Capital Assets Account Assignment 

Capital Assets Account Assignment

Instructions/Descriptions

Comment No.1 to N Z

According to GASB (1999), capital assets accounted as follows:

– Capital assets should be reported at historical cost;

– Donated capital assets should be reported at their estimated fair value at the time of acquisition plus ancillary charges if any;

– Capital assets that are being or have been depreciated should be reported net of accumulated depreciation in the statement of net assets;

– Capital assets that are not being depreciated, such as land or infrastructure assets reported using the modified approach should be reported separately if the government has a significant amount of these assets (pp. 9-11).

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In governmental activities, capital assets include general capital assets and proprietary capital assets. “Capital assets used in providing services that are funded primarily by user fees rather than general tax dollars are not classified as general capital assets but rather as proprietary capital assets which have always been capitalized and depreciated” (Robbins & Baldwin, 2002, para. 5).

The FASB does not have specific requirements on how to display of capital assets. Nongovernmental not-for-profit’s capital assets are considered as a part of unrestricted net assets. “In addition to these differences, the governmental not-for-profit presents a classified statement of net assets whereas the nongovernmental not-for-profit presents a statement in liquidity order” (Marsh & Fischer, 2011, para. 45). In the accounting perspective, if not-for-profits receive a donation of assets that will be used in the course of business, the transaction will be recorded as a debit to the asset account and a credit to the organization’s income account. In this case, those capital assets need to be depreciated accordingly.

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References

Comment #2 NZ

The leases for the government are regulated by Statement No. 87, Leases. GASB Statement No. 87 provides guidance for lease contracts for nonfinancial assets such as vehicles, heavy equipment, and buildings – but excludes nonexchange transactions, including donated assets, and leases of intangible assets (such as patent and software licenses) (GASB, 2017, para. 2).

On June 28, 2017, the GASB issued its long-awaited revision to governmental lease accounting. Lessees and lessors alike will see significant changes (PWC, 2017, para. 1).

Under a new statement, a lessee government – which pays to use another entity’s capital asset – is required to recognize a lease liability and an intangible asset representing the lessee’s right to use the leased asset, a lessor government – one that leases its capital assets to others – must now recognize a lease receivable and a deferred inflow of resources (Wolfe, 2017, para. 6-7).

According to changes, a lessee will report in financial statements:

– Amortization expense for using the lease asset, which is similar to depreciation, over the shorter of the term of the lease or the useful life of the underlying asset,

– Interest expense on the lease liability,

– Note disclosures about the lease, including a general description of the leasing arrangement, the amount of lease assets recognized, and a schedule of future lease payments to be made (Wolfe, 2017, para. 8).

Also, a lessor will report the following in its financial statements:

–  Lease revenue systematically recognized over the term of the lease, corresponding with the reduction of the deferred inflow,

–  Interest revenue on the receivable,

–  Note disclosures about the lease, including a general description of the leasing arrangement and the total amount of inflows of resources recognized from leases (Wolfe, 2017, para. 9).

Capital Assets Account Assignment

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