GASB 34 and Moral Obligation Bonds Instructions : Provide complete answers to th
ID: 2612754 • Letter: G
Question
GASB 34 and Moral Obligation Bonds
Instructions:
Provide complete answers to the following two questions.
1. Per the provisions of Statement No. 34, governments must report their capital assets similarly to businesses in their government-wide statements. Yet the information provided is still inadequate to facilitate the major types of decisions and judgments made by statement users. Do you agree? Explain.
2. What distinguishes moral obligation bonds from other types of debt? Why would one government assume a moral obligation for another government’s bonds?
Requirements:
Submit your responses to the following questions in a 1-2 page document in MS Word. Label each question clearly. Please include computations in a table.
For written answers, please make sure your responses are grammatically correct and free from spelling errors.
Explanation / Answer
1. Yes, I do agree that governments must report their capital assets similarly to businesses
in their government-wide statements. For instance, as per the provisions of Statement No. 34,
the governments should report all their capital assets that involve infrastructure assets also, in
the government-wide statement of net assets. In addition, the government should also report
depreciation expense in the statement of activities. Moreover, infrastructure assets are not
necessary to be depreciated because of the government manages those assets by using an
asset management system.
2. Moral obligation debt constitutes bonds or notes issued by one entity (usually a state agency) but backed by a pledge of another entity (usually the state itself) to seek appropriations to cover any debt service deficiencies. The debt proceeds are typically used to construct projects or carry out activities that would otherwise be undertaken by the state. The debt is referred to as "moral" obligation debt because the promise is not legally enforceable. Moral obligation debt provides a means by which a state can circumvent debt limitations. The issuer can reap the benefits of the debt without having to actually issue it itself.
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