PUBLIC FINANCIAL MANAGEMENT (FINAL EXAM) QUESTIONS AND ANSWERS

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PUBLIC FINANCIAL MANAGEMENT
(FINAL EXAM) QUESTIONS AND
ANSWERS

BasisvfofvfAccountingvf-vfanswer--WHENvftransactionsvfandvfeventsvfarevfrecognized.

CashvfBasis
ModifiedvfAccrual
FullvfAccrual

FullvfAccrualvf(BasisvfofvfAccounting)vf-vfanswer--Usedvfonvfgovernment-
widevfstatements.vfTakesvfintovfaccountvfALLvfassetsvfandvfliabilities,vfbothvfcurrentvfandvfn
on-currentvf(includesvflong-termvfassetsvfandvfliabilities).

ModifiedvfAccrualvf(BasisvfofvfAccounting)vf-vfanswer--
Usedvfonvfgovernmentalvffundvfstatements.vfIncludesvfshort-
termvffinancialvfassetsvfandvfliabilitiesvf(NOTvfcapitalvfassetsvforvflong-termvfliabilities).

Measurementvffocusvf-vfanswer--WHATvfisvfbeingvfreportedvfonvf

Currentvfeconomicvfresources
Allvfeconomicvfresources

ValuevfAddedvfTaxesvf-vfanswer--
Consumptionvftaxes,vfsuchvfasvfthevfVATvfarevfgenerallyvfconsideredvfregressivevfrelativevf
tovfincomevftaxesvfsincevfthevfwealthyvfspendvfavfsmallervfportionvfofvftheirvfincomevfthanvfth
evfpoor.vfThevfVATvfisvfmostvftransparentvfwhenvfitvfisvfexplicitlyvfaddedvftovfthevfpricevfofvfthe
vfgoods,vfensuringvfthatvfthevfultimatevftaxpayersvfarevfawarevfthatvftheyvfarevfpayingvfthevfta

x.vfSimilarvftovfavfsalesvftax,vfjustvfcollectedvfatvfdifferentvfstages.

PropertyvfTaxesvf-vfanswer--IMPOSED,vfnon-
exchangevftaxvfrevenue.vfRecognizedvfatvfthevftimevfduringvfwhichvfthevfgovernmentvffirstvf
hasvfanvfenforceablevfclaimvftovfthevfassetsvforvfwhenvftheyvffirstvfreceivevfthevfassets.vfNotvf
asvfprogressivevfasvfincomevftaxvfbutvfnotvfasvfregressivevfasvfsalesvftax.

SubstantivevfDuevfDatevfforvfPropertyvfTaxvf-vfanswer--
Datevfonvfwhichvfinterestvfandvfpenaltiesvfbeginvftovfaccruevforvfavflienvfisvfimposed.

SalesvfTaxvf-vfanswer--DERIVED,vfnon-
exchangevftaxvfrevenue.vfRecognizedvfatvfthevftimevfthevfunderlyingvfexchangevftransactio
nvftakesvfplace.vf"Available"vfcriterionvfappliesvftovffundvfstatements.

IncomevfTaxvf-vfanswer--DERIVEDvfnon-
exchangevftaxvfrevenue.vfRecognizevftaxesvfasvfrevenuevfduringvfthevfperiodvfinvfwhichvfth

, evfincomevfisvfearned.vfLargestvfformvfofvfrevenuevfforvfU.S.vfgovernmentvf(adequatevfformv
fofvfrevenue)



Grantsvf-vfanswer--
UnrestrictedvfwithvfTimevfRequirement:vfshouldvfbevfrecognizedvfinvfthevfperiodvfinvfwhichvft
hevftimevfrequirementvftakesvfplace.

GrantvfwithvfPurposevfRestriction:vfrestrictionvfdoesn'tvfmattervf-
vfwevfshouldvfrecognizevfwhenvfreceived.



Reimbursementvf=vfgovernmentvfcanvfonlyvfrecognizevfgrantvfasvfitvfincursvfallowablevfcost
s,vfNOTvfwhenvfgrantvfisvfannounced.

Pledgesvf-vfanswer--
Invffundvfstatements,vfwevfmustvfdelayvfrecognitionvfuntilvffundsvfarevfavailablevftovfmeetvfcu
rrentvfobligations.

Nonprofitsvfshouldvfmeasurevfthevfpledgesvfatvfthevfpresentvfvaluevfofvfestimatedvffuturevfc
ashvfflowsvfusingvfavfdiscountvfratevfasvfapplicable.vfThesevffuturevfpledgesvfarevf"temporar
ilyvfrestricted"vf(thevfrestrictionvfisvftimevf-vfrestrictedvfuntilvfpaymentvfisvfreceived)

RegressivevfTaxvf-vfanswer--Effectivevfratesvfarevflowervfinvfhigh-
abilityvfgroupsvfthanvfinvflow-abilityvfgroupsvf(e.g.vfsalesvftax)

ProgressivevfTaxvf-vfanswer--Effectivevfratesvfarevfhighervfinvfhigh-
abilityvfgroupsvfthanvfinvflow-abilityvfgroupsvf(e.g.vfincomevftax)

CharacteristicsvfofvfavfTaxvf-vfanswer--Collectability
Neutrality
Adequacy
Transparency
Exportability/Incidence
Horizontal/VerticalvfEquity
Regressive/Progressive

WhyvfLeasevfvsvfBuy?vf-vfanswer--
Capitalvfleasesvfcanvfbevfusedvftovfavoidvfdebtvflimitationsvf(butvftreatedvfasvfifvfentityvfwasvfb
uyingvfanvfassetvfandvfissuingvflong-
termvfdebtvftovffinancevfthevfpurchase).vfLeasesvfmayvfalsovfnotvfneedvfvotervfapproval.

OperatingvfvsvfCapitalvfLeasevf-vfanswer--Operatingvfleasesvfdovfnotvfrequirevflong-
termvfdebtvftovfbevfrecorded;vfliabilityvfisvfnotvfrecordedvfuntilvfservicevfhasvfbeenvfgivenvf(e.g
.vfTomvfSherman)

GeneralvfObligationvfBondsvf-vfanswer--
Backedvfbyvffullvffaithvfandvfcreditvfofvfthevfgovernment.vfAlmostvfalwaysvfhasvflowervfintere
stvfratesvfthanvfrevenuevfbonds.vfThesevfarevftypicallyvfsubjectvftovfthevfdebtvflimit.

RevenuevfBondsvf-vfanswer--
Securedvfonlyvfbevfdesignatedvfrevenuevfstreamsvf(business-typevfactivities)vf-