Capital Asset Accounting System
GASB Statement No. 51, Accounting and Financial Reporting for Intangible Assets, requires that all intangible assets within its scope be classified as capital assets. Like GASB Statement 34, this statement was phased in so that Phase 1 and 2 cities must retroactively report intangible assets acquired since June 30, 1980, except for those intangible assets that have indefinite useful lives and those internally generated. Retroactive reporting for Phase 3 cities is encouraged but not required.
If there are no legal, contractual, regulatory, technological, or other factors that limit the useful life of an intangible asset, it is considered to have an indefinite useful life and is not amortized. Intangible assets with indefinite useful lives and internally generated intangible assets were not required to be reported retroactively under the transition provisions of GASB Statement No. 51, although retroactive reporting was permitted in certain circumstances. The requirements of GASB Statement No. 51 apply to financial statements for periods beginning after June 15, 2009.
This publication provides direction in accounting for and properly reporting capital assets in governmental funds and in the government-wide financial statements. Governmental accounting and financial reporting have evolved significantly since the Governmental Accounting Standards Board (GASB) issued Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments. Statement No. 34 established government-wide financial statements and comprehensive requirements for reporting capital assets and long-term liabilities.
Governments are required to report capital assets in accordance with applicable GASB standards. General capital assets are reported in the government-wide financial statements, while capital assets associated with proprietary activities are reported in the appropriate proprietary fund financial statements. Governments are required to capitalize certain infrastructure assets and report capital assets in the government-wide financial statements. The annual cost of using capital assets with finite useful lives is generally reported as depreciation expense. Intangible assets with finite useful lives are generally amortized rather than depreciated.
Prior to GASB 34, local governments were required to maintain a fixed asset accounting system (FAAS), but it was not part of the financial statements. Many cities did not adequately maintain a FAAS, which could result in a finding in the annual audit. Under GASB 34, capital assets are reported in the government-wide financial statements, making accurate and complete capital asset records important to financial reporting.
GASB Statement No. 51, Accounting and Financial Reporting for Intangible Assets, requires that all intangible assets not specifically excluded be classified as capital assets. Intangible assets include easements, water rights, computer software, and trademarks.
A municipality's capital assets are the tangible and intangible assets purchased or obtained through transactions or events. Capital assets are generally classified as land, buildings, equipment, improvements other than buildings, infrastructure, construction in progress, and intangible assets. In the private sector, these assets generally are referred to as property, plant, and equipment.