Understanding Capital Assets and Financial Reporting

undefined
 
1
 
2019 SDASBO Spring
Conference—Capital
Assets
 
Rod Fortin—Director of Local Gov’t Assistance
ph. (605) 367-5810
rod.fortin@state.sd.us
http://legislativeaudit.sd.gov/home.htm
 
2
 
Intro
 
Presentation will address capitalized and
noncapitalized assets and internal controls;
however it will concentrate on “capitalized”
assets and the maintenance of capital asset
records for financial reporting purposes.
 
Entities may utilize a dual purpose approach for
listing capital assets or they may have other
systems for tracking assets for the purposes of
insurance, accountability, budgetary and
grant/statutory compliance
 
3
 
Intro
 
Presentation will focus on the appropriate
accounting and financial reporting for capital
assets in financial statements prepared using the
economic resources measurement focus and the
accrual basis of accounting.
Capital assets are not 
financial
 assets, and therefore
not reported in financial statements prepared using
the current 
financial
 resources measurement focus
and the modified accrual basis of accounting
(governmental funds).
 
Capital Assets
 
Term to describe “tangible or intangible assets
that are 1) used in operations and 2) that have
initial useful lives extending beyond a single
reporting period”.
 
 
4
 
Capital Assets
 
The same capital asset cannot be reported by
more than one government
 
Capital asset should be reported by the
government that owns it.
Title normally is sufficient to establish ownership
Responsibility for managing the asset can be used
as a surrogate if ownership cannot be determined.
Responsible for maintenance.
 
5
 
Capital Assets
 
Equipment leased to another government under a
capital lease
Government that exercises ultimate control over the asset
(the lessee), rather than the government that holds legal
title (the lessor) that is considered to be the owner.
Grantor retains a legal interest in capital asset
acquired with grant proceeds should the recipient
choose to dispose of it (reversionary interest).
Ultimate control remains with the recipient (the grantee).
 
6
 
7
 
Defined
 
The term Capital Assets embraces both:
Tangible assets 
such as land, buildings, building
improvements, vehicles, machinery, equipment,
works of art, historical treasures, and
infrastructure, and
Intangible assets 
such as easements, software,
and water rights.
Although accountants distinguish between intangible
from tangible, there is no real difference in
accounting and financial reporting  between the two.
 
8
 
Major Asset Classes
 
Land – includes the acquisition price but also the
cost of initially preparing land for its intended
use, provided these preparations have an
indefinite useful life, like the land itself.
Examples include basic site improvements (e.g.
excavation, fill and grading), as well as the cost
of removing, relocating, or reconstructing any
property belonging to others that needs to be
removed from the site (e.g., power lines).
 
9
 
Major Asset Classes
 
Buildings – all permanent structures
 
Building improvements or betterments that extend
the useful life or make the building larger are
normally added to the cost of the structure (but not
maintenance which is expensed)
 
An option is to compartmentalize major components
of buildings into separate capital assets in their own
right (HVAC)
 
10
 
Major Asset Classes
 
Improvement Other Than Buildings –
permanent (non-moveable) improvements,
other than buildings, that add value to land,
but do not have an indefinite useful life
 
Fences, retaining walls, parking lots and most
landscaping.
 
11
 
Major Asset Classes
 
Machinery and Equipment – this class is used
for moveable items that meet a preset
capitalization level such as vehicles,
generators, copy machines, and other large
equipment
 
12
 
Major Asset Classes
 
Construction/
Development
 
in Progress – an
asset class used to record the cost of
construction or development undertaken but
not yet completed.
This asset class is not depreciated.
 
