FAR · Financial reporting · 6 practice questions
GASB property tax and grants: availability and time restrictions
Property taxes are revenue when measurable and available for the period the levy finances. Below: a timeline showing availability vs time restrictions and reimbursement‑type grants.
Try one first
Hint
Separate recognition of a receivable from revenue recognition; note which financial statements use full‑accrual versus modified‑accrual and remember that imposed nonexchange taxes include a time requirement.
Answer A. Property taxes are imposed nonexchange revenues that include a time requirement: revenue is recognized in the period for which the tax is levied. Because this levy is restricted to Year 2, the time requirement is not satisfied at December 31, Year 1. Therefore the city should record a receivable and a deferred inflow of resources in Year 1 in both the government‑wide (full‑accrual) statements and the General Fund (modified‑accrual). In Year 2 the government‑wide statements recognize the revenue when the time requirement is met; the General Fund recognizes revenue in Year 2 only to the extent the amounts are also available under its 60‑day rule.
Why not B: This option correctly identifies a government‑wide deferral but misapplies the modified‑accrual rule: when a levy is intended for a future period, the General Fund also reports a deferred inflow in Year 1 despite near‑term collections because the time requirement for revenue recognition is not met.
Why not C: This is tempting because measurability and collection within 60 days point to revenue under modified accrual, but it ignores the time requirement: resources levied to finance Year 2 cannot be recognized as revenue in Year 1 even if collectible within 60 days. Both statements therefore record a deferred inflow in Year 1.
Why not D: An enforceable claim supports recording a receivable, but it does not override the time requirement. The fact that resources are legally due does not permit government‑wide revenue recognition in Year 1 when the levy is restricted to Year 2; both statements should defer in Year 1.
The timeline
- Day 0 (during Year 1)Current‑year levy for Year 1 operations is imposed and measurable
Government‑wide recognizes revenue net of uncollectibles when the underlying event applies to Year 1; the General Fund recognizes only amounts that are also available under its policy, with the remainder as a deferred inflow.
- Year 1 end + availability window (for example, 60 days)Cutoff for General Fund availability
In the General Fund, recognize revenue for collections by year‑end plus amounts collected within the availability period; amounts collected after the window are deferred until next year.
- December (late in Year 1)Separate levy is imposed to finance Year 2 operations
Record a receivable and a deferred inflow in both government‑wide and General Fund statements; do not recognize current‑year revenue because the time requirement is for Year 2.
- Before Year 1 year‑endCash is received from the Year 2 levy
Still a deferred inflow in the General Fund; early collection does not overcome the time restriction.
- Start of Year 2Eligible period for the Year 2 levy begins
Government‑wide recognizes revenue when the time requirement is met; the General Fund recognizes revenue in Year 2 only to the extent the amounts are also available under its policy.
- December 1, Year 1Time‑restricted grant for a Year 2 program is received in cash
Report a deferred inflow in the General Fund until the Year 2 eligible period begins; do not recognize Year 1 revenue.
- August 1, Year 1Reimbursement‑type grant cash advance is received
Record a liability; recognize no revenue until allowable costs are incurred.
- Year 2 (as costs are incurred)Allowable costs are incurred under the reimbursement‑type grant
Recognize grant revenue in both the fund and government‑wide statements equal to allowable costs; reduce the liability for the earned amount.
Key points
- Availability is a governmental fund policy (often 60 days) and applies only to funds using modified accrual.
- Levies for next year are deferred in the current year even if cash is received before year‑end or within the availability window.
- Government‑wide statements use full accrual: no availability test; recognize revenue when the time/eligibility requirement is met, net of uncollectibles.
- Always reduce the levy for estimated uncollectibles when measuring revenue; the remainder not available is a deferred inflow in governmental funds.
- Reimbursement grants received in advance are liabilities until qualifying costs are incurred; time‑restricted advances are deferred inflows.
How the exam traps you
- Treating collections of a levy for next year as current‑year revenue because cash was received or expected within 60 days. Record a receivable and a deferred inflow in the current year; recognize revenue in the year the time requirement is met and, in governmental funds, only to the extent available.
- Applying the governmental fund availability rule to government‑wide statements. Government‑wide uses full accrual. Recognize revenue when the underlying event/time requirement is met; do not apply an availability window.
- Ignoring estimated uncollectibles when computing property tax revenue. Measure revenue net of estimated uncollectibles; amounts beyond availability are deferred inflows in governmental funds.
- Recognizing reimbursement‑type grants on award or cash receipt. Recognize revenue only as allowable costs are incurred; record advances as liabilities until earned.
Question 2
Hint
For each grant, identify the type of stipulation first: is it mainly a time requirement, or is it an expenditure-based eligibility requirement?
Answer B. Grant 1 is subject to a time requirement (resources are for Year 2), so cash received before the period of eligibility is reported as a deferred inflow of resources in the General Fund. Grant 2 is a reimbursement grant, so revenue is recognized only to the extent qualifying expenditures have been incurred ($220,000); the remaining $80,000 is refundable and therefore reported as a liability until earned or returned.
Why not A: This choice is tempting because students may reflexively record advance receipts as liabilities. However, Grant 1's restriction is a time requirement, which yields a deferred inflow in a governmental fund rather than a liability. For Grant 2, the unsupported $80,000 must be returned (a present obligation), so it is a liability, not a deferred inflow.
Why not C: This gets Grant 2 correct but improperly recognizes Grant 1 as revenue. Because Grant 1's resources are earmarked for Year 2, the time requirement is unmet at year-end and the amount should be deferred, not recognized as current-year revenue.
