REPORT OF AUDIT OF REAL ESTATE AND CONSTRUCTION DIVISION, 1 JULY 1985 - 31 MARCH 1988

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90M01364R000700150001-4
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 31
• Document Creation Date: December 27, 2016
• Document Release Date: February 4, 2013
• Sequence Number: 1
• Publication Date: November 9, 1988
• Content Type: MEMO

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ROUTING AND RECORD SHEET
suBJEckeisnnto . f Audit of Real Estate and Construction Division
.-
1 July 1985 - 31 March 1986 --
FROM
John M. Ray
Director of LogisticS
ExTENsioN
No
...
DATE
9 November 1988 -- ,
TO: (Offic?f dirsterration, room emeato?r, and
bundler%)
i
DATE
-
OFFICERS
INITIALS
COMMENTS (Number ?creh comment to show from whom
m whom. Draw a line across column a fur Roth comment)
MEMO
fORWARDED
DDA
7D24 Hqs.
Attached is a status
report on recommendations
#1 and #2 of the Report of'
Audit of Real Estate and
Construction Division with
an attached MOU on
Reporting of Real Propert
(Attachment A).
This is an update of
the status report we
submitted on 2 September
(Attachment 13).
,
,
Deputy Inspector
General for Audit
.
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FORM 6Inummtwo
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1 6 NOV 1988
MEMORANDUM FOR: Deputy Inspector General for Audit
VIA: Deputy Director for Administration
FROM:
SUBJECT:
REFERENCE:
Acting Director of Logistics
Report of Audit of Real Estate and Construction
Division, 1 July 1985 - 31 March 1988
Memo for Dep. Inspector General for Audit, from
Director of Logistics, dtd 2 Sep 88, Same Subject
This memorandum provides an update of action taken on
recommendations #1 and #2 of the subject audit report:
a. Recommendation #1 - Completed. A copy of the
Memorandum of Understanding is provided for your internal
action and for forwarding to the Inspector General.
b. Recommendation #2 - Revisions to real property reports
are now being considered and discussed within Facilities
Management Group. Future actions will be as stated in the
referent. We have established May 1989 as a target date for
completion of a revised report.
Attachment
A. MOU
B. Reference
All Portions Secret
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MEMORANDUM OF UNDERSTANDING
REPORTING OF REAL PROPERTY
I. Purpose
, This Memorandum of Understanding (MOU) is in response to
Memorandum No. OF-ADPP 82-86, dated 23 May 1986, to the Director
of Logistics (D/L) from the Director of Finance (D/F), Attachment
A, which offered suggestions for improving Agency real property
accounting and reporting. It also responds to recommendations
and clarifies reporting requirements discussed in the Reports of
Audit for the Real Estate and construction Division, Office of
Logistics (RECD/OL), for the period I May 1983 to 30 June 1985,
dated 30 October 1985 and for the period 1 July 1985 to 31 March
1988 -dated -21 July 1988. Signatures on this MOU affirm:that each
participating office agrees to the provisions herein.
II. Background
A. In order to gain a .complete understanding of the need for
this MDU, .the Agency's past and present real property feporting
requirements and procedures have been examined:
1. The General Accounting Office (GAO) prescribes
accounting principles and standards for federal agencies in
the reportinkofl property having an initial acquisition
cost or value 'ort$t,000 and a service life of two years.,Ai.
These guidelines require agencies to report all real property
which is Agency owned, transferred from other agencies, or
acquired by capital leases. In conformance with GAO
principles, OL reports such real property costs to the Office
of Finance (OF) via the Annual Agency Real Property Capital
Cost Report (AARPCCR). The OF, in turn, records these costs
annually in the CIA Financial Report.
2. In aadition co this reportimg-requiremept, the.
Agency has established additional standards for the reporting
of real property. , requires the D/L to establish
and maintain accountable and historical records for Agency
real property: OL's accountable records for real property
list: Properties assigned by the General Services
Administration (GSA) (recorded in the Domestic Real Property
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95)(1
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Summary CORPS); Properties acquired by the Agency under the
Direct Lea"intheDl_a_m_kr_e_c_o_r_d_e_S)overseas
Properties
and CONUS properties acquire sig
assignment recorded in the SRPS). Data for the AARPCCR has
been extracted from these real property systems.
B. The needfor this MOU is two-fold:
1. Clarification of the contents of the AARPCCR.
As many years have elapsed since the implementation of the
AARPCCR, it has become unclear which Agency properties have
been included in each of the main acquisition categories, and
therefore, the meaning of the statistics from the report has
become somewhat confused. We have identified a need to
define the categories and enumerate the individual properties
contained therein. In addition, in light of an evaluation of
GAO standards by OF, it has become apparent that some
properties included in the report need not be reported to GAO
but only recorded in the Agency's internal files in OL.
- 2. Definition of summary financial data for the
AARPCCR. The second need for this MOU arises as the result
of audit recommendations, which indicate there is concern as
to whether the present AARPCCR is accurate. This MOU defines
the contents of the AARPCCR and further refines the AARPCCR
in conformance with the review of the GAO guidelines.
