general capital assets; general long-term liabilities; permanent...
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General Capital Assets;General Long-Term Liabilities;
Permanent Funds
Chapter 9
Learning Objectives
► Understand how to maintain GCA & GLTL information for reporting purposes
► Understand how to account for transactions affecting GCA & GLTL
► Understand how governmental funds and GCA & GLTL are related
► Account for and report general infrastructure capital assets► Understand how to apply the modified approach to
infrastructure capital assets► Understand GCA & GLTL financial reporting► Understand how to use, account for, & report Permanent
Funds► Account for transactions affecting all Governmental Funds,
GCA, & GLTL
GCA & GLTL:What We’ve Seen Thus Far
►General Capital Assets (GCA)
Purchases recorded as expenditures rather than fund assets
Sales recorded as Other Financing Sources (OFS)
►General Long-Term Liabilities
Issuance of debt recorded as OFS
Retirement of debt recorded as expenditures or Other Financing Uses (OFU)
GCA-GLTL Accounting Equation
Characteristics of Capital Assets
►Used in operations of the government (not for resale)
►Have useful lives extending beyond a single reporting period (may be modified by government’s capitalization policy)
May be tangible or intangible
Types of Capital Assets
► Land
► Land improvements
► Easements
►Buildings
►Building Improvements
►Vehicles
►Machinery
► Equipment
►Works of art
►Historical treasures
► Infrastructure
Capital Assets ≠ GCA
All general capital assets are capital assets, but not all capital assets are general capital assets!
►GCA used by the Governmental Funds (general government)
►Other capital assets are fund-specific: used by the Proprietary Funds and Trust Funds
Initial Valuation
Cost Invoice price + Cost of delivery + Cost to get asset ready for intended use
Estimated cost
Used when invoice price is unknown
Frequent problem for governments with poor inventory records
Gifts Fair value + Cost of delivery + Cost to get asset ready for intended use
Other Acquisition Methods
Foreclosure Lower of (1) amount due for taxes, etc. or (2) appraised value of property
Eminent domain
Assign value as if it were a negotiated purchase
Escheat Same manner as gifts
Normal GCA Classifications(recommended by GFOA)
►Land
►Buildings or Buildings & Improvements
►Infrastructure
►Machinery & Equipment
►Construction in Progress
►Intangible Assets [added as a result of GASBS 51]
Infrastructure Capital Assets
Long lived capital assets that normally are stationary in nature and normally can be preserved for a significantly greater number of years than most capital assets. Examples of infrastructure assets include roads, bridges, tunnels, drainage systems, water & sewer systems, dams, & lighting systems.
Capitalization Policy
►Minimum dollar amount
►Minimum useful life
Whatever the government elects to do, it must be disclosed in the notes
Reporting Works of Art& Historical Treasures
Not required to capitalize if all 3 criteria met
►Collection is held for public exhibition, education, or research in furtherance of public service rather than financial gain
►It is protected, kept unencumbered, cared for, and preserved
►It is subject to policy that requires proceeds from sale to be used to acquire other items for collection
Minimum Information forProperty Records
► Property system ID number
► Serial number, etc.
