Chapter 4.1.5
GAAP Adjustments and Reclassification Entries
Assets: Capital Assets, Depreciation and Amortization
1 GAAP Policies and Procedures
Capital assets are stated at cost or estimated historical cost, if purchased, or if donated, at acquisition value (an entry price)* at date of donation. Capital assets, including infrastructure and intangible assets, with an original value of $5,000 or more and with a useful life over one year, are capitalized. Such cost includes, where applicable, interest capitalized as part of the cost of constructed capital assets. Title to all assets, whether purchased, constructed, or donated is held by the State. Although the title is not with the University for land and buildings, the University has exclusive use of these assets and is responsible for the maintenance of these assets and thus has recorded the cost of these assets in the accompanying financial statements. Capital assets, with the exception of land and land improvements, works of arts and historical treasures, construction work in progress, and certain intangible assets, are depreciated or amortized on a straight-line basis over their estimated useful lives, which ranges from 3 to 45 years. Library books, unless considered rare collections, are capitalized and depreciated over a 10-year period. Periodicals and subscriptions are expensed as purchased. Works of art and historical treasures are valued at cost, if purchased, or the acquisition value (an entry price)* at the date of donation, if contributed. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend its life are expensed as incurred.
Depreciation and amortization expense is shown separately in the Statement of Revenues, Expenses and Changes in Net Position rather than being allocated among other categories of operating expenses.
*Effective July 1, 2015, GASB Statement No. 72 requires measurement at acquisition value (an entry price) for donated capital assets, donated works of art, historical treasures, and similar assets and capital assets received in a service concession arrangement. The acquisition value is the price that would be paid to acquire an asset with equivalent service potential in an orderly market transaction at the acquisition date, or the amount at which a liability could be liquidated with the counterparty at the acquisition date.
2 Relevant Accounting Literature
GASB Statement No. 34, Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments
GASB Statement No. 37 Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments: Omnibus – an amendment of GASB Statements No. 21 and No. 34
GASB Statement No. 42 Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries
GASB Statement No. 51 Accounting and Financial Reporting for Intangible Assets
GASB Statement No. 62 Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements
GASB Statement No. 72 Fair Value Measurement and Application
3 Objectives of GAAP Adjustments
The objectives of the GAAP adjustments (through Asset Management module or manual GAAP entries) necessary at June30th related to capital assets, depreciation/amortization are:
· To record capital asset additions not recognized in legal basis accounting.
· To record capital asset disposal/retirement not recognized in legal basis accounting.
· To record depreciation/amortization of the capital assets.
· To capitalize interest expense that meets certain criteria.
· To capitalize pollution remediation obligation expenditures as part of the cost of a capital asset when it meets certain criteria.
· To recognize capital asset impairment in the accounting books.
4 GAAP Accounting Treatment And Journal Entries
4.1 Relevant GAAP Accounts
711207 – Capital assets, net
713811 – Net investment in capital assets
722005 – Depreciation
The campus must record the cost of all capital assets that it owns. This includes the cost of all qualified library materials and all capital assets that meet the definition of “infrastructure” (effective FY2001-2002) or “intangible assets” (effective FY2009-2010). Campuses are also required to capitalize the costs incurred by the Office of the Chancellor (CO) related to construction projects managed on behalf of the campuses by the CO. These costs are provided to the campuses via annual Accounting Department Notice of Accounting Transactions (ADNOAT) from the CO.
See Chapter 13 Capital Assets Guide, for detailed information on establishing useful lives, asset category definitions, capitalization thresholds, and methods for depreciation/ amortization, guidelines for leasehold improvements and construction work in progress as well as impairment of capital assets.
The Integrated CSU Administrative Manual (ICSUAM) Policy 3150.01, Administration of University Property, Section 601 states that all campus fixed asset accounting entries will be recorded in and reported from the State Controller Office (SCO) Fund 0997, CSU Fund 501, General Fixed Assets Memo Fund.
The PeopleSoft Asset Management module is used to track capital assets. As the campus enters relevant information in the Asset Management module, the journal entry creation to the CSU Fund 501 for both legal reporting requirement and the reclassification entries required in GAAP are automated through the usage of the accounting entry templates and the derivation from campus to xxCSU to xxGAP business unit.
4.2 Current Year Additions
The expenditures made by the campus for capital assets during the current year (acquisition cost of at least $5,000) are recorded in the legal accounting books when paid. The entries related to capital asset additions are as follows:
- Derived GAAP Entry –in the fund financing the purchase
Account / Account Name / Fund
(Net Position) / Program / Class
(CSU Fund) / Amount
722004 / Supplies and other services / 881-Unrestricted / 07 / 532 / $xxx
711102 / Short-term investment / 881-Unrestricted / 90 / 532 / ($xxx)
Journal Description / Accounting records derived from legal for recording the payment for the acquisition of capital asset.
