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PUT TITLE HERE. TCA Implementation - Common Questions. OASBO Finance Committee Workshop Transfer Payments & Financial Reporting Branch March 2008. Question # 1.

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  1. PUT TITLE HERE TCA Implementation - Common Questions OASBO Finance Committee Workshop Transfer Payments & Financial Reporting Branch March 2008

  2. Question # 1 Not a question but a comment: I suggest we speak to external auditors now about historical cost figures for land and buildings. No reason they can’t look at land and buildings this spring when 7-month specified procedures are completed. Answer: Absolutely

  3. Question # 2 If boards want, can we implement full TCA reporting in 2007/08 instead of waiting for 2008/09 (I’m thinking about it as it’s a relatively small job in a board this size and if I go to the trouble of getting note information, I may as well go all the way) ? Answer: We are making changes to the financial statements reporting forms for the 2008/09 year end and not 2007/08 therefore reporting the information will be impossible. You can however do a full note disclosure of all TCA classes.

  4. Question # 3 Can you go over the FS presentation regarding how to report both the asset and the amounts to be recovered offset, impact on statement of capital fund, etc.? Answer: Gross Book Value $832,280,457 Accumulated Amortization (108,570,636) NBV $723,709,821 * Capital Fund Balance ( 41,513,905) ATBR: Capital Financing (317,669,366) Net Investment in TCA $364,526,550 *

  5. Question # 4 Regarding the change in estimated useful life for buildings, will there be future direction from the Ministry (e.g.. Algorithms, use of system such as ReCapp)? Answer: • TCA Guide paragraphs 123 - 128: “Boards are required to review RSL upon - replacing major components - making additions or retrofits to buildings - making investments in buildings with RSL < 10 years” • Look to see what else we can incorporate into guide

  6. Question # 5 Will there be more funding for PSAB initiative? Answer: Permanent dollars rolled into GSN

  7. Question # 6 On the 2nd year of TCA reporting, the Ministry clarified what external auditors are required to do for the specified procedures report and when the external auditors finally understood, the audit costs plummeted. I know that full TCA implementation is a bit different but guidance and knowledge transfer will help greatly. Answer: Pass along the earlier presentation material. If we can help any particular board with their auditors, we’d be happy to If you believe a formal communication with auditors is required, please contact us and we can discuss further.

  8. Question # 7 “Capital budget” PSAB (future compliance) vs. “Capital fund” - what are the similarities and the differences? Where will the differences end up? Answer: Getting rid of fund accounting -- no longer capital fund Everything ends up in surplus / deficit Look at Schedule 1.3 – Statement of net debt

  9. Question # 8 Depreciation and/or asset details: What details will Ministry need (now or in the future)? For example, by school/department, by function, by panel, by category, etc). Once asset opening balances and depreciation system is set up, it will be difficult to change or to get details. Answer: Current thinking is a one-line expense item Should this change we will let the sector know as soon as possible

  10. Question # 9 With regards to building costs, interest costs related to financing costs incurred during the time the asset is under construction should be capitalized. Does this mean that we will have to report interest that is capitalized on schedule 3 as part of the building costs? Answer: With the new reporting model, statements will change. With the prospective changes, the interest costs will be reported on Schedule 8 as part of the building costs.

  11. Question # 10 When building a new school, under what capital asset category should the costs of a parking lot be capitalized? Building or land improvement? Answer: Land improvement unless costs are included in total construction costs and can not be separated

  12. Question # 11 When the Ministry provided the opening balance for buildings, if we disagree with the opening balance or the remaining life of the building do we have the authority to make the change or are we required to contact the Ministry before making any change? Answer: Opening balances were determined using the data input from CAPEdu (information from boards). The info coming out of the BVC is only as good as the data going into it - if that data is wrong, output likely is wrong. We would appreciate a conversation to make sure the basis for the change is reasonable.

  13. Question # 12 Can books (textbooks and / or library books) purchased for new schools be capitalized as F&E - First-time equipping? Answer: Yes.

