Chapter 7

1. Chapter 7 • Objectives: • Account for fixed assets in governments • Account for other asset transactions • Account for marketable securities

2. What’s included in capital assets • Land • Buildings • Equipment • Improvements other than buildings • Construction in progress • Infrastructure • Works of art • Intangible assets

3. Valuation- Governmental Funds • Historical Cost as in businesses • Can capitalize interest but this is less • advantageous for governments and few use it • Donated assets valued at FMV (for proprietary • funds increase contributed capital) if held for sale • Trade-ins - new assets reflects FMV of what is • exchanged for new asset

4. Depreciation • Depreciation in Governmental Funds • Entire cost of asset is expended when • received/bought • Not recognized in governmental funds • Depreciation recognized in proprietary funds • Capitalizing assets isn’t in the objectives • for financial resources • If no profit motive so recognition is • unnecessary • Recognized on government-wide statements

5. When received Expenditure 50,000 Cash 50,000

6. Trade-Ins- Governmental Old machine 10,000, A/D 4,000 FMV of new 17,000, Trade-in 3,500 GF- Expenditures 13,500 Cash 13,500

7. Government-wide trade-ins • Take off old assets with associated A/D • Have to recognize loss but can defer gain • Only applies to exchange of like assets A/D 4,000 Asset- new 17,000 Loss 2,500 Machine 10,000 Cash 13,500

8. Infrastructure • Listed at historical cost (least useful) • Would depreciation recognition and book values trigger • better assessment of the infrastructure? • Without some reporting can users determine • stewardship, financial condition and improvement or • deterioration of entity? • After GASB 34, must capitalize • Must assess condition every three years

9. Donated Assets • Not capitalized if the following conditions present: • Held for exhibition, education or research • Protected or preserved • If sold, proceeds used to buy other such assets • If being held for sale, then held as an asset until sale.

10. Government-Wide • Capitalized and depreciated • Under certain circumstances can exempt from depreciation • If exempt, disclose condition and maintenance record • GFOA opposed to infrastructure recognition and depreciation

11. Deferred Maintenance • Any delayed repairs must be disclosed • Five year record of maintenance against required maintenance to bring assets up to operating condition • Helps users assess upcoming expenditures

12. Impairment of assets • Should test capital assets for impairment when significant change occurs. • Write-off can be measured in several ways • Restoration cost approach – estimated cost to restore the asset to expected utility. • Service units – How much asset’s ability to provide service has eroded. This is written-off • Deflated depreciated replacement cost – Subtract carrying value from current replacement cost at the impaired level

13. Investments • Marked to market, no categories • Pressures to increase yields • Must engage in risk management • Repurchase agreements • Derivatives • Investment pools

14. Investment Disclosures • Amount of bank balances collateralized, • and uncollateralized • Which securities are insured and held by • the government • Amount of securities held by an agent or • trustee registered in the government’s name • Amount of securities held by an agent or • trust not registered in government’s name

15. Additional Disclosures • Credit risk – credit ratings of investments • Concentration of credit risk - if more than 5% in any one issuer • Interest rate risk • Foreign currency risk

16. Review • Know how to account for fixed assets • Know how to account for asset transactions • Know how to account for marketable securities