Reporting Requirements for Annual Financial Reports of State Agencies and Universities
In accordance with GASB 34, paragraph 22, state agencies must report depreciation expense on the statement of activities. Capitalized assets are depreciated over their estimated useful lives unless they are inexhaustible. For a definition of an inexhaustible asset, see the Works of Art and Historical Treasures section of the SPA Process User’s Guide.
The straight-line depreciation method (historical cost less residual value, divided by useful life) is used by all agencies. Depreciation data is calculated and stored in SPA by the Comptroller’s office for each eligible asset. Agencies already calculating depreciation expense may use that information for their AFR in lieu of the SPA centralized calculation.
|Depreciable Assets||Non-Depreciable Assets|
|Buildings and Building Improvements (includes historical buildings used in the operations of the state)||Historical buildings not used in the operations of the state|
|Facilities and Other Improvements||Land and Land Improvements|
|Infrastructure – State Highway System|
|Personal Property||Historical Arts and Treasures|
|Leasehold Improvements||Library Books/Materials (historical/rare)|
|Library Books/Materials (professional)|
Capital assets not being depreciated are reported separately from capital assets being depreciated and their associated accumulated depreciation.
A depreciable entity is defined as the sum of financial transactions affecting a unique component of a unique property number within a single fiscal year. Each depreciable entity exists as a “layer” of the component so depreciation can be correctly charged to the component. Each depreciable entity constitutes a separate record on the depreciable entity table in SPA.
The depreciable entity represents the level where depreciable factors will be stored such as:
- Capitalization indicator
- Useful life
- Historical indicator
- Residual percentage
- Depreciation indicator
Depreciation is calculated at the depreciable entity level and allocated between all funds of a component based on each fund’s percentage of the component’s value.
Each depreciable entity may have most of the same depreciable factors but different beginning points for depreciation calculations. Therefore, for a single component, one depreciable entity (layer) may be fully depreciated while another depreciable entity (representing a later fiscal year) may still be depreciating.
Determining Whether to Capitalize a Depreciable Entity
Depreciable entities may or may not be capitalized based on criteria established by the Comptroller’s office. For all components, property is evaluated against capitalization thresholds using the sum of all financial transactions that have effective dates within the same fiscal year and are within a unique property number.
SPA assigns the capitalization indicator when a financial transaction is entered. SPA sums all existing depreciable entities for a property number across all components that exist for the fiscal year that the financial transaction affects. This sum is compared to the capitalization threshold established as follows:
- If the sum (as calculated above) is equal to or greater than the threshold, each depreciable entity in the summation is capitalized.
- If the sum (as calculated above) is less than the threshold, each depreciable entity in the summation is not capitalized.
If a financial transaction decreases the total value of depreciable entities with the same fiscal year for a property, one of two situations can occur:
- When the decrease occurs in the same fiscal year as the initial creation of the depreciable entity, SPA sums all existing depreciable entities for a property number across all components that exist for the fiscal year the financial transaction affects.
- If the sum does not meet the capitalization thresholds, all depreciable entities in the summation are inventoried and not capitalized.
- If the sum does meet the capitalization thresholds, all depreciable entities in the summation are capitalized.
- Decreases in value that occur outside of the fiscal year the depreciable entity was created does not change the capitalization indicator from capitalized to inventoried. Therefore, if a capitalized depreciable entity was created in a prior fiscal year, it is capitalized over its remaining life regardless if subsequent decreases in value cause the asset’s value to fall below capitalization thresholds.