  14. Question # 13 My question concerns capital assets PRFS. As per the Provincial Accounting Policies & Guideline, the carrying value should be written down to the residual value. How does one determine the residual value ? Can you provide guidelines? Does the residual value become the amount realized on disposal? Can the change in the valuation of the asset be deferred until the asset is disposed of? Are there any timing issues concerning the actual write-down? Should the removal process be formalized by Board motion? Answer: Depends, no, yes, no, yes, left to board discretion

  15. Question # 14 For the pooled asset class of portables, how will the future depreciation work…will it start with another 20 years to go? Answer: Depends on approach of pooled vs. non-pooled. a) Pooled = additions are amortized over 20 years (treated as new assets) b) Non-pooled = additions are amortized over RSL of the asset (need to revise RSL just as with school buildings) upon significant investments.

  16. Question # 15 Damage and theft (maybe insurance recovered) - do we capitalize new costs? Do we write-down anything ? It’s probably impossible to find or assess old costs. Answer: For Pooled Assets: - Money received goes directly to gain on disposal (revenue) as likely impossible to find related old costs. You only remove the cost and accumulated amortization from the asset class where you can: a) find the related costs, and b) the amount is material

  17. Question # 15 (continued) Answer: For Non-Pooled Assets: - Receive $500,000 cash from insurance for school building. GBV of $400,000 and AA of $200,000. DR Cash $500,000 DR AA 200,000 CR GBV $400,000 CR Gain on Disposal $300,000 - When you rebuild the school DR GBV $500,000 CR Cash $500,000

  18. Question # 16 We have not tried to integrate this process into our GL yet because we don’t know how the depreciation will be reported. Will there be something like a Schedule 10ADJ where the PSAB adjustments are identified by fairly broad category? Or will we be expected to provide more details? Answer: Yet to be determined.

  19. Question # 17 How do you expect individual budget holders to account for capital purchases and amortization? How do you see the budget process changing? What do you want reported each year, the total capital purchases or the amortization? It is really hard to implement a process when you can’t see where we expect to end up. Here’s an example: Computer refresh plan. We expect to acquire about $1.5M worth of computer equipment in year 1 of the plan. What do I report on Schedule 10 - the total capital cost or the depreciation? Will there be a change to the amount of revenue we receive? If we only report depreciation in year 1, do we have to create a depreciation reserve to bring our annual spending up to our revenue?

  20. Question # 17 Answer: For budgeting purposes, the expenditure is important – see statement of net debt For the statement of operations, the amortization expense is important – impact on surplus/deficit The differences between these issues are the source of the balance budget legislation discussions

  21. Question # 18 We are consolidating two entities with our board financial statements. They have the following notes to their FS in terms of capital assets: 1) F&E 7 years, Computers 4 yrs 2) The organization has average annual revenues of less than $500,000 and therefore does not recognize capital assets in their balance sheet. Do we need to align the accounting policies of these entities with the board policies on TCAs? Answer: No - as long as the entities’ tangible capital assets are not material to the board. Use the information provided.

  22. Question # 19 I’m concerned over the Internal Financial Reporting Standards (IFRS) that publicly accountable organizations need to adopt for years starting on January 1, 2011. Those standards state the necessity to use the components approach for building capitalization…will we have to redo all this work in a few years? Answer: No - IFRS apply to those organizations using the Blue Handbook - not Public Sector Accounting Handbook users.

  23. Question # 20 In the draft proposal document (April 18, 2005), page 11, did the benchmarks for the BVC have furniture & equipment built in ? Answer: No - The appendix shows the benchmark calculation used in 1998 had a F&E component in it but it was removed before we used it for purposes of the BVC.

  24. Question # 21 With respect to library books, classroom resources, play centres/toys, these are resources that are used over a significant period of time and that could have a considerable cost when pooled, would they also be capitalized under the first-time equipping policy, or are they excluded entirely as operating costs? Answer: Depends = 1) If new school or addition to school = first-time equipping 2) If not part of A, capitalized only if unit costs exceed capitalization threshold of $5,000.