► Abbreviated description
► Date of acquisition
► Name and address of vendor
► Payment voucher number
► Fund and account from which purchased
► Federal financing, if any
► Cost or estimated cost
► Estimated useful life & salvage value and annual depreciation
► Accumulated depreciation
► Department charged with custody
► Location
► Date, method, and authorization of disposal
Other GCA Issues
►Regular GCA inventory
►Accounting for additions, betterments, and renewals
►Depreciation and accumulated depreciation
►Modified approach
Allowed only with infrastructure assets
No depreciation recorded
Only additions / improvements are capitalized
►Updating GCA records
GF acquisition
Chapter 3, Entry #4
Expenditures – Capital Outlay
Vouchers Payable
GCA accounts
Machinery & Equipment
Net Assets
6,100
6,100
6,100
6,100
Capital lease entry
Chapter 6, page 234
Expenditures – Capital Outlay
OFS – Capital Lease
Cash
GCA & GLTL accounts
Land – Under Capital Lease
Buildings – Under Capital Lease
Capital Lease Liabilities
Net Assets
900,000
100,000
800,000
860,000
40,000
860,000
40,000
Capital Projects Fund – Chapter 7
Year 1 Entry
Construction in Progress
Net Assets
Year 2 Entry
Streets & Other Infrastructure
Construction in Progress
Net Assets
1,270,000
2,960,000
1,270,000
1,270,000
1,690,000
Acquired through foreclosure [Page 354]
Special Revenue Fund
Expenditures – Capital Outlay
Tax Liens Receivable
GCA accounts
Land
Net Assets
1,100
1,100
1,100
1,100
Acquired through gifts [Page 354]
No fund entry necessary
GCA accounts
Land
Net Assets
1,500
1,500
Recording depreciation [Page 354]
GCA accounts
Depreciation Expense
(Detailed by function)
Accumulated Depreciation
(Detailed by depreciable assets)
423,261
423,261
Sale of capital asset [Page 355]
General Fund
Cash
OFS – Sales of Equipment
GCA accounts
Net Assets
Accumulated Depreciation –
Machinery & Equipment
Machinery & Equipment
20,000
100,000
700,000
20,000
800,000
Retirement [Page 356]GCA Accounts
Net Assets
Accumulated Depreciation – Buildings
Buildings
General Fund
Expenditures – Other
Cash
Cash
Expenditures – Other
OFS – Salvage Proceeds
150,000
600,000
10,000
15,000
750,000
10,000
10,000
5,000
Intergovernmental Sale [Page 356]Enterprise Fund
Due from GF
Accumulated Depreciation – Equipment
Equipment
General Fund
Expenditures – Capital Outlay
Due to EF
GCA accounts
Machinery & Equipment
Accumulated Depreciation – Equipment
Net Assets
15,000
1,000
15,000
16,000
16,000
15,000
1,000
15,000
Intergovernmental Transfers
►Within governmental funds
No journal entries required
GCA account adjusted for new location and responsibility
►Between proprietary funds and governmental funds
Entry to remove (add) asset from (to) proprietary fund accounts
No entry in governmental funds
Record asset in GCA accounts
Intergovernmental Transfer [Page 356]Enterprise Fund
Capital Contributions – Transfer of Capital Assets
Accumulated Depreciation – Equipment
Equipment
GCA accounts
Machinery & Equipment
Accumulated Depreciation – Equipment
Net Assets
10,000
20,000
30,000
30,000
20,000
10,000
Impairment of Assets
Defined
► Significant (material)
►Unexpected (not normal, not ordinary)
►Decline in the service utility of a capital asset
Excludes
► Events or changes in circumstances that might be expected to occur during useful life
►CA accounted for using the modified approach
►Declines caused by deferred maintenance
Indicators of Impairment
1. Evidence of physical damage
2. Change in legal or environmental factors
3. Technological development or evidence of obsolescence
4. A change in the manner or expected duration of usage of an asset
5. Construction stoppage
Measuring Impairments
Method Generally Used
Ind Continued Use Stop Use
1 Restoration cost Lower of CV or FV
2 Service units Lower of CV or FV
3 Service units Lower of CV or FV
4 Deflated depreciation Lower of CV or FV
5 Lower of CV or FV
Restoration Cost Approach
Amount of impairment is derived from the estimated costs to restore the utility of the capital asset. The estimated restoration cost can be converted to historical cost either by restating the estimated restoration cost using an appropriate cost index or by applying a ratio of estimated restoration cost over estimated replacement cost to the carrying value of the capital asset.
Service Units Approach
Isolates the historical cost of the service utility of the capital asset that cannot be used due to the impairment event or change in circumstances. The amount of impairment is determined by evaluating the service provided by the capital asset—either maximum estimated service units or total estimated service units throughout the life of the capital asset—before and after the event or change in circumstance.
Deflated Depreciation Replacement Cost Approach
Replicates the historical cost of the service produced. A current cost for a capital asset to replace the current level of service is estimated. This estimated current cost is depreciated to reflect the fact that the capital asset is not new, and then is deflated to convert it to historical cost dollars.
