GAFRB Exam Dumps - Examination 2: Governmental Accounting, Financial Reporting and Budgeting (GAFRB)

We calculate straight-line depreciation for each asset using the formula:

Depreciation = Cost ÷ Useful Life

Given:

Refrigerators: $150,000 ÷ 20 = $7,500

Heating system: $500,000 ÷ 15 = $33,333.33

Buses: $1,000,000 ÷ 5 = $200,000

Total Depreciation:

$7,500 (Refrigerators)

$33,333.33 (Heating system)

$200,000 (Buses)

= $240,833.33

So the correct depreciation expense (rounded to the nearest dollar) is:

Answer: D. $240,833

Note: Option B ($207,500) is incorrect because it does not reflect total depreciation based on the useful lives provided.

Relevant References:

GASB Statement No. 34 – Capital Asset Reporting

GFOA Best Practices – Capital Assets and Depreciation

FASAB SFFAS No. 6 – Accounting for Property, Plant, and Equipment

Answer: D. $240,833

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 References:

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.

Despite differences in sector goals, all entities—public, private, nonprofit, or government—use financial reporting to provide information that assists stakeholders in making informed decisions.

While private-sector entities focus on profitability and governmental entities focus on accountability and stewardship, both require decision-useful financial data.

Relevant References:

FASAB SFFAC No. 1 – Objectives of Federal Financial Reporting

GASB Concepts Statement No. 1 – Objectives of Financial Reporting

FASB Statement of Financial Accounting Concepts No. 1

Answer: A. provide users with decision support

When a private bank issues a student loan that is insured by the government in case of default, the federal government is acting as a guarantor—not issuing the loan directly, but promising repayment to the lender if the borrower defaults. This is a classic example of a federal loan guarantee program.

Loan guarantees are off-budget unless called, and the government only incurs a liability if the student defaults.

Relevant References:

FASAB SFFAS No. 2 – Accounting for Direct Loans and Loan Guarantees

Credit Reform Act of 1990

OMB Circular A-11, Section 185 – Federal Credit Programs

Answer: B. a loan guarantee

Comprehensive Detailed Explanation:

Object classes categorize federal government obligations by the type of goods or services purchased, such as personnel compensation, equipment, travel, etc. These are standardized in OMB Circular A-11, Section 83.

This classification supports budgeting, analysis, and reporting.

Relevant References:

OMB Circular A-11, Section 83 – Object Classification

USSGL (U.S. Standard General Ledger) Glossary

GAO Glossary of Budget Terms

Answer: B. object classes