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The distinction between exchange and nonexchange revenues

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The distinction between exchange and nonexchange revenues is not always obvious. You are the independent auditor of various governments. You have been asked for your advice on how the following transactions should be accounted for and reported. Characteristic of each transaction is ambiguity as to whether it is an exchange or a nonexchange transaction. For each transaction indicate whether you think it is an exchange or a nonexchange transaction and make a recommendation as to how it should be accounted for (i.e., the amount and timing of revenue recognition). Justify your response. Note: The GASB has not specified the distinction between exchange and nonexchange transactions. Hence, in this problem, you should consider how you think the transaction should be accounted for; you need not be limited by current GASB standards.

3. A city charges a developer an ''impact fee'' of $15,000 to compensate, in part, for improvements to the infrastructure in the area in which the developer plans to build residential homes. The city will make the improvements when construction on the new homes gets underway.

4. A city charges restaurants a license fee of $2,500. The license covers a period of two years. The fees must be used for health department inspections.

5. The city issues permits for residents to use city tennis courts. The fee is $100 per year. A small fraction of what it would cost to play on comparable private courts and an amount that covers only a small portion of the cost of constructing, maintaining, and operating the courts.

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This solution discusses the difference between exchange and nonexchange revenues.

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Below are my answers.

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Anna Liza Gaspar

ANSWERS

From the class and other reading materials, I have deduced that exchange revenues are those revenues derived from transactions wherein the government entity, the city in the following scenarios, provide services or goods to the paying entity. On the other hand, non-exchange revenues are those from ...

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