Capital Projects Funds - PowerPoint PPT Presentation

Capital projects funds l.jpg
Download
1 / 50

Capital Projects Funds Chapter 7 Learning Objectives Understand nature of and when to use Capital Projects Funds (CPFs) Understand typical CPF financing sources, how many CPFs are required, and life cycle of CPF Determine costs to be charged to CPF

I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.

Download Presentation

Capital Projects Funds

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


Capital projects funds l.jpg

Capital Projects Funds

Chapter 7


Learning objectives l.jpg

Learning Objectives

  • Understand nature of and when to use Capital Projects Funds (CPFs)

  • Understand typical CPF financing sources, how many CPFs are required, and life cycle of CPF

  • Determine costs to be charged to CPF

  • Understand accounting for long-term debt issued in CPF, including bond proceeds, premiums, discounts, bond issue costs, and bond anticipation notes

  • Understand basic budgeting and budgetary reporting for CPFs

  • Examine typical journal entries of CPF

  • Prepare CPF financial statements.


Why use capital projects funds l.jpg

Why Use Capital Projects Funds?

  • CPFs used to account for financial resources that are used to construct / acquire major, long-lived general capital facilities

  • Examples

    • Buildings

    • Highways & bridges

    • Storm water drainage systems


Typical capital asset acquisitions not using a cpf l.jpg

Typical Capital Asset Acquisitions Not Using a CPF

  • Routine capital asset purchases – school buses and other equipment

  • Capital leases

  • Purchases of fund-specific capital assets to be used in Proprietary Funds or Trust Funds


Cpf life cycle l.jpg

CPF Life Cycle


Financing capital projects l.jpg

Financing Capital Projects

  • General Long-term Debt

    • Account for the issuance in CPF

    • Debt Service Fund used to repay debt

  • Short-term borrowing (if necessary)

  • Interfund transfers

  • Interest and other revenues

  • Intergovernmental grants

  • Special assessments


Other notes on life cycle l.jpg

Other Notes on Life Cycle

  • CPF may last for several fiscal years – whatever if the life of the project

  • Expenditures are typically all capital outlay

  • Upon termination, any necessary funds returned to providers of financing and remainder transferred to service debt (DSF) or to General Fund


Budgeting for a capital project l.jpg

Budgeting for a Capital Project

  • Usually prepared for the life of the project – appropriations do not lapse at end of fiscal year

  • Separate budget may not be required if one project financed by single CPF and project costs are controlled through specifications


Interim financing l.jpg

Interim Financing

  • Authorized bond issue may take considerable time to issue

  • Interim financing used to fill the void – known as bond anticipation notes (BANs)

  • If properly used, may be long-term rather than short-term debt

    • BANs issued in conjunction with legally authorized bond issue

    • BANs are to be repaid (or have been repaid) from proceeds of bond issue


Interim financing comparison l.jpg

Interim Financing Comparison


Interim financing comparison continued l.jpg

Short-Term Borrowing

Recorded as liability of fund

Expenditure is for capital outlay

Results in artificial deficit in Fund Balance

BAN Financing

Recorded as OFS

Expenditure is for capital outlay

OFS and expenditure cancel out – no artificial deficit

Interim Financing Comparison(continued)


Project costs l.jpg

Project Costs

  • Overhead

    • General government overhead rarely charged unless reimbursable

    • Other overhead may be charged – costs from ISFs or incremental overhead from project

  • Interest

    • Short-term debt interest is project cost

    • Long-term debt interest not capitalized


Intergovernmental revenues l.jpg

Intergovernmental Revenues

  • Unrestricted grants usually recognized as revenues in General Fund or SRF – proceeds may be transferred to CPF

  • Restricted (capital) grants normally recognized as revenues in CPF, once it is earned (grantee incurred expenditures that are authorized for reimbursement)


Cpf case illustration l.jpg

CPF Case Illustration


Sign contract l.jpg

Sign Contract


Issue bonds at a premium l.jpg

Issue Bonds at a Premium

GASB requires that bonds be recorded at face value. Premiums (Other Financing Source), discounts (Other Financing Use), and bond issue costs (Expenditure – Debt Service) must be accounted for separately. Also, the bond is accounted for in the General Long-Term Liabilities accounts.


Supplemental order l.jpg

Supplemental Order

Supplemental order for fuel and materials for project – over and above the cost of the contract.


Financing received l.jpg

Financing Received

The State Grant is obviously not expenditure-driven – that is why it was all received up front. The funding from the General Fund (GF) may be received all at once or at various times, as is the case here.


