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GASB 62
Codification of Accounting and
Financial Reporting Guidance
Contained in Pre-November 30,
1989 FASB and AICPA
Pronouncements
Jamie Matthews, CPA
May 2013
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Introduction
• Objective: incorporate into the GASB’s
accounting and financial reporting guidance
that is included in FASB & AICPA
Pronouncements before November 30, 1989,
which does not conflict with or contradict GASB
pronouncements
• Effective Date: for periods beginning after
12/15/11 (FYE 12/31/12 & FYE 6/30/13)
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Organization of Statement
• Organized by topic
• Each topic contains provisions derived from
FASB or AICPA pronouncements that
address the subject matter
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Pronouncements Included
•
Leases
•
Sales of real estate
•
Real estate projects
•
Research and development arrangements
•
Broadcasters
•
Cable TV systems
•
Insurance enterprises
•
Lending activities
•
Mortgage banking activities
•
Regulated operations
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Pronouncements Included
•
Special and extraordinary items
•
Comparative financial statements
•
Related parties
•
Prior-period adjustments
•
Accounting changes and error corrections
•
Contingencies
•
Extinguishments of debt
•
Troubled debt restructuring
•
Inventory
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Clarifying Guidance
•
Capitalization of interest – scope clarified to address
assets granted to other governments
•
Current assets and liabilities – operating cycle
(something other than 12 months) not allowed
•
Related parties – definition clarified to recognize related
organization, joint ventures and jointly governed
organizations
•
Change in accounting principle – omits change in
depreciation method
•
Interest rate costs – imputation – scope excludes low
interest loans that make the market
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Disclosure Removed
The District has elected to apply all
Financial Accounting Standards Board
(FASB) pronouncements issued before
December 8, 1989, unless FASB conflicts
with GASB. The District has not elected
to apply FASB pronouncements issued
after that date.
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Interest Capitalization
Interest costs during construction should be
capitalized when:
• Asset are constructed/produced for own use
(including assets constructed or produced by
others for the enterprise for which deposits or
progress payments have been made)
• Assets intended for sale or lease that are
constructed or otherwise produced as discrete
projects (for example, real estate developments)
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Interest Capitalization
Construction cost of the following assets related
to a proprietary fund should not include an
interest cost element:
•
Assets that are in use or ready for their intended use
•
Investments accounted for by the equity method after the planned
principal operations of the investee begin
•
Investments in regulated investees that are capitalizing both the cost
of debt and equity capital
•
Assets acquired with gifts and grants that are restricted by the donor
or grantor to acquisition of those assets to the extent that funds are
available from such gifts and grants (interest earned from temporary
investment of those funds that is similarly restricted shall be
considered in addition to the gift or grant for this purpose)
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Interest Capitalization
Interest capitalization period begins when the
three conditions are present:
• Expenditures for the capital asset have
been made.
• Activities that are necessary to get the
capital asset ready for its intended use are
in progress.
• Interest cost is being incurred.
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Interest Capitalization
• Interest capitalized is limited to the actual interest
expense recognized for the period
• Interest capitalization for proprietary funds should
take into consideration only debt that is to be paid
by a proprietary fund
• Interest cost to be capitalized for assets
constructed with tax-exempt borrowings
Cost of borrowing
Interest Earned on
Proceeds
Capitalized
Interest
(Tax-Except
Borrowings)
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Tax Exempt Borrowings
• The key to determining if you should
offset the interest expense with the
interest earned is to determine if the
resources are externally restricted to
finance acquisition of specified
qualifying assets or to service the
related debt.
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Illustration of Interest
Capitalization
•
Gilbert Community College District (GCCD) is having a
building constructed for $1,400,000. They made the following
payments during the construction period in 2012:
Jan 1
$210,000
March 1
May 1
Dec 31
$300,000
$540,000
$450,000
Total
$1,500,000
• Construction was complete and the building was ready for
use on December 31, 2012. GCCD had the following debt
outstanding:
Specific Construction Debt
15%, 3-year note, dated 12/31/11, interest payable annually on 12/31
$750,000
Other Debt
10%, 5-year note, dated 12/31/07, interest payable annually on 12/31
$550,000
12%, 10-year note, dated 12/31/06, interest payable annually on 12/31
$600,000
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Illustration of Interest
Capitalization
• Weighted Average Accumulated Expenditures during
2012 is as follows:
X
Expenditures
CY
Capitalization
Period*
=
Weighted Avg
Accumulated
Expenditures
(WAAE)
1/1
210,000 X
12/12
=
210,000
3/1
300,000 X
10/12
=
250,000
5/1
540,000 X
8/12
=
360,000
12/31
450,000 X
0
=
0
1,500,000
* Months between the date of expenditures and date
interest capitalization stop or the end of the year,
whichever comes first (in this case 12/31)
820,000
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Illustration of Interest
Capitalization
• Avoidable interest is computed as follows:
Debt
Construction Note
Plug ($820-750)
Total WAAE
Allocate
WAAE
X
$750,000 X
70,000* X
$820,000
Avoidable
Interest
Interest Rate
=
15%
=
$112,500
11.04% **
=
7,728
$120,228
** 10% 5 year note Principal $550k, Interest $55k & 12%
10 year note Principal $600k, Interest $72k. Total Interest
$127k divided by Total Principal $1,150 = 11.04%
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Illustration of Interest
Capitalization
• Avoidable Interest is $120,228
• Actual Interest is $239,500
• Interest cost to be capitalized is the lessor of
avoidable interest or actual interest
Debit: Building (capitalized interest) $120,228
Debit: Interest Expense $119,272 (239,500-120,228)
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For More Information:
Jamie Matthews, CPA
Gilbert Associates, Inc.
jamie@gilbertcpa.com