  25. Question # 22 How do you account for playground equipment in this scenario: 1. $2,000 School council / school through fundraising 2. $5,000 from board 3. $3,000 City funding (after proof of purchase) What portion is capitalized ? Answer: Debit Equipment $10,000 Credit Cash $10,000 Debit Cash $3,000 Credit Revenue $3,000 -- no netting

  26. Question # 23 When I look at the computer software licensing purchases we have some purchases which have been as a per site license (i.e. 22 schools), per board license (i.e. 1 web base) and others as a per user license (i.e. 1000 users). Could you clarify the threshold “where license unit value exceeds $5,000”). What is the unit? Answer: 1 license = per unit value > $5,000 The intention was to capture the material software licenses. Therefore, where you are buying Quick Books packages and they do not exceed $5,000 they should not be capitalized.

  27. Question # 24 We have equipped a principal’s office with new furniture. Individually the pieces are under $5,000 but in total the whole office setup is over $5,000. This is not first-time equipping nor did we add GFA. Do I still look at the individual piece cost vs. the whole cost? Answer: You need to look at each piece of furniture. If you bought a desk for $2,000, a filing cabinet for $1,000, a small table and 2 chairs for $2,500 none of this would be capitalized. If you bought a a desk that has multiple pieces (front panel for $1,500, L-shaped return for $1,000, under-mounted filing cabinet for $2,000 and R-shaped return for $1,000), then yes as they are all attached to the unit.

  28. Question # 25 Where a purchase of 55 printers has been made at an estimated per unit cost of $500 and the purchase/invoice exceeds $25,000, the equipment would be capitalized. However a purchase of 20 printers at $500 totalling $10,000 would never be capitalized if it was part of the computer plan allocation for that year? As part of our computer plan budget, we purchase other components such as USB, letter trays, mouse, etc. Should they be capitalized as they are associated with computers? Answer: A) That’s correct. B) Replacing a bunch of these items are more in the line of consumables and would not capitalized.

  29. Question # 26 We will be renovating the board office in the spring, will the new furniture & equipment be classified as ‘first-time equipping’? We are converting the old warehouse to office space. Answer: A) Ignoring the 2nd line of the question, no as there is no additional gross floor area or new asset. B) Perhaps - the additional gross floor area is brought into play. We have advised the board no as the warehouse existed before therefore not ‘REAL’ additional gross floor area but we could argue either way.

  30. Question # 27 Do you know if the first-time equipping / start-up costs incurred by transportation consortiums would apply to the “first-time equipping” rule? Answer: Yes - consortium is owned by 2 or more boards therefore each board would report it’s share of the costs.

  31. Question # 28 In the TCA Guide, paragraph .167 states that assets are recorded at gross cost or fair value at acquisition. Financial contributions are NOT netted against the cost. Can the financial contribution be deferred and recognized into revenue on the same basis as the asset is amortized? Answer: PSAB is silent in regards to deferral of contributions. NPO accounting allows it. We have advised that the contribution will be reported in revenue in the year the asset is purchased. If the contribution is received in advance of the purchase, it should be treated as deferred revenue until purchase is made. -- Currently reviewing this

  32. Question # 29 We are attempting to create amortization schedules for our assets. We have taken the information provided to you (year of acquisition and cost) and we can’t get the same information as at March 31, 2005 that it generated, why? Answer: Because of betterment rates applied through the BVC you can not replicate the output out of the BVC. Your amortization schedules should START as of March 31, 2005.

  33. Question # 30 Re. Depreciation expense - Should we set up the pooled asset - F&E, computers, etc to recognize panels and functions? I.e.. 1-elementary panel, 23 - library function, etc or will the depreciation expense be merely a one line adjustment to the statement of financial activities ? Answer: Currently we are looking at only a one-line adjustment to the bottom of Schedule 10 for amortization. However, for budgeting purposes, you may want to split the expense in between things like classroom, admin, transportation, etc. This will allow you to control the budgeting process a little easier.

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