Chapter 71 Capital Assets and Investments in Marketable Securities.

Slides:



Advertisements
Similar presentations
Chapter 2 Principles of Accounting and Financial Reporting for State and Local Governments McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies,
Advertisements

Chapter 5: Balance Sheet and Statement of Cash Flows Systems
Chapter 7: Cash and Receivables
Accounting Principles, Ninth Edition
McGraw-Hill/Irwin©2007, The McGraw-Hill Companies, All Rights Reserved Essentials of Accounting for Governmental and Not-for-Profit Organizations Chapter.
Intermediate Accounting, 11th ed.
Marketable Securities
Chapter 12: Intangible Assets
Chapter 23: Statement of Cash Flows
Chapter 21: Accounting for Leases
ADJUSTING THE ACCOUNTS Accounting Principles, Eighth Edition
COMPLETING THE ACCOUNTING CYCLE Accounting Principles, Eighth Edition
ADJUSTING THE ACCOUNTS Accounting Principles, Eighth Edition
©2003 Prentice Hall Business Publishing, Advanced Accounting 8/e, Beams/Anthony/Clement/Lowensohn Accounting for State and Local Governmental Units.
Advanced Accounting by Debra Jeter and Paul Chaney Chapter 19: Introduction to Accounting for State and Local Governmental Units Slides Authored.
Prepared by Debby Bloom-Hill CMA, CFM. Slide 13-2 CHAPTER 13 Statement of Cash Flows.
Accounting Principles, 6e Weygandt, Kieso, & Kimmel
Accounting Principles, 6e Weygandt, Kieso, & Kimmel
1 CHAPTER 6 Earnings Management. 2 “Earnings Management” An expression referring to cases when management uses its reporting discretion to produce financial.
The Cash Flow Statement
John Wiley & Sons, Inc. © 2005 Chapter 18 The Statement of Cash Flows Prepared by Naomi Karolinski Monroe Community College and and Marianne Bradford.
REPORTING CASH FLOWS APPENDIX B Warfield Wyegandt Kieso
Advanced Accounting, Fourth Edition
©The McGraw-Hill Companies, Inc. 2006McGraw-Hill/Irwin Chapter 18 Governmental Entities: Other Governmental Funds and Account Group.
Chapter 7Granof-5e1 Chapter 7 Capital Assets and Investments in Marketable Securities.
Completion of the Accounting Cycle
Chapter 10-1 Chapter 10 Plant Assets, Natural Resources, and Intangible Assets Accounting Principles, Ninth Edition.
Chapter 4-1. Chapter 4-2 Chapter 4 Completing the Accounting Cycle Financial Accounting 7th Edition Weygandt Kimmel Kieso.
Chapter 5 Recognizing Expenditures In Governmental Funds.
Statement of Cash Flows
Chapter 5 Accounting for General Capital Assets and Capital Projects McGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Indicate the usefulness of the statement of cash flows Distinguish among operating, investing, and financing activities Prepare.
Advanced Accounting, Third Edition
STATEMENT OF CASH FLOWS
Accounting Principles, Ninth Edition
John Wiley & Sons, Inc. © 2005 Chapter 3 Adjusting the Accounts Accounting Principles, 7 th Edition Weygandt Kieso Kimmel Prepared by Naomi Karolinski.
1 Chapter 16: Accounting for Leases Fundamentals of Intermediate Accounting Weygandt, Kieso and Warfield Prepared by Bonnie Harrison, College of Southern.
CURRENT LIABILITIES AND CONTINGENCIES
Essentials of Accounting for Governmental and Not-for-Profit Organizations Chapter 8: Government-Wide Financial Statements; Fixed Assets and Long-term.
Statement of Cash Flows Chapter 17—Part 2 Step 1: Operating Activities Determine net cash provided/used by operating activities by converting net income.
Chapter 10: Acquisition and Disposition of Property, Plant, and Equipment Intermediate Accounting, 11th ed. Kieso, Weygandt, and Warfield Prepared by Jep.
Completing the Accounting Cycle
WEYGANDT. KIESO. KIMMEL. TRENHOLM. KINNEAR. BARLOW. ATKINS PRINCIPLES OF FINANCIAL ACCOUNTING CANADIAN EDITION Chapter 4 Completion of the Accounting Cycle.
Prepared by Kurt M. Hull, MBA CPA California State University, Los Angeles Financial A ccounting, 5e John Wiley & Sons, Inc. Weygandt, Kieso, & Kimmel.
Chapter 5: Income Statement and Related Information Fundamentals of Intermediate Accounting Weygandt, Kieso, and Warfield Prepared by Bonnie Harrison,
Chapter Chapter 13-2 CHAPTER 13 STATEMENT OF CASH FLOWS Managerial Accounting, Fourth Edition.
Chapter 3-1 Adjusting the Accounts Accounting Principles, Ninth Edition.
Chapter Chapter 17-2 Chapter 17 Statement of Cash Flows Accounting Principles, Ninth Edition.
1 CHAPTER 8 Long-Term Producing Assets and Investments in Equity Securities.
Chapter 4-1. Chapter 4-2 Chapter 4 Completing the Accounting Cycle Accounting Principles, Ninth Edition.
Chapter Chapter 17-2 CHAPTER 17 STATEMENT OF CASH FLOWS Accounting Principles, Eighth Edition.
Slide 13-2 CHAPTER 13 Statement of Cash Flows Learning objective 1: Explain the need for the statement of cash flows and identify the three types of.
Foreign Subsidiaries A foreign subsidiary is consolidated if the parent company owns a controlling interest in the subsidiary Exceptions: The intent to.
STATEMENT OF CASH FLOWS Accounting Principles, Eighth Edition
Completing the Accounting Cycle
Chapter 4 Using Financial Statements to Analyze Value Creation
Chapter 13: Investments Fundamentals of Intermediate Accounting
Fundamentals of Intermediate Accounting Weygandt, Kieso and Warfield
Advanced Accounting by Debra Jeter and Paul Chaney
Financial Accounting, 5e California State University,
Chapter 8: Investments in Equity Securities
Chapter 5: The Balance Sheet and The Statement of Cash Flows
Chapter 18: Investments Intermediate Accounting, 10th Edition
Intermediate Accounting, 10t edition, Chapter 24 (Kieso et al.)
Intermediate Accounting, 10th Edition, Ch. 22 (Kieso et al.)
Intermediate Accounting, 11th ed.
Advanced Accounting, First Edition
Chapter 21: Accounting for Leases
Chapter 23: Statement of Cash Flows
Chapter 7: Cash and Receivables
Presentation transcript:

Chapter 71 Capital Assets and Investments in Marketable Securities

Chapter 72 Learning Objectives  Accounting for capital assets -Fund Statements -Government-wide Statements  Accounting for -- Donated Assets -- Trade-Ins -- Collectibles  GASB’s controversy on Infrastructure Assets  Asset Impairments  Investments in Marketable Securities

Chapter 73  Associated with the government as a whole  They are non financial in character.  Distinguished from other capital assets that are specifically associated with activities reported in proprietary and fiduciary funds.  Cost of capital assets: reported as expenditures General Capital Assets

Chapter 74  Land  Buildings  Improvements other than Buildings  Machinery and Equipment  Construction in Progress  Infrastructure (e.g., roads, streets, bridges) Common Classifications of General Capital Assets

Chapter 75 General capital assets are:  Capitalized in the governmental activities column at the government-wide level  Depreciated at the government-wide level  Debited to Expenditures in the appropriate governmental fund—when the assets are acquired. Accounting for General Capital Assets

Chapter 76 Placing a value (assigning costs) on capital assets For Purchased Assets  Follow Cost Principle (subject to materiality threshold)  Invoice cost or historical cost  All other necessary and reasonable costs incurred to put an asset into use (less cash or other discounts and financing charges) For constructed assets:  Direct labor and materials + overhead + architect fees + insurance premiums  Capitalize interest on constructed assets per GASB Std. # 34

Chapter 77 Placing Value (assigning costs) on capital assets (cont’d)  Donated assets: reported at estimated fair market value. Exhaustible assets are depreciated over the remaining useful lives in their government-wide statements.  Use estimated cost if the assets weren’t recorded when initially acquired ("discovered" assets or a new inventory of assets)  Record foreclosures — at aggregate of accumulated taxes, interest, penalties, legal costs, or FMV whichever is lower  Record Trade-Ins at FMV of the new asset

Chapter 78  Tax-supported bonds  Grants from other governmental units (e.g., Federal or state grants )  Transfers from other funds  Gifts from individuals or organizations  Special assessment bonds or taxes  Capital leases  Note: If funds received from governmental units, individuals, or organizations is restricted for the purchase or construction of specified capital assets – it is recommended that a Capital Projects Fund be used. Common Financing Sources for General Fixed Assets

