Capital Project Funds are used to account for financial resources used to acquire or construct major capital assets like land, buildings, infrastructure, and equipment. Projects are usually large expenditures that result in long-lived assets. Once a project is complete, any remaining funds are transferred to other funds like debt service funds. Transactions are recorded using journal entries to debit expenses and credit the capital project fund. At the end of the project, the fund is closed out and any remaining balance is transferred to other funds.

1. Capital Project Fund
Capital Project Funds are used to account for financial resources to be
used for the acquisition or construction of major capital facilities other
than those financed by resources from proprietary type activities which
are accounted for in enterprise funds or those financed with funds held
by the government in a trustee capacity.
These projects usually involve large expenditures and result in assets
with extended life spans. Once the asset has been completed, the fund is
terminated. These include land, improvements to land, buildings and
building improvements, and infrastructure.

2. Sources of CPF: Funds for capital projects come from a variety of
sources, like revenue funds, debt funds, and others. Each has its own
set of conditions for use.
Outright purchase from fund cash;
By constructing, and utilizing the government’s own workforce;
By constructing, utilizing the services of private contractors;
By capital lease agreement.

7. Capital Projects Fund Characteristics
 Capital Project Funds use modified accrual basis accounting and
recognized encumbrances.
 They may also use budgetary accounting.
 Capital project funds are "limited life funds:" they exist for the life of
the project and are then closed.
 Surplus monies in the fund at closing are transferred either to a debt
service fund or to the general fund.

8.  Assets acquired or constructed through capital projects funds
are reported in the Governmentwide financial statements.
 Although the expenditures made to construct or acquire capital
assets are recognized in the capital projects funds, the capital
asset itself is not recognized in the capital projects fund. Like all
governmental funds, capital asset funds cannot recognize fixed
assets. This includes "construction in progress," which
represents the cost of an incomplete fixed asset.

9. Purpose of Capital Project Fund
Capital Project Fund can be termed as one of the essential fund
management techniques today. There are numerous reasons why
Capital Project Fund is managed:
 Capital Project Fund is important to note down all the expenses, to
properly show how the fund was utilized within the capital process.
 Capital Project Fund helps in the audit process. Even though Capital
Project Fund is for a special designated purpose, external auditors
still need to see how expenses were distributed over the course of
time. In this regard, it becomes essential to ensure that all the
relevant invoices are intact. Capital Project Fund reconciliation is an
important part of the overall audit of the organization.

10.  Capital Project Fund is important to segregate normal
procedural tasks from special tasks. For government-run
organizations, there is a separate fund for generic activities. On
the other hand, there is a specific fund that is directed toward
these special projects. It is a good idea to separate both of
them in order to avoid any confusion.
 Capital Project Funds also help in budgeting and future
planning for organizations and special projects.

11. Legal Requirements
A. Budgeting for the Project: Each capital project needs a budget, and the
budget should be recorded in the accounting records. The project budget should
be for the project’s life and amended only if the budgeted amount changes during
the project. At fiscal year-end, the capital projects fund’s budget is not closed
out, unlike all other governmental funds. However, revenues and expenditures
are closed out to fund balance. The board is responsible for providing proper
budgetary control and overseeing the capital projects fund’s budget. It is
essential to use budget modifications to prevent the over-appropriation of
available funds. The board should use budget status reports to ensure compliance
with required budgetary control procedures. Additionally, the board is required
to ensure compliance with Govt. policies (e.g., procurement, cash management,
and investment) and laws that would pertain to the capital project.

12. . Monitoring and Reporting
Once a capital project budget has been established and the project has begun, local
officials and/or their designees should monitor the project activity on a regular
basis. At a minimum, such monitoring should include:
• A review of project expenditures and encumbrances in relation to the project
budget and awarded contracts.
• The board must amend the project budget when necessary to prevent appropriation
items from being overdrawn.
• A review of the availability and timeliness of revenue sources identified in the
capital budget.
• A confirmation of the adequacy of cash flow needs necessary for the timely
completion of the project.
• A review of project status compared to initially projected timelines.

13. Report on Project Status and Activities: Producing project status
reports will assist officials throughout the project with tracking
budgeted revenues and making informed decisions, such as considering
change order requests and meeting cash flow demands. Meaningful
reports provide a comparison of actual results to the project plan, and
should include:
• Revenue and expenditure activity in comparison to the project budget,
showing:
i) Available appropriations; and
ii) Percentage of project budget expended.
• Percentage of the project completed in comparison to the initial
timeline projected.
• Significant changes to project scope or costs.

