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Government And Nonprofit Accounting > SU 9: Government Capital Assets > Flashcards

SU 9: Government Capital Assets Flashcards

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1
Q

GASB statement covering leases

A

Statement no 87 (June 2017)

Required for fiscal years ending Dec 31, 2020 and following

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2
Q

What aspects of a lease must be considered to determine a short term from a long term lease?

A

For what period the lessee has a non-cancellable right to use the asset.

If there are options to extend the lease that are reasonably certain to be exercised

If there is a fiscal funding clause (government can cancel the lease if can’t get appropriations for payments) that is reasonably certain to be exercised

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3
Q

Short term leases

A

Maximum possible term of 12 months or less including options expecting to exercise

(Operating lease?)

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4
Q

Recording short term lease

A

Dr expenditure account
CR cash

For rental payments

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5
Q

Long term lease

A

Lease that is not short term

Provides lessee intangible right to use a capital asset

Creates lease liability for lessee (pv of payments expected to be made)

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6
Q

Government account for long term lease (capital lease)

A

Dr expenditures - capital outlay
CR other financing source

(As if lease is actually a purchase via long term borrowing )

Initial entry has no effect on fund balance

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7
Q

modified accrual Payments on capital lease obligation

A

Dr expenditures - lease principal
Dr expenditures - lease interest
CR cash or vouchers payable

(1st payment will not have lease interest as is made before interest accrues. Later payments will all be part principal part interest)

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8
Q

Where to report government capital assets and long term debt

A

Government wide financial statements

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9
Q

CIAG

A

Capital investment account group

A memorandum set of records that records all events affecting capital assets (including ones that might not flow through fund financial statements like write offs or theft)

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10
Q

Infrastructure assets

A

Long-lived capital assets that normally:
- are stationary in nature
- can be preserved for a greater number of years than most capital assets

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11
Q

How do proprietary funds account for infrastructure assets under the modified approach

A
  • depreciation expense not reported
  • costs to maintain ARE reported (allowable because governments expected to continue indefinitely)
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12
Q

Proprietary fund JE for lease inception

A

Dr intangible asset - lease
CR lease payable

Recorded at present value of lease payments

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13
Q

Proprietary fund JE for lease payments

A

Dr lease payable
Dr interest expense (second payment forward)
Dr cash

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14
Q

Proprietary fund JE for lease amortization

A

Dr Amortization expense
CR accumulated amortization - intangible leased asset

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15
Q

Amortization period for proprietary fund leased asset

A

Shorter of lease term or useful life of leased asset

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16
Q

GASB standard for asset impairment

A

For physically damaged assets: cost to restore service utility

For assets impaired due to changes in tech or law; written down based on service units expected to be provided before impairment vs after

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17
Q

When to use capital assets fund

A

if funds provided by government, individuals or organizations are restricted for the purchase and/or construction of capital assets

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18
Q

Common capital asset classifications

A
  1. Land
  2. Buildings
  3. Improvements (other than Buildings)
  4. Machinery and Equipment
  5. Construction in Progress
  6. Infrastructure (e.g., Roads, Streets, Bridges)
  7. Intangible Assets
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19
Q

Capital asset sources: acquisition

A
  1. Purchase
  2. Construction
  3. Contributed/Donated (DCA)
  4. Annexed
  5. Capital Leases
  6. Foreclosure
  7. Eminent Domain
  8. Escheat
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20
Q

Capital asset sources: Financing

A
  1. Tax supported bonds
  2. Grants from other governmental units
  3. Transfers from other funds
  4. Special assessment bonds or taxes
  5. Capital leases
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21
Q

Fund accounting for capital assets

A

(Modified Accrual)
ONLY expenditures are booked when asset is acquired

no depreciation

asset then recorded in schedule of long-term assets

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22
Q

Government-wide accounting for capital assets

A

Normal accrual accounting

assets capitalized and depreciated

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23
Q

General capital assets definition

A
  • Important assets
  • Belongs to the government
  • Benefit everyone as a whole
  • Not part of any particular funds
  • Could be dollar value or useful life that makes it a capital asset – depends on the government (can include intangibles)
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24
Q

Year end gov-wide notes must include what information about capital assets?

A

List of major capital assets including:
- beginning and ending book value
- acquisitions
- sales and retirements
-current period depreciation

25
Q

Modified accrual JE for purchase of capital asset

A

DR Expenditure - capital asset (capital outlay)
CR Cash or A/P

report in period when acquired with current financial resources

26
Q

Accounting for asset purchase with trade in loss or gain Modified accrual vs government-wide

A

Modified accrual:
DR Expenditure- Asset purchase
Cr cash
no gain or loss recognized only movement of capital

Gov-wide:
remove old asset, accumulated depreciation, and cash paid from books, add new asset, recognize gain (CR) or Loss (DR) on trade in

27
Q

Purchase of capital asset under modified accrual

A

No matter how financed

DR Expenditure- Capital Asset
CR Other financing source - list source

28
Q

purchase of capital asset financed with installment note: government-wide journal entry

A

DR capital asset
CR Installment note payable (LT liability)

