In September 2024, the Governmental Accounting Standards Board (GASB) issued GASB Statement No. 104, Disclosure of Certain Capital Assets (GASB 104 or Statement). GASB 104 provides users of government financial statements with essential information concerning two types of capital assets: (1) capital assets associated with leases and other intangible assets and (2) capital assets held for sale. The requirements of GASB 104 are effective for fiscal years beginning after June 15, 2025.
Background
For the past quarter century, GASB Statement No. 34, Basic Financial Statements – Management’s Discussion and Analysis – for State and Local Governments (GASB 34) has served as the primary source of guidance for disclosures related to capital assets in government financial statements. Subsequent to the issuance of GASB 34, the GASB has issued statements pertaining to intangible right-to-use assets (Statements 87, 94 and 96), which are considered capital assets. Research conducted by the GASB found that intangible right-to-use assets (for example, lease assets and subscription assets), as well as other long-lived nonfinancial assets, are common in government financial statements. There is diversity, however, in how financial statement users generally evaluate information about certain types of nonfinancial assets.
Based on this research, the Governmental Accounting Standards Advisory Council (GASAC) supported the GASB pursuing a project on the classification of nonfinancial assets, which the GASB added to its technical agenda in August 2021. This project resulted in the release of an Exposure Draft, Disclosure and Classification of Certain Capital Assets, in September 2023. After taking into consideration comments received on the draft, the GASB issued GASB 104 in September 2024, which was limited to disclosures of certain types of capital assets.
Key Considerations
A relatively short statement with a narrow focus, GASB 104 has two parts: (1) separate disclosure of certain capital assets and (2) capital assets held for sale.
Separate Disclosure of Certain Capital Assets
Within the capital asset note disclosures, governments should disclose capital assets related to intangible assets separately. This includes intangible right-to-use assets associated with GASB 87 (leases), GASB 94 (right-to-use assets recognized by an operator) and GASB 96 (subscription assets), as well as any other intangible asset. Intangible assets should be organized by major class of asset (for example, buildings or equipment); however, intangible assets representing the right to use an underlying asset should not be disclosed within the same major class as capital assets owned by the government.
Capital Assets Held for Sale
GASB 104 establishes that capital assets held for sale should be identified and disclosed within the notes to the financial statements. The Statement establishes two conditions a government should consider in determining whether a capital asset should be disclosed as held for sale: (1) the government has decided to pursue the sale and (2) it is probable the sale will be finalized within one year of the financial statement date. The evaluation as to whether a capital asset is held for sale should occur each reporting period. Factors to consider as to whether it is probable a sale will be finalized within one year of the financial statement date include, but are not limited to, (a) whether the asset is available for immediate sale in its present condition, (b) whether there is an active program to locate a buyer, (c) whether present market conditions support a sale of that type of asset and (d) whether there are regulatory approvals necessary for a sale to occur.
Capital assets held for sale should continue to be reported within the appropriate major class of capital asset and continue to be depreciated, if applicable. The notes to the financial statements should also include a separate disclosure of the historical cost and accumulated depreciation or amortization by major class of capital asset held for sale. For capital assets held for sale that are pledged as collateral, the carrying amount of debt should be disclosed by major class of asset.
Example Disclosures
The following illustration showcases the notable requirements to the capital asset note disclosures under GASB 104:
Illustration – Capital Assets Note Disclosure
The rows highlighted in red illustrate GASB 104’s requirement to separately disclose capital assets related to intangible assets within the capital asset note disclosures required by GASB 34, paragraphs 116 and 117.
Capital Assets Held for Sale Disclosure
Included in capital assets are buildings that are held for sale. Those buildings are reported in governmental activities. The historical cost of the buildings held for sale is $6,445 with accumulated depreciation of $3,760 as of June 30, 20X1. The buildings held for sale are pledged as collateral for debt with an outstanding balance of $2,465 as of June 30, 20X1.
Implementation Considerations
Financial statement preparers should review their current capital asset note disclosures and evaluate whether right-to-use assets and other intangible assets are correctly reported in accordance with GASB 104. If not, financial statement preparers should update the note disclosures.
Financial statement preparers should also evaluate whether any of their capital assets meet the requirements for disclosure as capital assets held for sale. Significant time and effort may be required to adequately assess the probability that the sale will be finalized within one year of the financial statement date. New note disclosures will need to be drafted to disclose the necessary information for capital assets held for sale.
Items to Communicate to Those Charged with Governance
The requirements of GASB 104 should improve financial reporting through better consistency in how financial statement preparers disclose intangible assets meeting the definition of a capital asset in the notes to the financial statements. In addition, the definition of capital assets held for sale and required note disclosures will promote greater transparency as to a government’s intention to sell capital assets in the coming year as well as provide financial statement users with essential information necessary to better understand how the potential sale may impact liquidity and to assess management’s operating effectiveness.
The limited scope of GASB 104 is an added benefit to financial statement preparers as the estimated time and effort needed to prepare for and implement the Statement should be less compared to other recent GASB standards. Nevertheless, proper planning and preparation is necessary to ensure successful implementation.
Effective Date
The requirements of the Statement are effective for fiscal years beginning after June 15, 2025, and all reporting periods thereafter. Earlier application is encouraged. The Statement should be applied retroactively to all periods presented in the basic financial statements, if practicable. If not practicable, the reason for not applying the Statement to prior periods should be disclosed.