Governmental Accounting Standards Board Statement Number 7

In March 1987, the Governmental Accounting Standards Board issued Governmental Accounting Standards Board Statement 7: Advance Refundings Resulting in Defeasance of Debt.

Summary

The Statement provided guidance on accounting for advance refundings resulting in defeasance of debt recorded in the general long-term debt account group. The proceeds of the new debt should be reported as an "other financing source-proceeds of refunding bonds" in the fund receiving the proceeds. Payments to the escrow agent from resources provided by the new debt should be reported as an "other financing use-payment to refunded bond escrow agent." Payments to the escrow agent made with other resources of the entity should be reported as debt service expenditures.

The Statement also provided guidance on disclosures about advance refundings for all governmental entities regardless of where the debt is recorded. Among other things, the economic gain or loss on the refunding should be disclosed. The economic gain or loss is the difference between the present value of the old debt service requirements and the present value of the new debt service requirements, discounted at the effective interest rate (as defined by this Statement) of the new debt and adjusted for additional cash paid.

Status

Effective Date

Fiscal periods beginning after December 15, 1986

Amends earlier standards

This Statement amended NCGAS 1, fn20, and ¶108 and ¶109. It also amended NCGAI 6, ¶5, and NCGAI 9, ¶13 and ¶14 (which had superseded NCGAS 1, ¶107 fn20).

Amended by later statements

This Statement has been affected by GASB 14 & GASB 34. Specifically, Footnote 1 was superseded by GASB 34, ¶64 and ¶66, paragraphs 1 and 7 were amended by GASB 34, ¶82 and ¶138, paragraph 3 was amended by GASB 34, ¶6, paragraph 8 was amended by GASB 34, ¶82 and ¶88, paragraph 9 was superseded by GASB 34, ¶82, paragraph 10 was amended by GASB 34, ¶6 and ¶82, paragraph 11 amended by GASB 34, ¶82, paragraph 13 was amended by GASB 14, ¶11 and ¶63 and by GASB 34, ¶113, and paragraph 14 was amended by GASB 14, ¶62 and by GASB 34, ¶113.

Discussion