29
Q

Purchase of capital asset financed with bond: government-wide JE

A

DR Capital asset
DR Bond Discount or CR Bond premium
CR Bond Payable (LT liability)

30
Q

Recording operating lease

A

ST leases only - Consumption method

DR prepaid operating lease
CR cash or A/P
(no AJE for gov-wide)

then as expires:
DR expenditure
CR prepaid

31
Q

Accounting for capital leases: Modified accrual

A

DR Expenditure - capital asset
CR other financing source - capital lease

convert to capitalized capital asset & liability for capital lease payable in government wide

32
Q

Government-wide adjustment for capital lease payment

A

DR LT Note Payable (reduction of principal)
DR Interest Expense
CR cash

33
Q

Capital asset - donation journal entries

A

Modified Accrual:
DR Expenditure - capital asset donation offset
CR Revenue- asset donation

Gov-wide if capitalized:
DR Capital asset (FMV)
CR Revenue - asset donation

If not capitalized just adjust fund expenditure to expense

34
Q

Net investment in capital assets

A

= (capital assets - accumulated depreciation) - related debt + related deferred inflows - related deferred outflows

35
Q

Valuation of purchased asset

A

= historical cost + transportation + installation (aka necessary and reasonable costs to put into use)

36
Q

valuation of constructed asset

A

= Direct labor + overhead + architect fees + insurance premiums

(cannot capitalized interest on self-constructed assets)

37
Q

Valuation of initially unrecorded assets

A

aka discovered assets

= estimated cost

38
Q

Valuation of foreclosures

A

at cost which = lower of:
- all taxes, interest, penalties and legal costs OR
- FMV

39
Q

Valuation of Trade-ins

A

at FMV of new asset (with loss or gain recognized based on book value of old asset)

40
Q

Valuation of donated/ escheat assets

A

at estimated FMV value of date ownership realized

41
Q

Escheat

A

when something belongs to the government because owner abandoned it

42
Q

Valuation of assets acquired by eminent domain

A

value of compensation paid to owner

43
Q

when is capitalization not required for artworks

A

when:
- held for public exhibition or research
- protected and preserved
- proceeds from sale used acquire other collectables

otherwise must be capitalized

44
Q

Capitalizing government owned collectables

A

Fund accounting: recognize expenditure and revenue or cash paid on receipt

Government-wide capitalize. (Depreciate only if value declines over time)

45
Q

Exhaustible asset

A

One whose value declines over time and therefor must be depreciated

46
Q

Accounting for donation of collectibles

A

Fund accounting: Expenditure offsets revenue (DR expenditure collectable donation offset, CR Revenue -collectable donation)

Gov-wide: asset capitalized and revenue recognized

47
Q

When is it not required to depreciate an infrastructure asset

A

If can demonstrate that it is being maintained/ preserved in a specified condition

48
Q

What is required if infrastructure asset is not being depreciated

A

Government must:
- perform condition assessments at least every three years
- have an up-to-date-inventory of eligible assets
- estimate amount needed to maintain and preserve

49
Q

Approaches for accounting for infrastructure assets

A

traditional approach (capitalize and depreciate)

Modified approach
- preservation costs expensed as incurred
- additions and improvements capitalized
- no depreciation recorded even in government-wide accounting

50
Q

Disclosures required if use modified approach

A
  • assessed condition of infrastructure asset
  • basis of assessment
  • actual vs estimated costs to maintain approved condition
51
Q

Recognition Rules for government intangible assets

A

Recognize if separable (able to be separated from the government, can be sold, transferred, licensed etc…)

Recognize if arise from contractual or other legal rights

52
Q

internally generated intangibles

A

capitalize if technologically feasible AND expected to provide future services (technology rules)

if cannot be capitalized expensed as expenses occur (no additional capitalization after complete)

53
Q

accounting for intangible assets in fund accounting

A

intangibles not recognized

54
Q

Accounting for intangible assets in government-wide accounting

A

recognized and amortized over economic life

55
Q

impairment methods for government intangibles

A
  • restoration of cost approach
  • service units approach
  • deflated depreciation replacement cost approach
56
Q

impairment of intangible

A

must be a significant and unexpected decline in service utility

57
Q

Impairment of intangibles: Restoration cost approach

A
  1. Estimate costs to restore the asset
  2. Convert restoration cost to historical cost (2 methods):
    a. Restate restoration cost using an historical price index
    b. Multiply BV x (Restoration Cost/Replacement Cost)
  3. Best for impairment due to physical damage
58
Q

Impairment of intangibles: Service units approach

A
  1. Estimate historical cost of lost service capacity of the asset
  2. Determine service units before and after change in asset
    a. Max. estimated service units before & after
    b. Total estimated lifetime service units before & after
  3. Best for impairment due to laws/regulations or Δ technology
59
Q

Impairment of intangibles: Deflated depreciation replacement cost approach

A
  1. Estimate historical cost of lost service capacity of the asset
  2. Depreciated replacement cost deflated to historical equivalent
  3. Impairment = BV vs. deflated depreciated replacement cost
  4. Best for impairment due to Δ manner or duration of use

Government And Nonprofit Accounting (14 decks)

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