The Government Accounting Standards Board (GASB) issues implementation guides that include questions and answers to clarify, explain, or elaborate on GASB Statements. The Implementation Guide No. 2021-1 includes significant modification to a previously answered question related to the application of a government’s capitalization policy.
Question 5.1 has not changed from the original question; however, the answer has been modified significantly. The amended response could cause significant modification to governments’ capital asset records.
Question 5.1 is as follows: Should a government’s capitalization policy be applied only to individual assets or can it be applied to a group of assets acquired together? Consider a government that has established a capitalization threshold of $5,000 for equipment. If the government purchases 100 computers costing $1,500 each, should the computers be capitalized?
The chart below compares the original and amended answers.
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Original Response |
Amended Response |
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It may be appropriate for a government to establish a capitalization policy that would require capitalization of certain types of assets whose individual acquisition costs are less than the threshold for an individual asset. Computers, classroom furniture, and library books are assets that may not meet the capitalization policy on an individual basis yet might be considered material collectively. Computers, classroom furniture, and library books are examples of asset types that may not meet a capitalization policy on an individual basis yet could be significant collectively. In this example, if the $150,000 aggregate amount (100 computers costing $1,500 each) is significant, the government should capitalize the computers. |
A government should capitalize assets whose individual acquisition costs are less than the threshold for an individual asset if those assets in the aggregate are significant. Computers, classroom furniture, and library books are examples of asset types that may not meet a capitalization policy on an individual basis yet could be significant collectively. In this example, if the $150,000 aggregate amount (100 computers costing $1,500 each) is significant, the government should capitalize the computers. |
Governments will no longer be able to immediately dismiss capitalization for asset purchases under the capitalization policy threshold when those assets could potentially be significant when evaluated collectively.
Governments should begin assessing this change immediately. Purchasing information for certain capital asset-like purchases will need to be reviewed, and management’s interpretation on how to handle aggregated purchases will need to be documented. The amended guidance may require a change to the capitalization policy.
The directive in Question 5.1 is effective for periods beginning after June 15, 2023. If a government determines that changes to their capital assets are required based on the amended guidance, those changes are to be retroactively applied by restating all prior periods presented.