Tangible Capital Assets Alberta Regional GFOA Workshops. Series Two January 2008. Workshop Overview. Provincial and local updates Capital policy Impact on budgets and financial reports Transition Examples 2007 Note Q & A/small groups. TCA Project Update – Provincial.
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Tangible Capital AssetsAlberta Regional GFOA Workshops
What is your project status?
Capital Policy Framework
Brings a non-cash dimension to financial reporting and budgeting
Full Accrual Accounting
This change does not require a change in behaviour but it may cause you to change because there will be more information available.
Statement of Operations
Each municipality will be different; some factors determining impact are:
An Arena built in 1940 has a 2006 appraisal cost of $10M and a land value of $5M. Component breakdown is as follows:
Description% of costUseful LifeRemainingUseful Life
Building Envelope 50% 60 years0 years
Roof 10% 20 years2 years
Mechanical 10% 10 years8 years
Interior Fit – outs 20% 10 years2 years
(includes ice sheet)
Exterior Fit – outs 10% 25 years20 years
There is no salvage value.
Index for in-service year/index for current year
Current cost * Discount Factor
1989 Discount Factor: 70.9/112.3 = 0.631
Roof deflated cost: $1M * 0.631 = $631,000
Discount Factors for Example
What threshold(s) to use
Thresholds in ‘Toolkit’
Useful life considerations
Asset age exceeds useful life
Discount Factor Used
Third Party Evidence
Consistent with methodology used by qualified third party
Sound industry practice
Significant amendment to the financial statements in the first year of reporting due to:
Note: Journal entries are always balanced.
Adjust Opening Balances of GL
CR: Tangible capital assets
DR: Capital debt
DR: Equity in TCA – Prior period adjustment
DR: Tangible capital assets (historical cost)
CR: Accumulated amortization
CR: Capital debt
CR: Equity in TCA – Prior period adjustment
Equity in TCA$8,000
TCA historical cost$50,000
Equity in TCA$8,000
Capital debt $2,000
Equity in TCA$18,000
Current Terms (Sampleford)
New Term (used in examples)
Useful life12 years
Amortization methodStraight line
(assume ½ year rule for purchase and disposal years)1st year$10,000 (50%)
TCA asset registerMajor class Machinery & Equipment
Minor class Fire Equipment
Sub class Pumper truck
Assume that there are links between General Ledger/Accounts Payable/TCA.
DRFire department – equipment amortization expense
CRAccumulated amortization – Machinery & Equipment
(1st year - $10,000, remaining years - $20,000, disposal year if year 13 - $10,000)
CRFire department – equipment amortization expense
Note: These entries demonstrate what will normally be done automatically by your financial system.
If funds are normally collected annually for future purchases, i.e. transfer to capital:
If debt is normally used:
Net book value$ 70,000
Assume sold in year 13
Amortization entry in year 13 (50/50 rule)
DRFire Dept – Equipment amortization expense$10,000
CRAccum. Amortization – M & E$10,000
Sold for $75,000.
CRProfit on disposal of TCA$ 15,000
Annual Surplus and Accumulated Surplus will increase $15,000.
(TCA ($300,000) less Accum. Amortization ($240,000) less Cash ($75,000) results in a credit of $15,000 to Accumulated Surplus.
Building originally recorded at $5 M with a useful life of 40 years.
Roof needs to be replaced in 2009:
DRAccumulated amortization$ 350,000
DRLoss on disposal of roof$ 350,000
CRTCA – Building $ 700,000
DRTCA – Building – Roof$1,100,000
Loss on Statement of Operations
Decrease in Accumulated Surplus
Old roof: $700,000/40 * 50%$ 8,750
New roof: $1,100,000/20*50%$27,500
Total 2009 amortization expense$36,250
2009 Accumulated amortization$27,500
Statement of Operations will reflect the changes in Accumulated Surplus in the annual deficit/surplus.
The municipality has 20 km of paved roads. They have been recorded as networks; a separate network each for the asphalt, subsurface and right of way. The municipality plans to gradually segment each network when rehabilitation work is done.
Remove asphalt component from TCA records
(Asphalt – 2 km * 200,000 historical cost)
CRTCA – Engineered Structures – Roads - Asphalt$400,000
Disclose for each major category of TCA and in total:
Beginning and end of period
Cost, accumulated amortization, net carrying amount
For the period
Additions, disposals, write-downs, amortization
Amortization method, period/rate
Section 6, TCA Implementation Toolkit
TCA GL accounts are not revised until implementation.
ii. List of TCA Classes
iii. Table of Financial Information
How will accumulated amortization be tracked for asset classes completed prior to implementation?
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