- Derived GAAP Entry –if the capital asset is acquired by donation
Account / Account Name / Fund
(Net Position) / Program / Class
(CSU Fund) / Amount
722004 / Supplies and other services / 834-Restricted Expendable-Capital Projects / 07 / 550 / $xxx
711102 / Grants and gifts, capital / 834-Restricted Expendable-Capital Projects / 50 / 550 / ($xxx)
Journal Description / Accounting records derived from legal for recording the acquisition of capital assets through donation.
- Derived Asset Management automated Legal Memo Journal Entry in CSU Fund 501
Account / Account Name / Fund
(Net Position) / Program / Class
(CSU Fund) / Amount
711207 / Capital assets, net / 811-Net investment in capital assets / 90 / 501 / $xxx
713811 / Net investment in capital assets / 811-Net investment in capital assets / 90 / 501 / ($xxx)
In order to eliminate the double counting of the cost or carrying value of an acquired, constructed, or donated capital asset, Asset Management will generate an elimination entry by reflecting the transaction as a transfer of resources between net position categories.
- Asset Management Automated GAAP Entry
Account / Account Name / Fund
(Net Position) / Program / Class
(CSU Fund) / Amount
713811 / Net investment in capital assets / 811-Net investment in capital assets / 90 / 501 / $xxx
724004 / Transfers to/from other CSU campuses, net / 811-Net Investment in Capital Assets / 13 / 501 / ($xxx)
Account / Account Name / Fund
(Net Position) / Program / Class
(CSU Fund) / Amount
724004 / Transfers to/from other CSU campuses, net / 881-Unrestricted / 13 / 532 / $xxx
722004 / Supplies and other services / 881-Unrestricted / 07 / 532 / ($xxx)
Construction Work In Progress (CWIP) Additions
CWIP is being tracked outside of the Asset Management module. Entries to CWIP are initially recorded in the legal memo journal entry in CSU Fund 501 and a GAAP manual adjustment is made to reverse the credit to Net Investment in capital asset.
- Derived GAAP Entry –in the fund financing the purchase
Account / Account Name / Fund
(Net Position) / Program / Class
(CSU Fund) / Amount
722004 / Supplies and other services / 881-Unrestricted / 07 / 221 / $xxx
711102 / Short-term investment / 881-Unrestricted / 90 / 221 / ($xxx)
Journal Description / Accounting records derived from legal for recording the payment for the acquisition of capital asset.
- Derived GAAP Entry – in CSU fund 501
Account / Account Name / Fund
(Net Position) / Program / Class
(CSU Fund) / Amount
711207* / Capital assets, net / 811-Net investment in capital assets / 90 / 501 / $xxx
713811 / Net investment in capital assets / 811-Net investment in capital assets / 90 / 501 / ($xxx)
Journal Description / Accounting records derived from legal for recognizing the CWIP additions to CSU Fund 501.
* Use FIRMS Object Code 110008 Construction Work in Progress.
- Manual GAAP Entry – in the fund financing the purchase
Account / Account Name / Fund
(Net Position) / Program / Class
(CSU Fund) / Amount /
724004 / Transfers to/from other CSU campuses, net / 881-Unrestricted / 13 / 221 / $xxx
722004 / Supplies and other services / 881-Unrestricted / 07 / 221 / ($xxx)
Journal Description / Entry to reverse the supplies and other services that are related to construction work in progress.
- Manual GAAP Entry – in CSU fund 501
Account / Account Name / Fund
(Net Position) / Program / Class
(CSU Fund) / Amount /
713811 / Net investment in capital assets / 811-Net investment in capital assets / 90 / 501 / $xxx
724004 / Transfers to/from other CSU campuses, net / 811-Net Investment in Capital Assets / 13 / 501 / ($xxx)
Journal Description / Entry to reverse the net investment in capital assets related to construction work in progress.
During the construction phase, the construction costs for the year should be recognized regardless of the timing of the billing from the vendors. All construction costs, billed and unbilled as long as construction related services has been rendered, must be added to CWIP as of year-end. In addition, it is common for construction projects to have retention clauses in their agreements with contractors. In this case, the retention payable must be recognized as of year-end. See sample illustration of CWIP additions journal entries in Section 5.4.
4.3 Completed Capital Asset Projects
When capital assets are completed (see Chapter 13 Capital Asset Guide on when a project is considered complete), CWIP outstanding balance in the legal memo journal entry needs to be zeroed out as it will duplicate the capital asset addition automatically entered by Asset Management.
- Derived GAAP Entry –in CSU fund 501
Account / Account Name / Fund
(Net Position) / Program / Class
(CSU Fund) / Amount
713811 / Net investment in capital assets / 811-Net investment in capital assets / 90 / 501 / $xxx
711207* / Capital assets, net / 811-Net investment in capital assets / 90 / 501 / ($xxx)
Journal Description / Accounting records derived from legal to zero out CWIP balance in CSU Fund 501.
