You are the Lead Accountant in Agave City and the Citys Comptroller is discussing with you her concerns that the city is unable to save resources to replace aging capital assets. She recognizes that depreciation cannot be recorded in the citys General Fund. Moreover, for political reasons, the City Council never permits the General Fund to have a substantial surplus Fund Balance. The Comptroller knows that the City will need to start replacing capital assets in the next year or two at a substantial cost to the City. Looking for a possible solution, the Comptroller tells you she has heard it is possible to indirectly charge depreciation in a General Fund by transferring capital assets to an Internal Service Fund and correspondingly build up a cash reserve to replace the capital assets.

The Comptroller is asking you for your opinion whether this is correct. If so, the Comptroller wants you to explain how an Internal Service Fund can be used to charge depreciation in the General Fund and thereby create a cash reserve of what would otherwise be General Fund cash assets.