III. Policy
A. The D/L will prepare and submit to the D/F an AARPCCR.
The report will be prepared as of 30 September each year and
submitted to the D/F by 30 October, if possible, but no later
than 15 November.
B. The D/F is responsible for reporting the aggregate dollar
capital costs of Agency real property in the official accounting
records of the Agency, based upon the annual report cited in III
A above.
C. The threshold for entries into the Real Property
Summaries, from which the AARPCCR is calculated, will be $5,000.
Therefore, real property included in the AARPCCR will have a
$5,000 or more acquisition cost in accordance with the GAO
standard. This reporting threshold does not preclude appropriate
internal controls over all real property assets.
D. The following definitions will be used in preparing the
AARPCCR to OF.
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1. Assisned Property - Agency acquired property which
is U.S. Government-owned, -leased, or assigned for which the
Agency has been given control by formal or informal agreement
(in the form of a use permit, license, pro rata share cost,
or other type of arrangement) with another Government
agency. By virtue of the agreement, the Agency has authority
to assign and reassign use of the property and authority to
make capital improvements. The Agency may pay operating
expenses on assigned property but may not pay rent. If the
Agency pays rent to a landlord directly or through another
Government agency or if the property is purchased through
another Government agency on behalf of the Agency, that
property is considered leased or purchased, respectively, not
assigned.
? 2. Capitalized Costs (fm/P40, Appendix I, GAO Policy ?
Plans Manuall - All amounts paid to acquire and install the
assets-in-their current form and place. Costs to be.
capitalized also include the costs of additions, alterations,
betterments; rehabilitations and replacements that extend
the useful life of the asset of its service capacity.
3. Capital Lease (fm/L10, Appendix I, GAO Policy and
Procedure Manual) - Lease agreement which is essentially
equivalent to an installment purchase of property. If any of
the following criteria is met, the lease agreement is
presumed to be equivalent to an installment purchase:
(a) The lease transfers ownership of the property
to the lessee by the end of the lease term.
(b) The lease contains an option to purchase the
leased property at a bargain price.
(c) The noncancellable lease term is equal to or
greater than 75 percent of the estimated economic life of
the leased property.
(d) The present value of rental and other'alaimum
lease payments, excluding that portion of the payments
that rep-.esents executory costs, such as insurance,
mainten .ce, and taxes to be paid by the lessor, equals
or exceeds 90 percent of the fair value of the leased
property. The lessee shall compute the present value of
minimum lease payments using the Treasury Average
Interest Rate for Marketable Interest-bearing Debt unless
(a) it is practicable for the lessee to learn the
interest rate implicit in the lease computed by the
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lessor and(b) the implicit rate computed by the lessor
is less, than the Treasury Average Interest Rate for
Marketable. interest-bearing Debt.
The last two criteria do nct apply if the beginning of the
lease term falls within the last 25 percent of the total .
estimated economic life of the leased property. An agency's
"rental" of space from GSA does not meet these criteria.
4. .Construction Cost - All costs to construct buildings
and structures, including architectural fees.
S. Domestic - Property located in continental USA,
-Hawaii, or Alaska.
6. Fair Value (fm/L10, Appendix I, GAO Policy fk
Procedure_Ma_nua0. -Price for which the property could be
sold in an arm's length transaction between unrelated parties.
7. Improvements - Additions, alterations, betterments,
rehabilitations and replacements "that extend the useful life
of the property or its service capacity", in amounts over
$5,000.
8. Initial Cost -
(a) Donated, Devised (Bequeathed), Forfeitured,
Confiscated Property (fm P40 Appendix I, GAO Policy
Procedures Manual) - The fair value at the time of
donation plus any costs incurred to place the property in
use.
(b) Leased Property - The amounts paid to acquire
the property and costs incurred to place it in use. This
definition applies to OL cost accounting of non-capital
leased properties. It is included here to provide an
explanation of internal controls of the properties. Only
capital leases are required to be reported in the AARPCCR.
(cj Purchasea Property - Costs to acquire ?1ar24 and
buildings including agent commissions, legal fees and
settlement, and other costs related thereto,
(d) Transferred/Assigned Property (fm P/40,
Appendix I, GAO Policy and Procedures Manual) - The
amount recorded on the assignment document (use permit,
license,_ etc.) or on the transferor's books. If no
figure is recorded on such document, the fair value of
the Property at the date acquired shall be estimated from
available records or evidence.
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(e) Appraisals to determine fair value shall only
.be contracted for if deemed necessary by OL.
-9. Lease f.1-/L10, Appendix I, GAO Policy Procedure
Manual) - An agreement to convey the use of an asset or part
of an asset (such as a part of a building) from one entity,
the lessor, to another, the lessee-, for a specified period of
time in return for rent or other compensation.
10. Foreign - Property located in countries other than
U.S.A.
11. Purchased Property - Property that is paid for by
the Agency and for which the Agency is the legal owner.
12. Real Property - Fixed capital
assets of the Agencyconsisting of land and interests
therein, such as ownerships, leases, permits, easements,
licenses, utility, systems, and any appurtenances; also,
expendable or nonexpendable property attached to or
integrated intoreal property, where such attachment or
integration is intended to be permanent or where removal
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would change the original design
infeasible.
