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Unformatted text preview: Chapter 05 - Accounting for General Capital Assets and Capital Projects CHAPTER 5: ACCOUNTING FOR GENERAL CAPITAL ASSETS AND CAPITAL PROJECTS Answers to Questions 5-1 General capital assets are those assets acquired with the resources of governmental funds and that are reported as assets in the Governmental Activities column of the government-wide financial statements. Capital assets are reported at historical cost. Those capital assets identified as depreciable are shown net of accumulated depreciation. The resources used by the governmental funds to acquire a general capital asset are reported as an expenditure of the governmental fund acquiring the asset. 5-2 Capital asset disclosures required by the GASB are quite well illustrated by the City and County of Denver’s capital asset disclosures shown in Illustration 5-2. In brief, the disclosures should include policies for capitalizing assets and for estimating the useful lives of depreciable assets. In addition, the disclosures should include: (1) beginning-of- year and end-of-year balances showing accumulated depreciation separate from historical cost, (2) capital acquisitions during the year, (3) sales or other dispositions during the year, (4) depreciation expense showing amounts charged to each function in the statement of activities, and (5) disclosures regarding collections of art or historical treasures. 5-3 The modified approach to accounting for infrastructure assets does not record an adjusting entry recognizing depreciation expense and accumulated depreciation. Rather the government reports, as an expense, the costs of maintaining the infrastructure assets at an established level or condition. By doing this the book value of the infrastructure asset remains unchanged (i.e., there is no accumulated depreciation). This is unlike the depreciation method, whereby the book value of the infrastructure assets decreases each time depreciation expense is recorded. Only certain infrastructure assets are eligible to use the modified approach. Eligible assets are defined as those assets that are parts of major networks of infrastructure assets or subsystems of networks, where a network might be a highway system, for example. If the government meets two requirements it can use the modified approach for eligible infrastructure assets. The two requirements are: (1) management of eligible infrastructure assets using a management system that includes an up-to-date inventory of eligible assets, condition assessments and results using a measurement scale, and estimates of annual costs to maintain assets at the established and disclosed condition level, and (2) documentation that the assets are being preserved at or above the established condition level. If the government fails to maintain the assets at or above the established condition level, it must revert to reporting depreciation for its infrastructure assets and discontinue use of the modified approach....
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This note was uploaded on 11/08/2010 for the course ACT ACT3394 taught by Professor Paul during the Fall '10 term at Troy.
- Fall '10