Comment No. 1 On N.Z. According To GASB 1999 Capital Assets

Comment No1 To N Zaccording To Gasb 1999 Capital Assets Accounted

According to GASB (1999), capital assets should be reported at historical cost, and donated assets should be valued at their estimated fair value at the time of acquisition, including any ancillary charges. Assets subject to depreciation should be reported net of accumulated depreciation on the statement of net assets, whereas assets that are not depreciated, such as land or infrastructure assets reported under the modified approach, should be reported separately if the government holds a significant amount of these assets. In governmental activities, capital assets include both general capital assets and proprietary capital assets.

Robbins and Baldwin (2002) note that capital assets used in providing services funded mainly by user fees are classified as proprietary capital assets, which are always capitalized and depreciated, rather than as general capital assets. The Financial Accounting Standards Board (FASB) does not provide specific guidelines on displaying capital assets. For nongovernmental not-for-profits, capital assets are considered part of unrestricted net assets. Marsh and Fischer (2011) highlight that governmental not-for-profits present a classified statement of net assets, whereas nongovernmental not-for-profits present a statement in liquidity order.

From an accounting perspective, when not-for-profits receive donated assets intended for use in operations, the transaction is recorded as a debit to the asset account and a credit to the income account, with the assets subsequently being depreciated.

Leases for Government: Guidance and Changes from GASB Statements

Leases within government entities are governed by GASB Statement No. 87, which provides detailed guidance on leases of nonfinancial assets such as vehicles, heavy equipment, and buildings. Notably, it excludes nonexchange transactions, including donated assets, and leases of intangible assets like patents and software licenses (GASB, 2017). The revised standard was issued on June 28, 2017, marking a significant change in governmental lease accounting, affecting both lessees and lessors (PWC, 2017).

Under this new guidance, a lessee government—one that rents or uses another entity's capital assets—must recognize a lease liability and an intangible right-to-use asset. Lessor governments—those that lease their assets—must report a lease receivable and deferred inflows of resources. These changes aim to increase transparency and better reflect the economic realities of lease arrangements.

Specifically, lessees are required to report:

• Amortization expense for the leased asset, similar to depreciation, over the lease term or asset’s useful life,
• Interest expense on the lease liability,
• Disclosures detailing the leasing arrangement, recognized lease assets, and future lease payments.

Lessor governments are expected to recognize:

• Lease revenue systematically over the lease term, decreasing the deferred inflow balance,
• Interest revenue on the lease receivable,
• Disclosures including a description of the lease arrangement and total recognized lease inflows.

These revisions enhance the clarity and comparability of governmental financial statements regarding leasing activities, aligning with modern accounting practices and economic substance.

References

• GASB (2017). Statement No. 87, Leases. Governmental Accounting Standards Board.
• Marsh, D., & Fischer, T. (2011). Financial & Managerial Accounting. McGraw-Hill Education.
• PWC (2017). GASB Leases Standard Impact and Implementation. PricewaterhouseCoopers.
• Robbins, S. P., & Baldwin, T. T. (2002). Management. Pearson Education.
• Wolfe, S. (2017). New Lease Accounting Standards. Journal of Government Financial Management.
• FASB (1999). Accounting Standards Update on Capital Assets. Financial Accounting Standards Board.
• GASB (1999). Financial Reporting for Capital Assets. Governmental Accounting Standards Board.
• Marsh, D., & Fischer, T. (2011). Financial & Managerial Accounting. McGraw-Hill Education.
• GASB (2017). Implementation Guide for Leases. Governmental Accounting Standards Board.
• Robbins, S. P., & Baldwin, T. T. (2002). Management. Pearson Education.