Accounting For Property, Plant, And Equipment Federal .
This is the original Standard file; please check for the most recent update in the FASAB Handbook atwww.fasab.gov/pdffiles/handbook sffas 6.pdf.Accounting for property, plant, and equipmentFederal Financial Accounting Standards no. *Federal Accounting Standards Advisory Board(FASAB)ACCOUNTING FOR PROPERTY, PLANT, AND EQUIPMENTStatement of Federal Financial Accounting Standards No. 6JUNE 1996GPO # 041-001-00462-9 ( *****[NOTE 1: THE FOOTNOTES INCLUDED IN THIS DOCUMENT AREOFTEN CRITICAL TO UNDERSTANDING THE STANDARDS. DUE TOTHE LIMITATIONS ON TEXT PRESENTATION THE FOOTNOTES AREPRESENTED AS ENDNOTES. PLEASE BE SURE TO REFER TOTHESE ENDNOTES AS YOU REVIEW THE ***********EXECUTIVE SUMMARYaThis statement contains accountingstandards for Federally owned property,plant, and equipment (PP&E); deferredmaintenance on PP&E; and cleanup costs. Eachstandard is summarized below.PROPERTY, PLANT, AND EQUIPMENTbThe Federal Government's investment in PP&Eexceeds 1 trillion [SEE NOTE 1] PP&E usedfor many different purposes. "PP&E" isdefined as follows:Tangible assets that (1) have anestimated useful life of 2 or moreyears, (2) are not intended forsale in the ordinary course ofbusiness, and (3) are intended tobe used or available for use by theentity.
This is the original Standard file; please check for the most recent update in the FASAB Handbook atwww.fasab.gov/pdffiles/handbook sffas 6.pdf.cThe diversity among Federal PP&E creates aneed for meaningful categories of PP&E withdifferent accounting standards for eachcategory. The Board identifies fourcategories of PP&E. The categories are:- general PP&E are PP&E used to providegeneral government services or goods;- Federal mission PP&E are PP&E exhibitingspecific characteristics set by the Board;- heritage assets are those assetspossessing significant educational,cultural, or natural characteristics; and- stewardship land [SEE NOTE 2] (i.e.,land other than that included in generalPP&E).dComplete accounting standards for generalPP&E are included in this document.eFederal mission PP&E, heritage assets, andstewardship land are the subject of a projecton "Supplementary Stewardship Reporting." Anexposure draft (ED) on this topic was issuedin August 1995. The Supplementary StewardshipReporting ED proposes accounting standardsfor these assets after their acquisition. Theaccounting standards in this document address(1) classification of PP&E in the categories,(2) accounting for the acquisition cost ofPP&E falling into one of these threecategories, and (3) implementation of thesestandards where it affects the basicfinancial statements. Because Federal missionPP&E, heritage assets, and stewardship landwould be subject to supplementary stewardshipreporting, they are referred to collectivelyas stewardship PP&E. This term is used forconvenience only since each category has itsown definition.GENERAL PP&EfThe general PP&E category consists of items
This is the original Standard file; please check for the most recent update in the FASAB Handbook atwww.fasab.gov/pdffiles/handbook sffas 6.pdf.that:- could be used for alternative purposes(e.g., by other Federal programs, state orlocal governments, or non-governmentalentities) but are used by the Federalentity to produce goods or services, or tosupport the mission of the entity; or- are used in business-type activities; [SEENOTE 3] or- are used by entities in activities whosecosts can be compared to other entities(e.g., Federal hospitals compared withother hospitals).gGeneral PP&E includes land acquired for orin connection with other general PP&E. [SEENOTE 4]hGeneral PP&E shall be reported in the basicfinancial statements: the balance sheet, [SEENOTE 5] and the statement of net cost. [SEENOTE 6] The acquisition cost of generalPP&E shall be recognized [SEE NOTE 7] as anasset. Subsequently, except for land which isa nondepreciable asset, that acquisition costshall be charged to expense throughdepreciation. [SEE NOTE 8] The depreciationexpense shall be accumulated in a contraasset account--accumulated depreciation.iThe standards provide that certain costs ofinternally-developed software [SEE NOTE 9]can be capitalized and amortized over aperiod not to exceed five years. The costs tobe capitalized are limited to direct costsincurred after technological feasibility hasbeen established.jIn addition, the standard addressesdonations, transfers, and retirements ofgeneral PP&E as well as disclosure [SEE NOTE10] requirements.STEWARDSHIP PP&E
