D8-2 A new employee of the City of Kashime was working with the accounting recor

Question

D8-2 A new employee of the City of Kashime was working with the accounting records of several of its funds. This employee, John Fergie, found that a gift had been given to the city for the library. The gift mandated that only the earnings from the gift could be used for library operations. John wanted to set up a Permanent Fund for the principal of the donation to the library and use a Special Revenue Fund to account for the earnings of the investment and their use. Another employee argued that a Private Purpose Trust Fund should be used for both principal and income. Do you agree with either of these individuals, or do you have a better suggestion?

Explanation / Answer

SInce the donor mantadated to use the earnings of the fund only for library operations, it is good practise to set up permanent fund for the gift value and account the revenue separately for using the income to the operations of library. Hence in my view, concept of John holds good.

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