chapter 4.1.5 - california state university office of the · web viewwhen the information...

.

CHAPTER 4.1.5

GAAP ADJUSTMENTS AND RECLASSIFICATION ENTRIES

ASSETS: CAPITAL ASSETS, DEPRECIATION AND AMORTIZATION

1 GAAP POLICIES AND PROCEDURES

Capital assets are stated at cost or estimated historical cost, if purchased, or if donated, at estimated fair value at date of donation. Capital assets, including infrastructure and intangible assets, with an original value of $5,000 or more and with a useful life of one year or more, are capitalized. Such cost includes, where applicable, interest capitalized as part of the cost of constructed capital assets. Title to all assets, whether purchased, constructed, or donated is held by the State. Although the title is not with the University for land and buildings, the University has exclusive use of these assets and is responsible for the maintenance of these assets and thus has recorded the cost of these assets in the accompanying financial statements. Capital assets, with the exception of land and land improvements, works of arts and historical treasures, construction work in progress, and certain intangible assets, are depreciated or amortized on a straight-line basis over their estimated useful lives, which ranges from 3 to 45 years. Library books, unless considered rare collections, are capitalized and depreciated over a 10-year period. Periodicals and subscriptions are expensed as purchased. Works of art and historical treasures are valued at cost, if purchased, or the fair market value at the date of donation, if contributed. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend its life are expensed as incurred.Depreciation and amortization expense is shown separately in the Statement of Revenues, Expenses and Changes in Net Position rather than being allocated among other categories of operating expenses.

2 RELEVANT ACCOUNTING LITERATURE

GASB Statement No. 34, Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local GovernmentsGASB Statement No. 37 Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments: Omnibus – an amendment of GASB Statements No. 21 and No. 34GASB Statement No. 42 Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries

4.01.5-1 GAAP Manual | GAAP Adjustments and Reclassification Entries – Assets: Capital Assets, Depreciation and Amortization | June 30, 2015

.

GASB Statement No. 51 Accounting and Financial Reporting for Intangible AssetsGASB Statement No. 62 Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements

3 OBJECTIVES OF GAAP ADJUSTMENTS

The objectives of the GAAP adjustments (through Asset Management module or manual GAAP entries) necessary at June 30th related to capital assets, depreciation/ amortization are: To record capital asset additions not recognized in legal basis accounting. To record capital asset disposal/retirement. To record depreciation/amortization of the capital assets. To capitalize interest expense that meets certain criteria. To capitalize pollution remediation obligation expenditures as part of the cost of a capital

asset when it meets certain criteria. To recognize capital asset impairment in the accounting books.

4 GAAP ACCOUNTING TREATMENT AND JOURNAL ENTRIES

4.1 RELEVANT GAAP ACCOUNTS

711207 – Capital assets, net713811 – Net investment in capital assets722005 – Depreciation

The campus must record the cost of all capital assets that it owns. This includes the cost of all qualified library materials and all capital assets that meet the definition of “infrastructure” (effective FY2001-2002) or “intangible assets” (effective FY2009-2010). Campuses are also required to capitalize the costs incurred by the Office of the Chancellor (CO) related to construction projects managed on behalf of the campuses by the CO. These costs are provided to the campuses via annual Accounting Department Notice of Accounting Transactions (ADNOAT) from the CO. See Chapter 13 Capital Assets Guide, for detailed information on establishing useful lives, asset category definitions, capitalization thresholds, and methods for depreciation/ amortization, guidelines for leasehold improvements and construction work in progress as well as impairment of capital assets.The Integrated CSU Administrative Manual (ICSUAM) Policy 3150.01, Administration of University Property, Section 600 states that all campus fixed asset accounting entries will be recorded in State Fund 0997, CSU Fund 501, General Fixed Assets Memo Fund.The PeopleSoft Asset Management module is used to track capital assets. As the campus enters relevant information in the Asset Management module, the journal entry creation to the CSU Fund 501 for both legal reporting requirement and the reclassification entries


.

required in GAAP are automated through the usage of the accounting entry templates and the derivation from campus to xxCSU to xxGAP business unit.