This is the original Standard file; please check for the most recent update in the FASAB Handbook atwww.fasab.gov/pdffiles/handbook sffas 6.pdf.kThe following paragraphs describe Federalmission PP&E, heritage assets, andstewardship land, the categories for whichsupplementary stewardship reporting is beingproposed. These standards are limited toaccounting requirements for the basicfinancial statements--they do not address theinformation to be reported throughsupplementary stewardship reporting. Theaccounting standards provide guidance on:- identifying stewardship PP&E, and- elements associated with stewardship PP&Ethat are to be recognized on the basicfinancial statements (e.g., informationshown on the statement of net costs).Federal Mission PP&ElFederal mission PP&E are specific types ofPP&E identified by the Board (i.e., weaponssystems and space exploration equipment) orexhibiting the characteristics established bythe Board. [SEE NOTE 11] The Boardspecifically identified weapons systems andspace exploration equipment as Federalmission PP&E because it does not believeapplying depreciation accounting wouldcontribute to measuring the cost of outputsproduced, or to assessing operatingperformance, in any given accounting period.The Board believes that these assets aredeveloped, used, and retired in a manner thatdoes not lend itself to a "systematic andrational" assignment of costs to accountingperiods (i.e., depreciation accounting) and,ultimately, to outputs.mThe Board did not find any other categoriesof PP&E that it believed should be explicitlyincluded in the Federal mission category atthis time. However, there are other types ofPP&E, or PP&E may be developed in the future,that are similar to these two items, so the
This is the original Standard file; please check for the most recent update in the FASAB Handbook atwww.fasab.gov/pdffiles/handbook sffas 6.pdf.Board has articulated characteristics ofFederal mission PP&E. PP&E other than weaponssystems and space exploration equipmentclearly exhibiting these characteristicsshould be categorized as Federal missionPP&E. For example, based on comments fromrespondents and information provided by theDepartment of Energy, nuclear weaponsproduction facilities do exhibit thesecharacteristics and should be categorized asFederal mission PP&E.nThere are two types of characteristics. Thefirst relates to the use of the PP&E. Thesecond relates to expectations about, andrisks associated with, its useful life. To becategorized as Federal mission PP&E, an itemshould have at least one characteristic fromeach of the two types of characteristicsdiscussed below.oCharacteristics related to the use ofFederal mission PP&E are that the PP&E:- has no expected nongovernmentalalternative uses; or- is held for use in the event of emergency,war, or natural disaster; or- is specifically designed for use in aprogram for which there is no otherprogram or entity (Federal or non-Federal,governmental or nongovernmental) usingsimilar PP&E with which to compare costs.pCharacteristics related to the useful lifeare that the PP&E:- has an indeterminate or unpredictableuseful life [SEE NOTE 12] due to themanner in which it is used, improved,retired, modified, or maintained; or- is at a very high risk of being destroyedduring use or of premature obsolescence.qAnnual expenditures to acquire, replace orimprove Federal mission PP&E shall be shown
This is the original Standard file; please check for the most recent update in the FASAB Handbook atwww.fasab.gov/pdffiles/handbook sffas 6.pdf.as a cost in the period incurred. Separatingthese costs from other period expenses wouldfacilitate analysis of the operating expenseand prevent distortion due to largeinfrequent expenditures.Heritage AssetsrHeritage assets include PP&E that havehistorical or natural significance; cultural,educational, or artistic importance; orsignificant architectural characteristics.Expenditures to acquire, construct,reconstruct, or improve heritage assets shallbe reported as a cost in the period incurred.Separating these costs from other periodexpenses would facilitate analysis of theoperating expense and prevent distortion dueto large infrequent expenditures.Multi-use Heritage AssetssNot all heritage assets are used solely forheritage purposes--some serve two purposes byproviding reminders of our heritage and bybeing used in day-to-day governmentoperations unrelated to the assetsthemselves. For example, the government hasconstructed "monumental" style office space,such as the Old Executive Office Building andthe Pentagon. Such assets contribute to theday-to-day operations of programs but thecost of these assets can not be easilyassigned to heritage and operating purposes.tThe cost of renovating, improving, orreconstructing operating components ofheritage assets used in government operationsshall be included in general PP&E. Followinginitial construction, any renovation,improvement or reconstruction costs tofacilitate government operations (e.g.,installation of communications wiring orredesign of office space) would becapitalized and depreciated over its expected