14. Capital Improvement Fund
A capital improvement is the addition of a permanent structural change or the
restoration of some aspect of a property that will either enhance the property's
overall value, prolongs its useful life, or adapt it to new uses. Individuals,
businesses, and cities can make capital improvements to the property they own.
Often capital improvements are given favorable tax treatment and may be
exempted from sales tax in certain jurisdictions.
Capital Improvements
 Additions, such as a deck, pool, additional room, etc.
 Renovating an entire room.
 Installing central air conditioning, new plumbing fixtures, etc.
 Replacing 30% or more of a building component (for example, roof,
windows, floors, electrical system, etc.)

15. The example of the capital fund, and how it is maintained by organizations is
explained with the help of the following paradigm.
The Rajhsahi City Corporation is entrusted with the responsibility of ensuring
that all the roads of the city are duly maintained before the monsoon season. In
this regard, they got funds amounting to Tk.300,00,00,000 from the central
Government and a couple of other agencies.
They planned to utilize this budget in the road construction project, by
outsourcing this to a construction contractor through a tender. The tender
adverts and admin costs amounted to Tk.5,00,00,000. Additionally, the
constructor agreed on the price of Tk. 270,00,00,000. The Rajhsahi City
Corporation then decided to utilize the remaining funds for signboards, as well
as for trees alongside the new roads.

16. How Capital Fund Projects are created in order to record transactions and
records for a specific particular project. After the project (the road construction)
is completed, the account is closed. This is further included in the following
way.
Capital Projects Fund
Description Debit
Tk.
Credit
Tk.
Contractor Fee 270,00,00,000
Tender Fee 5,00,00,000
Plantation Drive 25,00,00000
Funds Received from Central Govt. 300,00,00,000

17. Journal Entries
A. In order to record the journal entries, for a Capital Fund Project, the
accounting treatment is similar to that of a normal revenue and expense
journal. To record the transaction where the funds are received, the
following journal entry is made. This is basically to record the incoming of
funds.
Bank …………………Dr.
Fund Received…………………Cr.

18. B. when these funds are utilized or duly expensed, the following journal
entry is made. That is, it shows how expenses are recorded in the form of
journal entries. :
Expenses…………..Debit
Bank………………..Credit

19. C. The main journal entry that is recorded when recording Capital
Projects Fund is as follows:
Expenses ……………..Debit
Capital Project Fund………………..Credit

20. Recording Process
GASB s

21. GENERAL FIXED ASSETS ACCOUNT GROUP
The General Fixed Assets Account Group is maintained to account for
fixed assets acquired or constructed for general governmental purposes.
These include all fixed assets except those accounted for in Proprietary
and Pension Trust Funds. Public domain fixed assets (including
highways, curbs, lighting systems, highway land, and rights-of-way) are
not included.

22. 1. Land: Land is the only asset that is not depreciated because it is
considered to have an indeterminate useful life. Include in this category
all expenditures to prepare land for its intended purpose, such as
demolishing an existing building or grading the land. Land Includes legal
and surveying fees, damage payments, and site preparation costs
including removal of old buildings, etc. Receipts from the sale of salvage
should be credited against the land cost.

23. i) Land acquired through purchase includes contract price plus another
related costs such as legal and surveying fees, grading, damage
payments, and site preparation costs including removal of old
buildings, etc for the use intended.
ii) Land acquired through forfeiture should be capitalized at the total
amount of all taxes, liens and other claims surrendered plus all other
costs incidental to acquiring and perfecting title.
iii) Land acquired through donation should be recorded on the basis of
appraisal value at the date of acquisition.

24. 2. Buildings and Improvements other than buildings:
Building Includes costs directly incurred to put the building into its
intended state of use, including construction or purchase price,
architects' fees, accident or injury costs, payments for damage, and
insurance during construction. The cost should be reduced for
discounts, insurance recoveries, and other credits. Improvements other
than buildings: Includes costs directly incurred in placing the
improvement into use. This would include storage tanks, parking areas,
landscaping, connector driveways, traffic lights, parking meters, bridges,
and other improvements.

25.  Building acquired by purchase includes cost of purchased items, legal
and other costs plus expenditures necessary to put the property into an
acceptable condition for its intended use.
 Building acquisition by construction under the contract includes
purchase or contract price plus positively identified incidentals.
 The value of buildings and improvements acquired by donation should
be established by appraisal.

26. 3. Machinery and Equipment: Includes moveable property such as
furniture, machines, tools, and vehicles. The value should include the
total purchase price before any trade-in allowance less any discounts. It
should include other costs required to place the equipment in its intended
states of operation, such as dealer add-ons or modifications.

27.  If machinery and equipment may be constructed by the government.
In this case, the same rules will apply to building and improvement.
 Equipment and machinery are usually acquired by purchase. The cost
of equipment and machinery purchased should include items
conventional under business accounting practice. Here cost =
(purchase price + Transportation cost + Installation cost + other direct
cost) – Cash Discount.
 The value of machinery and equipment acquired by donation should
be established by appraisal.

