Chapter 09D - General Capital Assets; General Capital...

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Unformatted text preview: General Capital Assets; General Capital Assets; General Long­Term Liabilities; Permanent Funds Chapter 9 Learning Objectives 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: 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 Long­Term Liabilities Issuance of debt recorded as OFS Retirement of debt recorded as expenditures or Other Financing Uses (OFU) GCA­GLTL Accounting Equation GCA­GLTL Accounting Equation Characteristics of Capital Assets 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 Types of Capital Assets ► Land ► Vehicles ► Easements ► Equipment ► Land improvements ► Buildings ► Building Improvements ► Machinery ► Works of art ► Historical treasures ► Infrastructure Capital Assets ≠ GCA Capital Assets 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 fund­specific: used by the Proprietary Funds and Trust Funds Initial Valuation Initial Valuation Cost Estimated cost Gifts Invoice price + Cost of delivery + Cost to get asset ready for intended use Used when invoice price is unknown Frequent problem for governments with poor inventory records Fair value + Cost of delivery + Cost to get asset ready for intended use Other Acquisition Methods Other Acquisition Methods Foreclosure Lower of (1) amount due for taxes, etc. or (2) appraised value of property Eminent Assign value as if it were a negotiated domain purchase Escheat Same manner as gifts Normal GCA Classifications 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 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 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 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 for Minimum Information for Property 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 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 GF acquisition Chapter 3, Entry #4 Expenditures – Capital Outlay 6,100 6,100 Vouchers Payable GCA accounts [Page 354] Machinery & Equipment Net Assets 6,100 6,100 Capital lease entry Capital lease entry Chapter 6 [Page 236] Expenditures – Capital Outlay 900,000 860,000 OFS – Capital Lease 40,000 Cash GCA & GLTL accounts [Page 354] Land – Under Capital Lease 100,000 Buildings – Under Capital Lease 800,000 Capital Lease Liabilities Net Assets 860,000 40,000 Capital Projects Fund – Chapter 7 Capital Projects Fund – Chapter 7 Year 1 Entry Construction in Progress 1,270,000 1,270,000 Net Assets Year 2 Entry Streets & Other Infrastructure 2,960,000 Construction in Progress 1,270,000 Net Assets 1,690,000 Acquired through foreclosure [Page 354] Acquired through foreclosure Special Revenue Fund Expenditures – Capital Outlay 1,100 1,100 Tax Liens Receivable GCA accounts Land Net Assets 1,100 1,100 Acquired through gifts [Page 354] Acquired through gifts No fund entry necessary GCA accounts Land Net Assets 1,500 1,500 Recording depreciation [Page 354] Recording depreciation GCA accounts Depreciation Expense 423,261 (Detailed by function) Accumulated Depreciation (Detailed by depreciable assets) 423,261 Sale of capital asset [Page 357] Sale of capital asset General Fund 20,000 Cash 20,000 OFS – Sales of Equipment GCA accounts Net Assets 100,000 Accumulated Depreciation – Machinery & Equipment Machinery & Equipment 700,000 800,000 Retirement [Page 358] Retirement GCA Accounts Net Assets 150,000 Accumulated Depreciation – Buildings 600,000 750,000 Buildings General Fund Expenditures – Other 10,000 10,000 Cash Cash Expenditures – Other OFS – Salvage Proceeds 15,000 10,000 5,000 Intergovernmental Sale [Page 356] Intergovernmental Sale Enterprise Fund Due from GF Accumulated Depreciation – Equipment 15,000 1,000 16,000 Equipment General Fund Expenditures – Capital Outlay 15,000 15,000 Due to EF GCA accounts Machinery & Equipment Accumulated Depreciation – Equipment 16,000 1,000 Intergovernmental Transfers 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 359] Intergovernmental Transfer Enterprise Fund Nonoperating Expenses – Transfer of Capital Assets Accumulated Depreciation – Equipment 10,000 20,000 30,000 Equipment GCA accounts Machinery & Equipment Accumulated Depreciation – Equipment Net Assets 30,000 20,000 10,000 Impairment of Assets 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 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 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 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 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 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 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 government­wide statements Reporting Insurance Recoveries Reporting Insurance Recoveries ► Governmental Funds – OFS or extraordinary item, as appropriate ► Government­wide 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 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 ► Self­Insurance 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 Reporting GCA ► Financial Statements – governmental activities column of government­wide 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 Long­Term Liabilities General Long­Term Liabilities Defined All unmatured long­term 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] CPF–GLTL accounts Capital Projects Fund 909,000 Cash Expenditures – Debt Service – Bond Issue Costs 2,000 900,000 OFS – Bonds [Face amount] 11,000 OFS – Bond Premium GLTL accounts Net Assets Unamortized Bond Issue Costs Serial Bonds Payable Premium on Serial Bonds 1,009,000 2,000 1,000,000 11,000 DSF–GLTL accounts [Page 366] DSF–GLTL accounts Debt Service Fund Expenditures – Debt Service – Principal 100,000 Expenditures – Debt Service – Interest 50,000 Expenditures – Debt Service – Fiscal Agent Fees 10,000 Matured Bonds Payable 100,000 Matured Interest Payable 50,000 Fiscal Agent Fees Payable 10,000 GLTL accounts Serial Bonds Payable Net Assets 100,000 100,000 Special Circumstances Special Circumstances ► Serial Bonds ► Special Assessment debt ► Other governmental liabilities (details follow) ► Interest related adjustments – reported in government­wide financial statements only ► Defaulted bonds ► In­substance defeasance Claims & Judgments [Page 368] Claims & Judgments General Fund Expenditures – Claims & Judgments 350,000 300,000 Cash 50,000 Accrued CJ Liabilities (1) GLTL accounts Net Assets 150,000 Accrued CJ Liabilities (2) (1) To be paid from current financial resources. (2) To be paid later (not from current financial resources). 