This is the original Standard file; please check for the most recent update in the FASAB Handbook atwww.fasab.gov/pdffiles/handbook sffas 6.pdf.useful life. The cost should not bedepreciated over an unrealistically longlife.uCosts of renovating or reconstructing theheritage asset that can not be directlyassociated with operations shall beconsidered heritage asset costs. For example,installing a new roof should be considered aheritage asset cost.Stewardship LandvThe Federal Government has vast holdings ofland and puts land to various uses. If landis acquired for or in connection with an itemof general PP&E, it shall be categorized asgeneral PP&E. Other land (e.g., land in thepublic domain and national park or nationalforest land) shall be excluded from generalPP&E and referred to as 4stewardship land.wThe acquisition cost of stewardship landshall be reported as a cost in the periodincurred. Separating the cost of landacquisitions from other period expenses wouldfacilitate analysis of the operating expenseand prevent distortion due to largeinfrequent purchases.DEFERRED MAINTENANCExThe deferred maintenance standard requiresdisclosures related to the condition and theestimated cost to remedy deferred maintenanceof PP&E. These disclosures are made as a noteto a line item on the statement of net costs-no dollar amount shall be recognized on thestatement.yThe standards recognize that there are manyvariables in estimating deferred maintenanceamounts. The standards acknowledge thatcondition rating is a management function
This is the original Standard file; please check for the most recent update in the FASAB Handbook atwww.fasab.gov/pdffiles/handbook sffas 6.pdf.since different conditions might beconsidered acceptable by different entitiesas well as for different items of PP&E heldby the same entity. In addition, managementmay use condition assessment surveys or lifecycle cost plans to estimate the amount ofdeferred maintenance.zThe deferred maintenance standard appliesto all PP&E whether reported on the balancesheet or through supplementary stewardshipreporting.CLEANUP COSTSaaCleanup costs are the costs associated withhazardous waste removal, containment, ordisposal. In some instances, the FederalGovernment incurs liabilities [SEE NOTE13] for cleaning up hazardous waste atsites or facilities it operates or hasoperated. Generally, cleanup cannot be, or isnot, done until permanent or temporaryclosure or shutdown of sites or facilities.The Board has completed recommendedaccounting standards for liabilities whichaddress liabilities for environmental cleanupresulting from an accident, natural disaster,or other one-time occurrence. Those liabilitystandards do not address inter-period costallocation when cleanup relates to operationsthat span many periods.abTherefore, the Board chose to provideadditional guidance relative to cleanup costsin this standard. The additional standards inthis statement provide for the timing ofrecognition of the liability and relatedoperating expense.acFor cleanup costs associated with generalPP&E, probable [SEE NOTE 14] andmeasurable cleanup costs shall be allocatedto operating periods benefiting fromoperations of the general PP&E. This
This is the original Standard file; please check for the most recent update in the FASAB Handbook atwww.fasab.gov/pdffiles/handbook sffas 6.pdf.allocation shall be based on a systematic andrational method. For example, the estimatedcost could be allocated to operating periodsbased on the expected physical capacity ofthe PP&E and the amount of capacity used eachperiod. In addition, disclosure of the totalestimated cost is required.adFor cleanup costs associated withstewardship PP&E, probable and measurableliabilities shall be recognized when thestewardship PP&E is placed in service.Simultaneous to recognizing the liability,the related expense for cleanup cost shall *********TABLE OF CONTENTSSECTIONPARAGRAPHEXECUTIVE SUMMARYa.adCHAPTER 1: INTRODUCTIONPURPOSESCOPEREPORTING OBJECTIVESCAPITALIZATION THRESHOLDSAPPLICABILITYMATERIALITYEFFECTIVE DATE1.789.1213141516CHAPTER 2: ACCOUNTING STANDARD - PROPERTY, PLANT,AND EQUIPMENTDEFINITIONS17.20CATEGORIES, RECOGNITION AND MEASUREMENT, ANDDISCLOSURE REQUIREMENTS:21.22General PP&E23.45Federal Mission PP&E46.56Heritage Assets57.65Stewardship Land66.76CHAPTER 3: ACCOUNTING STANDARD - DEFERREDMAINTENANCE
This is the original Standard file; please check for the most recent update in the FASAB Handbook atwww.fasab.gov/pdffiles/handbook sffas 6.pdf.DEFINITIONRECOGNITIONDISCLOSURE REQUIREMENTS77.787980.84CHAPTER 4: ACCOUNTING STANDARD - CLEANUP COSTSDEFINITIONSCOPERECOGNITION AND MEASUREMENTIMPLEMENTATION GUIDANCEDISCLOSURE REQUIREMENTS85.8788.9394.103104.106107.111APPENDIX A: BASIS FOR CONCLUSIONS112.113PROPERTY, PLANT, AND EQUIPMENTDEFERRED MAINTENANCECLEANUP COSTS114.170171.181182.199APPENDIX B: ILLUSTRATIONS OF CATEGORIES200.201FEDERAL MISSION PROPERTY, PLANT, AND EQUIPMENT202.213HERITAGE ASSETS214.225LAND226.232APPENDIX C: DEFERRED MAINTENANCE ILLUSTRATION233APPENDIX D: CLEANUP COSTS ILLUSTRATION234.240APPENDIX E: GLOSSARYENDNOTES 1 THROUGH **INTRODUCTIONPURPOSE1The purpose of this statement is to provideaccounting standards for Federally owned
