Government Accounting Standards Board (GASB)

The cash basis of accounting records revenues when cash is received and expenses when cash is paid out. The accrual basis of accounting records revenues when they are earned and expenses when resources are used.

A capital expenditure is an amount spent to acquire or improve a long-term asset such as equipment or buildings. Usually the cost is recorded in an account classified as Property, Plant and Equipment. The cost (except for the cost of land) will then be charged to depreciation expense over the useful life of the asset.

835-20-15-8 Land that is not undergoing activities necessary to get it ready for its intended use is not a qualifying asset. If activities are undertaken for the purpose of developing land for a particular use, the expenditures to acquire the land qualify for interest capitalization while those activities are in progress. The interest cost capitalized on those expenditures is a cost of acquiring the asset that results from those activities. If the resulting asset is a structure, such as a plant or a shopping center, interest capitalized on the land expenditures is part of the acquisition cost of the structure. If the resulting asset is developed land, such as land that is to be sold as developed lots, interest capitalized on the land expenditures is part of the acquisition cost of the developed land.

If the agency is absolute, the capital asset is allowed to go directly on the financial statements. If the agency is residual, then the capital asset is inventory.

The company also provides the following disclosure relating to the useful lives of its depreciable assets

Entity-wide disclosures are required under Accounting Standards Codification (ASC) 280-10-50-40 through 280-10-50-42. The disclosures are required because every corporation does not report information in a similar fashion, and the disclosures would provide comparability of the financial statements among entities. For example, if a corporation uses a geographic approach in its financial statements, disclosing certain information about the products or services sold will make comparability to other companies much easier. The disclosures will also help with comparability within an entity if they decide to choose another method of reporting operating segments in the future. There are three types of entity-wide disclosures; products and services, geographic areas, and/or major customers. Every public company has to comply with the disclosures, even if the company has one reportable segment. The only exception to the entity-wide disclosures is if it is impractical to provide the information, such as it would be extremely costly to the corporation, or if the “internal reporting systems are not capable of gathering financial information by product or service by geographic area.” A disclosure should be made when entity-wide disclosures are impractical.

Expenses follow natural classification or their functional classifications. Property, plant, and equipment acquired by restricted or unrestricted

Depreciation and depletion are two models of computing financial reports. These techniques are used as adjustments when preparing statements of cash flow within the direct or indirect method. This paper will identify and examine the methods of depreciation and depletion, describe the difference between the methods, and compare and contrast depreciation and depletion as well using scholarly references to support the points.

Question Depreciation of general capital assets is not recorded in the accounts of any of the governmental funds. If a building is transferred from the General Fund to an internal service fund because the character of its use changes, should the internal service fund record building depreciation expense each year after the transfer? Explain.

Other types of funds are used in accordance with Generally Accepted Accounting Principles (GAAP). Special revenue funds record activities funded by restricted monies such as Public Health, Friend of the Court, and all grant-funded activities. Debt Service Funds record transactions related to assessment of tax levies and payment of principal and interest of long-tern debt. Capital project funds account for the purchase or construction of major facilities such as buildings, drains, and sewer projects.

Valuation refers to the asset being recorded and disclosed at current market price regardless of whether that price is above or below cost. Depreciation is the allocation of the cost of a plant asset to expense over its useful or service life in a rational and systematic manner. There are three methods that can be used for depreciation and a company must pick which method they want to use and stick with that

a. Empire Company Limited used different function to classify their expenses as they presented their expenses separately from other functions such as cost of sales, selling and administrative expenses and finance costs (Empire Company Limited ).

When calculating the total cost of ownership of an asset, the life cycle of the asset must be taken into consideration. During that life cycle, the asset will start to depreciate. The depreciation expense varies from asset to asset. The value of the asset is reported lower and lower

The Financial Accounting Standards Board has issued for public comment two Exposure Drafts related to its disclosure framework project. The first exposure draft proposes amendments to Statement of Financial Accounting Concepts - Conceptual Framework for Financial Reporting, Chapter 3 – Qualitative Characteristics of Useful Financial Information. The purpose of this proposed amendment is to clarify the concept of “materiality”. FASB defines materiality as, information is material if omitting it or misstating it could influence decisions that users make on the basis of the financial information of a specific reporting entity. In other words, materiality is an entity-specific aspect of relevance based on the nature or magnitude or both of the items to which the information relates in the context of an individual entity’s financial report. Consequently, the Board cannot specify a uniform quantitative threshold for materiality or predetermine what could be material in a particular situation.

According to governmental financial reporting model, internal service funds are one of the proprietary funds, and investment trust funds belong to fiduciary funds. There are many types of activities, which are accounted for in an internal service funds. This paper addresses the type of activities in an internal service funds, non-expendable endowment funds reported on a full accrual basis, and how it is important that depreciation be charged on capital assets held as fiduciary investment funds.