Fixed Assets GAAP by ashrafp

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									West Virginia - Statewide Accounting Policies & Procedures
                                                                                           Page 1 of 6
Topic:         Assets                                          Effective Date:          July 1, 1998
Section:       Fixed Assets/Infrastructure                     Revised Date:            June 30, 2002
Subsection:    GAAP Accounting


Governmental generally accepted accounting principles require that governmental fund fixed
assets/infrastructure be recorded at historical cost or estimated historical cost in the government-wide
financial statements. Governmental fund fixed assets/infrastructure are not reported at the individual
fund level. Proprietary funds report fixed assets/infrastructure at the individual fund level. The same
rules apply to discrete component units of the State.

GAAP Materiality Levels

The Financial Accounting and Reporting Section (FARS) has established materiality levels for
financial reporting of assets in accordance with GAAP. For certain asset types, as described below,
different materiality levels have been established based upon the GAAP fund type to which the asset
belongs. Agencies receiving independent financial statement audits may elect materiality levels
lower than those required by FARS; however, in no case should fixed asset materiality levels exceed
those established in these Policies and Procedures.

The materiality levels detailed herein are solely for financial reporting purposes and do not relieve
agencies of responsibility for maintaining fixed asset equipment inventories as prescribed by the
Director of Purchasing. Agencies may determine that lower materiality levels are needed for
operational accountability.


Land

      All Funds                       All land holdings should be reported for GAAP purposes,
                                       regardless of historical cost.

Buildings

      All Funds                       Report buildings with historical cost equal to or greater than
                                       $100,000.

Land Improvements

      All Funds                       All land improvements should be reported, regardless of
                                       historical cost.
West Virginia - Statewide Accounting Policies & Procedures
                                                                                         Page 2 of 6
Topic:           Assets                                       Effective Date:         July 1, 1998
Section:         Fixed Assets/Infrastructure                  Revised Date:           June 30, 2002
Subsection:      GAAP Accounting



Building Improvements

      All Funds                       Improvements should be reported when the building plus the
                                       improvement equals a historical cost equal to or greater than
                                       $100,000.

Leasehold Improvements

      All Funds                       Report improvements with a historical cost equal to or greater
                                       than $100,000.

Equipment

      General Fixed Assets            Report individual equipment items with historical cost equal
                                       to or greater than $25,000.

      Fund Assets                     Report individual equipment items with historical cost equal
                                       to or greater than $5,000.

      Higher Education                Report individual equipment items with historical cost equal
                                       to or greater than $1,000.

Library Holdings

      All Funds                       Report aggregate library holdings with historical cost equal to
                                       or greater than $25,000.

Construction in Progress

      All Funds                       Report the June 30 value for each construction project with a
                                       contract price greater than $100,000.

Infrastructure

      All Funds                       All Infrastructure should be reported regardless of historical
West Virginia - Statewide Accounting Policies & Procedures
                                                                                        Page 3 of 6
Topic:         Assets                                        Effective Date:         July 1, 1998
Section:       Fixed Assets/Infrastructure                   Revised Date:           June 30, 2002
Subsection:    GAAP Accounting


                                      cost.

Intangibles

      All Funds                      Software - off the shelf:             $25,000
                                      Software – internally generated:      $1 million
                                      Patents/Rights (water, mineral        $25,000
                                      easements,etc.)




Assets Acquired Through Lease Agreements

Assets acquired through lease agreements satisfying criteria established by Financial Accounting
Standards Board (FASB) Statement No. 13, “Accounting for Leases,” must be capitalized. FASB
Statement No. 13 requires that noncancelable leases meeting any one of the following criteria
constitutes a capital lease, and the related asset must be recorded as a fixed asset of the lessee
(agency):

1.     The lease transfers ownership of the property to the lessee by the end of the lease term.
2.     The lease contains a bargain purchase option.
3.     The lease term is equal to 75% or more of the estimated economic life of the leased property.
4.     The present value of the minimum lease payments at the inception of the lease, excluding
       executory costs, equals at least 90% of the fair value of the leased property.

Assets leased through agreements failing to meet any of the above criteria should NOT be recorded
as an agency fixed asset.

