Accounting for capital assets.

• Author: Buikema, Todd
• Position: The Accounting Angle

Capital assets are frequently the largest dollar-valued asset on a government's statement of net position. Unfortunately, capital assets often receive the least amount of attention among the assets reported. Capital assets, like other accounts reported in the statement of net position, require periodic reconciliations to ensure that the amount on the capital asset system, which details all capital assets owned by the government, equals the amount on the general ledger. The capital asset system needs to be complete and report capital assets that do exist.

It is not uncommon for a government to purchase a capital asset, put the asset into service, and wait until the end of the fiscal year to capitalize the asset and begin depreciating it. Waiting until year's end to assemble capital asset activity can lead to errors in reporting because some purchases may slip through the cracks and not be put into the system. When a capital asset is purchased, it should be entered into the capital asset system immediately. The capital asset system should include the following fields for each capital asset:

* Asset description (with enough detail to readily identify it)

* Cost of the asset

* Date of purchase

* Vendor, invoice, and purchase order information

* Type of asset (land, building, equipment)

* Useful life

* Serial number (or equivalent, such as VIN)

* Funding source (for grants)

* Primary location for the asset

* A system-generated unique asset identification number, or tag number

KEEPING TRACK

The unique asset identification number, also referred to as a tag number, is a key component of asset identification. An asset tag should be placed on each capital asset after it is purchased. In addition to the identification number, the tag typically includes the name of the government and a bar code of the identification number. Some systems rely on RF1D chips embedded into the control tags, which facilitate faster scanning.

GFOA recommends affixing the asset tab in a place where staff can locate it easily (i.e., not behind a desk that is against the wall), in the same location on similar assets, and in a location that minimizes the risk of the tag being removed or damaged.' The asset tag provides a proof of ownership and is used for inventory.

One of the assertions that management makes about the financial statements is existence--do the capital assets exist, and where are they located? An easy way to know if something exists is to actually see it, and the...