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General Capital Assets; General Long-Term Liabilities; Permanent by skw15361

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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
► 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
► Account for transactions affecting all Governmental Funds,
            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
► 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                    ► Vehicles
► Land  improvements      ► Machinery
► Easements               ► Equipment
► Buildings               ► Works   of art
► Building Improvements   ► 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 Used when invoice price is unknown
cost      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     Assign value as if it were a negotiated
domain      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 for
              Property Records
►   Property system ID        ►   Federal financing, if any
    number                    ►   Cost or estimated cost
►   Serial number, etc.       ►   Estimated useful life &
►   Abbreviated description       salvage value and annual
►   Date of acquisition           depreciation
►   Name and address of       ►   Accumulated depreciation
    vendor                    ►   Department charged with
►   Payment voucher number        custody
►   Fund and account from     ►   Location
    which purchased           ►   Date, method, and
                                  authorization of disposal
             Other GCA Issues
► Regular GCA inventory
► Accounting for additions, betterments, and
► 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   6,100
      Vouchers Payable                     6,100

   GCA accounts
   Machinery & Equipment           6,100
     Net Assets                            6,100
Capital lease entry
   Chapter 6, page 234
   Expenditures – Capital Outlay     900,000
      OFS – Capital Lease                      860,000
      Cash                                      40,000

   GCA & GLTL accounts
   Land – Under Capital Lease        100,000
   Buildings – Under Capital Lease   800,000
       Capital Lease Liabilities               860,000
       Net Assets                               40,000
Capital Projects Fund – Chapter 7
 Year 1 Entry
 Construction in Progress         1,270,000
    Net Assets                                1,270,000

 Year 2 Entry
 Streets & Other Infrastructure   2,960,000   1,270,000
    Construction in Progress                  1,690,000
    Net Assets
Acquired through foreclosure          [Page 354]

   Special Revenue Fund
   Expenditures – Capital Outlay   1,100
      Tax Liens Receivable                 1,100

   GCA accounts
   Land                            1,100
      Net Assets                           1,100
Acquired through gifts       [Page 354]

   No fund entry necessary

   GCA accounts
   Land                            1,500
      Net Assets                           1,500
Recording depreciation                      [Page 354]

   GCA accounts

   Depreciation Expense                        423,261
         (Detailed by function)
      Accumulated Depreciation                           423,261
         (Detailed by depreciable assets)
Sale of capital asset        [Page 355]

   General Fund
   Cash                              20,000
      OFS – Sales of Equipment                 20,000

   GCA accounts
   Net Assets                       100,000
   Accumulated Depreciation –
         Machinery & Equipment      700,000
      Machinery & Equipment                   800,000
Retirement        [Page 356]
   GCA Accounts
   Net Assets                             150,000
   Accumulated Depreciation – Buildings   600,000
       Buildings                                    750,000

   General Fund
   Expenditures – Other                    10,000
      Cash                                           10,000

   Cash                                    15,000
      Expenditures – Other                           10,000
      OFS – Salvage Proceeds                          5,000
Intergovernmental Sale                    [Page 356]
   Enterprise Fund
   Due from GF                                 15,000
   Accumulated Depreciation – Equipment         1,000
      Equipment                                         16,000

   General Fund
   Expenditures – Capital Outlay               15,000
      Due to EF                                         15,000

   GCA accounts
   Machinery & Equipment                       16,000
      Accumulated Depreciation – Equipment               1,000
      Net Assets                                        15,000
   Intergovernmental Transfers
► Within   governmental funds
   No journal entries required
   GCA account adjusted for new location and
► Between    proprietary funds and governmental
   Entry to remove (add) asset from (to) proprietary fund
   No entry in governmental funds
   Record asset in GCA accounts
Intergovernmental Transfer                            [Page 356]
Enterprise Fund
Capital Contributions – Transfer of Capital Assets   10,000
Accumulated Depreciation – Equipment                 20,000
    Equipment                                                 30,000

GCA accounts
Machinery & Equipment                                30,000
   Accumulated Depreciation – Equipment                       20,000
   Net Assets                                                 10,000
          Impairment of Assets
          Defined                      Excludes
► Significant (material)       ► Events or changes in
► Unexpected (not                circumstances that
  normal, not ordinary)          might be expected to
► Decline in the service
                                 occur during useful life
  utility of a capital asset   ► 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
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
       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
 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
► 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
► Insurancerecoveries for losses other than
   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
► FinancialStatements – governmental activities
  column of government-wide Statement of Net
► 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                         Examples
All unmatured long-term debt     ► Bonds, warrants, & notes
   of the government except      ► Capital leases and CoPs
   for that accounted for in a   ► Underfunded pension plan
   Proprietary Fund or Trust       contributions
                                 ► Claims & judgments
                                 ► Compensated absences
                                 ► Landfill closure and post-
                                   closure care costs
CPF–GLTL accounts                          [Page 364]
Capital Projects Fund
Cash                                             909,000
Expenditures – Debt Service – Bond Issue
       Costs                                       2,000
   OFS – Bonds [Face amount]                                900,000
   OFS – Bond Premium                                        11,000

GLTL accounts
Net Assets                                     1,009,000
Unamortized Bond Issue Costs                       2,000
    Serial Bonds Payable                                   1,000,000
    Premium on Serial Bonds                                   11,000
DSF–GLTL accounts                         [Page 364]
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                              100,000
    Net Assets                                              100,000
           Special Circumstances
► SerialBonds
► 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                     350,000
   Cash                                                         300,000
   Accrued CJ Liabilities (1)                                    50,000