13
 
Major Asset Classes
 
Intangible Assets – (GASB 51) –capital assets
that lack physical substance, are non-financial
in nature and have an initial useful life of
greater than a year
Software/website, water rights, easements but
not goodwill
If material, separate asset classes should be
reported for unrelated types of intangible
assets
Intangible Lease Assets---GASB 87
 
14
 
Intangible Assets
 
Reminder:  Effective date was FY10
For GASB 34 Phase 1 and 2 entities,
retroactive reporting is required at least back
to fiscal years ending after June 30, 1980
Phase 3 (revenues < $10 million) entities may
start recording intangibles as of the effective
date
 
15
 
Intangible Assets
 
Retroactive reporting of intangible assets
considered to have indefinite useful lives is
not required (permanent ROW)
 
Retroactive reporting of intangible assets that
are internally generated is not required
(software)
 
16
 
Assets Acquired for Sale or
Investment
 
Assets acquired for the purpose of sale or
investment (real estate held by an
endowment) do 
not 
qualify as capital assets,
because they are not 
used in operations.
 
17
 
Assets Held for Resale
 
An asset that is permanently retired from
service ceases to become a capital asset and
should be considered an “asset held for
resale”
 
These assets need to be adjusted and carried at
their “fair” value
 
18
 
Assets Held for Resale
 
For districts that have construction programs, assets
are held for resale and should be reported as
Inventories-Stores for Resale (acct 171) on
governmental fund f/s’s at their fair value.
Fund balance in connection with these assets should
be reported as Nonspendable (acct 713) to the extent
that they are not “in a spendable form”.  The
nonspendable fund balance is not considered
available to liquidate liabilities of the current period
and are not otherwise offset by deferred revenue.
 
Capitalized vs. Noncapitalized
 
Not ALL items that technically meet the
definition of capital assets should be
capitalized for 
financial reporting
 purposes.
Practical application of the materiality
principle.
 
19
 
Capitalized vs. Noncapitalized
 
Capitalized
 is when outlays for capital-type
items are reported on the statement of net
position
Noncapitalized 
is when outlays for capital-type
items are 
not
 reported on the statement of net
position rather they are reported as an “expense”
or “expenditure” in the period in which they are
acquired (useful life of less than 2 yrs. or of
small monetary value)
 
20
 
Capitalized vs. Noncapitalized
 
Capitalization Threshold 
is the monetary
criterion used to determine whether a given
capital asset should be reported on the
statement of net position (capitalized)
 
21
 
22
 
Capitalization Threshold
 
The key to establishing a capitalization
threshold ought to be 
financial reporting
. The
proper objective of capitalization is financial
reporting….not accountability.
Evaluation of anticipated information needs of
the users of the entities external financial
reports.
GFOA recommends a 
minimum
 capitalization
threshold of $5,000.
 
 
 
23
 
Capitalization Threshold
 
Entities acquire groups of items (computers)
that individually may fall under the cap
threshold, but clearly exceed it in the
aggregate.  A govt must make their own
decision for each group.  The key decision to
eliminate or cap a group is whether that group
will be “material” to the financial statements.
 
24
 
Capitalization Threshold
 
Increase in dollar amounts spent on
noncapitalized assets increases the importance
of internal controls ($$ spent on laptops).
 
Capitalization thresholds may be set for
different classes/groups of capital assets.
Vehicles, buildings, improvements other than
buildings, etc…..
 
25
 
Capitalizable Costs
 
Costs should be directly identifiable with a
specific asset
The costs of a “feasibility study” would generally
not be capitalizable.
Legal costs arising in connection with acquiring a
specific asset would be.
A cost should be capitalized only if incurred
“after” the purchase was considered probable
(likely to occur)
 
26
 
Capitalizable Costs
 
General and administrative costs should not
be capitalized…management, accounting, HR
 
Training on how to use a capital asset is not
itself a capitalizable cost.
 
Costs relating directly to a purchase should be
capitalized…….salaries of FTE working on
the site
 
27
 
Capitalizable Costs
 
Interest incurred to acquire a capital asset should be
included as part of the cost of that asset (
interest
capitalization
) reported in 
enterprise funds.
No interest is capitalized for any portion of a capital
acquisition that is financed by a grant that must be used
for that specific purpose.
Improvements are capitalized if they 1) increase the
useful life, or 2) increase the assets ability to provide
service (effectiveness or efficiency)
Total retrofit of a building
Adding a new wing to a building
 
28
 
Capitalizable Costs
 
Repairs and maintenance are costs that are not
capitalized because they help an asset “retain
its value” rather than providing additional
value.
Striping, snow removal
Painting a building
Replacing shingles
 
29
 
Valuation
 
The purpose of capitalization is not to show
how much an asset is worth……but rather to
defer recognizing as expense of the current
period a cost incurred for the benefit of future
periods (
useful life
).
 
