GAFRB Practice Questions

A permanent fund is a governmental fund used to report resources that are legally restricted so that

only earnings (not principal) may be used to support government programs. These are typically

endowments where the corpus is preserved in perpetuity.

According to GASB Statement No. 34, permanent funds are classified under governmental funds and

must be used to benefit the government or its citizenry.

Relevant Standards and Reference:

GASB Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—

for State and Local Governments

GASB Codification Section 1300, Fund Types

GFOA Budgeting & Fund Balance Guidance

Therefore, Option B is correct.

Under FASAB standards, specifically SFFAS No. 4, Managerial Cost Accounting Standards, the full cost

of an output includes:

Direct costs (e.g., direct material and labor)

Indirect costs (e.g., inter-entity costs, overhead, services)

In-kind contributions

Any support service costs

Depreciation or amortization, if applicable

We will now compute the full cost of all 5 units and then divide by 5 to obtain the cost per unit.

Step 1: List and sum all relevant costs.

Direct Material: $11,267,000

Direct Labor: $5,980,000

Inter-entity Costs: $1,500,000

Accounting and Contracting Services: $500,000

Physical and Data Security: $700,000

In-kind Logistics Services: $500,000

Warehouse Lease: $1,000,000

Parking Lot Construction: $3,000,000

Equipment Installation: $600,000

New Employee Training: $100,000

Total Full Cost =

$11,267,000

$5,980,000

$1,500,000

$500,000

$700,000

$500,000

$1,000,000

$3,000,000

$600,000

$100,000

= $25,147,000

Step 2: Calculate cost per unit (based on 5 outputs):

Cost per unit = $25,147,000 ÷ 5 = $5,029,400

But the question specifically asks:

“Based on FASAB standards, calculate the full cost of 1 unit of an output…”

So, the correct answer (full cost of all units) is:

Answer : D. $25,147,000

Explanation:

If they had asked for cost per unit, then the answer would be:

= $5,029,400 → Option C

Note: Option C is a distractor here and would only be correct if the question specifically asked for per

unit cost.

Relevant Standards and Reference:

FASAB Statement of Federal Financial Accounting Standards (SFFAS) No. 4: Managerial Cost

Accounting Concepts and Standards

OMB Circular A-136: Financial Reporting Requirements

Treasury Financial Manual (TFM), Volume I, Part 2, Chapter 4700

Therefore, the correct answer to the full cost (not per unit) is:

Answer : D. $25,147,000.

Explanation:

A custodial fund is a type of fiduciary fund used by state and local governments to report assets held

temporarily in a purely custodial capacity—for example, taxes collected by one government on

behalf of another. These funds do not involve administrative or financial control over the assets; the

government is merely acting as an intermediary.

As per GASB Statement No. 84, custodial funds replace agency funds and are used to report fiduciary

activities that are not held in a trust agreement and where the government does not have discretion

over how the resources are spent.

Relevant Standards and Reference:

GASB Statement No. 84, Fiduciary Activities

GASB Codification Section 1300: Fiduciary Funds

GFOA Best Practices – Accounting and Financial Reporting for Fiduciary Activities

Therefore, Option A is correct.

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

Explanation:

Relevant Reference:

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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Comprehensive Detailed

According to FASAB's Objectives of Federal Financial Reporting (Statements of Federal Financial

Accounting Concepts, particularly SFFAC No. 1), the four major objectives of federal financial

reporting are:

Budgetary Integrity

Operating Performance

Stewardship

Systems and Control

Mission readiness is not one of the core federal financial reporting objectives under FASAB standards,

although it may be a goal of some federal agencies operationally (e.g., DOD), it is not one of the

defined financial reporting objectives.

Answer : C. mission readiness

Explanation:

Relevant Reference:

FASAB SFFAC No. 1 – Objectives of Federal Financial Reporting

FASAB Handbook of Accounting Standards and Other Pronouncements

The Federal Accounting Standards Advisory Board (FASAB) was established in 1990 by the U.S.

Department of the Treasury, the Office of Management and Budget (OMB), and the Government

Accountability Office (GAO). These three entities are collectively known as the “sponsors” of FASAB.

Each has a representative who serves as a voting member of the board.

FASAB is responsible for establishing GAAP for federal entities. The sponsor organizations appoint

board members and have authority over standard-setting governance, but do not individually veto

standards. Final standards are issued only after due process, including public comment and sponsor

approval.

Relevant Standards and Reference:

FASAB Memorandum of Understanding (MOU) Among Treasury, OMB, and GAO (as amended):

“These three agencies are the sponsors of FASAB and each appoints one voting member to the

Board.”

FASAB Governance Manual (2023 Edition), Section 2: Identifies Treasury, OMB, and GAO as sponsors

and voting members.

AGA’s “CGFM Study Guide 2,” Chapter 2: Highlights the role of sponsors in the standard-setting

process.

Therefore, Option D is correct.