4.2 CURRENT YEAR ADDITIONS

The expenditures made by the campus for capital assets during the current year (acquisition cost of at least $5,000) are recorded in the legal accounting books when paid. The entries related to capital asset additions are as follows:Derived GAAP Entry –in the fund financing the purchase

Account Account NameFund(Net Position) Program

Class(CSU Fund) Amount

722004 Supplies and other services 881-Unrestricted 07 532 $xxx

711102 Short-term investment 881-Unrestricted 90 532 ($xxx)Journal Description

Accounting records derived from legal for recording the payment for the acquisition of capital asset.

Derived GAAP Entry –if the capital asset is acquired by donation



722004 Supplies and other services

834-Restricted Expendable-Capital Projects 07 550 $xxx

711102 Grants and gifts, capital 834-Restricted Expendable-Capital Projects 50 550 ($xxx)

Journal Description

Accounting records derived from legal for recording the acquisition of capital assets through donation.

Derived Asset Management automated Legal Memo Journal Entry in CSU Fund 501

Account Account NameFund

(Net Position)Progra

m


711207 Capital assets, net 811-Net investment in capital assets 90 501 $xxx

713811 Net investment in capital assets

811-Net investment in capital assets 90 501 ($xxx)

In order to eliminate the double counting of the cost or carrying value of an acquired, constructed, or donated capital asset, Asset Management will generate an elimination entry by reflecting the transaction as a transfer of resources between net position categories.

Asset Management Automated GAAP Entry


.


(Net Position)Progra

m



811-Net investment in capital assets 90 501 $xxx

724004 Transfers to/from other CSU campuses, net

811-Net Investment in Capital Assets 13 501 ($xxx)


(Net Position) Program


724004 Transfers to/from other CSU campuses, net 881-Unrestricted 13 532 $xxx

722004 Supplies and other services 881-Unrestricted 07 532 ($xxx)

CWIP AdditionsConstruction work in progress (CWIP) is not included and is being tracked outside of the Asset Management module. Entries to CWIP are initially recorded in the legal memo journal entry in CSU Fund 501 and a GAAP manual adjustment is made to reverse the credit to Net Investment in capital asset.Derived GAAP Entry –in the fund financing the purchase




711102 Short-term investment 881-Unrestricted 90 221 ($xxx)Journal Description

Accounting records derived from legal for recording the payment for the acquisition of capital asset.

Derived GAAP Entry – in CSU fund 501



711207* Capital assets, net 811-Net investment in capital assets 90 501 $xxx



Journal Description

Accounting records derived from legal for recognizing the CWIP additions to CSU Fund 501.

* Use FIRMS Object Code 110008 Construction Work in Progress.

Manual GAAP Entry – in the fund financing the purchase


.




724004 Transfers to/from other CSU campuses, net 881-Unrestricted 13 221 $xxx

722004 Supplies and other services 881-Unrestricted 07 221 ($xxx)

Journal Description

Entry to reverse the supplies and other services that are related to construction work in progress.

Manual GAAP Entry – in CSU fund 501








Journal Description

Entry to reverse the net investment in capital assets related to construction work in progress.

4.3 COMPLETED CAPITAL ASSET PROJECTS

When capital assets are completed, CWIP outstanding balance in the legal memo journal entry needs to be zeroed out as it will duplicate the capital asset addition automatically entered by Asset Management. Derived GAAP Entry –in CSU fund 501





711207* Capital assets, net 811-Net investment in capital assets 90 501 ($xxx)

Journal Description Accounting records derived from legal to zero out CWIP balance in CSU Fund 501.


When the information about the completed capital asset are transferred to the Asset Management module, it creates automated entries as if such capital assets are purchased. Please refer to the section 4.2 Current Year Additions section for the derived AM entries. In order to reverse the entry made by AM crediting supplies and services because portions of the expenses capitalized in CWIP have occurred over a series of fiscal years, manual GAAP adjusting entries need to be performed.

Manual GAAP Entry – in the fund financing the purchase


.