30
 
Valuation
 
Historical costs or an estimate thereof should
be used for valuing capital assets
Research vouchers, minutes, bids
Use of CPI tables
 
31
 
Valuation
 
Bundled assets should have their values
split………when land and a building are
purchased in one transaction
 
32
 
Valuation
 
When an asset is acquired by trade-in,
generally speaking, the new asset should be
recorded at the sum of the cash paid plus the
book value of the asset surrendered
 
33
 
Valuation
 
Donated capital assets should be reported at their
estimated fair value at the time of acquisition
Purchase for a nominal amount should be treated as a
donation.
Fair value is what the government would have had to
pay to acquire the asset on its own, not the asset’s
market value (or lack thereof).
Capital assets donated by a developer may be
reported using developer’s cost as a surrogate for
fair value in the absence of readily determined
market value.
 
34
 
Depreciation
 
The cost to acquire, construct, or improve a
capital asset is not recognized immediately as
expense when incurred, but instead is deferred
(
capitalized
) and allocated over the estimated
useful life of the capital asset in the form of
depreciation expense 
(tangible CA) or
amortization expense 
(intangible CA).
 
35
 
Depreciation
 
An asset is capitalized, but not depreciated or
amortized if,
It has an indefinite useful life
It is infrastructure accounted for using the
modified approach, or
It is still under construction or in development.
 
36
 
Depreciation
 
Three types of capital assets that are not
depreciated:
Land
Intangibles (those with indefinite useful lives)
Art, historical treasures
 
37
 
Depreciation
 
Straight line depreciation is generally used
because governments are not seeking the  tax
advantages offered by alternative methods
 
Depreciable intangible assets are “amortized”
rather than depreciated.
 
38
 
Depreciation
 
Useful life matches costs over the period of
use……..consider the following:
Brick vs. wooden building
Volume of use
Level of maintenance
Tone of governing board
DLA Capital Asset Useful Life Table
http://legislativeaudit.sd.gov/resources/resources.aspx
 
39
 
Depreciation
 
Group depreciation may be used for similar
assets or composite depreciation may be used
for a broader range of assets.   Both methods
are similar in that they allow costs to be
averaged over the estimated useful life.
(computers, libraries)
DLA Spreadsheet for Subsystem (library)
http://legislativeaudit.sd.gov/resources/resources.aspx
 
 
40
 
Depreciation
 
Many governments ignore the use of salvage
values.  Judgment should be applied in the
application of salvage value to each asset.
 
41
 
Depreciation
 
Policies should be consistently applied to the
convention of applying depreciation to the
year of acquisition or disposal.  For example a
full year of depreciation during acquisition
and none upon disposal, or vise-versa….
 
42
 
Depreciation
 
Efforts should be undertaken to ensure that
assets do not become fully depreciated.  This
may include a periodic review and adjustment
of useful lives.
 
43
 
Financial Reporting
 
GAAP does not allow the reporting of
depreciable and nondepreciable capital assets
on the same line.
So land and CIP should be reported on lines
separate from buildings and equipment
 
44
 
Financial Reporting
 
Capital asset resources are reported in a net
position account called, “ Net Investment in
Capital Assets (706)”.
 
Normally this account is Cap Assets less
Accum Depr less Cap related debt....however
 
45
 
Financial Reporting
 
Consider all capital assets both tangible and
intangible
 
The calculation should exclude non-capital
assets.  (Loan proceeds remaining to be spent
on a project)
 
46
 
Financial Reporting
 
When deducting long-term debt……make
sure the district is not deducting long-term
debt incurred for non-capital purposes such
as, OPEB, pension liability, and compensated
absences.
 
