Government Accounting

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ACCT 505 Fall 2015

Certain materials used with

permission of Pearson Prentice Hall

Chapter 7Capital Project Funds

Instructor: Janice H. Fergusson

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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

!uildings

Highwa"s # $ridges %torm water drainage s"stems

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Financing Capital Projects

eneral ong-term *e$t

.ccount for the issuance in CPF *e$t %ervice Fund used to repa" de$t

%hort-term $orrowing )if necessar"+

nterfund transfers

nterest and other revenues ntergovernmental grants

%pecial assessments

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%udgeting $or a Capital Project

(suall" prepared for the life of the project

appropriations do not lapse at end of fiscal"ear

%eparate $udget ma" not $e required if one

project financed $" single CPF and project

costs are controlled through specifications

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Interi& Financing Co&parisonShort-Term Borrowing &ecorded as lia$ilit" of

fund

Expenditure is for

capital outla"

&esults in artificialdeficit in Fund !alance

BAN Financing

&ecorded as 3F%

Expenditure is for

capital outla"

3F% and expenditure

cancel out no artificialdeficit

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Project Costs

3verhead

eneral government overhead rarel" chargedunless reim$ursa$le

3ther overhead ma" $e charged costs from%Fs or incremental overhead from project

nterest %hort-term de$t interest is project cost

ong-term de$t interest notcapitali0ed

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Intergo'ern&ental (e'enues

(nrestricted grants usuall" recogni0ed as

revenues in eneral Fund or %&F proceeds ma" $e transferred to CPF

&estricted )capital+ grants normall"

recogni0ed as revenues in CPF, once it is

earned )grantee incurred expenditures thatare authori0ed for reim$ursement+

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CPF Case Illustration

Project Financing

'otal Percent

Federal rant 4,566,666 76

%tate rant 866,666 56

!ond issue 966,666 :6

'ransfer from eneral Fund :66,666 46

'3'. :,666,666 466

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%udget entry

)sti&ated (e'enues * Federal +rant

)sti&ated (e'enues * ,tate +rant

)sti&ated -F, * %onds)sti&ated -F, * Trans$er $ro& +Fppropriations * %ean Co. Contract

ppropriations * #a/or

ppropriations * 0achine Ti&e

ppropriations * Fuel 0aterials

123442444

5442444

6442444442444

328442444

442444

3442444

1442444

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,ign Contract

Encum$rances Contract

Encum$rances 3utstanding

5,766,666

5,766,666

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Issue %onds at a Pre&iu&

Cash

3F% !ond Principal

3F% !ond Premium

944,666

966,666

44,666

Expenditures !ond ssue Costs

Cash

5,666

5,666

2et Position

!onds Pa"a$le

!ond Premium

944,666

966,666

44,666

)$$ect on +C9+#T# accounts:

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,upple&ental -rder

Encum$rances Fuel # ;at:6,666

866,666

4:6,666

'he %tate rant is o$viousl" not expenditure-driven that is wh"

it was all received up front,666

Expenditures Contract

Expenditures Fuel # ;at9?,666

=6?,666

896,666

766,666

:6,666

4>6,666

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Cash is/urse&ents

@ouchers Pa"a$le

Expenditures a$or

Cash

4,866,=66

459,666

4,>59,=66

)$$ect on +C9+#T# accounts:

Construction in Progress )CP+

2et Position

459,666

459,666

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,ettle&ent ;ith the Feds: Part I

.llowa$le Costs

!ean # Co< Contract

a$or

;achine 'ime

Fuel # ;aterials

'otal .llowa$le Costs

ess nterest Earned

.llowa$le Costs

5,766,666

589,666

4?9,666

95,666

5,9=6,666

:6,666

5,956,666

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,ettle&ent ;ith the Feds: Part II

.llowa$le costs

Federal rant %hare

&eim$ursement from Federal overnmentFederal rant &evenue recogni0ed to date

*ue to Federal overnment

5,956,666

76

4,48?,6664,49?,666

:6,666

&evenues Federal rant *ue to Federal overnment

:6,666:6,666

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Final ,ettle&ents

Contracts Pa"a$le &etainage

*ue to Federal overnment

Cash

456,=66

:6,666

4=6,=66

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CPF Fund %alance trans$erred to ,F

3F( 'ransfer to *%F

Cash

7>,666

7>,666

Fund %alance

6112444

>42444742444

5642444

32444

121424441842444

12>512444 42444

1742444 1362444 42444

872444

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Project -perating ,tate&ent

overnments usuall" report one "ear at a

time

Aith completed project, reporting all

revenues and expenditures could $e useful

helps explain the artificial deficits from earlier

"ear)s+

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-ther CPF Issues

!ond anticipation notes

nvestment of idle cash *isposing of fund $alance )deficit+

&eporting several projects in single fund

Com$ining CPF financial statements

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%ond nticipation "otes @%"sA

&easons for use

'ime lag in issuing approved $ond issuewhen cash is needed immediatel" to start the

project

nterest rates on the decline, so postponing

issuing $onds will save the governmentmone"

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Issue the %"s

Cash

3F% !.2 Principal

=66,666

=66,666

%"s issued at par * since the ter& is short2 this is usually the case.

Issuance can /e recorded as long9ter& i$ t;o conditions e

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Issue %onds

Cash

Expenditures !ond ssue Costs

3F% !ond Principal3F% !ond Premium

969,666

5,666

966,66644,666

Recall that as a result of this event, the Bond Issue Costs,Bond Payable, and Bond Premium are recorded in theGCA and GLTL accounts.

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(epay the %"s

3F( !.2 Principal &etirement

Expenditures nterest on !.2s

Cash

=66,666

:6,666

=:6,666

At the same time the BAN rincial !ill be removed from theGeneral Lon"#Term Liabilities accounts.

!.2s Pa"a$le 2et Position

=66,666=66,666

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In'est&ents r/itrage

. significant amount of cash can flow

through a CPF cash flow planning is a

must

ssuing $onds earl" in project ma" $e

mandated need to invest proceeds to

maximi0e interest

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(e&aining Fund %alance

f cash is left over when project is complete,

difference is usuall" transferred to *%F to

assist in repa"ing amounts $orrowed

f projectis in deficit )not enough cash+ .dditional transfers needed from other funds

3& %cope of the project must $e cut $ac1

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(eporting 0ultiple Projects

overnment ma" elect to use single fund to

report man" projects

Easiest wa" to com$ine information is to

prepare separate statements for each

project, then consolidate for reporting

purposes

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)nd o$ Chapter 7

)