Archive for September, 2009

Governments often found it necessary to estimate the original costs of these assets on the basis of such documentary evidence as may be available, including price levels at the time of acquisition, and to record these estimated costs in the appropriate capital asset records. While this problem will diminish in size as governments retire or dispose of these assets with estimated costs, the notes to the financial statements should disclose the extent to which capital asset costs have been estimated and the method (or methods) of estimation. Similar consideration is made for the retroactive recording of infrastructure assets under GASBS 34. (more…)

It is relatively easy for governments to ascertain the costs of capital assets that are purchased currently. Contracts, purchase orders, and payment information is available to determine the acquisition or construction costs. Again, the cost of a capital asset includes not only its purchase price or construction cost, but also whatever ancillary charges are necessary to place the asset in its intended location and in condition for its intended use. Thus, among the costs that should be capitalized as part of the cost of a capital asset are the following: (more…)

Note Governments sometimes set or keep abnormally low capitalization rates because of sensitivity to their stewardship responsibilities for public resources. Other reasons, however, are more practical. For example, some governments can only issue general long-term debt for the acquisition or construction of capital assets. Therefore, the lower the capitalization threshold, the more assets can be purchased (for example, by a capital projects fund, which obtains its funds from the issuance of general long-term debt). These somewhat low dollar-amount items can be purchased and paid for over the life of the general longterm debt, with no impact on general fund resources, which are
generally more subject to political sensitivities. (more…)

Governments determine what assets they will record as capital assets by using a capitalization policy, which is sometimes called a capitalization threshold. The purpose of using a capitalization policy is to avoid recording minor, short-lived assets. To determine what assets will be treated as capital assets (regardless of whether it is a capital asset used in governmental or business-type activities or a capital asset of a proprietary fund) in practice, governments typically set monetary and usefullife thresholds for when assets may be considered for capitalization. (more…)

Capital assets are recorded as assets in the government-wide financial statements. (When an asset is referred to as being recorded, it means that the asset as well as accumulated depreciation and depreciation expense, if applicable, are also recorded.) The capital assets recorded in the government-wide financial statements include those used in governmental activities and those recorded for business-type activities. Capital assets relating to any fiduciary funds are not recorded in the governmentwide financial statements. (more…)

Governments often make significant investments in capital assets.

Capital assets are the long-lived assets that require significant investments of resources. They include the assets often referred to as infrastructure assets (roads, bridges, parks, etc.) as well as land, buildings, and equipment. The term is frequently used that the costs of certain assets are “capitalized.” This means that the costs at the time of purchase or construction are recorded as an asset on the statement of net assets or balance sheet rather than being charged to expense in the statement of activities or statement of revenues, expenses, and changes in fund balance. (more…)

? Many grants and other financial aid programs are on a costreimbursement basis, whereby the recipient government “earns” the grant revenue when it actually makes the expenditures called for under the grant. This type of arrangement is described as “expenditure-driven” revenue, since the amount of revenue that should be recognized is directly related to the amount of expenditures incurred for allowable purposes under the grant or other contractual agreement. (Of course, the amount of revenue recognized under a grant or contract should not exceed the total allowable revenue for the period being reported, regardless of the amount of expenditures.) Updating the terminology for GASBS 33, making the expenditure is simply an eligibility requirement. To be eligible (more…)

One of the more important eligibility requirements is the time requirement, where the time period in which a grant is to be spent is specified. For example, if a state government provides formula-based education aid to a local government or a school district and specifies that the aid is for the school year that begins in September and ends in June, that is the period of time for which the grant revenue would be recognized. Few, if any, differences between the modified accrual basis of accounting on
the fund level and the accrual basis of accounting at the government-wide level should arise. (more…)

Grants, entitlements, or shared revenues recorded in the general and special revenue funds should be recognized as revenue in the accounting period in which they become susceptible to accrual (they are measurable and available). In applying these criteria, the financial statement preparer must consider the legal and contractual requirements of the particular financial assistance being considered. (more…)

GRANTS AND OTHER FINANCIAL ASSISTANCE
State and local governments typically receive a variety of grants and other financial assistance. At the state level, this financial assistance may be primarily federal financial assistance. At the local government level, the financial assistance may be federal, state, or other intermediate level of local government. Financial assistance generally is legally structured as a grant, contract, or cooperative agreement. The financial assistance might take the form of entitlements, shared revenues, pass-through grants, food stamps, and on-behalf payments for fringe benefits and salary. What (more…)