GASB Statement-34 Capital Asset Reporting Requirements

By

Doyt Bolling, P.E

Director, Utah Technology Transfer CenterGASB Statement 34-Capital Asset Reporting Requirements

Wesley A. Galloway, GASB project manager1

NACE 2000 Conference -April 19, 2000

Capital Asset Reporting

• Statement of Assets– All Capital Assets (including infrastructure)

• Statement of Activities– Depreciation (cost of using assets)

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)

Valuing Capital Assets

• Reported at historical cost, including interest, and ancillary charges

• Donated capital assets reported at estimated fair value at time of acquisition

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)

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

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)

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

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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.

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)

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.

Modified v.s Traditional Depreciation

Traditional DepreciationModified Approach

Expense

Capitalize

Maintenance and Preservation Costs

Maintenance

Additions and improvements

Preservation costs, additions,

and improvements

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:

1 - Manages the eligible infrastructure assets using an asset management system, and

2 -Documents that the eligible infrastructure assets are being preserved approximately at (or above) a condition level established by the government.

Asset Management System• An acceptable asset management system

should:a Report an up-to-date inventory of eligible infrastructure

assets

b Perform and document replicable condition assessments of the eligible infrastructure assets, and summarize the results using a measurement scale

c Estimate each year the annual amount to maintain and preserve the eligible infrastructure assets at the condition level established and disclosed by the government

Documentation of Preservation• Governments should document that:

a Complete condition assessments are performed (representative sampling is acceptable in a consistent manner at least 3 years)

b 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

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.

Required Supplementary Information for Modified Approach

• Governments should disclose as RSI the following information for infrastructure assets reported using the modified approach:1 - 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

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Required Supplementary Information for Modified Approach

2 -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

3 -Basis for the condition measurement and the measurement scale

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Required Supplementary Information for Modified Approach

4 -The condition level at which the government intends to preserve its infrastructure assets

5 -Factors that significantly affect trends in the information reported (for example, changes in measurement scale or target condition level, etc.)

RSI Example of Requirements 1&22000 2001 2002

Main arterial 93.2% 91.5% 92.0%Arterial 85.2% 81.6% 84.3%Secondary 87.2% 84.5% 86.8%Overall system 87.0% 85.5% 87.3%

2002 2001 200Main arterial 1.7% 2.6% 3.1%Arterial 3.5% 6.4% 5.9%Secondary 2.1% 3.4% 3.8%Overall system 2.2% 3.6% 3.9%

2002 2001 200 1999 1998Main arterial:Needed $2,476 $2,342 $2,558 $2,401 $2,145Actual $2,601 $2,552 $2,432 $2,279 $2,271Arterial:Needed 1485 1405 1535 1441 1287Actual 1560 1531 1459 1367 1362Secondary:Needed 990 937 1023 960 858Actual 1040 1021 972 911 908Overall system:Needed 4951 4684 5116 4802 4290Actual 5201 5104 4863 4557 4541Difference 250 420 (253) (245) 251

Percentage of Lane-Miles in Good or Better Condition

Percentage of Lane-miles in Substandard Condition

Comparison of Needed-to-Actual Maintenance/Preservation (in Thousands)

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 City’s 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.

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

Staggered Transition Dates

$100 millionor more June 15,2001 June 15, 2005

$10 millionor more, but lessthan $100 million

June15,2002

Prospective Only(retroactive is encouraged)

June 15, 2006

Less than $10million June 15,2003

Total RevenueImplementation of BasicStandard:Year Beginning After

InfrastructureImplementation:

Year Beginning after

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

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:

a . 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

b . 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

Estimated Historical Costs Allowed• Acceptable Estimating Methods:a . Review of engineering and bond documents.

b .Expenditures reported in capital project funds or capital outlays in government funds

c . Estimated replacement cost, deflated.

d . Any approach that complies with the intent of Statement 34