Chapter 5 - Capital Leases

Question 1

General Capital Assets

Answer 1

Long lived assets that are used within governmental funds

NOT the same as capital assets used strictly within prop and fid funds

Question 2

Capital Asset Types (7)

Answer 2

• Land
• Buildings
• Improvements-
• Machine and equipment
• Construction
• Infastructure
• Intangibles

Question 3

Financing Sources for Capital Assets (7)

Answer 3

• Tax Supported Bonds
• Grants from other gov units
• Transfers
• Gifts
• SA bonds or taxes
• Capital Leases
• Special Development Districts

Question 4

How are capital assets acquired? (3)

Answer 4

Expenditures from:

• General
• Special Revenue
• Capital Projects

IF received from grants for high cost capital assets, should be CPF

Question 5

How do you value capital assets?

Answer 5

Cost Principle (Invoice or Historical Cost)

DONATED assets at fair value

Question 6

How do you account for capital assets?

Answer 6

• Capitalized / Depreciated at Gov Wide

- Debited to Expenditures Otherwise

Question 7

Capital Assets That Cannot be Depreciated

Answer 7

Inexhaustible Assets, Eligible Infastructrue with the MODIFIED approach, land

Question 8

What’s the Modified Approach

Answer 8

A type of accounting wherein infrastructure is maintained at an established condition

Question 9

Which standard determines Capital Lease Criteria?

Answer 9

SFAS No. 13

Question 10

Accounting of Capital Lease & where is it recorded?

Answer 10

Record the asset and matching obligation in the amount of the PRESENT VALUE of minimm lease payments

Question 11

What disclosures are needed with capital assets? (3)

Answer 11

You need to disclose things related to:

1. Capitalization policy / estimating useful life
2. B/E year balances, including accum depr and depreciation in the current period
3. Acquisition or sales

Question 12

To capitalize or not to capitalize?

Answer 12

Only capitalize betterment and additions,
NOT repairs or maintenance

Sometimes a repair can include a new betterment to capitalize

Question 13

Disposition of General Capital Assets

Answer 13

You remove the original cost of the asset, UNLESS its a part which means pro rata,

Recorded in both gov fun and acitivites

Question 14

What is an Asset Impairment?

Answer 14

• A SIGNIFICANT, unexpected decline in the service utility of a capital asset
• Should be considered permanence with the right evidence

Question 15

How do you measure an Asset Impairment? (3)

Answer 15

1. Restorative Cost Approach - from PHYSICAL damage
2. Service Units Approach - Environmental or Obsolescence
3. Deflated Depreciated replacement approach
   - Manner or durance of use changed

Question 16

How do you report asset impairments?

Answer 16

1. Reduce carrying value
2. Record expense in gov wide
3. Impairment losses net of insurance recoveries in same year ONLY

BUSINESS TYPE - Asset write down and expense in prop fund operating statement

Question 17

What are the types of Capital Projects Funds?

Answer 17

General - For the public benefit

Special Assessment - For private benefit

Question 18

What are the characteristics of a CPF? (4)

Answer 18

1. Involve long lived assets
2. Usually involves construction
3. Long range planning
4. Project life focucs

Question 19

FS necessities for Capital Assets?

Answer 19

1. Building included in gov activities statement of net assets
2. LTL same thing
3. Depreciation expense is gov wide based on pro rata direct expense of each functions occupying the buidling

Question 20

Does CPF get its on column?

Answer 20

Only if classified as major fund, otherwise included within everything else

Question 21

Accrued Interest on Bonds Sold?

- Gov Wide Level

Answer 21

It’s a credit to interest expense or accrued interest payable

Question 22

Accrued Interest on Bonds Sold?

- Fund level

Answer 22

Its a revenue to the debt service fund

- Simplifies the process

Question 23

How is interest capitalized?

Answer 23

If it’s a general capital asset, interest is NOT capitalized while constructing

Question 24

What’s an arbitrage rebate?

Answer 24

It’s when gov’s invest their proceeds from low rate bonds (due to no taxes) in high rate taxable securities.

The feds caught on and now require payment to the IRS

Question 25

What to do for a multiple period project?

Answer 25

1. Close your encumbrances to the year end balance

2. Then re-create your encumb next year by crediting that fund balance.

Question 26

How is a special assessment project different?

Answer 26

Used to target specific costs to districts receiving the improvement, and lessening for the general public

Goes through normal process, UNLESS the gov has no obligation, then goes into agency fund

Question 27

What are the basics within CPF funds? (4)

Answer 27

1. Cap Assets used in gov activities are called general capital assets!
2. IF low cost, acquisitions of capital assets can be recorded in the GENERAL or SPECIAL REVENUE fund
3. IF High cost, buy or building in CPF
4. Either way, these capitalized in the period in the gov activities

Question 28

Can use modified approach if: (3)

Answer 28

1. Up to date inventory of the assets
2. Conditional tests using measurements
3. Estimate what you need to maintain & preserve at established levels