Why not D: This treats the reimbursement grant as fully earned on receipt. Reimbursement grants are recognized as revenue only to the extent qualifying expenditures have been incurred; since only $220,000 of qualifying costs existed by year-end, the remaining $80,000 cannot be recognized as revenue and must be reported as a liability.
Question 3
Hint
Under modified accrual, do not stop after asking whether the amount is measurable and available. Also ask whether the inflow is meant to finance the current period or a later period.
Answer D. Under the modified accrual basis for governmental funds, revenue is recognized when amounts are measurable, available, and intended to finance the current period. Resources received or levied for a future period should be reported as a deferred inflow of resources rather than current revenue. Because these taxes were levied specifically to finance Year 2, they should be deferred and not recognized as Year 1 General Fund revenue even if collected before Year 1 end.
Why not A: This is tempting if a student focuses only on the post-year-end collection, but the city's 60-day availability window includes the 30-day collection. Because the levy was intended for Year 1 operations and the amount is available, it is generally recognized as Year 1 revenue.
Why not B: Although sales taxes are collected by an intermediary, the underlying taxable events occurred in Year 1, the amounts are measurable, and remittance within 20 days meets the availability criterion. Therefore, these are generally Year 1 revenue for the General Fund.
Why not C: Reimbursement grants require that eligible expenditures be incurred and that compliance conditions be met. The stem states that allowable Year 1 expenditures were incurred and eligibility conditions are met, and collection occurs within the 60-day availability period, so the grant is generally recognized as Year 1 revenue.
Question 4
Hint
Separate the reporting basis for the general fund from the basis used in the government-wide statements, then focus on what the 60-day rule affects.
Answer B. Governmental funds use the modified accrual basis, which requires revenue to be both measurable and available. The city collected $4.6 million by year-end plus $250,000 within the 60-day availability period, so the general fund recognizes $4.85 million and defers the $50,000 expected in March. Government-wide statements use the accrual basis for governmental activities, so the full $4.9 million levy is recognized as 20X5 revenue.
Why not A: Tempting because the entire levy is collectible, but governmental funds require amounts to be both measurable and available; the $50,000 expected in March falls outside the 60-day availability window and should be reported as a deferred inflow in the general fund.
Why not C: This reflects a cash-only view for the general fund (ignoring the 60-day availability rule) and incorrectly applies cash timing to government-wide accrual accounting; the $250,000 collected in January is available and should be recognized in 20X5, and government-wide accrual recognizes the full levy regardless of collection timing.
Why not D: This correctly applies the availability rule to the general fund but incorrectly carries that availability limitation into the government-wide statements; government-wide governmental activities use full accrual accounting, so the entire $4.9 million should be recognized in 20X5.
Question 5
Hint
Start by identifying whether the award notice or cash receipt actually satisfies the grant's eligibility requirements, and then consider whether those requirements are met all at once or over time.
Answer D. This is a reimbursement-type voluntary nonexchange transaction. Revenue is recognized only when the grant's eligibility requirements are met, here, the eligible event is incurring allowable Year 2 costs. Therefore revenue is recognized incrementally as qualifying costs are incurred in both the special revenue fund (modified accrual) and the government-wide statements (full accrual).
Why not A: Tempting because cash was received, but an advance does not become revenue until eligibility/time requirements are met. The grant restricts use to Year 2 costs, so revenue cannot be recognized in Year 1.
Why not B: This overstates the timing requirement. A reimbursement grant is recognized as portions of the eligibility requirement are met; once the city incurs qualifying costs, that portion of the award is recognized as revenue rather than waiting for full performance.
Why not C: This distractor plays on the idea that government-wide statements use accrual accounting. However, accrual accounting still requires that the grant's eligibility and time requirements be met; because use is restricted to Year 2 costs, the government-wide statements must also wait until allowable costs are incurred.
Question 6
Hint
Separate the fund statements from the government-wide statements before deciding how much becomes revenue.
Answer B. Under modified accrual accounting used by governmental funds, revenue is recognized when it is both measurable and available; with a 60-day availability period the general fund recognizes the $2,800,000 collected within that period and reports the $140,000 not collected within 60 days as a deferred inflow of resources. Government-wide statements use full accrual accounting and do not apply the availability period, so the full net collectible levy of $2,940,000 is recognized as revenue for Year 1. The stem's assumption that the $140,000 is collectible (with no allowance) supports recognition in the government-wide statements.
Why not A: This is tempting because it over-applies the governmental fund availability rule. It is incorrect because the availability concept is a modified-accrual (governmental fund) notion and does not limit revenue recognition in government-wide statements prepared on the accrual basis.
Why not C: This choice reverses the applicable frameworks. The general fund must apply the availability test and therefore cannot recognize the $140,000 as revenue at year-end, while the government-wide statements recognize the full net levy under accrual accounting.
Why not D: This is incorrect because governmental funds should report amounts not yet available as a deferred inflow of resources rather than merely as a receivable, and government-wide (accrual) reporting does not defer revenue until cash collection when the amount is collectible.
Common questions
Does the 60‑day availability rule apply in government‑wide statements?
No. The availability test applies only to governmental funds using modified accrual. Government‑wide statements use full accrual and recognize revenue when the time or eligibility requirement is met, net of uncollectibles.
How are property taxes levied late in the year for next year’s budget reported if some are collected before year‑end?
Report a receivable and a deferred inflow in the current year. Recognize revenue in the next year, and in the General Fund only to the extent the amounts are available under the government’s policy.
How do you report grant cash received before eligibility is met?
For time‑restricted grants, report a deferred inflow until the eligible period begins. For reimbursement‑type grants, report a liability until allowable costs are incurred; recognize revenue as costs are incurred.
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