Invoices received l.jpg

Invoices received


Notes on the invoices l.jpg

Notes on the Invoices

  • Fuel and materials had been encumbered for $48,000, but actual cost was $49,000

  • Machine Time is an allowable overhead cost

  • Construction in progress would be recorded in the General Capital Assets accounts


Notes on invoices continued l.jpg

Notes on Invoices(continued)

Retained Percentage

  • Done to insure completion of the project per the contract

  • Will be paid to contractor when final project is accepted

  • Alternate methods of insuring completion

    • Insurance policies

    • Certificates of Deposit (not subject to fair value rules from Chapter 5)

    • Bonding


Cash disbursements l.jpg

Cash Disbursements


Federal grant reimbursement l.jpg

Federal Grant Reimbursement


Note on federal grant reimbursement l.jpg

Note on Federal Grant Reimbursement

  • Could be billed each time allowable charge incurred

  • Amount received may be less than amount billed if Federal Government does not allow all expenditures


Interest on investments l.jpg

Interest on Investments


Closing entries l.jpg

Closing Entries

  • Year-end closing entries not particularly relevant to CPFs – more concerned with life of project than by end of year

  • Financial statements then become interim statements for CPFs


Options for closing entries l.jpg

Accounts Not Closed

Use worksheet to create pro forma closing entries which aren’t posted to accounts

Financial statements prepared from worksheet – just like normal

Accounts Closed

Use same routine as used in earlier chapters

Closing entries typically result in artificial deficits

Appropriated fund balance reported for unexpended amounts

Options for Closing Entries


Cpf financial statements l.jpg

CPF Financial Statements

  • Required

    • Balance Sheet

    • Statement of Revenues, Expenditures, and Changes in Fund Balance [Operating Statement]

  • Optional

    • Budgetary statement or schedule

    • Not required under GAAP but may be required by government, rating agencies, or bondholders


Balance sheet x l.jpg

Balance Sheet x

  • Note different sections in the Fund Balance section

    • Appropriated

    • Unappropriated

  • Unrealized estimated revenues or transfers from other funds are not assets – leads to Unreserved Fund Balance artificial deficit – need to explain deficit in notes to financial statements


Operating statement x l.jpg

Operating Statement x

  • Same format as used for other Governmental Funds

  • Negative excess causes some readers to think change in financial position is poor – artificial since much of financing comes from “other” sources


Completing the bridge year 2 l.jpg

Completing the Bridge: Year 2

Reverse some of adjusting/closing entries made in previous year – gets budgetary accounts back in balance


Invoices received32 l.jpg

Invoices Received


Cash receipts l.jpg

Cash Receipts


Cash disbursements34 l.jpg

Cash Disbursements


Settlement with the feds part i l.jpg

Settlement with the Feds: Part I


Settlement with the feds part ii l.jpg

Settlement with the Feds: Part II


Final settlements l.jpg

Final Settlements


Project operating statement l.jpg

Project Operating Statement

  • Governments usually report one year at a time

  • With completed project, reporting all revenues and expenditures could be useful – helps explain the artificial deficits from earlier year(s)

x


Other cpf issues l.jpg

Other CPF Issues

  • Bond anticipation notes

  • Investment of idle cash

  • Disposing of fund balance (deficit)

  • Reporting several projects in single fund

  • Combining CPF financial statements


Bond anticipation notes bans l.jpg

Bond Anticipation Notes (BANs)

Reasons for use

  • Time lag in issuing approved bond issue when cash is needed immediately to start the project

  • Interest rates on the decline, so postponing issuing bonds will save the government money


Issue the bans l.jpg

Issue the BANs

  • BANs were issued at par – since the term is short, this will usually be the case.

  • The issuance can be recorded as if it were long-term debt so long as two conditions exist:

  • The project has an authorized bond issue.

  • The government will repay the BANs from the bonds, once they are issued.

  • There will be a corresponding liability in the General Long-Term Liabilities accounts for the BANs.


Issue bonds same entry from earlier l.jpg

Issue Bonds(same entry from earlier)

Recall that as a result of this event, the Bonds Payable will be recorded in the General Long-Term Liabilities accounts.


Repay the bans l.jpg

Repay the BANs

At the same time the BAN principal will be removed from the General Long-Term Liabilities accounts.


Investments arbitrage l.jpg

Investments & Arbitrage

  • A significant amount of cash can flow through a CPF – cash flow planning is a must

  • Issuing bonds early in project may be mandated – need to invest proceeds to maximize interest


Arbitrage l.jpg

Arbitrage

The difference in the amount earned on investing bond proceeds and amount paid in interest on the bonds – since most governments issue tax-exempt debt, this amount can be significant.


Arbitrage and taxes l.jpg

Arbitrage and Taxes

  • Tax rate on arbitrage is simple: 100%

  • Penalty rate on not paying tax correctly is almost as simple: 50%

  • Rules are quite complex: governments must manage money and watch arbitrage requirements to minimize problems


Remaining fund balance l.jpg

Remaining Fund Balance

  • If cash is left over when project is complete, difference is usually transferred to DSF to assist in repaying amounts borrowed

  • If project is in deficit (not enough cash)

    • Additional transfers needed from other funds

      OR

    • Scope of the project must be cut back


Reporting multiple projects l.jpg

Reporting Multiple Projects

  • Government may elect to use single fund to report many projects

  • Easiest way to combine information is to prepare separate statements for each project, then consolidate for reporting purposes


Combining cpf statements l.jpg

Combining CPF Statements

  • Used when government uses separate CPF for each project

  • Individual statements must still be prepared to complete other statements included in CAFR (see CAFR preparation process in Chapter 2)

  • Combining statements prepared to facilitate this process – may be part of other combining statements for all governmental funds


City of orlando fl example l.jpg

City of Orlando, FL, Example

  • Part of a larger statement for all nonmajor Governmental Funds

  • Other funds included are Community Redevelopment Agencies (combine features of SRFs, DSFs, and CPFs) and Special Revenue Funds

  • Total (not shown) is for all nonmajor Governmental Funds

x


  • Login