* Use FIRMS Object Code 110008 Construction Work in Progress.
When the information about the completed capital asset are transferred to the Asset Management module, it creates automated entries as if such capital assets are purchased. Please refer to the section 4.2 Current Year Additions section for the derived AM entries.
In order to reverse the entry made by AM crediting supplies and services because portions of the expenses capitalized in CWIP have occurred over a series of fiscal years, manual GAAP adjusting entries need to be performed.
- Manual GAAP Entry – in the fund financing the purchase
Account / Account Name / Fund
(Net Position) / Program / Class
(CSU Fund) / Amount /
722004 / Supplies and other services / 881-Unrestricted / 07 / 221 / $xxx
724004 / Transfers to/from other CSU campuses, net / 811-Net Investment in Capital Assets / 13 / 221 / ($xxx)
Journal Description / Entry to reverse the supplies and other services entry made by AM in relation to the completed CWIP.
- Manual GAAP Entry – in the CSU Fund 501
Account / Account Name / Fund
(Net Position) / Program / Class
(CSU Fund) / Amount /
724004 / Transfers to/from other CSU campuses, net / 811-Net Investment in Capital Assets / 13 / 501 / $xxx
713811 / Net investment in capital assets / 811-Net investment in capital assets / 90 / 501 / ($xxx)
Journal Description / Entry to reverse the net investment in capital asset entry made in legal to zero out CWIP.
Note: As mentioned above, all construction costs incurred must be capitalized in the same fiscal year. In the event that capitalizable costs were not accrued and the capital asset has started depreciation, adjust the capital assets and accumulated depreciation in Asset Management and ledger.
Sample Illustration – CWIP Addition and Completed Capital Project
Assumptions:
The University engages a contractor to construct a building for a total of $600,000 to be completed in three years. Assume the contractor makes a progress claims/billings based on assessment work to date. Campus agrees with the figures but contractually needs to retain 10% against satisfactory completion. The agreement quotes a retention rate of 10% so to build a retention reserve.
Capital Asset / Retention / PayableYear 1 / 1st Progress Billing YTD 6/30/X1 / $ 200,000 / $ 20,000 / $180,000
Year 2 / 2nd Progress Billing YTD 6/30/X2 / $ 200,000 / $ 20,000 / $180,000
Year 3 / Final Billing YTD 6/30/X3 / $ 200,000 / $ - / $240,000
$ 600,000 / $600,000
In the following pages are sample journal entries under the legal-basis accounting and GAAP-basis accounting to record the above transactions. Please note that these exclude entries to record payments of accounts payable.
Year 1
Legal Basis / GAAP BasisCSU fund 221 / Year 1
Account / Account Description / CSU Fund / Amount / Account / Account Description / CSU Fund / Prog / NP / Amount
607031 / Capital-Construction Contract / 221 / $200,000 / 722004 / Supplies and Services / 221 / 07 / 881 / $200,000
201001 / Accounts Payable / 221 / ($180,000) / 712101 / Accounts Payable / 221 / 90 / 881 / ($180,000)
263090 / Other Long-term Liabilities / 221 / ($20,000) / 712208 / Other liabilities, noncurrent / 221 / 90 / 881 / ($20,000)
To record CWIP and CWIP Retention Accrual / Accounting records derived from legal for recognizing the CWIP and CWIP Retention Accruals
Manual JE
Account / Account Description / CSU Fund / Prog / NP / Amount
724004 / Transfers to/from other CSU campuses, net / 221 / 13 / 881 / $200,000
722004 / Supplies and other services / 221 / 07 / 881 / ($200,000)
Jrnl Desc / GAAP Entry to reverse the supplies and other services that are related to construction work in progress.
CSU fund 501 / Year 1
Account / Account Description / CSU Fund / Amount / Account / Account Description / CSU Fund / Prog / NP / Amount
110008 / Construction Work-in-Progress / 501 / $200,000 / 711207 / Capital assets, net / 501 / 90 / 811 / $200,000
*302025 / Investment General Fixed Assets - Trust Fund / 501 / ($200,000) / 713811 / Net Investment in capital assets / 501 / 90 / 811 / ($200,000)
To recognize CWIP Addition to CSU Fund 501 in Year 1. / Accounting records derived from legal for recognizing the CWIP additions to CSU Fund 501
*Select the appropriate FOC based on the funding source.
Manual JE
Account / Account Description / CSU Fund / Prog / NP / Amount
713811 / Net Investment in capital assets / 501 / 90 / 811 / $200,000
724004 / Transfers to/from other CSU campuses, net / 501 / 13 / 811 / ($200,000)
Jrnl Desc / To reverse the net investment in capital assets related to construction work in progress and recognize transfers in to offset transfers out in CSU fund 221.
Year 2