IS IT AN ASSET OR A LIABILITY? During the long evolution of government accounting, many scholars have discussed its unique features. In the August 1989 issue of the Journal of Accountancy R.K. Mautz de- scribed the reporting needs of governments and not-for-profit organizations (such as charities) in Not-For-Profit Financial Reporting: Another View. As an illustration of their accounting challenges, Mautz examined the method by which a city should record a newly constructed high school building. Conventional busi- ness wisdom would say that such a property represents an asset of the government. Thus, the cost should be capitalized and then depreciated over an estimated useful life. How- ever, in paragraph 26 of FASB Concepts Statement No. 6, an essential characteristic of an asset is a probable future benefit . . . to contribute directly to future net cash inflows. Mautz reasoned that the school building cannot be considered an asset because it pro- vides no net contribution to cash inflows. In truth, a high school requires the government to make significant cash outflows for maintenance, repairs, utilities, salaries, and the like. Public educational facilities (as well as many of the other properties of a government such as a fire station or municipal building) are acquired with the understanding that net cash outflows will result for years to come. Consequently, Mautz considered whether the construction of a high school is not actu- ally the incurrence of a liability because the government is taking on an obligation that will necessitate future cash payments. This idea also is rejected, once again based on the guidance of Concepts Statement No. 6 (para. 36), because the cash outflow is not required at a specified or determinable date, on occurrence of a specified event, or on demand.

1. Is a high school building an asset or is it a liability? If it is neither, how should the cost be recorded?

2.(a) How is the high school reported in fund financial statements?

2.(b) How is the high school reported in government-wide financial statements?

3.Which of these two approaches provides the best portrayal of the decision to acquire or construct this building?

4.Can a government possibly be accounted for in the same manner as a for-profit enterprise?