7
Chapter
Long-Lived Assets and
Investments in
Marketable Securities
What are General Capital Assets?
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Long-lived assets used by activities accounted for by
governmental fund types.
Accounting is done at the Government-wide level
Distinguished from capital assets that are specifically
associated with activities reported in proprietary and
fiduciary funds.
Typical Classifications of
General Capital Assets
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Land
Buildings
Improvements other than Buildings
Machinery and Equipment
Construction Work in Progress
Infrastructure (e.g., roads, streets, bridges)
Typical Financing Sources
for General Capital Assets
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Tax-supported bonds
Grants from other governmental units (e.g., Federal
or state grants )
Transfers from other funds
Gifts from individuals or organizations
Special assessment bonds or taxes
Capital leases
Accounting for General Capital Assets
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General capital assets are:
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Capitalized in the governmental activities
accounts at the government-wide level
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Depreciated at the government-wide level
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Debited to Expenditures in the appropriate
governmental fund.
Acquiring Capital Assets
From expenditures of
General
Fund
Special revenue funds
Capital project funds
Note: If money received from governmental units,
individuals, or organizations is restricted for the
purchase or construction of specified capital assets – it is
recommended that a Capital Projects Fund be used.
Assigning Costs to General Capital Assets
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Follow Cost Principle (all cost necessary to bring
asset to serviceable condition)
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Invoice cost or historical cost
All other necessary and reasonable costs:
(transportation, installation, title, closing fees)
Capitalize interest on constructed assets
Record donated assets at fair value on date of gift
(unless received from another fund, in which case
use historical costs – to avoid recognizing a gain in
the funds which would have to be eliminated at the
government-wide level)
Accounting for Acquisition of Capital Assets
Example: Purchased office equipment for the Mayor’s
office and paid $50,000 cash from the General Fund.
Governmental Activities:
Equipment
Cash
General Fund:
Expenditures
Cash
Dr.
50,000
Cr.
50,000
50,000
50,000
Depreciation Accounting and Reporting
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Depreciation on general capital assets, (except
occasionally infrastructure) is required at the
government-wide level.
Depreciation is not recorded on inexhaustible
assets, such as land and noncapitalized
collections of art.
The government can elect not to depreciate
certain eligible infrastructure assets, under the
modified approach (see next slide).
Election to use the Modified Approach for
Infrastructure Assets
The government can elect not to depreciate certain
“eligible” infrastructure assets if
 An asset management system is in place
that includes
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an up-to-date inventory of eligible assets,
condition assessments of the assets and summary of
results using a measurement scale
estimates each year of the annual amount needed to
maintain and preserve the assets at the established
condition level
The government documents that these
assets are being preserved at or above
established levels of condition.
Election to use the Modified Approach for
Infrastructure Assets
If the government elects not to depreciate certain
“eligible” infrastructure assets they must expense
all repairs when incurred.
Accounting for Collectibles
Collectible are not required to be capitalized
if the following criteria is meet
Must be held for public exhibit, education,
or research
Must be protected, cared for, and preserved
They are subject to organizational policy
(proceeds from any sale must be used to
purchase other items of collection)
Accounting for Capital Leases
 Follow
SFAS No. 13 criteria to determine if the lease
is a capital lease, rather than an operating lease
 Record
capital assets in the government-wide
statements in the amount of the present value of
minimum lease payments or fair value, if lower
 Record
an expenditure in the governmental fund that
is using the asset and making the payments.
Accounting for Capital Leases (Cont’d)
Example: Capital lease with present value of minimum
lease payments of $50,000
Governmental Activities:
Equipment
Capital Lease Obligations Payable
Special Revenue Fund:
Expenditures
Other Financing SourceCapital Lease Agreements
Dr.
50,000
Cr.
50,000
50,000
50,000
Required Disclosures about Capital Assets
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Capitalization policy
Policy for estimating useful lives of assets
Beginning and end of the year balances,
including accumulated depreciation
Acquisitions during the year
Sales or other dispositions during the year
Depreciation expense for the current period
Why collections (e.g., works of art or historical
treasurers) are not capitalized
Costs Incurred After Acquisition
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Additions/betterments vs. replacements/
maintenance
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Capitalize costs of additions and betterments;
don't capitalize replacements and maintenance
expenditures
Some replacements might be partly additions or
betterments; if so, capitalize as appropriate but
remove cost of old asset
Requires judgment to determine whether an asset
has been enhanced
Marketable Securities
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Why do Governments and Not-for-proftits have
marketable securities
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Receive large amounts of cash at one time
Maintain a “rainy” day fund
Maintain pension assets
Maintain endowment funds
Bond sinking funds
Marketable securities are acquired to
provide income on these funds
Miscellaneous topics
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Repurchase agreements:
Reverse repurchase agreements
Risks & rewards – “Orange County Disaster”
Government Disclosures
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Credit risk on invested securities
Interest rate risk
Foreign currency risk
****All governments and not-for-profit
organizations should have an investment
resolution which is evaluated periodically.