How Does Depreciation Affect Government Offices?

Depreciation affects everyone. However, government agencies have to account for fixed assets differently than other organizations. Intrinsically, that means that they account for depreciation differently than for-profit businesses.

There are regulations called the Governmental Accounting Standards Board (GASB). GASB is enforced through the audit process, or by state law. These regulations have established financial reporting standards for state and local governments.

GASB applies to public authorities, public hospitals, and public universities as well. As part of the law, these statements outline ways to reduce financial inconsistencies and help companies keep regulations.

The GASB rule that applies most to governmental offices is No. 34. - the rule on primary financial statements.

GASB Statement No. 34 and Depreciating Government Assets

Statement No. 34 requires government entities to use accrual accounting to depreciate their capital assets.

It defines capital assets as having a longer useful lifespan than can be measured in one reporting period. These assets include the following:

• Buildings
• Easements
• Historical Treasures
• Land
• Land Improvements
• Machinery and equipment
• Transportation and Utility Structure
• Vehicles
• Works of Art

Reporting the value of these assets is a necessary part of reporting depreciation. Therefore, you cannot do one without the other.

Capital assets must be reported at historical cost. Donated assets are to be recorded at the market value upon the time received.

Assets that can be depreciated get reported on net asset statements. These get tracked separately from non-depreciable assets. Three categories display governmental assets. They include:

• Capital assets net related debt
• Restricted assets, including ones that have external constraints on their use.
• Unrestricted assets

Shared assets must have shared depreciation values.

Assets that have specific functions but also include depreciation expenses must be included in direct costs. Direct expenses include ones tied to specific purposes. Additionally, they include ones that are connected to governmental services or departments.

Depreciating Governmental Assets

Governmental assets use straight-line and declining balance depreciation methods.

Here’s a brief rundown on what that looks like:

Straight-line balances are calculated by taking asset cost subtracted by salvage value and dividing that by the number of years it is expected to be in use.

Declining balance depreciation is a type of accelerated depreciation that decreases as the asset ages; it applies a depreciation rate to the value of the asset at the start of each financial period. There are several types of declining depreciation, including double-declining balance and a 150% declining balance.

There’s no “right” way to depreciate your assets. Your department needs to figure out what the best way is for how you run your office. Some methods may be helpful for certain types of assets, but not for others. Meet with your accounting department and get a detailed rundown of how depreciation works. You’ll also want to ask what you need to do to make room for it in your accounting practices.

Trying to track all of the assets that are subject to depreciation and how that affects your financial reporting can get complicated. However, it doesn’t have to be. With Asset Panda, you can track your assets, usage, and depreciation, regardless of which method you use to calculate that decrease in value. There are specific fields that help you run depreciation for you so that you can check it against the system. You shouldn’t have to figure it all out on your own. With Asset Panda, you can rely on automated depreciation tracking to prevent you from having to do it yourself.