Question & Answer: What are some of the issues that arise related to capital assets? Why is accounting for capital assets and debt service a challenge for gov…..

Let me answer your question in a sequence. First the issues that may arise relating to a capital assets are documentation required for acquistion, determinng the useful life of the asset, making sure that the asset has been kept under correct classification for the purpose of depreciation, maintenace of the asset, keeping a clear track on physical location and timely inspection of the asset, Treatment for the difference in valuation and accounting for sale/discard of asset. These are the issues that are to be kept in mind when accounting for capital assets.

Accounting for capital assets and debt service is a challenge for governents because of many issues.Let us take an example to understand it clearly, Government is the one which should provide its citizens with all the proper eminites like infrastructure assets, buildings, general assets. In this process government or non profit organizations takes so much of debts. The routing of the debt to a particular capital asset is itself partically a hectic one. after purchasing the assets which are used by the citizens which may expose to vaious situations where accounting is practically impossible.

It is very much essential to report infrastructure and similar assets in financial statements because, governments invest huge amounts in infrastructure which generally do not generate cash flows for the government, if it did not disclose those details there will be a major probability that funds may get diverted to illegal means. Also reporting these assets helps to know the volume of assets that are owned by the government, cost incurrinf for maintaining those assets and creating accountability for the funds received.