GASB Statement 34 and Reporting of Expenditures Instructions : Provide complete
ID: 2612753 • Letter: G
Question
GASB Statement 34 and Reporting of Expenditures
Instructions:
Provide complete answers to the following two questions.
1. Although Statement No. 34 requires that infrastructure assets be accounted for similarly to other capital assets, it allows for a major exception with regard to depreciation. What is that exception?
2. A government’s interest expenditure, as reported in its debt service fund, differs significantly from its interest expense, as reported in its government-wide statements. What is the most likely explanation for the difference?
Requirements:
- Submit your responses to the following questions in a 1-2 page document in MS Word. Label each question clearly. Please include computations in a table.
- For written answers, please make sure your responses are grammatically correct and free from spelling errors.
Explanation / Answer
1. GASB Statement #34 does not give a “complete” definition of a capital asset. Paragraph #19 is a good beginning in that it lists the many categories, but that is not enough. Estimated useful life, asset cost, associated debt, and exceptions must also be considered. Explanations of the other criteria and the threshold levels for capitalizing and depreciating are:
Estimated Useful Life - The first criterion is useful life. An asset must have an estimated useful life greater than one reporting period to be considered for capitalization and depreciation. Assets that are consumed, used-up, habitually lost or worn-out in one year or less should not be capitalized. Estimated useful life means the estimated number of months or years that an asset will be able to be used for the purpose for which it was purchased. In determining useful life, the City should consider the asset’s present condition, use of the asset, construction type, maintenance policy, and how long it is expected to meet service demands. Asset Cost - The second criterion for determining depreciable capital assets is cost. The City does not need to capitalize every asset with a useful life greater than one year. To do so is an unnecessary burden and will not materially affect financial results. The table listed below will be used in determining the dollar thresholds to use for tracking the City’s capital assets. The capitalize and depreciate column will be audited on an annual basis as part of the external auditors fieldwork. Capitalize and Depreciate Thresholds:
Land $1 - Capitalize only
Land Improvements $5,000
Building $5,000
Building Improvements $5,000
Machinery and Equipment $5,000
Works of art and historical treasurers $5,000
Infrastructure – based on total project cost $50,000
Sanitary Sewers & Lift Stations $50,000
Construction in Progress Capitalize only.
Major exception:
GASB standards require that depreciation be reported on all capital assets except infrastructure assets accounted for using the modified approach.
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