13. Real Property Summary
or be economically
- A summary
report which lists real property
station, base, or other activity.
reporting elements are used
The two latter reports serve
record for Headquarters.
assets and their
The summaries
to compile the DRPS
as the principal
costs for a
from Agency
and SRPS.
accountable
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14. Reporting Agency
- The Agency
which has control of and the authority to assign
and reassign
the use of the property or any portion thereof. This rule
shall apply regardless.of the manner of acquisition or which
agency is currently using the property. CIA is the reporting
Agency for owned properties, assigned properties for which
total control and authority for use and improvements has been
granted through an agreement ;i.e., use
permit, license., pro
rata share, or other arrangement) and leased properties
acquired through a.capital lease agreement.
15. Structure (fr/The BOCA National Building Code/1987)
- That which is built or constructed.
E. The format for the AARPCCR's
1. Format for previous AARPCCRs is at attachment B.
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CONFIDENTIAL
23 May 1986
ADPP 82-86
MEMORANDUM FOR: Director of Logistics
FROM: Allen R. Elkins
Director of Finance
SUBJECT: Real Property Accounting and Reporting
1. We have recently made a comprehensive evaluation of the conformance of
the Agency Accounting System with the Accounting Principles, Standards and
Related Requirements for Accounting, prescribed for Federal Agencies by the
Comptroller General.
2. . It_ie the, purpose of this memorandum to discuss Agency practices for
accounting and reporting for real property in comparison with the above tited!
principles and standards and to propose joint consideration of changes in
Agency practice as suggested in paragraph 6.
4.
3. There follows a brief synopsis of the essence of the Comptroller
General principles and standards for real property accounting and reporting.
a. All real property with an initial acquisition cost or value of
$5,000 or more and an estimated service life of 2 years or greater must be
capitalized and reported in financial statements.
b. Costs should be capitalized concurrently with disbursement and
include all amounts paid to acquire and install the assets in their
current form and place. Costs to be capitalized also include the costs of
additions, alterations, betterments, rehabilitations, and replacements
that extend the useful life of the asset or its service capacity. Other
payments shall be accounted for as operating expenses.
c. Real property comprises land and structures (1) purchased or
constructed including such property acquired by capital lease (when the
lease agreement is essentially equivalent to an installment purchase of
property), (2) transferred (assigned or on loan) from other agencies, and
(3) donated or acquired by other means. It also includes any real
property owned by the agency but assigned to others.
d. The initial cost of property acquired by transfer from other
agencies shOuld be the amount recorded on the transferor's books. The
initial cost of property donated should be its fair value at time of
donation.
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CONFIDENTIAL
e. Depreciation accounting is encouraged.
Copies of the relevant sections (Sections L 10, L40, P40, and 110 of
Appendix I) of the GAO Policy and Procedures Manual for Guidance of Federal
Agencies are attached.
4. The Office of Finance maintains a general ledger account, "Real
Property Owned and Improvements to Real Property Assigned or Leased to the
Agency" and an offsetting "Reserve" account. These accounts are adjusted
annually on the basis of the Otf ice of Logistics' Agency Real Property report
which is based on the Real Property Summaries required by
That report does not cover proprietary real property and does not include the
headquarters building - we are not certain whether it includes all other
"assigned" (transferred from other agencies) properties in the Metropolitan
Washington Area. OF also maintains a general ledger account, "Property on
Loan from Others - Headquarters" for both personal property and real property
on loan to the Agency. This latter acount is adjusted on the basis of annual
reports submitted by the 'accountable entities.
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. APPENDIX I APPENDIX I
LEASES
INTRODUCTION
.01 A lease agreement, is an agreement to convey the use of an asset
or part of an asset (such as part of a building) from one entity,
the lessor, to another, the lessee, for a specified period of time
in return for rent or other compensation. Lessees have either capi-
tal or operating leases while lessors have either sales-type, direct
financing, or operating leases. Capital, sales-type, and direct
financing leases transfer substantially all the benefits and risks
of ownership from the lessor to the lessee. Al]. other leases should
be accounted for as operating leases, i.e., rental of property.
(The LASS Current Text, section L10, contains accounting guidance
for specific areas of lease transactions, such as real estate,
related parties, and subleases.)
ACCOUNTING STANDARD
.02 When the lease agreement is essentially equivalent to an in7i
stallment purchase of property, an agency shall record the approOri-
ate asset and liability. See paragraph .03 below. In such casei,
the substance of the arrangement, rather than its legal form, shall
determine the accounting treatment. The following paragraphs pro-
vide criteria to use for guidance in assessing the substance of
lease arrangements. Paragraphs .14 through .22 contain definitions
of some of the terms used in this standard.
Capital Leases
.03 Lessees shall .classify a lease as a capital lease if the lease
agreement is essentially equivalent to an installment purchase of
property. If any of the following criteria is met, the lease agree-
ment is presumed to be equivalent to an installment purchase:
(a) The lease transfers ownership of the property to the
lessee by the end of the lease term.
