Federal long?lived assets have unique characteristics justifying unique accounting practices. For each of the following assets acquired by federal departments and agencies, indicate how the government should report the asset. If it is to be reported on the government's balance sheets, then state whether it should be amortized or depreciated. Justify your response by specifying the category into which the asset would fall. 

1. The U.S. Coast Guard purchases, for $3 million, a mainframe computer to be used to enhance nonmilitary navigation systems. 

2. The Department of Defense purchases a mainframe computer for $6 million. The computer is specially designed to be used onboard a guided?missile cruiser to target missiles. 

3. The Department of Interior constructs a monument, at a cost of $7 million, honoring the military personnel who served in the Gulf War. 

4. The Department of Interior purchases land in Bethesda, Maryland, for $6 million. It expects to construct an office complex on the land. 

5. The Department of the Interior purchases land in East Glacier, Montana, for $130 million. The land will be incorporated into Glacier National Park. 

6. NASA incurs $24 million to improve facilities at its Johnson Space Center. The facilities are to be used both as a training center for astronauts and other personnel and as a museum for visitors.

 

Types of Assets

General Assets
General assets are comparable to those of a business and include land, buildings, and equipment. Accordingly, the FASAB recommends that they be accounted for similarly. That is, they should be capitalized and depreciated over their useful lives. Land should be capitalized but not depreciated. (But see discussion below of forthcoming changes.) This category consists of assets that:

Are used to produce goods or services or to support the mission of the entity and can be used for alternative purposes (that is, by other federal programs, state or local governments, or nongovernmental entities)
Are used in business?type activities
Are used by entities in activities whose costs can be compared to other entities (e.g., costs of federal hospitals that can be compared to nonfederal hospitals).12
Military Assets
Military assets, such as aircraft, ships, vehicles, tanks, and extraordinarily complex and costly weapons systems, pose special accounting issues. In times of peace these assets have useful lives that are as estimable as those of general assets. However, when used for the purpose for which they were designed—to fight wars—their anticipated useful lives become considerably shorter and less certain.

Prior to May 2003, recognizing the special characteristics of military hardware, the FASAB directed that what it referred to as "national defense property, plant, and equipment" had to be accounted for as "other stewardship assets." That is, acquisition costs had to be expensed as incurred, not capitalized. In 2003, however, the board took a different tack. Focusing on the need to provide information to facilitate annual performance assessment, the board stipulated that the cost of military assets should be capitalized and depreciated over their expected useful lives. That is, they should be accounted for like general assets.13

Space Assets
Assets used in the government's space program have characteristics similar to traditional military assets. Nevertheless, even prior to its decision mandating capitalization of military assets, the FASAB prescribed that these assets be accounted for as general assets. Space assets continue to be capitalized and depreciated.14

Stewardship Assets/Heritage Assets
Heritage assets have value because of their historical, natural, cultural, educational, architectural, or artistic significance. They include museums, monuments, and historical sites; they are expected to be preserved indefinitely.

Some heritage assets may have the characteristics of both operational and true heritage assets. The government holds some heritage assets, such as the Washington Monument, purely for their cultural, architectural, or aesthetic qualities. It holds others, such as the White House and the Eisenhower Executive Office Building in Washington, D.C. (an operating administrative complex), for both their historical and functional attributes. To reduce the subjectivity that would be required in having agencies either allocate a portion of an asset's cost to one category or another or in having them determine whether an asset was primarily operational or heritage, the FASAB stipulated that all multiuse heritage assets be capitalized as general property, plant, and equipment and depreciated over their useful lives.

The cost of acquiring heritage assets that have only historical, artistic, or cultural significance should be expensed as incurred. That is, entities should report them in their statement of net cost. The assets should be referenced on the balance sheet, but no dollar value should be assigned. Instead, information such as the following should be disclosed in notes to basic financial statements:

A brief statement explaining how the assets relate to the entity's mission
The goals and principles the entity established to acquire and maintain the assets
A brief description of the types of assets that the entity holds
The physical quantities of assets in each of its major heritage asset categories
Land
The federal government owns approximately 640 million acres, which is about 28 percent of all of the land in the United States. Most of this is managed for purposes related to preservation, recreation, and development of natural resources. It includes national parks, national forests, and nature preserves—the vast seemingly uninhabited terrain that one observes when flying from the midwest to the far west. It also includes more than 4,800 defense installations as well as land on which post offices, court houses, and other federal buildings stand.

Land that is used for operational and commercial purposes, including that for military purposes, is accounted for just as it would be in the private sector. It is capitalized, but not depreciated. Stewardship land, however, is reported differently. Stewardship land is defined as land other than general property, plant and equipment. Examples include land used as forests and parks and that used for wildlife and grazing.

In that it is neither used in government operations nor held for sale; stewardship land need not be capitalized and therefore should not be reported on an entity's balance sheet. Instead, like heritage assets it should be expensed as acquired. In periods subsequent to acquisition, the entity should provide, in a note to the financial statements, salient information relating to the land. This should include the relationship of the land to the mission of the entity, the entity's policies relating to the land, the amount of land in physical units, and a description of each major category of land.15