Chapter 6 Capital Project Fund

CHAPTER 6
Capital Project found
Capital project fund is created – when money received by issuing from debt, grants from
other funds, and gifts from individuals or organization is restricted legally to the
acquisition or construction of specified capital asset. GASB recommended that a capital
project fund should be created to account for resources to be used for major construction
or acquisition projects.
 Capital project fund is also used to account for the acquisition by government unit of
general fixed assets under a capital lease agreement.
 CPF is created b/c to provide a formal mechanism to enable administrators to ensure

revenues dedicated to a certain purpose and no other and to enable administrators to
report to creditors, and other grantors of capital project fund resources.
 CPF differ from General and SRF in that, the latter categories have year to year life,
where as capital project fund have a project life focus.
 CPF account for acquisition of general fixed assets from expenditures of debt
proceeds, capital grants and other sources restricted for fixed asset acquisition. Cost
of assets acquired is recorded in the general fixed asset account group.
 Accomplishment of CPF
A. Out right purchase
B. Construction, utilizing the governmental units own working force
C. Construction, utilizing the service units private working force
D. By capital lease agreement.
Guidelines of CPF Accounting

1. Proceeds from debt is recognized at the time the issue is sold, rather than
the authorization.
2. Proceeds form debt should be recorded as proceeds from Bond rather than
revenue, and reported as other financing sources.
1
3. Tax revenue raised by general fund or SRF and transferred to capital
project fund are recorded as operating transfer in and reported in the other
financing source.
4. Tax revenue raised for specifically for capital project fund is recorded as
revenue.
5. Grants or shared revenues received by a CPF from another government
unit is considered revenue.
Example. Assume the Town council of the Town ABC authorized an issue of
$1,200,000 of 6 percent bonds as partial financing of a fire station expected to cost
approximately $1,500,000; the $300,000 additional was to be contributed by other
governmental units.
The project, to utilize land already owned by the town, was done party by private
contractors and partly by the town’s own working force. Completion of the project was
expected with in the current year.
Transactions were as shown below.
1. The $1,200,000 bond issue, which had received referendum approved by
taxpayers, was officially approved project by the town council. No formed
entry)
2. Sum of $50,000 was borrowed from National Bank for preliminary expenses
security of Bond issued is sold.
Cash 50,000
Bond anticipation Notes payable 50,000
3. Amount 300,000 receivable from other governments was recorded.

Due from other government units 300,000
Revenue 300,000
4. Total purchase order and other commitment documents issued for supplies,
material, items of minor equipment and labour required for the part of the
project to be amounting $443,000
Encumbrance 443,000
Reserve for Encumbrance 443,000
2
5. A contract was let for certain work to be done by a private contractor in the
amount of $1,005,000.
{
Encumbrance $1,005,000
Reserve for Encumbrance 1,005,000
6. Special engineering and miscellaneous costs that had not been encumbered
were paid in the amount of $ 48,000.
Construction Expenditure 48,000
Cash 48,000
7. When a project is half finished (approximately), the contractor submitted

billing for payment of $ 495,000
Reserve for encumbrance 495,000
Encumbrance 495,000
Construction Expenditure 495,000
Contract payable 494,000
8. Payment in full received from the other government unit that has agreed to
pay part of the cost of the new fire station.
Cash 300,000
Due from other government 300,000
9. The National Bank loan was repaid with interest amounting to $1,000.
Interest Expenditure 1,000
Bond Anticipation Notes payable 50,000
Cash 51,000
10. The bond issue was sold at par, on June 15, 2007.
Cash 1, 2000,000
Proceed from Bond 1,200,000
11. The contract’s initials claim was fully verified and paid
Cash 495,000
3
12. Total disbursement for all costs encumbered in transaction No. 4
amount to $440,000
Encumbrance 440,000
Contract Expenditure 440,000
Cash 440,000
13. Billing for the balance due on his contract was received from the contractor.
Encumbrance 510,000
Construction expenditure 510,000
14. Inspection reveled only minor imperfection in the contractor’s performance
and on correction of these, his bill was paid.
Cash 510,000
15. All requirements and obligations related to the project having been full filled,
the operating statement accounts were closed.
Revenue 300,000
Proceed form bond 1,200,000
Construction expenditure 1,495,000
Interest expenditure 1,000
Fund balance 6,000
16. Equity transfer (6,000 asset cash is the only remaining) transferred to the fund
that will pay the interest on the bonds sold for this project, a debt serve fund.
Transferring this nature is called equity transfers.
Equity transfer out 6,000
Cash 6,000
Fund Balance 6,000
Equity transfer out 6,000
4
Town ABC fire station CPP
Statement of Revenue, Expenditure and change in fund balance /for the year
Ended December 31, 2007.
Revenue:
From other government units 300,000
Expenditures:
Construction 1,493,000
Interest on short-term debt 1,000
Total Expenditure 1,494,000
 Excess of Revenue over (under) Expenditure (1,194,000)
 Other financing source (use):
Proceed from bond 1,200,000
Excess of Revenue and other financing source over expenditure …… 6,000
Fund balance beginning 0
Equity transfer out (6,000)
Fund balance ending -0-

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CHAPTER 6

Capital Project found

 CPF is created b/c to provide a formal mechanism to enable administrators to ensure

Guidelines of CPF Accounting

3. Amount 300,000 receivable from other governments was recorded.

7. When a project is half finished (approximately), the contractor submitted

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