(b) The lease contains an option to purchase the leased pro
erty at a bargain price.
(c) The noncancelable lease term is equal to or greater than
75 percent of the estimated economic life of the leased
property.
(d) The present value of rental and other minimum lease pay-
ments, excluding that portion of the payments that repre-
sents executory costs, such as insurance, maintenance, and
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APPENDIX I
APPENDIX I
L10
taxes to be paid by the lessor, equals or exceeds 90 per-
cent of the fair value of the leased property.. The lessee
shall compute the present value of minimum lease payments
using the Treasury Average Interest Rate for Marketable
Interest-Bearing Debt unless (a) it is practicable for the
lessee to learn the Interest rate implicit in the lease
computed by the lessor and (b) the implicit rate computed
by the lessor is less than the Treasury Average 'Interest
Rate for Marketable Interest-Bearing Debt.
The last two criteria do not apply if the beginning of the lease
term falls within the last 25 percent of the total estimated eco-
nomic life of the leased property. An agency's "rental of space
from GSA does not meet these criteria.
.04 Agencies with capital leases shall treat capital leases as the
acquisition of an asset and the incurrence of a liability. The as-
set shall be recorded at its fair market value, with a like amount
shown in the liabilities section. The difference between the total
lease payment and the fair market value is interest. The properti
shall be accounted for in accordance with the Acquisition Cost of
Assets standard, section A20; Appropriations for Property, Plant,
and Equipment standard, section A40; Property, Plant, and Equipment
standard, section P40; and Depreciation and Amortization standard,
section 020; reported in the Statement of Financial Position as a
component of property, plant, and equipment; and depreciated in
accordance with the agency's policies.
.05 Interest shall be computed and recognized periodically. The
effective interest method shall be used to produce a constant rate
of interest on the remaining lease liability. A portion of each
lease payment shall be allocated to interest expense, and the
balance shall be applied to reduce the lease liability. The amount
allocated to interest expense shall be computed based on the
interest rate used to compute the present value of minimum lease
payments. (See paragraph .03.) The. interest expense shall appear
on the. Statement of Operations. The portion of the appropriation
used to cover the interest expense shall also appear on the
Statement of Operations as a Financing Source. Illustrative journal
entries are provided in paragraph .23.
.06 In leases containing a residual guarantee by the lessee or a
penalty for failure to renew the lease at the end of the lease term,
following the above method of amortization will result in a balance
of the liability at the end of the lease term that will equal the
amount of the guarantee or penalty at that date. In the event that
a renewal or other extension of the lease term or a new lease under
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APPENDIX I
L.10
which the lessee continues to lease the same property renders the
guarantee or penalty inoperative, the asset and the liability under
the lease shall be adjusted by an amount equal to the difference
between the present value of the future minimum lease payments under
the revised agreement and the present balance of the liability. The
present value of future minimum leas. payments under the revised
agreement shall be computed using the rate of interest used to
record the lease initially. Other renewals and extensions of lease
terms shall be considered new agreements.
Sales-Type Leases or Direct Financing Leases
.07 If the need should arise for guidance on accounting for
sales-type and direct financing leases, reference should be made to
the FASB Current Text, section L10.
Operating Leases
.08 Any lease that is not a capital, sales-type, or direct
financing lease is an operating lease. Lessees shall treat the F
payments and accruals for operating leases as expenses; lessors !
shall treat the payments and accruals as current revenue and
depreciate the asset in accordance with its depreciation policy.
The asset shall be reported on .the lessor's Statement of Financial
Position as a component of Property, Plant, and Equipment.
Disclosures - Lessees
.09 For all leases treated as capital leases, lessees shall report
assets, accumulated amortization, and liabilities arising from the
leases separately in the Statement of Financial Position. In
addition, current amortization charges to income must be disclosed
clearly along with (11 gross assets leased as of each balance sheet
date in aggregate and by major property categories and (2) minimum
future lease payments, in total and for each of the next 5 years,
showing deductions for executory costs, including any profit there-
on, and the amount of imputed interest to reduce the net minimum
as. payments' ta gresent-vglues.
.10 For all operating-leases having noncancelable lease terms in
excess of 1 year, lessees must disclose (1) minimum future rental
payments, in total and for each of the next 5 years, and (2) a
schedule of total rental expense.
.11 In addition, lessees must provide a general description of all
leasing Arrangements. Refer to the FASB Current Text, section LIO,
for general information about which matters should be included.
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APPENDIX I
Cisclosures - Lessors
APPENDIX I
L10
.12 In general, lessors shall also provide a full description of
the leasing arrangements. /n addition, agencies that do a
significant amount of leasing must disclose the following for
operating leases:
(1) A schedule of property held for lease, less accumulated
depreciation, as of each balance sheet date presented.
These schedules should be broken down by major categories.
(2).. A schedule of minimum future rentals on noncancelable
operating leases, in total and for the next 5 years.
(3) The amount of contingent rentals included in each
operating statement presented.
.13 _SiMilar lease agreements shall be aggregated for purposes of
the required disclosures.
Definitions
.14 The following paragraphs contain brief and general definitions
of several of the terms used in this standard. .The FASB Current
Text, Section L10, should be referred to for more specific guidance.