47
 
Disclosures
 
Capitalization threshold(s)
Estimated useful lives
Method used to compute depreciation
(straight line)
 
48
 
Disclosures
 
Disclose changes in capital assets
Listing Beg, increases, decreases and ending
List Governmental separate from Proprietary
List depreciable separate from non-depreciable
Accumulated depr accounts listed separately
 
List depr expense by each statement of
activities function
 
Acquisition by Transfer
 
An enterprise fund (Food Service Fund)
receives a piece of equipment from general
government (purchased by CO Fund) with an
original cost of $16,000 that is one quarter of
the way through its estimated useful file.
 
49
 
Acquisition by Transfer
 
Food Service Fund entry:
      
DR
  
CR
Equipment
    
    
 
$16,000
     A/D-equipment
    
     
  
$  4,000
     Capital contribution
   
     
  
$12,000
(To record receipt of equipment from general government)
 
Governmental Funds do not report capital assets therefore
no journal entry needed in the Capital Outlay Fund.
 
50
 
Acquisition by Transfer
 
Conversion and consolidation worksheet adjustment to
government-wide statements:
Business-Type Activities:
  
DR
  
CR
Capital contribution 
   
$12,000
     Transfer In
    
     
  
$12,000
 
Governmental Activities:
   
DR
  
CR
Transfer Out
  
 
   
$12,000
A/D-equipment
    
$  4,000
     Equipment 
    
     
  
$16,000
 
 
(To record receipt of equipment from general government)
 
51
 
52
 
Disposals
 
Gains and losses on the G-W
Governmental activities – 
gains
 should be
reported as 
general revenues
, or as a program
revenue (charges for services) of the related
function or program depending on the specific
circumstances and 
losses
 should be reported as an
expense of the 
general government, 
or as a direct
expense of the related function or program
depending on the specific circumstances.
 
53
 
Disposals
 
Gains and losses on the G-W
BTA – 
gains
 are included as a part of general
revenues, 
losses
 are included as any other
program cost
 
54
 
Disposals
 
In enterprise fund f/s’s, both gains and losses
are classified as 
nonoperating
 revenues and
expenses
 
55
 
Disposals
 
On 
rare
 occasion significant gains and losses
may be reported as a special item (within
control) or an extraordinary item (not within
control)
 
56
 
Physical Inventory
 
An important internal control is to
periodically take a physical inventory of your
capital assets.  A physical inventory will
identify both assets that have been removed
(possible I/C weakness) and assets that have
been acquired but not capitalized (another
possible I/C weakness)
 
Controls over NonCapitalized Assets
 
Adequate internal controls should be
evaluated for noncapitalized assets that fall in
the following categories:
 
Legal Compliance:
  
Legal or contractual
provisions may require a higher than ordinary
level of accountability over certain noncapitalized
assets (e.g, grant contracts)
 
 
 
 
 
 
57
 
Controls over NonCapitalized Assets
 
Public Safety/Potential Liability:  
Some
noncapitalized assets by their very nature pose a
risk to public safety and could be the source of
potential liability (e.g, weapons)
 
Walk Away Items:  
Some noncapitalized assets
are easily transportable and readily marketable or
easily diverted to personal use (e.g, computers,
sound equipment)
 
58
 
Controls over NonCapitalized Assets
 
Control Responsibility should be assigned.
Individuals who use the assets to achieve their
operational goals should be the focus of control
efforts. Control cannot be divorced from
accountability.  Assignments should be
documented and communicated to Finance
Office.
 
59
 
Controls over NonCapitalized Assets
 
Individuals responsible for noncapitalized
assets should prepare and maintain a list each
year along with an explanation of changes
from the previous year.  List should be filed in
finance office each year.
 
60
 
QUESTIONS
 
?
 
61
Slide Note

SCHOOL SPRING 2013 CONFERENCE

Embed
Share

This presentation delves into the world of capital assets, focusing on their categorization, ownership, and reporting in financial statements. Key topics include the distinction between tangible and intangible assets, responsible asset management, and the implications of capital leases on ownership. It emphasizes the importance of accurate record-keeping for financial reporting purposes.


