Sometimes referred to as fixed assets or property, plant, and equipment, the capital assets of a government represent its longlived assets used in the conduct of the organization’s business. These would include land, buildings, equipment, office furnishings, computers, vehicles, and other similar assets.

GASBS 34 created a huge change for governments, requiring that infrastructure assets (such as roads, bridges, tunnels, sidewalks, etc.) also be recorded as part of a government’s capital assets. What specific assets get recorded as capital assets is generally determined by a government’s capitalization policy. This  policy determines what purchases are recorded as assets and what purchases are recorded as expenses. If a purchase of one of these types of assets meets the capitalization policy’s criteria, it is recorded as an asset. The capitalization policy is usually based on the useful life of the item. Normally, a minimum useful life of three to five years is required before an item is recorded as an asset. The capitalization policy usually also
sets a minimum dollar threshold in order for an item to be recorded as an asset. The threshold amount varies based on the size of the organization. A $500 threshold is reasonably popular among small organizations, although amounts as low as $100 and as high as $50,000 are not uncommon for very small and very large organizations, respectively.

Two other items should be included in fixed assets—leasehold improvements and capitalized leases. Leasehold improvements are purchases that meet the capitalization criteria of an organization, but are improvements to leased property rather than to property owned by the government itself.

Practical Example A government enters into a 20-year lease for office space. Prior to moving into the space, the government “builds out” the space by moving walls to create the desired office space, installing a reception area, carpeting, and so forth. These leasehold improvements would be considered part of the organization’s fixed assets although the organization does not own the building to which these improvements are permanently attached.

Taken From : Governmental Accounting Made Easy

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