.15 For nonoperating leases, the lease term is the fixed noncan-
celable.term of the lease plus all periods, if any, representing
renewals or extensions of the lease which can reasonably be expected
to be taken.
F
.16 Noncancelable means the lease is cancelable only on the
occurrence of a remote contingency. Funds not being appropriated by
the Congress in future years to cover the lease is considered a
remote contingency.
.17 A bargain purchase option is a lessee's option to purchase the
leased proporty at a. targalm ?rtcePttrav-:rrs*es-crie- exerciseu-ot the
option almost certain.
.18 The estimated economic life is the estimated remaining useful
life of property for the purpose for which it was intended, regard-
less of the term of the lease.
.19 The minimum lease bayments are the payments that the lessee is
obligated to make or can be required to make in connection with the
leased property. (Contingent-rentals are excluded from minimum
lease payments.)
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APPtNIDIX t
APPENDIX /
LIO
.20--The fair value of the leased property is the price for which
the property could be sold in an arm's-length transaction between
unrelated parties.
.21 The interest rate implicit in the leas, is the discount rate
that, when applied to the minimum lease payments (less executory
costs and.the unguaranteed residual value), causes the aggregate
present value at the beginning of the lease term to be equal to the
fair value of the leased property at the inception of the lease.
.22 The renewal or extension of a lease is the continuation of a
lease agreement beyond the original lease term, including a new
lease under which a lessee continues to use the same property.
Illustration of Lease Accounting
.23 The following is an illustration of the accounting entries made
by an appropriated activity in a capital lease situation.
Company XYZ, as lessor, enters into a lease agreement with f
Agency A, as lessee, on January 1, 19X1, for equipment. Agency
although not required to, does follow the policy of amortizing its
intangible assets. The following data are relevant to the
agreement:
1. The term of the noncancelable lease is 11 years, with no renewal
option. Payments of 510,000 are due on January 1 of each year,
beginning with January 1, 19X1.
2. The fair value of the equipment on January 1, 19X1 is $60,000.
The equipment has an economic life of'20 years with no salvage
value.
3. Agency A receives title to the equipment at the end of the 11th
year.
4. Agency A pays all executory costs.
S. Agency A is aware that Company XYZ used an implicit interest
rate of 15 percent in computing the lease payments. (The pre-
sent value factor for 11 periods at 15 percent is 6.0188. Thus,
the present value of the minimum lease payment is $60,188, which
is also Company XYZ's fair value at the commencement of the
lease. Fpr simplicity, we are rounding the $60,188 down to
$60,000.)
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APPENDIX I? APPENDIX
L10
Agency A's Lease Amortization Schedule
Annual Interest Reduction Balance of
lease on unpaid of total lease
Date payment amount lease obligation. obligation,
$60,000.
50,000
47,500
44,625
(For simplicity in this illustration, the remaining years are
omitted from -this' schedule.)
1/1/X1-
$10,000
$10,000
1/1/X2
10,000
S7,500
2,500
'1/1/X3
10,000
7,125
2,875
It22-2.-?1-1Aerntin
January 1, 19X1
(1) Equipment under capital lease $60,000
Obligations under capital
lease
(to record the signing of the
lease agreement.)
(2) Obligations under capital lease $10,000
Cash
Unexpended appropriations $10,000
Invested capital
(to record the first lease payment.)
December 31, 19X1
(3) Amortization expense
Accumulated amortization
Invested capital
Financing sources
(to record the amortization expense
and the funding of that expense.
If the agency does not amortize
intangible- assets, cnis ertry- will
not be made.)
January 1, 19X2
(4) Obligations under capital lease
Interest expense
Cash
Unexpended appropriations
Invested capital
Financing source
(to record the-second year's
lease payment.)
78
$3,000
$3,000
$2,500
$7,500
$10,000
$60,000
$10,000
$10,000
$ 3,000
$ 3,000
$10,000
$2,500
$7,500
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APPENDIX r- APPENDIX I
LONG-TERM CONTRACTS
INTRODUCTION
.01 This standard includes the requirements for long-term contract
accounting by federal agencies for the following:
--long-term contracts for the purchase or sale of goods or
services, and
--long-term contracts for the purchase or sale of property
manufactured or constructed.
ACCOUNTING STANDARD
Long-Term Contracts for the Purchase.
or Sale of Goods (Excludial2maatEty.L
Plant, and Equipment) or Services
.02 Agencies shall recognize the liability for goods and servic4s
purchased under a long-term contract in the period in which the -
goods or services (or a portion thereof) are received or accepted
by the agency. The related asset (i.e., inventory, materials and
supplies, or work in process) or expense, as appropriate, shall be
recorded at the same time as the liability.
.03 Agencies shall recognize the revenue and costs of goods and
services sold under a long-term contract in the period in which the
goods or services are delivered or constructively delivered to the
purchaser. Constructive delivery occurs when an agency
(the seller) meets the obligations of the long-term contract.
Long-Term Contracts for the
Purchase or Sale of Property.
