P. 4-15

The distinction between exchange and nonexchange revenues is not always obvious.

You are the independent auditor of various governments. You have been asked for your advice on how the following transactions should be accounted for and reported. Characteristic of each transaction is ambiguity as to whether it is an exchange or a nonexchange transaction.

For each transaction indicate whether you think it is an exchange or a nonexchange transaction and make a recommendation as to how it should be accounted for (i.e., the amount and timing of revenue recognition). Justify your response. Note: The GASB has not explicitly distinguished between exchange and nonexchange transactions. Hence, in this problem, you should consider how you think the transaction should be accounted for; you need not be limited by current GASB standards.

1. A government receives from a developer a donation of 1,000 acres of land valued at $4 million. In return, the government grants the developer zoning variances on nearby property.
2. A college of pharmacy receives a grant of $2 million from a drug company to carry out research on a new formulation. The college agrees to submit the results to the company and to publish them only with the company's approval.
3. A city charges a developer an impact fee of $15,000 to compensate, in part, for improvements to the infrastructure in the area in which the developer plans to build residential homes. The city will make the improvements when construction on the new homes gets under way.
4. A city charges restaurants a license fee of $2,500. The license covers a period of two years. The fees must be used for health department inspections.
5. The city issues permits for residents to use city tennis courts. The fee is $100 per yeara small fraction of what it would cost to play on comparable private courts and an amount that covers only a small portion of the cost of constructing, maintaining, and operating the courts.

Answer: Exchange Revenue:When goods are sold or services are rendered in exchange for dissimilar goods or services, the exchange is regarded as a transaction which generates revenue. The revenue is measured at the fair value of the goods or services received, adjusted by the amount of any cash or cash equivalents transferred.

Non-Exchange Revenue:A non-exchange transaction is one in which one party receives something of value without directly giving value in exchange.

Answer 1:It is a Exchange revenue because both the parties receive anything by giving anything.

Answer 2:It is a Exchange revenue because both receives something.

Answer 3:It is a non exchange revenue because only one party receives anything.

Answer 4:It is a Exchange revenue.

Answer 5:It is a Non exhange revenue.

CONTINUING PROBLEM

Review the Comprehensive Annual Financial Report (CAFR) that you obtained.

1. What are the main sources of the government's revenues, including those from both governmental and businesstype activities?
2. How are revenues from property taxes accounted for, i.e., as a single amount, or in multiple categories? Identify the various categories and indicate the percentage breakdown (e.g., residential property taxes are 50 percent of the total property tax revenues).
3. Which of the entity's governmental functions or activities had the greatest amount of directly identifiable revenues?
4. Does the report discuss the accounting basis for recognizing revenues?
5. Does the government's governmentwide statement of net position or governmentalfund balance sheet report deferred revenue (or deferred inflows of resources)? If so, what is the most likely reason this amount has been deferred?
6. What is the government's property tax rate?
7. At what percentage of fair market value is real property assessed?
8. When are property taxes due? When do interest and penalties begin to accrue?
9. By what percentage did each of the three largest sources of tax revenue increase over the last ten years?
10. Did the government generate revenue from traffic fines? As best you can tell, are these revenues reported in the governmentwide statements as program revenues (e.g., associated with police or public safety) or as general revenues?