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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
)