Uploaded on Jul 29, 2024 | 0 Views


Download Presentation

Please find below an Image/Link to download the presentation.

The content on the website is provided AS IS for your information and personal use only. It may not be sold, licensed, or shared on other websites without obtaining consent from the author. Download presentation by click this link. If you encounter any issues during the download, it is possible that the publisher has removed the file from their server.

E N D

Presentation Transcript


  1. 2019 SDASBO Spring Conference Capital Assets Rod Fortin Director of Local Gov t Assistance ph. (605) 367-5810 rod.fortin@state.sd.us http://legislativeaudit.sd.gov/home.htm 1

  2. Intro Presentation will address capitalized and noncapitalized assets and internal controls; however it will concentrate on capitalized assets and the maintenance of capital asset records for financial reporting purposes. Entities may utilize a dual purpose approach for listing capital assets or they may have other systems for tracking assets for the purposes of insurance, accountability, budgetary and grant/statutory compliance 2

  3. Intro Presentation will focus on the appropriate accounting and financial reporting for capital assets in financial statements prepared using the economic resources measurement focus and the accrual basis of accounting. Capital assets are not financial assets, and therefore not reported in financial statements prepared using the current financial resources measurement focus and the modified accrual basis of accounting (governmental funds). 3

  4. Capital Assets Term to describe tangible or intangible assets that are 1) used in operations and 2) that have initial useful lives extending beyond a single reporting period . 4

  5. Capital Assets The same capital asset cannot be reported by more than one government Capital asset should be reported by the government that owns it. Title normally is sufficient to establish ownership Responsibility for managing the asset can be used as a surrogate if ownership cannot be determined. Responsible for maintenance. 5

  6. Capital Assets Equipment leased to another government under a capital lease Government that exercises ultimate control over the asset (the lessee), rather than the government that holds legal title (the lessor) that is considered to be the owner. Grantor retains a legal interest in capital asset acquired with grant proceeds should the recipient choose to dispose of it (reversionary interest). Ultimate control remains with the recipient (the grantee). 6

  7. Defined The term Capital Assets embraces both: Tangible assets such as land, buildings, building improvements, vehicles, machinery, equipment, works of art, historical treasures, and infrastructure, and Intangible assets such as easements, software, and water rights. Although accountants distinguish between intangible from tangible, there is no real difference in accounting and financial reporting between the two. 7

  8. Major Asset Classes Land includes the acquisition price but also the cost of initially preparing land for its intended use, provided these preparations have an indefinite useful life, like the land itself. Examples include basic site improvements (e.g. excavation, fill and grading), as well as the cost of removing, relocating, or reconstructing any property belonging to others that needs to be removed from the site (e.g., power lines). 8

  9. Major Asset Classes Buildings all permanent structures Building improvements or betterments that extend the useful life or make the building larger are normally added to the cost of the structure (but not maintenance which is expensed) An option is to compartmentalize major components of buildings into separate capital assets in their own right (HVAC) 9

  10. Major Asset Classes Improvement Other Than Buildings permanent (non-moveable) improvements, other than buildings, that add value to land, but do not have an indefinite useful life Fences, retaining walls, parking lots and most landscaping. 10

  11. Major Asset Classes Machinery and Equipment this class is used for moveable items that meet a preset capitalization level such as vehicles, generators, copy machines, and other large equipment 11

  12. Major Asset Classes Construction/Development in Progress an asset class used to record the cost of construction or development undertaken but not yet completed. This asset class is not depreciated. 12

  13. Major Asset Classes Intangible Assets (GASB 51) capital assets that lack physical substance, are non-financial in nature and have an initial useful life of greater than a year Software/website, water rights, easements but not goodwill If material, separate asset classes should be reported for unrelated types of intangible assets Intangible Lease Assets---GASB 87 13

  14. Intangible Assets Reminder: Effective date was FY10 For GASB 34 Phase 1 and 2 entities, retroactive reporting is required at least back to fiscal years ending after June 30, 1980 Phase 3 (revenues < $10 million) entities may start recording intangibles as of the effective date 14

