Question

Which are the requirements that must be met for a special revenue fund to be classified as a major fund? Select one: a. Total assets, liabilities, revenues, or expenditures of the individual governmental fund must be at least 10 percent of the total governmental funds category. b. The fund must have qualified to be classified as a major fund for at least three of the past five years if it has been in existence for that length of time. c. Total assets, liabilities, revenues, or expenditures of the individual governmental or enterprise fund are 5 percent of the total of the governmental funds and enterprise categories combined. d. All of the above e. Both A and C are necessary.

Answer 1

Answer:

The answer is "e. Both A and C are necessary"

Explanation:

First of all, we need to define what a Special Revenue Fund is. This is a fund that a government creates with the purpose of collecting funds that are to be used for a specific project. This also helps in ensuring accountability as well as this indicates that the tax payer's money is being utilized appropriately.

Note that this does not pertain to funds established by private sector entities but are 'governmental in nature'.

Now, a primary requirement for a governmental fund to be classified as a 'major' fund is if at least one element of the fund (that can be either revenue, expenditure, liabilities or assets) are equivalent to a minimum of 10% of the corresponding elements of total government funds. In the given example, 10% of the revenue in the Special Revenue Fund is equivalent to at least 10% of the revenue of the total governmental funds. This figure needs to equivalent to 5% of total governmental and enterprise funds combined as well. Once these two conditions are met, we can classify the Special Revenue Fund as a major fund.

Keeping in mind the above requirement, options 'a' and 'c' BOTH are correct. Also note, that there is no timeframe required for a fund to be classified as major therefore option 'b' is ruled out.