As indicated in Chapter 2, the GASB defines assets as "resources with present service capacity that the government presently controls." It explains that present service capacity of an asset is its capability to enable the government to provide services and to determine the nature and manner of use of the present service capacity embodied in the resource.
The GASB defines a deferred outflow of resources as "the consumption of net assets by the government that is applicable to a future period." Net assets are consumed (although their consumption is not necessarily applicable to a future period) when there is a decrease in an asset or increase in liability without a corresponding increase in another asset or a decrease in another liability-as when, for example, employees provide services that will be paid for in a following period. In such case, there is an increase in a liability without a corresponding increase in an asset or decrease in another liability.
Consider the transactions described following. In your opinion, do they result in the creation of an asset or a deferred outflow? Be sure to assess whether the transaction will enable the government to provide current services or only future services and whether the government has control over the resource that the transaction generates.
1. The government purchased a new computer, giving the buyer a three-year note that requires payments of $10,000 per year.
2. It signed a three-year lease requiring the payment of $10,000 per year. As required, it made first payment prior to the commencement of the lease.
3. It approved a three-year $30,000 grant to a not-for-profit agency. The grant is intended to cover specified allowable costs. The government paid the agency $10,000 in advance of the agency incurring the allowable costs. Presumably, if the agency never fulfills its obligations per the grant terms-that is, never incurs the allowable costs-the government can demand repayment of the funds advanced.
4. It approved a one-year $30,000 grant to a different not-for-profit agency to conduct an employee training program that the agency was to conduct during the government's next fiscal year. The agency satisfied all requirements for the grant, and the government made its first payment of $10,000 in the year prior to that in which the program was to be conducted. Unlike the grant in item #3, this was not a reimbursement grant, and because the agency had already satisfied all eligibility requirements, it was highly unlikely that the $10,000 paid in advance of the start of the program would ever be returned to the government.