Capital Assets The basic capital asset standards reside in Statement No. 34, Bas

Question

Capital Assets

The basic capital asset standards reside in Statement No. 34, Basic Financial Statements—and Management's Discussion and Analysis—for State and Local Governments, paragraphs 18–29, as amended (though capital assets are addressed in multiple other pronouncements as well). In general, governments are required to report capital assets at the historical cost and to depreciate that historical cost in a systematic and rational manner over the estimated useful lives of the assets. Capital assets are reported at their historical cost net of accumulated depreciation in financial statements using the economic resources measurement focus and the accrual basis of accounting. The primary exceptions to the depreciation requirement are land (which is considered inexhaustible), construction in progress, and infrastructure assets reported using the modified approach. The modified approach is an optional reporting method available to governments that meet certain criteria demonstrating that the qualifying infrastructure assets are being maintained over time at a consistent physical condition level determined in advance by the government. Instead of depreciation, governments employing the modified approach report annual expenses for the cost of maintaining and preserving the assets at the predetermined condition level. Those governments are required to present required supplementary information (RSI) related to physical condition of and maintenance/preservation spending on the infrastructure.

QuestionHow do users utilize capital asset information? How do they use the modified approach RSI? What information do they need that they cannot obtain?

Explanation / Answer

Users utilize capital asset information by knowing the actual worth of their capital assets in the current year which can be used to know how much amount will they get if such capital assets are to be sold off. In this way, they can make decisions about whether to keep the capital asset or to sell it off. Also the net worth of the asset can be determined and users can weigh the options of utilizing the assets versus the money they get if they sell them off.

Users use the modified approach RSI by knowing the physical condition and maintenance/preservation amount of spending on the infrastructure. In this way, by knowing such things they can take further decisions to hold the property or sell it off based on its physical condition and whether any spending is done for maintenance/preservation of the property. This information is extremely useful for the users to base their decisions.

Users need information such as market rates of similar infrastructure based on number of players in the market, market fluctuations etc. which affect the rates of property. Also information about property bubble or stock market information is needed by the users to base their decisions which is not available.

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