  15. Intangible Assets Retroactive reporting of intangible assets considered to have indefinite useful lives is not required (permanent ROW) Retroactive reporting of intangible assets that are internally generated is not required (software) 15

  16. Assets Acquired for Sale or Investment Assets acquired for the purpose of sale or investment (real estate held by an endowment) do not qualify as capital assets, because they are not used in operations. 16

  17. Assets Held for Resale An asset that is permanently retired from service ceases to become a capital asset and should be considered an asset held for resale These assets need to be adjusted and carried at their fair value 17

  18. Assets Held for Resale For districts that have construction programs, assets are held for resale and should be reported as Inventories-Stores for Resale (acct 171) on governmental fund f/s s at their fair value. Fund balance in connection with these assets should be reported as Nonspendable (acct 713) to the extent that they are not in a spendable form . The nonspendable fund balance is not considered available to liquidate liabilities of the current period and are not otherwise offset by deferred revenue. 18

  19. Capitalized vs. Noncapitalized Not ALL items that technically meet the definition of capital assets should be capitalized for financial reporting purposes. Practical application of the materiality principle. 19

  20. Capitalized vs. Noncapitalized Capitalized is when outlays for capital-type items are reported on the statement of net position Noncapitalized is when outlays for capital-type items are not reported on the statement of net position rather they are reported as an expense or expenditure in the period in which they are acquired (useful life of less than 2 yrs. or of small monetary value) 20

  21. Capitalized vs. Noncapitalized Capitalization Threshold is the monetary criterion used to determine whether a given capital asset should be reported on the statement of net position (capitalized) 21

  22. Capitalization Threshold The key to establishing a capitalization threshold ought to be financial reporting. The proper objective of capitalization is financial reporting .not accountability. Evaluation of anticipated information needs of the users of the entities external financial reports. GFOA recommends a minimum capitalization threshold of $5,000. 22

  23. Capitalization Threshold Entities acquire groups of items (computers) that individually may fall under the cap threshold, but clearly exceed it in the aggregate. A govt must make their own decision for each group. The key decision to eliminate or cap a group is whether that group will be material to the financial statements. 23

  24. Capitalization Threshold Increase in dollar amounts spent on noncapitalized assets increases the importance of internal controls ($$ spent on laptops). Capitalization thresholds may be set for different classes/groups of capital assets. Vehicles, buildings, improvements other than buildings, etc .. 24

  25. Capitalizable Costs Costs should be directly identifiable with a specific asset The costs of a feasibility study would generally not be capitalizable. Legal costs arising in connection with acquiring a specific asset would be. A cost should be capitalized only if incurred after the purchase was considered probable (likely to occur) 25

  26. Capitalizable Costs General and administrative costs should not be capitalized management, accounting, HR Training on how to use a capital asset is not itself a capitalizable cost. Costs relating directly to a purchase should be capitalized .salaries of FTE working on the site 26

  27. Capitalizable Costs Interest incurred to acquire a capital asset should be included as part of the cost of that asset (interest capitalization) reported in enterprise funds. No interest is capitalized for any portion of a capital acquisition that is financed by a grant that must be used for that specific purpose. Improvements are capitalized if they 1) increase the useful life, or 2) increase the assets ability to provide service (effectiveness or efficiency) Total retrofit of a building Adding a new wing to a building 27

  28. Capitalizable Costs Repairs and maintenance are costs that are not capitalized because they help an asset retain its value rather than providing additional value. Striping, snow removal Painting a building Replacing shingles 28

  29. Valuation The purpose of capitalization is not to show how much an asset is worth but rather to defer recognizing as expense of the current period a cost incurred for the benefit of future periods (useful life). 29

  30. Valuation Historical costs or an estimate thereof should be used for valuing capital assets Research vouchers, minutes, bids Use of CPI tables 30