Chapter 79 Accounting for Acquisition of Capital Assets Example: The Sample city purchased office equipment for the Mayor’s office and paid $50,000 cash from the General Fund. General Fund: Dr. Cr. Expenditures $50,000 Cash50,000 Governmental Activities: Equipment $50,000 Cash50,000

Chapter 710 Accounting for Collectibles  GASB No. 34 does not require capitalization of artworks if they are: -held for public exhibition or research -protected and preserved -the proceeds from sale of the collectibles are used to acquire other collectibles.  Art and collectibles that do not meet these conditions must be capitalized.  If capitalized, revenue upon receipt of gifts should be recognized.  If not, both a revenue and an offsetting expense should be recognized.

Chapter 711 Infrastructure  Infrastructure is: –Government’s capital assets –Immovable –Preserved for a longer period. Ex: roads, sidewalks, bridges etc.  GASB 34: requires that infrastructure be accounted in the same manner as the capital assets.  Exception: They need not be depreciated if the government can demonstrate that they are being maintained/preserved at a specified condition level.  To avoid recording depreciation, governments must -perform condition assessments at least every three years ; - have an up-to-date inventory of eligible assets -estimate the amount to maintain and preserve the eligible assets.

Chapter 712 Infrastructure (cont’d) Modified approach:  All expenditures incurred to maintain and preserve those assets should be expensed.  Additions and improvements should be capitalized.  Assessed condition of the assets and the basis of that assessment must be disclosed.

Chapter 713 Criticisms of Statement No. 34's Approach to Infrastructure  No indication that data on the historical cost of infrastructure would be used.  No need to capitalize those assets because they cannot be stolen or misused.  Comparison between measure of output (performance) and monetary value assigned to the assets is not meaningful.  Infrastructure assets seldom have alternative uses.  Past construction costs are of no significance.

Chapter 714 Transition -- Infrastructure  Prospective reporting is required at effective statement date  Retroactive reporting is required as follows: -Phase 1 governments: June 15, Phase 2 governments: June 15, Phase 3 governments: Never  Retroactive reporting is required only for assets acquired after June 30,  Illustration: For example, in 2005 the replacement cost of a road constructed in 1991 was $10 million. A road construction price level index was.90 for 1991 and 120 for The road would be recorded at an initial cost of $7.5 million ($10 million times 90/120). If the road had a useful life of 30 years, then at the end of 2005 (after 15 years, it would be 50% depreciated. Hence it would have a book value of 50% of $7.5 million -- $3.75 million.

Chapter 715 Accounting for Impaired Assets GAAP: GASB Std. # 42  Assets that have declined in their service utility significantly and unexpectedly are considered impaired.  If impaired: a portion of the asset’s historical cost representing the impairment must be written off.  Impairment amount measured by 3 methods: -Restoration cost approach -Service Units approach -Deflated depreciated replacement cost approach.

Chapter 716 Investments in Marketable Securities  Reason to invest: to earn a return on resources.  Governments either directly invest in stocks or bonds or small governments may participate in investment pools maintained by other governments.  Repurchase agreement (Repo): short-term investment in which investor transfers cash in exchange for securities and the cash + plus interest is repaid in exchange for the same securities.  Reverse Repurchase agreement (Reverse Repo): Here, government is the borrower rather than the investor.  Derivatives: Governments typically engage in derivative transactions not to speculate but, rather, to reduce the overall investment risk.

Chapter 717 Disclosure requirements  Governments should organize disclosures by investment type and additional disclosures as to specific types of risks:  Credit risks -Concentration of credit risks -Interest rate risks -Foreign currency risks  Governments must explain the nature of derivative transactions  Reasons to enter  Disclose significant terms of the transactions

Chapter 718 Summary  Governments report general capital assets as expenditures when they construct or acquire them in their governmental fund statements which are accounted for on a modified accrual basis. Thus governments maintain the “off the balance sheet” record of these assets.  GASB Std. # 34 requires that in Government-wide statements, governments capitalize capital assets and depreciate them over their economic lives.  GASB Std. # 34 mandates that governments account for their infrastructure assets just as they do other capital assets. However governments are not required to depreciate infrastructure assets if they preserve them at a specified “condition level.”  Investments made by governments are of concern because of the substantial risk that investors can incur through default, declines in value and even fraud.  GASB through its standards requires disclosure of a wide range of investment information.

Chapter 719 Copyright © 2007 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that named in Section 117 of the United States Copyright Act without the express written consent of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.