Capital Assets and Infrastructure Assets

The Governmental Accounting Standards Board (GASB) governs capital-asset reporting by state and local governments. Capital assets are tangible or intangible resources used in operations whose initial useful lives extend beyond one reporting period.

Government-wide financial statements use the economic-resources measurement focus and accrual accounting. Buildings, equipment and other capital assets appear in the statement of net position, with governmental activities presented separately from business-type activities.

Governmental fund financial statements use the current-financial-resources focus and modified accrual. Acquisitions of buildings and equipment generally produce capital outlay expenditures, with recognition governed by expenditure rules rather than the payment date alone.

Proprietary and fiduciary fund financial statements use economic resources and accrual accounting, so those statements can report capital assets themselves. Fiduciary activities remain outside government-wide financial statements.

For buildings and equipment, the governmental fund balance-sheet reconciliation adds net capital assets to reach government-wide net position. The operating-statement reconciliation reverses capital outlay expenditures and recognizes depreciation or amortization when deriving the change in net position.

Common mistakes

• Residual value ignored. Brookmere’s $\frac{\$100{,}000}{5\text{ years}} \times \frac{6}{12}\text{ year} = \$10{,}000$ overstates new-equipment depreciation by $\$10{,}000 - \$9{,}000 = \$1{,}000$.
• Construction interest capitalized. Capitalizing construction interest gives $\$90{,}000 + \$6{,}000 = \$96{,}000$, an unsupported asset balance.
• Current charges omitted. Using only adjusted beginning accumulated depreciation gives $\$1{,}495{,}000 - (\$205{,}000 - \$40{,}000) = \$1{,}330{,}000$, overstating net capital assets by the omitted $69,500 current charge.

Bottom line

• Government-wide, proprietary fund and fiduciary fund statements can report capital assets; governmental funds generally report capital outlay expenditures, and fiduciary activities remain outside government-wide statements.
• Purchased capital assets include necessary acquisition and service-readiness costs; donated assets use acquisition value plus qualifying ancillary costs.
• Depreciation uses cost less residual value and the stated service period; land, unfinished construction and qualifying indefinite-lived or inexhaustible assets receive no current allocation.
• Construction-period interest is expensed under the economic-resources measurement focus, including enterprise fund reporting.

Exam shortcut

Identify the requested statements before selecting accounts. When the stem says “fund,” determine whether it means governmental, proprietary or fiduciary. Mark residual value and the service date before calculating depreciation. Remove disposed cost and its accumulated depreciation together, then add the current charge to the remaining accumulated balance. For leases, screen ownership transfer and the short-term exception before measuring the asset.

The full lesson (about 4,992 words, 33 min read) adds 2 worked examples, all 5 common mistakes, a self-check, free in the app.

Learning objectives

• III.C3

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