Module 7: Capital Assets & Investments in Marketable Securities

Question 1

Collateralized Debt Obligation

Answer 1

An asset backed security whose value and payments are derived from a portfolio of fixed-income underlying assets; such as a pool of subprime mortgages

Question 2

Deferred Maintenance Costs

Answer 2

the costs that an entity avoided in a current year or past years by failing to perform required routine maintenance and repairs, but that will have to be incurred in the future

Question 3

Derivatives

Answer 3

a financial asset whose value is derived from the shift in the price of an underlying asset, such as a bond, or an index of asset values, such as the S&Ps index

Question 4

General Capital Assets

Answer 4

capital assets that, by definition, are associated with the government as a whole, rather than with any specified fund

Question 5

Infrastructure Assets

Answer 5

Public domain fixed assets such as roads, bridges, curbs, gutters, streets and sidewalls, drainage systems, lighting systems and similar assets that are immoveable and of value only to the government unit

Question 6

Intangible Assets

Answer 6

an asset that has a future benefit, but cannot be physically seen - like a patent or copyright

Question 7

Investment Pools

Answer 7

Fiscal entities established to invest the resources of two or more funds or independent entities’ comparable to a mutual fund

Question 8

Repurchase Agreements

Answer 8

An investment instrument in which an investor (buyer-lender) transfers cash to a broker-dealer or financial institution (seller-borrower). The broker-dealer or financial institution transfers securities to the investor and promises to repay the cash plus interest in exchange for the same securities or for different securities.

Question 9

Reverse Repurchase Agreements

Answer 9

A borrowing instrument by which a borrower (Seller) receives cash from a broker-dealer or financial institution (buyer-lender); in exchange the borrower (seller) transfers securities to the broker-dealer or financial institution and promises to repay the cash plus interest in exchange for the same or different securities.

Question 10

Where do governments maintain record of capital assets?

Answer 10

Schedule of General Capital Assets

Question 11

For constructed assets, how should they be valued?

Answer 11

Direct labor and materials, overhead, architect fees and insurance premium

Question 12

How should foreclosed GCA’s be valued?

Answer 12

Lower of FMV or aggregate of accumulated taxes, interest, penalties, legal cost

Question 13

How are donated assets valued?

Answer 13

They are reported at estimated fair market value

Question 14

To avoid recording depreciation, governments must:

Answer 14

perform condition assessments at least every three years; have an up-to-date inventory of eligible assets; and estimate the amount to maintain and preserve the eligible assets

Question 15

What are the two approaches for infrastructure accounting?

Answer 15

1. Traditional - Capitalize and Depreciate
2. Modified Approach - All expenditures incurred to maintain and preserve those assets should be expensed; Additions and improvements should be capitalized; Assessed condition of the assets and the basis of that assessment must be disclosed

Question 16

What are criticisms of Statement No. 34’s approach to Infrastructure?

Answer 16

1. No indication that data on the historical cost of infrastructure would be used
2. No need to capitalize those assets because they cannot be stolen or misused
3. Comparison between measure of output (performance) and monetary value assigned to the asset is not meaningful
4. Infrastructure assets seldom have alternative users
5. Past construction costs are of no significance

Question 17

GASB No. 34 does not require capitalization of artworks if they are:

Answer 17

1. Held for public exhibition or research AND
2. Protected and preserved AND
3. The proceeds from sale of the collectibles are used to acquire other collectibles

Question 18

When donations of collectibles are received what must be recognized upon receipt?

Answer 18

Donation revenue

Question 19

What are the three methods of measuring asset impairment?

Answer 19

1. Restoration measured by 3 methods
2. Service Unit Approach
3. Deflated depreciation replacement cost approach

Question 20

What are the common types of marketable securities for governments?

Answer 20

1. General Investment
2. Derivatives
3. Repurchase Agreement & Reverse Repurchase Agreement

Question 21

What are general investment disclosure requirements?

Answer 21

• Governments should organize disclosures by investment type
• Governments should disclose their vulnerability to specific types of risks (i.e. credit risk, concentration of credit risks, Interest rate risks,, foreign currency risks)

Question 22

What are derivatives disclosure requirements?

Answer 22

Governments must explain the nature of derivative transactions including:

• credit risks
• concentration of credit risks
• interest rate risks
• foreign currency risks

Question 23

What is custodial credit risk?

Answer 23

Investments are exposed to custodial credit risk if the investments are uninsured, are not registered in the county’s name and are held by the counterparty.

Question 24

How are assets valued when acquired through eminent domain?

Answer 24

Cost - typically determined by the court. fair amount of compensation paid to the owner.