Reporting Impairment Losses
►Temporary – no impairment loss report, but cost to repair is reported Expenditure in Governmental Funds
Loss in Proprietary Funds
►Other than temporary Expenditure in Governmental Funds
Program expense, extraordinary item, or special item in Proprietary Funds and government-wide statements
Reporting Insurance Recoveries
►Governmental Funds – OFS or extraordinary item, as appropriate
►Government-wide financial statements & Proprietary Funds – report restoration separate from impairment and associated insurance recovery
► Impairment loss reported net of insurance recovery if both occur in same fiscal year
► Insurance recovery in subsequent year reported as program revenue, nonoperating revenue, or extraordinary item, as appropriate
Special Circumstances
► Insurance recoveries for losses other than impairments:
Netted against loss if in same fiscal year
Program revenue, nonoperating revenue, or extraordinary revenue if in subsequent year
► Self-Insurance
From ISF, report as described above
From General Fund, recovery is reported as
►Reimbursement up to amount of loss
►Transfer for any excess
Reporting GCA
► Financial Statements – governmental activities column of government-wide Statement of Net Assets
►Notes to the Financial Statements
Beginning and Ending Balances of capital asset accounts and related accumulated depreciation accounts
Acquisitions of capital assets
Sales or other dispositions
Allocation of current period depreciation expense to each function in the Statement of Activities
General Long-Term Liabilities
Defined
All unmatured long-term debt of the government except for that accounted for in a Proprietary Fund or Trust Fund
Examples
► Bonds, warrants, & notes
► Capital leases and CoPs
► Underfunded pension plan contributions
► Claims & judgments
► Compensated absences
► Landfill closure and post-closure care costs
CPF–GLTL accounts [Page 364]
Capital Projects Fund
Cash
Expenditures – Debt Service – Bond Issue
Costs
OFS – Bonds [Face amount]
OFS – Bond Premium
GLTL accounts
Net Assets
Unamortized Bond Issue Costs
Serial Bonds Payable
Premium on Serial Bonds
909,000
2,000
1,009,000
2,000
900,000
11,000
1,000,000
11,000
DSF–GLTL accounts [Page 364]
Debt Service Fund
Expenditures – Debt Service – Principal
Expenditures – Debt Service – Interest
Expenditures – Debt Service – Fiscal Agent Fees
Matured Bonds Payable
Matured Interest Payable
Fiscal Agent Fees Payable
GLTL accounts
Serial Bonds Payable
Net Assets
100,000
50,000
10,000
100,000
100,000
50,000
10,000
100,000
Special Circumstances
►Serial Bonds
►Special Assessment debt
►Other governmental liabilities (details follow)
►Interest related adjustments – reported in government-wide financial statements only
►Defaulted bonds
►In-substance defeasance
Claims & Judgments [Page 366]
General Fund
Expenditures – Claims & Judgments
Cash
Accrued CJ Liabilities (1)
GLTL accounts
Net Assets
Accrued CJ Liabilities (2)
350,000
150,000
300,000
50,000
150,000
(1) To be paid from current financial resources.
(2) To be paid later (not from current financial resources).
Capital Lease Payment [Page 367]
General Fund
Expenditures – Debt Service – Interest
Expenditures – Debt Service – Principal
Cash
GLTL accounts
Capital Lease Liability
Net Assets
5,000
13,000
13,000
18,000
13,000
Reporting GLTL
► Financial Statements – governmental activities column of government-wide Statement of Net Assets
►Notes to the Financial Statements
Beginning and Ending Balances of GLTL accounts
Issuances / increases in GLTL accounts
Retirements / decreases in GLTL accounts
Which governmental funds have typically been used in prior years to liquidate other long-term liabilities
Permanent Funds
►Used to account for resources held in trust by the government for the benefit of the government or of its citizenry as a whole
►Contrast with Private Purpose Trust Fund where the assets are used to benefit private individuals, private organizations, or other governments
Relationships Requiring Use of a Permanent Fund
►Gift of real or personal property where