Journal Description

Entry to reverse the supplies and other services entry made by AM in relation to the completed CWIP.

Manual GAAP Entry – in the CSU Fund 501





811-Net Investment in Capital Assets 13 501 $xxx



Journal Description Entry to reverse the net investment in capital asset entry made in legal to zero out CWIP.

4.4 CAPITAL ASSET DISPOSAL

For capital assets disposed of during the current fiscal year, the cost of the capital asset and accumulated depreciation/amortization must be removed from the ledger.Derived Asset Management automated Legal Memo Journal Entry in CSU Fund 501






711207* Capital assets, net 811-Net investment in capital assets 90 501 ($xxx)

*Should equal the net book value of the capital asset which includes both equipment and accumulated depreciation.





723006 Other nonoperating revenues (expenses)




In certain cases where cash proceeds were received as part of the capital asset disposal, a legal entry is derived that will offset the AM entry recognizing the other nonoperating revenues (expenses) account:Derived GAAP Entry –in the source fund that received the proceeds

Account Account Name Fund Program Class Amount


.

(Net Position)(CSU Fund)

711102 Short-term investment 881-Unrestricted 90 532 $xxx



Journal Description

Accounting records derived from legal for recording the payment received from disposal of capital asset.

4.5 DEPRECIATION/AMORTIZATION OF CAPITAL ASSETS AND INTANGIBLES

Campuses are also required to report in its GAAP financial statements the depreciation/amortization expense and the corresponding accumulated depreciation/ amortization related to its capital assets. To meet different reporting requirements, no depreciation expense is recorded in the legal books. Instead, the net investment in capital assets is directly reduced in the memo fund through AM CSU Fund 501 Accounting Entries process. The Asset Management module for depreciation calculation must be run to calculate the depreciation/amortization for a certain periodthe necessary journal entries related to depreciation/amortization. This process can be run more than once during an accounting period.Derived Asset Management automated Legal Memo Journal Entry in CSU Fund 501






711207 Capital assets, net 811-Net investment in capital assets 90 501 ($xxx)





722005 Depreciation 811-Net investment in capital assets 12 501 $xxx



LIBRARY MATERIALS

For purposes of legal basis accounting as well as GAAP financial reporting, the cost and accumulated depreciation of library materials are to be recorded and reported. However, these amounts normally are captured in total by fiscal year; so a “perpetual inventory” of library materials costs and depreciation would show one net entry for each fiscal year rather than one entry for each individual library book.


.

4.6 ADDITIONS TO LIBRARY MATERIALS

Additions to the capitalized costs of library materials can be obtained from a campus’ legal basis accounting records (object code 608001). Campuses must record annual additions to library materials costs prior to the close of their legal basis records. Legal and GAAP accounting entries related to library materials will be the same as that of in a regular capital asset addition as per the topic noted above. If the campus typically does not receive donations, there may be nothing to record. Inquiries with the library staff should also be made of significant donations during the fiscal year to review the accuracy of library inventory. If timely information cannot be obtained, reasonable estimates can be substituted as long as the basis for them is fully documented. Donations are normally supported by letters between the donor and the gift recipient; libraries receiving any major donation should be able to readily produce this correspondence. If donations have been relatively minor in the past and can be demonstrated, the low value items of these prior donations should be noted in the non-GAAP policy document with the estimated amount as of the year then ended.The following is a snapshot of the library material section of the report and what can be capitalized:

4.7 DEPRECIATION OF LIBRARY MATERIALS

Campuses are expected to record annual depreciation of library materials as if each year’s total acquisition of library materials represents the acquisition of one capital asset. Rules for computing depreciation are included in Chapter 13, Capital Assets Guide.


.

Depreciation of library materials are also done in the Asset Management module similar to the other types of capital assets. Please refer to the entries in the section depreciation of capital assets for the entries in depreciating library materials.

