1. Marketable Securities7
Chapter
Long-Lived Assets and
Investments in
Marketable Securities

2. What are General Capital Assets?
Long-lived assets used by activities accounted for by governmental fund types.
Accounting is done at the Government-wide level
Distinguished from capital assets that are specifically associated with activities reported in proprietary and fiduciary funds. 3 4

3. Typical Classifications of General Capital Assets
Land
Buildings
Improvements other than Buildings
Machinery and Equipment
Construction Work in Progress
Infrastructure (e.g., roads, streets, bridges) 3 4

4. Typical Financing Sources for General Capital Assets
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 3 5

5. Accounting for General Capital Assets
General capital assets are:
Capitalized in the governmental activities accounts at the government-wide level
Depreciated at the government-wide level
Debited to Expenditures in the appropriate governmental fund. 3 6

6. Acquiring Capital Assets
From expenditures of
General Fund
Special revenue funds
Capital project funds
Note: If money 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.

7. Assigning Costs to General Capital Assets
Follow Cost Principle (all cost necessary to bring asset to serviceable condition)
Invoice cost or historical cost
All other necessary and reasonable costs: (transportation, installation, title, closing fees)
Capitalize interest on constructed assets
Record donated assets at fair value on date of gift (unless received from another fund, in which case use historical costs – to avoid recognizing a gain in the funds which would have to be eliminated at the government-wide level) 3 7

8. Accounting for Acquisition of Capital Assets
Example: Purchased office equipment for the Mayor’s office and paid $50,000 cash from the General Fund.
Governmental Activities: Dr Cr.
Equipment ,000
Cash ,000
General Fund:
Expenditures 50,000

9. Depreciation Accounting and Reporting
Depreciation on general capital assets, (except occasionally infrastructure) is required at the government-wide level.
Depreciation is not recorded on inexhaustible assets, such as land and noncapitalized collections of art.
The government can elect not to depreciate certain eligible infrastructure assets, under the modified approach (see next slide). 3 9

10. Election to use the Modified Approach for Infrastructure Assets
The government can elect not to depreciate certain “eligible” infrastructure assets if
An asset management system is in place that includes
an up-to-date inventory of eligible assets,
condition assessments of the assets and summary of results using a measurement scale
estimates each year of the annual amount needed to maintain and preserve the assets at the established condition level
The government documents that these assets are being preserved at or above established levels of condition.

11. Election to use the Modified Approach for Infrastructure Assets
If the government elects not to depreciate certain “eligible” infrastructure assets they must expense all repairs when incurred.

12. Accounting for Collectibles
Collectible are not required to be capitalized if the following criteria is meet
Must be held for public exhibit, education, or research
Must be protected, cared for, and preserved
They are subject to organizational policy (proceeds from any sale must be used to purchase other items of collection)

13. Accounting for Capital Leases
Follow SFAS No. 13 criteria to determine if the lease is a capital lease, rather than an operating lease
Record capital assets in the government-wide statements in the amount of the present value of minimum lease payments or fair value, if lower
Record an expenditure in the governmental fund that is using the asset and making the payments. 3 12

14. Accounting for Capital Leases (Cont’d)
Example: Capital lease with present value of minimum lease payments of $50,000
Governmental Activities: Dr Cr.
Equipment ,000
Capital Lease Obligations Payable 50,000
Special Revenue Fund:
Expenditures ,000
Other Financing Source-
Capital Lease Agreements 50,000

15. Required Disclosures about Capital Assets
Capitalization policy
Policy for estimating useful lives of assets
Beginning and end of the year balances, including accumulated depreciation
Acquisitions during the year
Sales or other dispositions during the year
Depreciation expense for the current period
Why collections (e.g., works of art or historical treasurers) are not capitalized

16. Costs Incurred After Acquisition
Additions/betterments vs. replacements/ maintenance
Capitalize costs of additions and betterments; don't capitalize replacements and maintenance expenditures
Some replacements might be partly additions or betterments; if so, capitalize as appropriate but remove cost of old asset
Requires judgment to determine whether an asset has been enhanced 3 13

17. Marketable Securities
Why do Governments and Not-for-proftits have marketable securities
Receive large amounts of cash at one time
Maintain a “rainy” day fund
Maintain pension assets
Maintain endowment funds
Bond sinking funds
Marketable securities are acquired to provide income on these funds 3 13

18. Miscellaneous topics Repurchase agreements:
Reverse repurchase agreements
Risks & rewards – “Orange County Disaster”
Government Disclosures
Credit risk on invested securities
Interest rate risk
Foreign currency risk
****All governments and not-for-profit organizations should have an investment resolution which is evaluated periodically. 3 13