Pass the AGA Government Financial Manager GAFRB Questions and answers with ValidTests

In the statewide financial statements, which represent the government-wide financial reporting model, depreciation is reported using the full accrual basis of accounting. This means long-term assets and liabilities are recognized, and depreciation is recorded systematically over the useful lives of capital assets.

The modified accrual basis (used in governmental funds) does not report depreciation because capital assets are not reported in those funds.

Relevant References:

GASB Statement No. 34 – Depreciation Reporting

GASB Concept Statement No. 1 – Measurement Focus and Basis of Accounting

GFOA – Capital Asset and Depreciation Policies

Answer: D. accrual basis

The Statement of Net Cost is the principal financial statement used by federal agencies to report the total cost of their programs and activities. It aligns the agency's programs, outputs, and strategic objectives with the cost incurred to produce those outputs.

The Department of Health and Human Services, like all federal agencies, uses this statement to display costs by major program or responsibility segment.

Relevant References:

FASAB SFFAS No. 4 – Managerial Cost Accounting Standards

FASAB SFFAS No. 55 – Amending the Statement of Net Cost

OMB Circular A-136 – Section on Federal Financial Statements

Answer: A. Statement of Net Cost

Non-exchange revenues are those in which a government gives or receives value without directly receiving or giving equal value in return. Sales taxes are a classic example of a non-exchange revenue because the payer (consumer) does not receive a direct, measurable benefit from the government in exchange for the tax paid.

Other examples of non-exchange revenues include property taxes, grants, and fines. In contrast, licensing fees and investment earnings are exchange or exchange-like revenues, since they involve a mutual benefit or earnings return.

Relevant Standards and References:

GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions

GASB Codification Section N50

GFOA Revenue Classification Guidelines

Comprehensive Detailed Explanation:

Capitalization of interest begins when three conditions are met:

Expenditures for the asset have been made (i.e., costs are being incurred)

Activities necessary to prepare the asset for use are in progress

Interest cost is being incurred

Signing a contract does not trigger capitalization — the actual incurrence of costs and activities must begin.

This rule is based on GAAP and FASB/GASB guidance for capital asset construction.

Relevant References:

GASB Statement No. 62 – Capitalization of Interest

FASB ASC 835-20 – Interest Capitalization

GFOA – Capital Asset Accounting Guidelines

Answer: A. the contract is signed for purchasing the asset

Comprehensive Detailed Explanation:

Budget authority is the legal authorization provided by Congress that allows federal agencies to enter into obligations that will result in outlays, either immediately or in the future. It is a prerequisite for agencies to spend federal funds.

Commitment authority is not an official federal term; transfer authority allows movement of funds between accounts and is more restrictive; expenditure authority is an informal term and not defined in U.S. Code.

Relevant References:

U.S. Code Title 31 – § 1341 and § 1102

GAO Red Book – Budget Concepts

OMB Circular A-11, Section 20 – Budget Authority Definition

Answer: B. a budget authority

The city issues $100,000 in general obligation bonds on April 1, 2024, and the first principal payment of $10,000 is due on March 31, 2025. The interest rate is 5% annually on the unpaid principal balance.

As of April 1, 2024, the full $100,000 is outstanding. For the full fiscal year (April 1, 2024 to March 31, 2025), interest accrues on the full amount until payment is made. The interest on $100,000 for one year at 5% =

Interest Expense = $100,000 × 5% = $5,000

Note: Interest is typically calculated on the beginning-of-period balance, and since the payment is made at the end of the year (March 31, 2025), the full $5,000 interest is recognized for that year.

Relevant Standards and References:

GASB Statement No. 34, Basic Financial Statements for State and Local Governments

GASB Codification Section 2200 (Government-Wide Financial Statements)

GFOA Guidance on Long-Term Debt Accounting

The city has a June 30 fiscal year-end and applies the 60-day availability rule, which is standard under modified accrual accounting for governmental funds like the general fund.

Total collections within:

Fiscal year: $12 million

60-day window (July + August): $1 million + $500,000 = $1.5 million

Revenue recognized = $12 million + $1.5 million = $13.5 million

However, under GASB Interpretation No. 5 and GASB Statement No. 33, only amounts expected to be collected within 60 days after year-end should be recognized as revenue in the general fund. The city uses the 60-day rule.

Thus, the correct amount to recognize is:

$12 million (collected during fiscal year)

$1 million (July)

$500,000 (August) = $13.5 million

Answer: C. $13.5 million

Relevant References:

GASB Statement No. 33 – Accounting and Financial Reporting for Nonexchange Transactions

GASB Interpretation No. 5 – Property Tax Revenue Recognition

GASB Codification Section 1600.115 (Modified Accrual Basis)

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To annualize the projected sales tax revenue from 9 months of actual data:

Step 1: Determine the monthly average:

$26.5 million ÷ 9 months = $2.944 million/month

Step 2: Project for 12 months:

$2.944 million × 12 = $35.33 million ≈ $35.3 million

However, the closest and most likely answer choice based on rounding is:

Answer: B. $35.3 million

Correction to earlier assumption: The original intended answer was marked as C. $40.0 million, but that would only apply if growth or seasonal adjustments were involved, which the question states are unknown. Therefore, the correct projected revenue based on straight-line extrapolation is:

Final Answer: B. $35.3 million

A revolving fund is a fund established to finance a continuing cycle of operations where the receipts (e.g., fees or reimbursements) are used to finance future operations. These funds are usually self-sustaining and are designed to recover full costs of providing goods or services.

The described situation — an agency providing procurement services to other agencies and using collected fees to continue operations — is a classic example of an intragovernmental revolving fund (also called a working capital fund).

Relevant References:

OMB Circular A-11, Section 20 – Fund Classifications

GAO Glossary of Terms – Revolving Fund

FASAB SFFAS No. 7 – Revenue and Other Financing Sources

Answer: A. revolving fund

An Agency Financial Report (AFR), required by OMB Circular A-136, must include the following core components:

✔Management’s Discussion and Analysis (MD&A)

✔Financial Section (includes basic financial statements and accompanying notes)

✔Required Supplementary Information (RSI)

✔Auditor’s Opinion (if audited)

However, the Standard General Ledger (SGL) trial balance is not included in the AFR itself. While agencies must use the SGL for financial reporting consistency and submit trial balances to Treasury (e.g., via GTAS), the trial balance is not published in the AFR.

Relevant References:

OMB Circular A-136

Treasury Financial Manual (TFM)

FASAB SFFAS No. 53 – Financial Reporting

Answer: C. a standard general ledger trial balance