Have you ever wondered what the GASB is? The GASB is a government organization that sets standards for accounting and financial reporting for some public sector agencies. One of those standards is GASB 34. This standard ensures state and local governments maintain their capital assets and provides long-term depreciation on the way to decreasing their net asset balance.
Although it may be confusing, with this guide we’ll teach you everything you need to know about the basics of GASB 34!
The Basics of GASB 34
The Governmental Accounting Standards Board (GASB) was established in 1984 to provide standards of financial accounting and reporting for state and local governments in the United States. One of the standards they have created is GASB 34. This standard ensures that state and local governments maintain their capital assets by providing long-term depreciation on the way to decreasing their net asset balance.
GASB 34 requires that when an item is bought, its cost should be allocated over its useful life, which is usually determined by taking the estimated useful life of the asset and breaking it up into segments based on years or months. By doing this, you can then calculate how much depreciation should be recorded each year or month.
Capitalization is an accounting method where an item is recorded as an asset on the balance sheet rather than as an expense of the current period.
When you are writing off your assets via depreciation, you are effectively seeing a decrease in your net asset balance without actually selling any assets.
What are Capital Assets?
GASB 34 defines capital assets as tangible or intangible assets that are used in operations and that have initial useful lives extending beyond a single reporting period, generally one year. Depreciable capital assets are those assets that decline in service potential over time. Examples are buildings and improvements, vehicles, machinery, and equipment.
Generally, an asset of nonexpendable, tangible personal property having a useful life of more than one year and an acquisition cost of $5,000 or greater is considered to be a Capital Asset. Assets with an acquisition cost of less than $5,000 can be considered supplies and are allowable as direct costs but are generally recommended to be tracked on an inventory of Fixed Assets if their acquisition cost is over $1000 or the item is easily pilferable. To be clear, all capitalized items should be inventoried, but not all inventory items need to be capitalized.
How to Stay Compliant with GASB 34
GASB 34 is a very simple, yet important, standard that ensures governments maintain their capital assets. It also provides long-term depreciation of the net asset balance by decreasing it over time. Here are some tips on how to stay compliant with GASB 34:
1) Establish clear capitalization and inventory thresholds for your district.
2) Always keep track of the capital asset information.
3) Track the cost and accumulated depreciation for each asset.
4) Keep track of the residual value of each asset.
5) Determine which depreciation accounting method you want to use (i.e., straight line, declining balance).
Remember: Capital assets should be reported each year net of total accumulated depreciation on the Statement of Net Assets. Non-capital assets should be reported separately.
Conclusion
When it comes to managing your capital assets, being precise can provide valuable insights for future planning and guidance. By following the GASB 34 rules you will be in compliance with government guidelines and mandates while also knowing what you own, how old they are, and what future purchases might be needed. With so many benefits to proper fixed asset management under the GASB approach, compliance becomes second nature while budgeting decisions become easier when based on sound data.