150,000 Capital Lease Payment [Page 369] Capital Lease Payment General Fund Expenditures – Debt Service – Interest 5,000 Expenditures – Debt Service – Principal 13,000 18,000 Cash GLTL accounts Capital Lease Liability Net Assets 13,000 13,000 Reporting GLTL Reporting GLTL ► Financial Statements – governmental activities column of government­wide 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 long­term liabilities Permanent Funds 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 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 372] #1 Donation received Cash Revenues – Donations 210,000 210,000 #2 Purchase investments [Page 373] #2 Purchase investments Investments Accrued Interest Receivable Cash 200,000 400 200,400 #3 Interest received on investments #3 Interest received on investments [Page 373] Cash Accrued Interest Receivable Revenues – Interest 3,000 400 2,600 #4 Sale of securities [Page 373] #4 Sale of securities Cash Investments 3,090 3,042 Revenues – Interest 35 Gain on Sale of Investments 13 Assumes fund is exempt from GASBS 31 #5 Interest accrued [Page 373] #5 Interest accrued Interest Receivable on Investments Revenues – Interest 2,600 2,600 #6 Transfer to GF [Page 373] #6 Transfer to GF Permanent Fund OFU – Transfer to GF 5,000 Cash 5,000 General Fund Cash OFS – Transfer from Permanent Fund 5,000 5,000 Interfund – GCA – GLTL Interfund – GCA – GLTL Accounting #1 Issue debt [Page 374] #1 Issue debt Capital Projects Fund Cash 505,000 500,000 OFS – Bonds (Face) 5,000 OFS – Premium on Bonds GLTL accounts Net Assets Serial Bonds Payable Premium on Serial Bonds 505,000 500,000 5,000 #2 Transfer bond premium [Page 374] #2 Transfer bond premium Capital Projects Fund OFU – Transfer to DSF 5,000 5,000 Cash Debt Service Fund Cash OFS – Transfer from CPF 5,000 5,000 #3 Contribution from GF to DSF [Page 375] #3 Contribution from GF to DSF General Fund OFU – Transfer to DSF 80,000 80,000 Cash Debt Service Fund Cash OFS – Transfer from GF 80,000 80,000 #4 Capital outlay recorded [Page 375] #4 Capital outlay recorded Capital Projects Fund Expenditures – Capital Outlay 496,000 496,000 Vouchers Payable GCA accounts Improvements other than Buildings Net Assets 496,000 496,000 #5 Remaining assets transferred [Page 375] #5 Remaining assets transferred Capital Projects Fund OFU – Transfer to DSF 4,000 4,000 Cash Debt Service Fund Cash OFS – Transfer from CPF 4,000 4,000 #6 Debt service payment [Page 375] #6 Debt service payment Debt Service Fund Expenditures – Debt Service – Principal 50,000 Expenditures – Debt Service – Interest 30,000 80,000 Cash GLTL accounts Serial Bonds Payable Net Assets 50,000 50,000 #7 Capital lease [Pages 375 – 376] #7 Capital lease General Fund Expenditures – Capital Outlay 250,000 225,000 OFS – Capital Lease 25,000 Cash GCA accounts Equipment Under Capital Lease 250,000 250,000 Net Assets GLTL accounts Net Assets Capital Lease Liabilities 225,000 225,000 #8 Capital lease payment [Page 376] #8 Capital lease payment General Fund Expenditures – Debt Service – Principal 30,000 Expenditures – Debt Service ­­ Interest 20,000 50,000 Cash GLTL accounts Capital Lease Liabilities Net Assets 30,000 30,000 #9 Government payment on special #9 Government payment on special assessment [Page 376] General Fund OFU – Transfer to CPF 100,000 100,000 Due to CPF Capital Projects Fund Due from GF OFS – Transfer from GF 100,000 100,000 #10 Inspections on capital project #10 Inspections on capital project performed [Page 376] General Fund Due from CPF 8,000 8,000 Revenues – Inspection Services Capital Projects Fund Expenditures – Capital Outlay 8,000 8,000 Due to GF GCA accounts Construction in Progress Net Assets 8,000 8,000 #11 Reimbursement transaction [Page 377] #11 Reimbursement transaction Capital Projects Fund Due from GF 5,000 5,000 Expenditures – Capital Outlay GCA accounts Net Assets 5,000 5,000 Construction in Progress General Fund Expenditures – Maintenance Due to CPF 5,000 5,000 #12 Short­term loan between funds #12 Short­term loan between funds [Page 377] General Fund Due from DSF 40,000 40,000 Cash Debt Service Fund Cash Due to GF 40,000 40,000 #13 Non­current loan between funds #13 Non­current loan between funds [Page 377] General Fund Advance to CPF 75,000 Unreserved Fund Balance 75,000 Cash 75,000 Reserve for Interfund Advance 75,000 Capital Projects Fund Cash Advance from GF 75,000 75,000 #14 Sale of computers [Page 377] #14 Sale of computers General Fund Cash 13,000 13,000 OFS – GCA Sale Proceeds GCA accounts Net Assets 24,000 Accumulated Depreciation – Equipment 72,000 Equipment 96,000 #15 Sick leave accrual and payment #15 Sick leave accrual and payment [Page 378] General Fund Expenditures – Vacation and Sick Leave 375,000 Current Liability for Vacation and Sick Leave (Beginning) 25,000 400,000 Cash Expenditures – Vacation and Sick Leave 45,000 Current Liability for Vacation and Sick Leave 45,000 (Ending) GLTL accounts Noncurrent Liability for Vacation and Sick Leave 67,000 ...
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