Plant, and Equipment
.04 For financial reporting purposes, agencies shall compute the
llability.for property, plant, and equipment manufactured-or con-
structed for them under long-term contracts on the basis of veri-
fied estimates of work'completed (percentage-of-completion method)
per contractor reports or invoices received during each accounting
period, rather than on disbursements made. Appropriate liabilities
for contract retainages, if any, shall also be recorded. The ap-
propriate property, plant, and equipment accounts .(including con-
struction in progress) shall also be adjusted based on liabilities
recorded. See the Property, Plant, and Equipment standard, section
P40, paragraph .09.
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APPENDIX APPENDIX I
Advances Under Long-
-2 Ter-22n112212.
L40
.05 Payments by agencies to contractors under any long-term con-
tract in excess of related liabilities at the end of an accounting
period shall be accounted for as advance payments under long-term
contracts. For accounting guidance, see the Advances and Prepay-
ments standard, section A30.
.06 Receipts by an agency from purchasers under any long-term con-
tract in excess of revenues earned as of the end of an accounting
period shall be reported as revenues received in advance (a lia-
bility account). The liability amount shall be decreased as the
revenues are earned and recognized.
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. APPENDIX
???
PROPERTY PLANTS AND EQUIPMENT
APPENDIX r
P40
INTRODUCTION
.01 This standard applies to property, plant, and equipment in-
cluding land, structures and facilities, equipment, and related
improvements that have a service life of 2 years or greater.
Property, plant, and equipment AlAp includes as_sets,acauirecilly.
capital, leaseg.(see the Leases standard, section L10) as well as
leasehold improvements. These assets may also be discussed in
terms of accountability units which are of concern when a tangible
capital asset is a component of plant and equipment. Each compo-
nent is an accountability unit if it is capitalized when acquired
or if its replacement is capitalized when the unit is removed,
transferred, sold, abandoned, demolished, or otherwise disposed of.
ACCOUNT/NG STANDARD
.02 Al]. property, plant, and equipment with an initial acquisition
cost of $5,000 or more and an estimated service life of 2 years o* ?
greater must bc capitalized and reported in the financial state-
ments. However, these limits do not affect an agency's. responsi-
bility for proper control of property. Agencies shall establish
appropriate internal controls over all assets, particularly those
sensitive items that are subject to theft.
.03 Purchased or constructed property, plant, and equipment shall
be accounted for at cost, which includes all amounts paid to
acauire and install the assets in their current form and place. .
The Acquisition Cost of Assets standard, section A20, paragraphs
.02 through .05, provides further guidance on determining
acquisition costs. Donated fixed assets received from nonfederal
entities shall be accounted for at estimated fair value at the date
of acquisition. Statues and monuments shall be reported at their
historical cost or other rational basis, with depreciation not
applied.
.04 ADLsoftwire (programs, routines, or. subrauttnes),-7,1wed -ate,
$5,000 or more, with a useful life of 2 years or greater, shall be
capitalized as property, plant, and equipment. For ADP software
used in research and development activities, whether purchased or
developed by agency personnel, refer to the Research and Develop-
ment standard, section R40.
.05 When initially recording property, plant, and equipment that
was previously acquired, the cost shall be recorded or, if cost
cannot be estimated, the fair value of the fixed asset at the date
acquired shall be estimated from available records or evidence.
See the Fair Value standard, section F10 for guidance on fair value
determinations.
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APPSNOIX. APPENDIX I
P40
.06 Costs of additions, alterations, betterments, rehabilitations,
or reolacements that extend theuselTiLlife of the asset or its
service capacity-The/1' be capitalized as property, plane, and
uipment. Costs of assets installed in or added to another asset
shall be capitalized either individually or as part of the other
asset. Costs of assets or components removed, superseded, or
destroyed in the improvement process shall be expensed, net of
accumulated depreciation, if any.
.07 Expenses incurred to maintain property, plant, and equipment
in satisfactory operating condition (repair and maintenance
expenses) shall be accounted for as operating expenses.
.08 If current costs would be distorted in a given period by
charging to expense a large quantity of items, such as the initial
complement of equipment of a building, that individually cost less
but collectively cost more than the $5,000 capitalization criter-
ion, such items shall be grouped in a separate asset group ac-
count. (An example would be a substantial amount of purchased
office furniture, involving many pieces that individually cost 146s
than $5,000.) See paragraph .13 for further discussion of property
records. Such items shall be depreciated if the agency adopts
depreciation accounting.
.09 Property, including assets acquired through installment con-
tracts and lease purchases, shall be capitalized when placed in
service. All costs associated with preparing property, plant, and
equipment for service shall be recorded in the Construction in Pro-
gress account and reported in the financial statements. (See the
Long-Term Contracts standard, section L40, paragraph .04.) When
assets are placed in service, the accumulated costs shall be trans-
ferred to the appropriate asset account.
.10 The cost of property acquired as a result of trade-ins shall
be recorded at the lesser of (1) the cash paid and/or liability
incurred plus the net book value of the traded-in property or (2)
the amount that the purchase price would have been without
.11 Property acquired by foreclosure shall be recognized at the
appraised (or fair market) value. The difference between amounts
due and costs incurred and assets recorded at the appraised or fair
market value shall be recognized as a current period loss or gain
in the Statement of Operations when the foreclosure occurs. (See
Debt Agreement Modification, section D10, paragraph .03 and .04.)
