Discussion board #5 Summary Group #4

Discussion board five discussed the differences between the way capital assets are accounted for by
both governmental entities and for-profit-entities. Our group found that there were a few differences
between the two and how they are accounted for. We concluded that the following were the key
differences:

 The purpose of depreciation expense

 The way the capital assets are recorded
 The general purpose of capital assets

To start off, we came to the first conclusion because depreciation expense while required, is not
used for the same purpose. For for-profit-entities, the depreciation expense is recorded on items that
are used in the production of products or services for sale, whereas governmental entities use it for
assets used in the production of general government services. For-profit-entities must take into
consideration how much the assets depreciate, and how this affects their profits in both the long-term
and short-term. Capital assets are depreciated instead by governmental entities for the information
which they provide. By depreciating capital assets governmental entities can determine how much it
costs to provide a function or program and subsequently, aid in the decision of the allocation of
resources to programs. We also discovered that prior to GASB 34, and 35 governmental entities would
not record depreciation expense, and instead record capital assets in the governmental budget for the
year. Requiring depreciation expense bridged the gap between the two entities, and helped taxpayers
understand what the government was using their yearly budget for.

Other inferences we made concerning the topic was the differences in how capital assets are
recorded between the two. Capital assets used by for-profit-entities are recorded as an asset on the
balance sheet for the period. However, governmental entities record capital assets in the government-
wide financial statement since they are non-current financial resources, and they record capital assets as
expenditures.

To conclude this summary, during the discussion several sources were referenced which are linked
below. The first reference talked about the handling of capital assets by governmental entities and
brought up the new point of shared capital assets. These were something which we had not considered,
and are assets that are used by multiple functions, such as a piece of equipment which is used to aid
multiple functions of the government. The other reference was a video which mentioned the way
governmental entities handled assets before GASB 34 and 35, and the benefits of depreciation expense
as it is recorded following these regulations.
 Sources:

https://nces.ed.gov/pubs2009/fin_acct/chapter5_6.asp

https://www.youtube.com/watch?v=K1Zqr0cwL3Q