Capital Assets: Governmental Accounting.

For an individual, capital asset typically refers to anything he or she owns for personal or investment purposes. For a firm, a capital asset is one that has a useful life longer than a year and is not intended for sale during the regular course of the operation and is used in the firm’s business operations to generate revenue. They are recorded as assets on the balance sheet and expensed over the useful life of the asset through depreciation.

Expensing the asset throughout its useful life helps to match the cost of the asset with the revenue it generated over the same period.

Capital Assets of the Government

Capital assets accounting by a government takes into account a number of complex areas. Capital assets are a very important part of the financial statements of a government, and it is essential to have a basic level of understanding of its accounting requirements in order to understand a government’s financial statements.

Capital assets relating to governmental activities are recorded only in the government?wide financial statements, and they are not considered current financial resources. When a governmental fund makes a purchase of or constructs a capital asset, it is recorded as an expenditure rather than as an asset. When a proprietary fund purchase or constructs a capital asset, it is recorded as an asset on its balance sheet. Accordingly, capital assets will be reported in the proprietary or fiduciary funds, not in the governmental funds. Of course, these capital assets also carry forward to be recorded in the government?wide financial statements.

In general, governments are required to report their capital assets at their historical cost and to depreciate that historical cost in a systematic and rational manner over the estimated useful lives of the assets. Capital assets are reported at their historical cost net of accumulated depreciation in financial statements using the economic resources measurement focus and the accrual basis of accounting, with the exceptions of infrastructure assets, land (considered inexhaustible), and construction in progress reported using the modified approach.

Infrastructure Assets

These are assets such as bridges, roads, water systems, etc. that have much longer useful lives than ordinary capital assets such as machinery.

Because of this, “inexhaustible” infrastructure assets are not depreciated, and the rest are treated as capital assets, and the depreciation will be reported in the government-wide statements, the proprietary fund statement of revenues, expenditures, and changes in fund net position, and the statement of changes in a net fiduciary position.

Alternatively, governments have the option to take the “modified approach,” which means the asset won’t be depreciated, but the government will record maintenance costs instead of depreciation. If this approach is taken, the government must document that the asset is being preserved at a disclosed level.


This article covers capital assets and how they can be utilised in governmental accounting in the FAR CPA Exam. Hope this helps! If you have any questions, feel free to comment in the section below. Happy Learning!

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  3. Salini burnwal

    Interesting read.

  4. Salini burnwal

    Interesting read.

  5. Anju Rathore

    Nice article

  6. Aakanksha

    Thanks for the information!

  7. Anisha

    Good knowledge on capital assets! Keep them coming.

  8. Shipra


  9. Ashutosh

    Capital assets for government and firms are very well explained.Thanks for sharing


    Thanks for the information.


    Interesting stuff to read. Keep it up.

  12. Shubham Manapure

    Very informative

  13. suma

    Thanks for Information...

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