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Indian River County, Florida <br />Notes To Financial Statements <br />Year Ended September 30, 2006 <br />NOTE 2 - RECONCILIATION OF GOVERNMENT -WIDE AND FUND FINANCIAL <br />STATEMENTS - Continued <br />B. Explanation of Differences Between Governmental Fund Operating Statements and the <br />Statement of Activities <br />The "net change (decrease) in fund balances" for governmental funds ($70,461,726) differs from the <br />"change in net assets" for governmental activities ($82,870,633) reported in the statement of activities. <br />The differences arise primarily from the long-term economic focus of the statement of activities versus <br />the current financial resources focus of the governmental funds. The effect of the differences is <br />illustrated below. <br />Capital related items <br />When capital assets that are to be used in governmental activities are purchased or constructed, the <br />resources expended for those assets are reported as expenditures in governmental funds. However, in the <br />statement of activities, the costs of those assets is allocated over their estimated useful lives and reported <br />as depreciation expense. As a result, fund balances decrease by the amount of financial resources <br />expended, whereas net assets decrease by the amount of depreciation expense charged for the year. <br />Capital outlay $ 74,904,612 <br />Depreciation expense (13,111,435) <br />Loss on assets (33,732) <br />Difference X61,759,445 <br />Long -Term Debt Transactions <br />In the statement of activities, issuance of debt increases long-term liabilities. However, in the <br />governmental funds, issuance of debt is treated as an other financing source since it provides current <br />financial resources to the governmental funds. <br />Debt issuance — net of premium (49,996,7351 <br />Repayments of bond principal and capital lease principal are reported as an expenditure in the <br />governmental funds and, thus, have the effect of reducing fund balance because current financial <br />resources have been used. However, the principal payments reduce the liabilities in the statement of net <br />assets and do not result in an expense in the statement of activities. <br />Bond principal payments made $ 2,235,000 <br />Bond premium payments made 21,675 <br />Capital lease principal payments made 380,275 <br />Total 2.636.950 <br />Some expenses reported in the statement of activities do not require the use of current financial <br />resources, therefore, are not reported as expenditures in governmental funds. <br />Net change in compensated absences (413,997) <br />58 <br />