GLTL accounts
Net Assets                                            150,000
    Accrued CJ Liabilities (2)                                  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        5,000
Expenditures – Debt Service – Principal      13,000
   Cash                                                18,000

GLTL accounts
Capital Lease Liability                      13,000
    Net Assets                                         13,000
                Reporting GLTL
► FinancialStatements – governmental activities
  column of government-wide Statement of Net
► 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
   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                      210,000
      Revenues – Donations             210,000
#2 Purchase investments [Page 371]

   Investments                   200,000
   Accrued Interest Receivable       400
      Cash                                 200,400
#3 Interest received on investments
[Page 371]

      Cash                             3,000
         Accrued Interest Receivable             400
         Revenues – Interest                   2,600
#4 Sale of securities [Page 370]

   Cash                                   3,090
      Investments                                 3,042
      Revenues – Interest                            35
      Gain on Sale of Investments                    13

   Assumes fund is exempt from GASBS 31
#5 Interest accrued [Page 370]

   Interest Receivable on Investments   2,600
      Revenues – Interest                       2,600
#6 Transfer to GF [Page 370]

 Permanent Fund
 OFU – Transfer to GF                    5,000
    Cash                                         5,000

 General Fund
 Cash                                    5,000
    OFS – Transfer from Permanent Fund           5,000
Interfund – GCA – GLTL
#1 Issue debt                 [Page 372]
Capital Projects Fund
Cash                                       505,000
   OFS – Bonds (Face)                                500,000
   OFS – Premium on Bonds                              5,000

GLTL accounts
Net Assets                                 505,000
    Serial Bonds Payable                             500,000
    Premium on Serial Bonds                            5,000
#2 Transfer bond premium             [Page 372]
Capital Projects Fund
OFU – Transfer to DSF        5,000
   Cash                                 5,000

Debt Service Fund
Cash                         5,000
   OFS – Transfer from CPF              5,000
#3 Contribution from GF to DSF   [Page 373]
General Fund
OFU – Transfer to DSF       80,000
   Cash                               80,000

Debt Service Fund
Cash                        80,000
   OFS – Transfer from GF             80,000
#4 Capital outlay recorded           [Page 373]
Capital Projects Fund
Expenditures – Capital Outlay       496,000
   Vouchers Payable                           496,000

GCA accounts
Improvements other than Buildings   496,000
   Net Assets                                 496,000
#5 Remaining assets transferred   [Page 373]
Capital Projects Fund
OFU – Transfer to DSF        4,000
   Cash                                4,000

Debt Service Fund
Cash                         4,000
   OFS – Transfer from CPF             4,000
#6 Debt service payment                   [Page 373]
Debt Service Fund
Expenditures – Debt Service – Principal    50,000
Expenditures – Debt Service – Interest     30,000
   Cash                                                80,000

GLTL accounts
Serial Bonds Payable                       50,000
    Net Assets                                         50,000
#7 Capital lease                [Pages 373 – 374]
General Fund
Expenditures – Capital Outlay                       250,000
   OFS – Capital Lease                                        225,000
   Cash                                                        25,000

GCA accounts
Equipment Under Capital Lease                       250,000
    Net Assets                                                250,000

GLTL accounts
Net Assets                                          225,000
    Capital Lease Liabilities                                 225,000
#8 Capital lease payment                  [Page 374]
General Fund
Expenditures – Debt Service – Principal    30,000
Expenditures – Debt Service -- Interest    20,000
   Cash                                                50,000

GLTL accounts
Capital Lease Liabilities                  30,000
     Net Assets                                        30,000
#9 Government payment on special
assessment [Page 374]
General Fund
OFU – Transfer to CPF       100,000
   Due to CPF                         100,000

Capital Projects Fund
Due from GF                 100,000
   OFS – Transfer from GF             100,000
#10 Inspections on capital project
performed [Page 374]
General Fund
Due from CPF                        8,000
   Revenues – Inspection Services           8,000

Capital Projects Fund
Expenditures – Capital Outlay       8,000
   Due to GF                                8,000

GCA accounts
Construction in Progress            8,000
   Net Assets                               8,000
#11 Reimbursement transaction          [Page 375]

Capital Projects Fund
Due to GF                           5,000
    Expenditures – Capital Outlay            5,000

GCA accounts
Net Assets                          5,000
    Construction in Progress                 5,000

General Fund
Expenditures – Maintenance          5,000
   Due to CPF                                5,000
#12 Short-term loan between funds
[Page 375]

 General Fund
 Due from DSF              40,000
    Cash                            40,000

 Debt Service Fund
 Cash                      40,000
    Due to GF                       40,000
#13 Non-current loan between funds
[Page 375]

 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                               75,000
    Advance from GF                          75,000
#14 Sale of computers                  [Page 375]

General Fund
Cash                                         13,000
   OFS – GCA Sale Proceeds                            13,000

GCA accounts
Net Assets                                   24,000
Accumulated Depreciation – Equipment         72,000
    Equipment                                         96,000
#15 Sick leave accrual and payment
[Page 376]
 General Fund
 Expenditures – Vacation and Sick Leave              375,000
 Current Liability for Vacation and Sick Leave
         (Beginning)                                  25,000
     Cash                                                      400,000

 Expenditures – Vacation and Sick Leave               45,000
     Current Liability for Vacation and Sick Leave
        (Ending)                                                45,000

 GLTL accounts
 Noncurrent Liability for Vacation and Sick Leave     67,000
    Net Assets                                                  67,000

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