.12 Property acquired by donation, devise (bequeath), forfeiture,
or confiscation shall be carried in agency accounts at a fair value
plus any costs incurred to place the property in use.
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APPENDIX I_ APPENDIX /
P40
.13 Agency property records must:
(1) capture all transactions affecting the agenWs invest-
ment in property, including:
(a) all acquisitions, whether by purchase, transfer
from'other actencies, donation, or other means, as
of the date the agency takes custody of the
property;
(b) the cost of use as an operating cost over the pro-
perty's estimated useful life accounted for as
depreciation or amortization, where provided by the
standard on Depreciation and Amortization, section
D20; and
(c) all disposals or retirements when the property
leaves the custody of the agency;
(2) control physical quantities of government-owned propeity
and its location. These records should be designed to
be of maximum assistance in the procurement.and utiliza-
tion of such property and, therefore, should include the
identification of excess property and its use, transfer,
or disposal in accordance with statutory and regulatory
requirements;
.(3) enable periodc independent verifications of the ac-
curacy of the accounting records through periodic
physical counts;
(4) identify property, plant, and equipment which were capi-
talized and reported in financial statements and those
assets that do not meet the capitalization criteria and
that were charged As expenses in prior periods but are
included in the records for control purposes;
.(S) ha. integrated,.eithor recorkIlled w-ith-the-accounting-
systems;
(6) accumulate costs of construction in progress projects as
costs are incurred for comparison with authorized
amounts;
(7) include all government-owned property (even if held by
others) as well as property of others held by the
government;
(8) identify leased property (even if not capitalized); and
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? 0 A fr
APPENDIX r_ APPENDIX I
P40
(9) account for capitallied additions and improvements.
Retirement of Property, Plant, and Equipment
.14 When nondepreciated property, plant, and equipment are re-
tired, agencies shall remove the assets from the property account
and an equal amount from the Invested Capital account. Unless
Otherwise specified by law, any proceeds received shall be ac-
counted for as Cash and Miscellaneous Receipts Due Treasury (a
liability) or used to replace similar assets when permitted by
law. Also, contracts may authorize the proceeds from the sale of
property in a contractor's or subcontractor's custody to be
credited to the cost of work, in accordance with the contract or
subcontract, pursuant to 40 U.S.C. 485(e). When the proceeds are
deposited with the Treasury, agencies shall remove the amounts from
the Cash and Miscellaneous Receipts Due Treasury accounts. Refer
to the illustration in the Equity of the U.S. Government standard,
section ;E20, paragraph .15.
.15 when depreciated property, plant, and equipment are retiredE
agencies shall recognize gains or losses on retirement if the
assets were disposed of outside of the federal government. For
assets transferred to other federal agencies, see Transfers of
Assets and Liabilities Between Federal Agencies standard, section
T10, and Equity of the U.S. Government standard, section E20,
paragraph .14.
.16 When retiring depreciated property, plant, and equipment,
agencies shall remove the net book value (difference between the
amount at which the asset is recorded and its related accumulated
depreciation) from the Invested Capital account, the related depre-
ciation from the Accumulated Depreciation account, and the amount
of the assets from the property account upon retirement. Any pro-
ceeds received shall be accounted for as in paragraph .14 above.
The difference between the proceeds received and the net book value
of the assets shall be accounted for as gains or losses on the
retirement of property, plant, and equipment. See the Equity of
the. U.S.. government standard, section E2.0.. paragraph
.17 The gains or losses shall be recognized in the accounts as a
financing source or an expense as applicable and as a charge to the
Cumulative Results of Operations account. In addition, the gains
or losses shall be shown on the agencies' financial statements as
an adjustment to the accumulated results of operations at the
beginning of the year. See the Equity of the U.S. government
standard, section E20, paragraph .15.
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APPENDIX I -
APPENDIX I
P40
Disclosure
Property,- plint,-and equipment reported in the financial
statements are to be classified into the following categories
(separated for depreciated and nondepreciated assets):
(e) land and improvements;
(b) structures, facilities, and improvements;
(c) furniture and equipment, including ADP equipment;
(d) construction in progress;
(e) ADP software; and
(f) statues and monuments.
.19 The basis for determining asset values, i.e., actual costs, .
fair value, and estimated cost, ?are to be disclosed in the finan-f
cial statements. Disclosure shall also include the lives and 7
depreciation methods used, if any. Similar assets can t4 grouped
for purposes of these disclosure requirements.
.20 Each fiscal year, additions to and retirements of property,
plant, and equipment shall be disclosed in the financial state-
ments. Fully depreciated assets still in use, if any, shall be
disclosed. Agencies shall periodically review the remaining useful
life of assets and adjust per period depreciation charges to pre-
vent full depreciation of assets still in use.
.21 Any restrictions as to the use or convertibility of property,
plant, or equipment shall be disclosed in the footnotes to the fi-
nancial statements.
