General Capital Assets; General Long-Term Liabilities; Permanent Funds

1
General Capital AssetsGeneral Long-Term
LiabilitiesPermanent Funds

• Chapter 9

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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

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GCA GLTLWhat Weve 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)

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GCA-GLTL Accounting Equation
5
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 governments
  capitalization policy)
• May be tangible or intangible

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Types of Capital Assets

• Land
• Land improvements
• Easements
• Buildings
• Building Improvements

• Vehicles
• Machinery
• Equipment
• Works of art
• Historical treasures
• Infrastructure

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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

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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
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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
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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

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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.

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Capitalization Policy

• Minimum dollar amount
• Minimum useful life
• Whatever the government elects to do, it must be
  disclosed in the notes

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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

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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

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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

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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
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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
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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
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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
20
Acquired through gifts Page 354
No fund entry necessary GCA accounts Land Net Assets 1,500 1,500
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Recording depreciation Page 354
GCA accounts Depreciation Expense (Detailed by function) Accumulated Depreciation (Detailed by depreciable assets) 423,261 423,261
22
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
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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
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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
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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

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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
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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

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Indicators of Impairment

• Evidence of physical damage
• Change in legal or environmental factors
• Technological development or evidence of
  obsolescence
• A change in the manner or expected duration of
  usage of an asset
• Construction stoppage

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Measuring Impairments
Method Generally Used 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
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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.

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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 asseteither maximum estimated
  service units or total estimated service units
  throughout the life of the capital assetbefore
  and after the event or change in circumstance.

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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.

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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

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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

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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

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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

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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

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CPFGLTL 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
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DSFGLTL 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
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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

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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).

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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
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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

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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

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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

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1 Donation received Page 370
Cash Revenues Donations 210,000 210,000
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2 Purchase investments Page 371
Investments Accrued Interest Receivable Cash 200,000 400 200,400
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3 Interest received on investments Page 371
Cash Accrued Interest Receivable Revenues Interest 3,000 400 2,600
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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
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5 Interest accrued Page 370
Interest Receivable on Investments Revenues Interest 2,600 2,600
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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
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Interfund GCA GLTLAccounting
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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12 Short-term loan between fundsPage 375
General Fund Due from DSF Cash Debt Service Fund Cash Due to GF 40,000 40,000 40,000 40,000
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13 Non-current loan between fundsPage 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
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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
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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