All State of West Virginia leases include fiscal funding clauses which provide for cancellation if
sufficient funds are not appropriated to make required lease payments. The likelihood of
cancellation due to a fiscal funding clause has been deemed a remote possibility; therefore, lease
agreements containing such a clause are considered noncancelable and, if the criteria established
above is met, the related asset is recorded as a fixed asset of the lessee (agency).
West Virginia - Statewide Accounting Policies & Procedures
                                                                                        Page 4 of 6
Topic:        Assets                                         Effective Date:         July 1, 1998
Section:      Fixed Assets/Infrastructure                    Revised Date:           June 30, 2002
Subsection:   GAAP Accounting




Amounts Capitalized as Fixed Asset Costs:

1.    The purchase price of the fixed asset, net of purchase and trade discounts
2.    Freight and handling charges, including shipping insurance
3.    Cost of construction (including internal labor directly chargeable to a capital project that
      would not have been incurred during the period in the absence of activity associated with the
      project)
4.    Allocation of fringe benefit and overhead expenses (calculated as a percentage of direct labor
      based on actual approved fringe benefit and indirect cost rates)
5.    Insurance premiums during construction
6.    Installation and inspection costs
7.    Appraisal and negotiation fees
8.    Title, legal, commission, closing, and survey fees incurred in connection with the acquisition
      of land
9.    External architectural, engineering, and design costs directly related to the asset
10.   Land-preparation and demolition costs
11.   Other charges incurred “to place the asset in its intended location and condition for use”

Amounts Excluded From the Cost of a Fixed Asset:

1.    Demolition, removal and disposition of existing equipment in preparation for a new project;
      EXCEPT for the cost to remove or demolish a building or other structure existing at the time
      of acquisition of land, with the intention of using the cleared land. This cost should be
      considered a part of the cost of the land.
2.    Relocation and rearrangement of existing equipment, furniture and other movable fixtures.
3.    Start-up time, including the cost of correcting flaws
4.    Licensing and registration fees for vehicles and operational equipment
5.    Extraordinary costs incidental to the construction of fixed assets such as those due to strike,
      flood, fire, or other causes
6.    For asset exchanges, monies paid or received as part of the exchange should not be included
      in the valuation of the asset
7.    Costs to maintain and repair assets are not capitalized and are considered operating costs in
      the period incurred
West Virginia - Statewide Accounting Policies & Procedures
                                                                                             Page 5 of 6
Topic:          Assets                                           Effective Date:          July 1, 1998
Section:        Fixed Assets/Infrastructure                      Revised Date:            June 30, 2002
Subsection:     GAAP Accounting


8.      Costs of abandoned construction
9.      Administrative and executive salaries, even though a portion of the salary may be related to
        fixed asset acquisition

Capitalization of Interest Incurred During Fixed Asset Construction

FASB Statement No. 34, “Capitalization of Interest Costs,” requires the capitalization of material
interest charges incurred when constructing or preparing a fixed asset for its intended use. It also
requires disclosure of the total interest incurred and the portion capitalized.

Interest costs are capitalized to: (1) obtain a measure of acquisition costs that more accurately reflects
the State’s total investment in an asset; and (2) charge interest costs that will benefit future periods
against revenues of the periods benefitted through depreciation (for accrual basis funds only).

The amount of interest incurred on indebtedness directly associated with acquiring, constructing,
and/or otherwise readying the asset for use is reduced by interest revenue earned. Interest revenue
may be earned through investment of indebtedness proceeds and earnings on any other available
construction funds before the funds are spent for construction. Any excess of interest revenue earned
over interest costs reduces the capitalized value of the asset.

CAFR Reporting

The Financial Accounting and Reporting Section of the Department of Administration (FARS) is
charged with gathering fixed asset information for inclusion in the State’s Comprehensive Annual
Financial Report (CAFR). With the exception of audited agency information and Construction in
Progress data, all information necessary to complete fixed asset information for the CAFR is
compiled from the Fixed Asset Module of the West Virginia Financial Information Management
System (WVFIMS).

In order to comply with State Code 5A-3-35, agencies are required to process all fixed asset
transactions meeting GAAP materiality levels for each fiscal year ended June 30 no later than July 15
of the same year. Each year as part of the closing book process, unaudited agencies must submit a
representation letter asserting that all capital assets that meet GAAP materiality levels have been
entered into the WVFIMS Fixed Asset Module.

On or after August 1, FARS generates reports detailing changes in fixed assets for the current fiscal
West Virginia - Statewide Accounting Policies & Procedures
                                                                                     Page 6 of 6
Topic:         Assets                                        Effective Date:      July 1, 1998
Section:       Fixed Assets/Infrastructure                   Revised Date:        June 30, 2002
Subsection:    GAAP Accounting


year, as well as fixed asset ending balances, by agency and fixed asset type.

Construction in Progress is reported to FARS on a GAAP Closing Book Form (See the Closing Book
Forms appendix). Agencies must complete this form for each project in progress at June 30, with a
total contract price greater than $100,000.

NOTE: Also see the Closing Book Forms appendix for the Fixed Asset Closing Book Forms to be
completed by entities that submit audited financial statements.

								
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