In a recent city meeting, it was agreed that the city was going to build a new t

Question

In a recent city meeting, it was agreed that the city was going to build a new town hall. Long-term bonds, intergovernmental transfers, and public donations will be used to construct and maintain the building. The major discussion was how to record the donations meant to fund ongoing maintenance costs. One group wants to set up a permanent fund for the principle of the investments and use a special revenue fund to account for the earnings of the investments and their use. The other group wants to use a private purpose trust fund for the principle and interest. Which group do you agree with? Do you feel that there is a better way to record these transactions? Give details that support your choice.

Explanation / Answer

Since the Fund is utlized for new project i.e. to build a town hall, It is better to set up permanent fund for principle and a special revenue account to account for earnings of investment and thier use.

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