Question

What is an example of a specific capital project fund? Give an example of the journal entries to record it.?

Answer 1

Capital Project Funds are used to account for Financial resources that are used to construct/ acquire major, long-lived general capital facilities.

Examples :-

• Buildings
• Highways & Bridges
• Storm water Drainage Systems

There are basically two types of capital projects :-

• General ( Public Benefit) Examples:- Public Buildings, roads , Highways & Bridges, park improvements etc.
• Special Assessments( private benefits) Examples :- Street improvements, curbs, sidewalks, street lightining, sewage etc. Deemed to benefit citizens in a specified benefit district.

Characteristics of Capital Projects :-

• Involces long-lived assets (e.g buidlings, roads, and bridges etc.)
• Usually involves a construction project.
• Usually requires long range planning and extensive financing.
• Have a project life focus rather than year to year.

Reason for maintaining seperate funds :-

• Often funds are legally restricted.
• Commonly financed with bonds not taxes.
• Accounted for on the modified accrual basis of accounting.
• Budgets are typically project based not fiscal based.
• Most bonds are issued at either a premium or a discount.

Premium Bonds :-

• All premiums are transferred to the debt services fund.

Discount Bonds :-

• Amount of Discount must either be :-

1. transferred in from the general fund.
2. project must reduce its cost by the amount of the discount.

Examples of journal entry to record it :-

• Assume approval is obtained for a federal grant as partial funding for a city's office building project.

Upon approval the following journal entry to be made.

Capital Project Fund :-

Due from other govt. units ......Dr 100,000

To Revenues .........Cr 100,000

Governmental Activities:-

Due from other Govt. Units........Dr 100,000

To Program Revenues ......Cr 100,000

• It may also be necessary to obtain Interim Financing. Assume for the office building project, $ 50,000 was borrowed from the general fund, to be repaid later from bond proceeds.

Capital Project Fund:-

Cash ................................Dr 50,000

To Due to General Fund..Cr 50,000

Governmental Activities :-

No entry Needed.

• A contract was let in the amount of $50,000 with an architectural firm to complete the architectural design for the new city office building. Journal entry would be :-

Capital Project Fund :-

Encumbrances.............................Dr 50,000

To Reserve For Encumbrances..Cr 50,000

Governmental Activities :-

No entry Needed.

• The Architectural firm for which an encumbrance of $ 50,000 had been recorded tendered its final billing in the amount of $ 48,000. The city immediately paid the amount due.

Capital Project Fund :-

Construction Exp. ..............................Dr 48,000

Reserve for Encumbrance................. Dr 50,000

To Cash...........Cr 48,000

To Encumbrances....Cr 50,000

Governmental Activities :-

Construction Work in Progress .......................Dr 48,000

To Cash .....Cr 48,000

• Assume that bonds with a face value of $5000,000 were issued at 101 to finance the project.

Capital Project Fund:-

Cash ......................Dr 5,050,000

To Other Financing Sources( Bond Proceeds)......Cr 50,50,000

Other Financing Sources- Transfer of Premium......Dr 50,000

To Due to Debt Service Fund ............Cr 50,000

Governmental Activities:-

Cash ................................Dr 5,050,000

To Bonds Payable ......Cr 5,000,000

To Premium.................Cr 50,000