This is the original Standard file; please check for the most recent update in the FASAB Handbook atwww.fasab.gov/pdffiles/handbook sffas 6.pdf.property, plant, and equipment (PP&E);deferred maintenance; and cleanup costs. Thisintroduction provides information on:-the scope of the standards,consideration of reporting objectives,applicability of the standards,capitalization threshold,materiality, andeffective date.2Chapters 2, 3, and 4 present the accountingstandards for PP&E, deferred maintenance, andcleanup costs respectively.3Appendix A presents the Basis forConclusions. This appendix provides theBoard's rationale for the decisions made andresponds to the major issues raised incomment letters.4Appendix B presents illustrations to aid incategorizing PP&E.5Appendix C provides an example of adeferred maintenance disclosure.6Appendix D illustrates cleanup costaccounting.7Appendix E is a glossary of terms used inthis statement.SCOPE8This statement identifies and definescategories of PP&E and addresses recognitionand measurement of, and disclosurerequirements associated with property, plant,and equipment (as well as land), includingaccounting for deferred maintenance andcleanup costs. This statement does notaddress natural resources. However, the Boardis undertaking a project to addressaccounting for natural resources.
This is the original Standard file; please check for the most recent update in the FASAB Handbook atwww.fasab.gov/pdffiles/handbook sffas 6.pdf.REPORTING OBJECTIVES9In drafting accounting standards for PP&E,the Board relied on its Statement of FederalFinancial Accounting Concepts Number 1,Objectives of Federal Financial Reporting.Ultimately, all accounting standards taken asa whole will help meet the four reportingobjectives expressed in the Objectivesstatement: budgetary integrity, operatingperformance, stewardship, and systems andcontrol. The focus of these standards is onthe two reporting objectives most relevant toPP&E--operating performance and stewardship.These objectives and how they could be metthrough PP&E accounting are discussed underthe headings (1) operating performance, and(2) stewardship.OPERATING PERFORMANCE10The Board believes that it can contributeto meeting the operating performanceobjective [SEE NOTE 15] by measuring thecost associated with using property, plant,and equipment and including that cost inentity operating results. The Board firstsought to identify PP&E costs that would beappropriate to include in operating expense.Then, from consideration of cost informationrequired, the Board determined what balancesheet information would have to be reported.11To meet the operating performanceobjective, the Board seeks to provideaccounting standards that will result in:- relevant and reliable cost information fordecision-making by internal users (e.g.,program managers, budget examiners andofficials),- comprehensive, comparable cost informationfor decision-making and program evaluation
This is the original Standard file; please check for the most recent update in the FASAB Handbook atwww.fasab.gov/pdffiles/handbook sffas 6.pdf.by Congress and the public, and- information to help assess the efficiencyand effectiveness of asset management(e.g., condition of assets includingdeferred maintenance).STEWARDSHIP12The Board believes that Federal financialreporting can fulfill the stewardshipobjective [SEE NOTE 16] if the Boardprovides standards that will result inreporting information on:- asset condition;- changes in the amount and servicepotential of property, plant, andequipment;- cost of property, plant, and equipmentwhere applicable; and- spending for acquisition of property,plant, and equipment versus non-capitalspending.CAPITALIZATION THRESHOLDS13The Board believes that capitalizationthresholds should be established by Federalentities rather than centrally by the Board.Because Federal entities are diverse in sizeand in uses of PP&E, entities must considertheir own financial and operationalconditions in establishing an appropriatecapitalization threshold or thresholds. Onceestablished, this threshold(s) should beconsistently followed and disclosed in thefinancial reports.APPLICABILITY14For guidance on the general applicabilityof this standard and all other Federalfinancial accounting standards please refer
This is the original Standard file; please check for the most recent update in the FASAB Handbook atwww.fasab.gov/pdffiles/handbook sffas 6.pdf.to Statement of Federal Financial AccountingConcepts No. 2, Entity and Display.MATERIALITY15The provisions of this statement need notbe applied to immaterial items.EFFECTIVE DATE16The Board recommends that the accountingstandards presented in this proposedstatement become effective for periodsbeginning after September 30, 1997. Earlierimplementation is encouraged. In addition,u
financial statements--they do not address the information to be reported through supplementary stewardship reporting. The accounting standards provide guidance on: - identifying stewardship PP&E, and - elements associated with stewardship PP&E that are to be recognized on the basic
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