GASB Statement34 Capital Asset Reporting Requirements

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GASB Statement-34 Capital Asset Reporting
Requirements

• By
• Doyt Bolling, P.E
• Director, Utah Technology Transfer Center

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Capital Asset Reporting

• Statement of Assets
• All Capital Assets (including infrastructure)
• Statement of Activities
• Depreciation (cost of using assets)

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Definition of Capital Assets

• Capital Assets
• Tangible or intangible assets used in operations,
  that have initial useful lives extending beyond a
  single reporting period
• Infrastructure Assets
• Long-lived, stationary in nature and normally can
  be preserved for a number of years
• roads, bridges, tunnels, drainage systems, dams,
  lighting systems, buildings (except ancillary
  parts of a network of infrastructure assets)

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Valuing Capital Assets

• Reported at historical cost, including interest,
  and ancillary charges
• Donated capital assets reported at estimated fair
  value at time of acquisition

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Depreciation(general requirements)

• Report net of accumulated depreciation
• Not all capital assets depreciable
• Non-depreciable Capital Assets
• Inexhaustible (i.e. land and certain land
  improvements
• Infrastructure assets reported using modified
  approach (Asset Management Approach)

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Calculating Depreciation

• Systematic and rational allocation of the net
  cost of assets over estimated useful lives (i.e.
  straight line, sum-of-the-years-digits, single
  fund, etc.)
• Net Cost is historic cost less salvage value
• Estimated useful life (design life) Periodically
  re-evaluated in relation to actual conditions and
  usage

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Asset Grouping Options

• Depreciation expense calculated by any of the
  following
• Individual assets
• class of assets (i.e. vehicle, buildings,
  computers, etc.)
• Network of assets (i.e. dam, street systems,
  etc.)
• Subsystem of Network (i.e. interstate, state
  highways, local or rural roads)

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Composite Depreciation

• Composite group depreciation methods may be used
  to calculate depreciation expenses.
• Composite depreciation rate calculated in
  different ways
• Estimated life for group may be based upon
  weighted average or simple average of useful
  lives of assets
• (Continue Next Page)

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Composite Depreciation (continue)

• Depreciation rate for specific year may be based
  upon any established depreciation method
• Note
• Composite depreciation assumes all assets are
  retired at the end of useful life (therefore- no
  gain or loss is recorded). Cost of replaced
  assets is removed from both the capital asset
  account and the accumulated depreciation account.

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When to Report Capital Assets

• Except for infrastructure- all governments should
  be reporting
• All governments must start reporting new
  infrastructure assets (new purchases,
  acquisitions, and all reconstruction and
  improvements of infrastructure) at the time they
  implement Statement 34.
• Previously constructed or acquired
  infrastructure-(See Handout)

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Modified Approach for Infrastructure Reporting

• Asset Management Approach
• Do not let assets deteriorate below a set
  condition level
• Costs that extend the life of infrastructure
  beyond its previously established useful life
  (preservation costs) are immediately expensed,
  rather than capitalized and depreciated.

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Modified v.s Traditional Depreciation
Traditional Depreciation
Modified Approach
Maintenance and Preservation Costs
Maintenance
Expense
Additions and improvements
Preservation costs, additions, and improvements
Capitalize
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Modified Approach-Requirements to Use

• Infrastructure assets that are part of a network
  or subsystem of a network (eligible
  infrastructure assets) are not required to be
  depreciated as long as the government does the
  following
• - Manages the eligible infrastructure assets
  using an asset management system, and
• -Documents that the eligible infrastructure
  assets are being preserved approximately at (or
  above) a condition level established by the
  government.

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Asset Management System

• An acceptable asset management system should
• Report an up-to-date inventory of eligible
  infrastructure assets
• Perform and document replicable condition
  assessments of the eligible infrastructure
  assets, and summarize the results using a
  measurement scale
• Estimate each year the annual amount to maintain
  and preserve the eligible infrastructure assets
  at the condition level established and disclosed
  by the government

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Documentation of Preservation

• Governments should document that
• Complete condition assessments are performed
  (representative sampling is acceptable in a
  consistent manner at least 3 years)
• The results of the three most recent complete
  condition assessments show that the eligible
  infrastructure assets are being preserved
  approximately at or above the condition level
  established and disclosed by the government

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Establishing Condition Levels

• Statement 34 does not establish a minimum
  condition level in a formal, documented manner
  through appropriate administrative or executive
  policy or by legislative action.

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Required Supplementary Information for Modified
Approach

• Governments should disclose as RSI the following
  information for infrastructure assets reported
  using the modified approach
• - The assessed condition, performed at least
  every three years, for at least the three most
  recent comlete condition assessments, indicating
  the dates of the assessment
• (Continue Next Page)

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Required Supplementary Information for Modified
Approach

• -The estimated annual amount calculated at the
  beginning of the fiscal year to maintain and
  preserve at (or above) the condition level
  established and disclosed by the government
  compared with the amounts actually expensed for
  each of the past five reporting periods
• -Basis for the condition measurement and the
  measurement scale
• (Continue Next Page)

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Required Supplementary Information for Modified
Approach

• -The condition level at which the government
  intends to preserve its infrastructure assets
• -Factors that significantly affect trends in the
  information reported (for example, changes in
  measurement scale or target condition level, etc.)

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RSI Example of Requirements 12
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RSI Example of Requirement 3
The condition of road pavement is measured using
the XYZ pavement management system, which is
based on a weighted average of six distress
factors found in pavement surfaces. The XYZ
pavement management system uses a measurement
scale that is based on a condition index ranging
from zero for a failed pavement to 100 for a
pavement in perfect condition. The condition
index is used to classify roads in good or better
condition (700-100), fair condition(50-69), and
substandard condition (less than 50). It is the
Citys policy to maintain at least 85 percent of
its street system at a good or better condition
level. No more than 10 percent should be in a
substandard condition. Condition assessments are
determined every year.
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Transition For Infrastructure Reporting

• Statement 34 Provides significant accommodations
  to ease the transition to the new standard
• Staggered transition dates
• Limited time look-back period
• Look-back required for only major assets
• Reporting non-major assets not required
• Historical cost may be estimated

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Staggered Transition Dates
Total Revenue
Implementation of Basic Standard Year Beginning
After
Infrastructure Implementation Year Beginning
after
100 million or more
June 15,2001
June 15, 2005
10 million or more, but less than 100 million
June15,2002
June 15, 2006
Prospective Only (retroactive is encouraged)
Less than 10 million
June 15,2003
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Look-back Limited to Major Assets

• The Look-back need be applied to the estimated
  historical cost of only major general
  infrastructure assets acquired or significantly
  constructed, or that received significant
  improvements, in fiscal years ending after June
  30, 1980

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Major Infrastructure Assets

• The determination of major general infrastructure
  assets should be at the network or subsystem
  level and should be based on these criteria
• . The cost or estimated cost of the subsystem is
  expected to be at least 5 percent of the total
  cost of all general capital assets reported in
  the first fiscal year ending after June 15,1999,
  or
• . The cost or estimated cost of the network is
  expected to be at least 10 percent of the total
  cost of all general capital assets reported in
  the first fiscal year ending after June 15, 1999

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Estimated Historical Costs Allowed

• Acceptable Estimating Methods
• . Review of engineering and bond documents.
• .Expenditures reported in capital project funds
  or capital outlays in government funds
• . Estimated replacement cost, deflated.
• . Any approach that complies with the intent of
  Statement 34