28. 4. Construction in Progress: The construction in progress account is a
temporary one, When the work is finished, the total cost is transferred to
one or more of the above classes of fixed assets and starts depreciating it.
Besides the materials and labor required for construction, this account
can also contain architecture fees, the cost of building permits, and so
forth.

29. 5. Infrastructure: Infrastructure is defined as long-lived capital assets that are
stationary in nature and normally preserved for a significantly greater number of years
than most capital assets.
•Highways and rest areas
•Roads, streets, curbs, gutters, sidewalks, and fire hydrants
•Bridges, railroads, and tressels
•Canals, waterways, wharf, docks, sea walls, bulkheads, and boardwalks
•Dams, drainage facilities
•Radio or television transmitting towers
•Electric, water, and gas (main lines, distribution lines, and tunnels)
•Fiber optic and telephone distribution systems (between buildings)
•Light systems (traffic, outdoor, street, etc.)
•Signage
•Airport runway/strip/taxiway/apron

30. Infrastructure assets can have three types of costs:
 Maintenance costs allow an asset to continue to be used during its
originally established useful life. Maintenance costs are expensed in
the period incurred regardless of the amount of the expense.
 Preservation costs are generally considered to be outlay that extends
the useful life of an asset beyond its original estimated useful life but
does not increase the capacity or efficiency of the asset. Preservation
costs are expensed under the modified approach and capitalized under
the depreciation approach if they meet the capitalization threshold.

31. Additions and improvements are capital outlay that increases the
capacity or efficiency of the asset. A change in capacity increases the
level of service provided by an asset. For example, additional lanes can
be added to a highway or the weight capacity of a bridge could be
increased. A change in efficiency maintains the same service level but at
a reduced cost. For example, a heating and cooling plant could be
restructured so it produces the same temperature changes at a reduced
cost. The cost of additions and improvements are capitalized under both
the modified and depreciation approaches to reporting infrastructure if
they meet the capitalization threshold.

32. Intangible Assets: The intangible assets account includes non-physical assets,
examples of which are trademarks, customer lists, literary works, broadcast
rights, and patented technology.
Intangible assets may be recorded if they are acquired, but not if they are
developed in-house. If acquired, an expenditure can only be recorded as an
asset if it is expected to have a useful life of at least one year. Otherwise, it must
be recorded at once as an expense. For example, if a business pays a graphic
artist to design a logo for it, then the artist’s fee can be recorded as an intangible
asset. If the logo had been designed in-house by a staff person, it would not be
possible to record an asset.
Leasehold Improvements: Leasehold improvements are improvements to
leased space that are made by the tenant, and typically include office space, air
conditioning, telephone wiring, and related permanent fixtures.

33. Fixed Assets Acquired by Leasing
Leases can be classified into two categories: (a) operating; and (b)
capital leases. Companies may enter into one of them or both in
acquiring their assets. The FASB has outlined four major criteria
for a lease to be accounted as a capital lease. If a lease is non-
cancelable and meets any one of the following four criteria, it is
recorded as a capital lease:
1. The lease transfers ownership of the leased asset to the
lessee by the end of the lease term.

34. 2. The lease contains an option allowing the lessee to purchase the
asset at the end of the lease term at a bargain price, essentially
guaranteeing that ownership will eventually transfer to the lessee.
3. The lease term is equal to 75% or more of the estimated economic
life of the asset, meaning that the lessee will use the asset for most of
its economic life.
4. The present value of the lease payments at the beginning of the
lease is 90% or more of the fair market value of the leased asset.

35. Meeting this criterion means that, in agreeing to make the lease payments, the lessee is
agreeing to pay almost as much as the cash price to purchase the asset outright.
If just one of the above criteria is met, then the lease agreement is classified as a
“capital lease” and is accounted for by the lessee as a ‘debt-financed’ purchase. A lease
that does not meet any of the capital lease criteria is considered an “operating lease.”
Keep in mind that these two types of leases are not alternatives for the same transaction. If
the terms of the lease agreement meet any one of the capital lease criteria, the lease must
be accounted for as a capital lease.
Operating lease: A company may choose to lease rather than purchase an
asset. If a lease is a simple, short-term rental agreement, called an
lease payments are recorded as “Rent Expense” by the lessee and as “Rent
the lessor

36. Alternative treatment of residual equity or deficit
If expenditures and other financing uses are planned and controlled
carefully so that actual costs do not exceed planned costs, revenue and
other financing sources of capital projects fund should equal or slightly
exceed, the expenditures and other financing use, leaving residual
equity. If long-term debt has debt has been incurred for the purposes of
capital projects fund, the residual equity is transferred to the fund that
is to service the debt. If the residual has come from grants or shared
revenues then the residual equity must be transferred to those
restricted sources