statement of Revenues, Expenditures, and Changes in Fund Balances reported expenditures of $40 million, including capital outlay expenditures of $12 million. Capital assets for that government cost $80 million, including land in the amount of $10 million. Depreciable assets are amortized over 10 years, on average. The reconciliation from governmental fund changes in fund balances to governmental activities change in Net Position would reflect a (an) : A) $4 million increase. B) $5 million decrease. C) $5 million increase. D) $4 million decrease.

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  1. 27 January, 16:05
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    C) $5 million increase.

    Explanation:

    The computation of the change in fund balances to governmental activities is shown below:

    = Capital outlay expenditures - actual expenditure

    where,

    capital outlay expenditure is $12 million

    And, the actual expenditure would be assumed as a depreciation expense which is calculated below

    = (Total capital cost - land value) : (useful life)

    = ($80 million - $10 million) : (10 years)

    = ($70 million) : (10 years)

    = $7 million

    As land is not depreciated so we excluded it from the capital assets

    Now put these values to the above formula

    So, the value would equal to

    = $12 million - $7 million

    = $5 million increase
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