  31. Valuation Bundled assets should have their values split when land and a building are purchased in one transaction 31

  32. Valuation When an asset is acquired by trade-in, generally speaking, the new asset should be recorded at the sum of the cash paid plus the book value of the asset surrendered 32

  33. Valuation Donated capital assets should be reported at their estimated fair value at the time of acquisition Purchase for a nominal amount should be treated as a donation. Fair value is what the government would have had to pay to acquire the asset on its own, not the asset s market value (or lack thereof). Capital assets donated by a developer may be reported using developer s cost as a surrogate for fair value in the absence of readily determined market value. 33

  34. Depreciation The cost to acquire, construct, or improve a capital asset is not recognized immediately as expense when incurred, but instead is deferred (capitalized) and allocated over the estimated useful life of the capital asset in the form of depreciation expense (tangible CA) or amortization expense (intangible CA). 34

  35. Depreciation An asset is capitalized, but not depreciated or amortized if, It has an indefinite useful life It is infrastructure accounted for using the modified approach, or It is still under construction or in development. 35

  36. Depreciation Three types of capital assets that are not depreciated: Land Intangibles (those with indefinite useful lives) Art, historical treasures 36

  37. Depreciation Straight line depreciation is generally used because governments are not seeking the tax advantages offered by alternative methods Depreciable intangible assets are amortized rather than depreciated. 37

  38. Depreciation Useful life matches costs over the period of use ..consider the following: Brick vs. wooden building Volume of use Level of maintenance Tone of governing board DLA Capital Asset Useful Life Table http://legislativeaudit.sd.gov/resources/resources.aspx 38

  39. Depreciation Group depreciation may be used for similar assets or composite depreciation may be used for a broader range of assets. Both methods are similar in that they allow costs to be averaged over the estimated useful life. (computers, libraries) DLA Spreadsheet for Subsystem (library) http://legislativeaudit.sd.gov/resources/resources.aspx 39

  40. Depreciation Many governments ignore the use of salvage values. Judgment should be applied in the application of salvage value to each asset. 40

  41. Depreciation Policies should be consistently applied to the convention of applying depreciation to the year of acquisition or disposal. For example a full year of depreciation during acquisition and none upon disposal, or vise-versa . 41

  42. Depreciation Efforts should be undertaken to ensure that assets do not become fully depreciated. This may include a periodic review and adjustment of useful lives. 42

  43. Financial Reporting GAAP does not allow the reporting of depreciable and nondepreciable capital assets on the same line. So land and CIP should be reported on lines separate from buildings and equipment 43

  44. Financial Reporting Capital asset resources are reported in a net position account called, Net Investment in Capital Assets (706) . Normally this account is Cap Assets less Accum Depr less Cap related debt....however 44

  45. Financial Reporting Consider all capital assets both tangible and intangible The calculation should exclude non-capital assets. (Loan proceeds remaining to be spent on a project) 45

  46. Financial Reporting When deducting long-term debt make sure the district is not deducting long-term debt incurred for non-capital purposes such as, OPEB, pension liability, and compensated absences. 46

  47. Disclosures Capitalization threshold(s) Estimated useful lives Method used to compute depreciation (straight line) 47

  48. Disclosures Disclose changes in capital assets Listing Beg, increases, decreases and ending List Governmental separate from Proprietary List depreciable separate from non-depreciable Accumulated depr accounts listed separately List depr expense by each statement of activities function 48

  49. Acquisition by Transfer An enterprise fund (Food Service Fund) receives a piece of equipment from general government (purchased by CO Fund) with an original cost of $16,000 that is one quarter of the way through its estimated useful file. 49

  50. Acquisition by Transfer Food Service Fund entry: Equipment A/D-equipment Capital contribution (To record receipt of equipment from general government) DR $16,000 CR $ 4,000 $12,000 Governmental Funds do not report capital assets therefore no journal entry needed in the Capital Outlay Fund. 50

Related


More Related Content

giItT1WQy@!-/#giItT1WQy@!-/#giItT1WQy@!-/#giItT1WQy@!-/#giItT1WQy@!-/#giItT1WQy@!-/#