4.8 DISPOSITION OF LIBRARY MATERIALS

The number of volumes of capitalized library materials that are removed from the collection each year should be based off of campus library records. If timely information cannot be obtained, reasonable estimates can be substituted as long as the basis for them is fully documented. The dispositions are to be recorded as manual GAAP adjustments for the current fiscal year, and as legal basis adjustments in the following fiscal year when actual amounts are already determinable.Dispositions are presumed to occur on a FIFO (First In, First Out) basis calculated based on the annual adjusted average cost. That is, the costs to be removed from the campus’ accounting records are presumed to relate to the oldest remaining library materials acquired. Therefore, it is likely that these materials will be fully depreciated, and there will be no gain or loss on their disposal. Supposing timely information cannot be obtained, the entries to be made for current year dispositions of library materials would be as follows:Manual GAAP Entry – in CSU Fund 501






711207 Capital assets, net 811-Net investment in capital assets 90 501 ($xxx)

Journal Description Entry to record the estimated disposal of library materials.

The following fiscal year, the GAAP entries made recording the dispositions of library materials should be reversed as they are considered timing adjustments. Entry is as follows:Manual GAAP Entry – in CSU Fund 501




711207 Capital assets, net 811-Net investment in 90 501 $xxx


.




capital assets



Journal Description Entry to reverse the recording of the estimated disposal of library materials.

Entries for both legal and GAAP basis accounting will be the same as that of a regular disposal of a capital asset on the fiscal year that actual amounts of the disposition of library materials have been made certain.

4.9 CONSTRUCTION WORK IN PROGRESS (NON-DELEGATED PROJECTS)Non-delegated projects are capital projects managed centrally by the CO on behalf of another campus. The construction projects managed, may be financed by specific debt issued for construction, by capital outlay funds appropriated to the CSU from the State, by campus contributions, by donations, or by other debt that is not allocated to the campus. The funds for these non-delegated projects remain at the CO to pay for the non-delegated project expenses. However, since the physical construction takes place at the campus, the costs incurred each year must be allocated to the campus in order to be properly recorded in its accounting records.Current year CWIP expenses are allocated to the campuses via ADNOAT before the end of the fiscal year close to enable campuses to record them into their legal-basis accounting records. The legal and GAAP entries related to the CWIP are provided via the ADNOAT to the campus. The cumulative CWIP balance as of June 30, 20PY should already be in the campuses’ legal basis accounting records as a carryforward. Derived GAAP Entry (via ADNOAT)




711207* Capital assets, net 811-Net investment in capital assets 90 501 $xxx



Journal Description Entry to record additions to CWIP for the current year.


Manual GAAP Entries (via ADNOAT)






724004 Transfers to/from other funds



.




Journal Description Entry to reverse the net investment in capital assets.




724004 Transfers to/from other funds


723006 Other nonoperating revenues/expenses


Journal Description

Entry to reclassify the transaction to other nonoperating revenues/expenses for systemwide elimination.

4.10 COMPLETED CONSTRUCTION PROJECTS (NON-DELEGATED)After a non-delegated construction project is completed, the CO provides the campus with the final cost of the completed project via an ADNOAT called “Statement of Capitalization / Statement of Fixed Asset Additions” prior to fiscal year-end close. Upon receipt of the ADNOAT, the campus will reclassify the asset from CWIP to the proper capital assets category in its legal basis accounting records through the Asset Management module. Please refer to the section 4.3 Completed Capital Asset Projects for the sample journal entries.

4.11 CAPITALIZED INTEREST

Interest costs (including amounts resulting from periodic amortization of discount or premium and issue costs on debt) shall be capitalized as part of the historical cost of acquiring certain assets. To qualify for interest capitalization, assets must require a period of time to get them ready for their intended use.The campus needs to determine if the capitalization of interest is required for projects that are included in its CWIP accounts. Usually, the projects within its CWIP accounts can be broken out into 4 key categories:a. Projects acquired using gifts, grants or State of California capital appropriationsb. Projects that are self-funded by the campusc. Projects funded with taxable debtd. Projects funded with tax-exempt debt

Recognition for Capitalized Interest in Key Categoriesa. Projects acquired using gifts, grants or State of California capital appropriations