Principal is to remain intact
Earnings are to be used for certain purposes
►Employee loan fund – principal could be reduced under certain circumstances
►Other trust agreements
#1 Donation received [Page 370]
Cash
Revenues – Donations
210,000
210,000
#2 Purchase investments [Page 371]
Investments
Accrued Interest Receivable
Cash
200,000
400
200,400
#3 Interest received on investments[Page 371]
Cash
Accrued Interest Receivable
Revenues – Interest
3,000
400
2,600
#4 Sale of securities [Page 370]
Cash
Investments
Revenues – Interest
Gain on Sale of Investments
Assumes fund is exempt from GASBS 31
3,090
3,042
35
13
#5 Interest accrued [Page 370]
Interest Receivable on Investments
Revenues – Interest
2,600
2,600
#6 Transfer to GF [Page 370]
Permanent Fund
OFU – Transfer to GF
Cash
General Fund
Cash
OFS – Transfer from Permanent Fund
5,000
5,000
5,000
5,000
Interfund – GCA – GLTLAccounting
#1 Issue debt [Page 372]
Capital Projects Fund
Cash
OFS – Bonds (Face)
OFS – Premium on Bonds
GLTL accounts
Net Assets
Serial Bonds Payable
Premium on Serial Bonds
505,000
505,000
500,000
5,000
500,000
5,000
#2 Transfer bond premium [Page 372]
Capital Projects Fund
OFU – Transfer to DSF
Cash
Debt Service Fund
Cash
OFS – Transfer from CPF
5,000
5,000
5,000
5,000
#3 Contribution from GF to DSF [Page 373]
General Fund
OFU – Transfer to DSF
Cash
Debt Service Fund
Cash
OFS – Transfer from GF
80,000
80,000
80,000
80,000
#4 Capital outlay recorded [Page 373]
Capital Projects Fund
Expenditures – Capital Outlay
Vouchers Payable
GCA accounts
Improvements other than Buildings
Net Assets
496,000
496,000
496,000
496,000
#5 Remaining assets transferred [Page 373]
Capital Projects Fund
OFU – Transfer to DSF
Cash
Debt Service Fund
Cash
OFS – Transfer from CPF
4,000
4,000
4,000
4,000
#6 Debt service payment [Page 373]
Debt Service Fund
Expenditures – Debt Service – Principal
Expenditures – Debt Service – Interest
Cash
GLTL accounts
Serial Bonds Payable
Net Assets
50,000
30,000
50,000
80,000
50,000
#7 Capital lease [Pages 373 – 374]
General Fund
Expenditures – Capital Outlay
OFS – Capital Lease
Cash
GCA accounts
Equipment Under Capital Lease
Net Assets
GLTL accounts
Net Assets
Capital Lease Liabilities
250,000
250,000
225,000
225,000
25,000
250,000
225,000
#8 Capital lease payment [Page 374]
General Fund
Expenditures – Debt Service – Principal
Expenditures – Debt Service -- Interest
Cash
GLTL accounts
Capital Lease Liabilities
Net Assets
30,000
20,000
30,000
50,000
30,000
#9 Government payment on special assessment [Page 374]
General Fund
OFU – Transfer to CPF
Due to CPF
Capital Projects Fund
Due from GF
OFS – Transfer from GF
100,000
100,000
100,000
100,000
#10 Inspections on capital project performed [Page 374]
General Fund
Due from CPF
Revenues – Inspection Services
Capital Projects Fund
Expenditures – Capital Outlay
Due to GF
GCA accounts
Construction in Progress
Net Assets
8,000
8,000
8,000
8,000
8,000
8,000
#11 Reimbursement transaction [Page 375]
Capital Projects Fund
Due to GF
Expenditures – Capital Outlay
GCA accounts
Net Assets
Construction in Progress
General Fund
Expenditures – Maintenance
Due to CPF
5,000
5,000
5,000
5,000
5,000
5,000
#12 Short-term loan between funds[Page 375]
General Fund
Due from DSF
Cash
Debt Service Fund
Cash
Due to GF
40,000
40,000
40,000
40,000
#13 Non-current loan between funds[Page 375]
General Fund
Advance to CPF
Unreserved Fund Balance
Cash
Reserve for Interfund Advance
Capital Projects Fund
Cash
Advance from GF
75,000
75,000
75,000
75,000
75,000
75,000
#14 Sale of computers [Page 375]
General Fund
Cash
OFS – GCA Sale Proceeds
GCA accounts
Net Assets
Accumulated Depreciation – Equipment
Equipment
13,000
24,000
72,000
13,000
96,000
#15 Sick leave accrual and payment [Page 376]
General Fund
Expenditures – Vacation and Sick Leave
Current Liability for Vacation and Sick Leave
(Beginning)
Cash
Expenditures – Vacation and Sick Leave
Current Liability for Vacation and Sick Leave
(Ending)
GLTL accounts
Noncurrent Liability for Vacation and Sick Leave
Net Assets
375,000
25,000
45,000
67,000
400,000
45,000
67,000