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MPEN9IX I
TRANSFERS OF ASSETS AND LIABILITIES
BETWEEN FEDERAL AGENCIES
APPENDIX I
T10
INTRODUCTION
.01 This standard specifies the accounting to be followed by fed-
eral agencies for transactions that involve the receipt or disposi-
tion of assets and liabilities between federal agencies but do not
involve cash disbursements. Assets covered include accounts and
loans receivable, inventory, and property. Liabilities covered
include payables, accruals, loans, and debts.
ACCOUNTING STANDARD
.02 Assets and liabilities transferred without a monetary exchange
between federal agencies shall, except as 'provided below, be
accounted for at the amount recorded on the transferor's books. No
gains or losses shall be recognized on such transactions.
.03 This standard does not apply to sales and other transactions
that occur in the normal operation of business-like activities
(e.g., revolving and stock funds). It does apply to transfers of s
property that are not part of the normal operation of such
business-like activities.
.04 Federal agencies purchasing assets for cash from other federal
agencies shall follow the accounting provided by the Acquisition
Cost of Assets standard, section A20. Federal agencies selling as-
sets for,cash to other federal agencies shall follow paragraphs .14
through .17 of the Property, Plant, and Equipment standard, section
P40.
Nonreciprocal Transfers Within
the Federal Government
.05 When a federal agency transfers assets and/or liabilities to
another agency without any offsetting transfer from the other
agehey, the transferor's asset, liability, and equity accounts shall
be reduced for the items transferred-and the- cransferseOsassst,
liability, and equity accounts increased accordingly. The trans-
feree shall record the items received at the net book value on the
transferor's books.
Reciprocal Transfers Within
the Federal Government
.06 When two or more federal agencies exchange assets and/or lia-
bilities (offsetting transfers), each transferee agency shall record
the assets and/or liabilities received at the amount the asset
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APPENDIX r
APPENDIX I
T10
and/or liability was.carr;.ed at in the transferor's records. In
effect, the agencies are transferring net book values as well as
assets or liabilities, and, consequently, no gains or losses shall
be recognized by either agency although a change in equity occurs,
where net book values are not identical.
Transfers of Depreciated
or Depreciable Assets
.07 Differences in depreciation policies complicate transfer ac-
counting. Accounting for such transfers shall be as follows:
(a) If, under the transferor's depreciation policy, the asset
has been depreciated, the asset shall be recorded by the
transferee at the transferor's net book value even if the
transferee's policy is not to depreciate such assets or
the transferee has different depreciation policies.
(b) If, under the transferee's depreciation policy, the asset
will be depreciated but the transferor has not recorded-
depreciation on the asset, the transferee shall recor0
the asset at the transferor's original book value. The
transferee shall then record accumulated depreciation
(reducing the equity account by a like amount) equal to
the amount it would have recorded if it had originally
acquired the asset and had depreciated it based on its
depreciation policy. Depreciation after the transfer
shall be calculated based on the net asset amount
recorded.
.08 An example of accounting under the.above standard follows.
Agency A exchanges an asset carried at $10,000 (not depreciated) for
an asset from Agency B that is carried at $5,000 (original cost of
$10,000., less depreciation of $5,000).
(1) Invested Capital
Asset
(Agency A. records transfer to B.)
$10,000
(2) Asset $5,000
Invested Capital
(Agency A records receipt of asset.)
(3) Invested Capital
.Accumulated Depreciation
Asset
(Agency B records transfer to A.)
107
$5,000
$5000
$10 , 000
$5,000
$10,000
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APPENDU I
(4)
Asset $10,006
invested Capital
(Agency B records receipt of asset.)
(5) invested Capital
Accumulated Depreciation
(Agency B records accumulated
depreciation based on its poli-
cies. One-half of the useful
life of the asset would have
passed. Agency B uses straight-
line depreciation.)
108
$5,000
T10
$10,000
$5,000
Tq 7.04 October 31, 1934
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0 2 SEP 1988
MEMORANDUM FOR: Deputy Inspector General for Audit
VIA: Deputy Director for Administration
FROM: John M. Ray
Director of Logistics
SUBJECT: Report of Audit of Real Estate and Construction
Division, 1 July 1985 - 31 March 1988
The following action has been taken on recommendations #1
and #2 of the subject audit report:
a. Recommendation #1 - Representatives from Real Estate
and Construction Division, OL met with the Deputy Assistant
to the Director for Policy and Plans, Office of Finance (OF)
on 11 August 1988 and reviewed the draft Memorandum of
Understanding (MOU) on Real Property Reporting. The
provisions of the MOO are completely acceptable to OF, and we
are proceeding with finalizing it for signature by the
Directors of OF and OL. A copy of the executed MOO will b
provided to the Inspector General.
b. Recommendation #2 - The MOO includes definitions and
requirements for real property reporting. With OF's
acceptance of the MOO, we are proceeding with the review,
evaluation, and revision of the property reporting systems.
After revised reporting formats are established, we will
issue written instructions on preparing Real Property
Reports; provide briefings, where needed, on preparing the
reports; and request reprogramming or a new automated system
for real property reporting.
SECRET
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