No interest cost should be capitalized as the projects were acquired using gifts or grants that are restricted by the donor or grantor to acquire those assets to the extent


.

that funds are available from such gifts or grants. Similar to the gifts or grants, the State of California capital appropriations should not have a capitalized interest to the extent that funds are available from the appropriation.

b. Projects that are self-funded by the campusThe amount of interest cost to be capitalized by the campus shall be the portion of the interest cost incurred during the period that could have been avoided if the assets had not been constructed. The total amount of interest capitalized during the fiscal year should not exceed the actual interest cost incurred by the campus for the fiscal year. No interest capitalization is required if immaterial.

c. Projects funded with taxable debt (e.g. Build America Bonds)Similar to projects self-funded by the campus, the amount of interest to be capitalized is intended to be the portion of the interest cost incurred during the assets’ acquisition periods that theoretically could have been avoided if outlays for the assets had not been made. The capitalized interest amount for the year should not exceed the actual interest cost incurred during the fiscal year.

d. Projects funded with tax-exempt debt (e.g. regular SRB bonds)The amount of interest cost capitalized on qualifying assets acquired with proceeds of tax-exempt borrowings that are externally restricted should be all interest cost of the borrowing less any interest earned on related interest-bearing investments acquired with proceeds of the related tax-exempt borrowings from the date of the borrowing until the assets are ready for their intended use. Interest cost of a tax-exempt borrowing should be eligible for capitalization on other qualifying assets of the entity when the specified qualifying assets are no longer eligible for interest capitalization. This is the category that most likely would result in interest capitalization at a campus. As noted above, the amount to capitalize shall be all interest cost of those borrowings less any interest earned on temporary investment of the proceeds of those borrowings from the date of borrowing until the specified qualifying assets acquired with those borrowings are ready for their intended use. The CO passes down to the campus information regarding interest costs and interest earnings on the tax-exempt debt that it manages. The amount of interest costs and interest earnings that are related to this category of CWIP and the amount of interest costs and interest earnings that are related to assets which have been placed in service are provided in separate lines (by project) in the passdown entries. (Refer to Chapter 4 Long-term Debt Obligations for further discussion of the passdown entries.)


.

For the portion of interest costs and interest earnings that are related to assets which have been placed in service, the pass down entries should be recorded by the campus as presented in the pass down entries. For the portion of interest cost and interest earnings that are related to CWIP, the campus needs to capitalize such amounts, (i.e. to record the net amount as an addition to CWIP.)

5 REFERENCE TOOLS

5.1 TABLES OF OBJECT CODE AND CSU FUND DEFINITIONS

http://www.calstate.edu/SFSR/standards_and_rules/2014/Tables-of-Object-Code-and-CSU-Fund-Definitions-Updated-10-30-14.xls

5.2 ACCOUNTING DEPARTMENT NOTICE OF ACCOUNTING TRANSACTION (AD NOAT) CODED MEMOS

https://csyou.calstate.edu/Divisions-Orgs/bus-fin/Financial-Services/accounting/Coded-Memos/codedmemosaccounting/Forms/adnoat.aspx

5.3 PRESENTATION SLIDES

Capitalization of Interest Cost (August 2008)(Note: The presentation slides have been prepared prior to GASB Statement No. 62 Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements and thus references to the presentation were for FASB Statement No. 34 Capitalization of Interest Cost, however, there should be no differences between the FASB and GASB treatment of capitalized interest.)






.

REVISION CONTROL

Document Title: CHAPTER 4.1.5 – GAAP ADJUSTMENTS AND RECLASSIFICATION ENTRIES – ASSETS: CAPITAL ASSETS, DEPRECIATION AND AMORTIZATION

REVISION AND APPROVAL HISTORY

Section(s) Revised Summary of Revisions Revision

Date

4.9, 4.10 & 4.11 Previously in Chapter 5 May 2015

4.2 Corrected net position code from 881 to 834 of the second journal, “Derived GAAP Entry –if the capital asset is acquired by donation”. August 2015


chapter 4.1.5 - california state university office of the · web viewwhen the information...

Documents