In local government finance, capital assets—such as roads, buildings, and equipment—represent more than just line items on a balance sheet. They are the foundation of public service delivery and often comprise the majority of a government’s total assets. Effective capital asset management is not only vital for accurate financial reporting—it directly impacts budgeting, long-term planning, and audit readiness.
This guide breaks down how to properly manage capital assets throughout their lifecycle: from acquisition and capitalization to depreciation and disposal.
What Are Capital Assets?
Capital assets are long-term resources with a useful life exceeding one year. These include:
- Buildings (e.g., libraries, administrative offices)
- Infrastructure (e.g., roads, water systems)
- Land (e.g., parks, vacant lots)
- Equipment (e.g., vehicles, machinery)
- Intangible assets (e.g., software, patents)
Understanding which assets should be capitalized—and how—is the first step in maintaining accurate records.
Adding Capital Assets: Getting It Right
Capitalizing an asset correctly means including all eligible costs required to prepare it for use. For example:
Case Study: Street Maintenance Equipment
- Purchase Price: $50,000
- Delivery & Handling: $1,500
- Installation: $3,500
- Registration & Licensing: $500
- Training: $1,000
Capitalized Cost = $55,500
Training isn’t included because it’s not necessary to get the equipment up and running—it’s a separate operating cost.
Tips to make this process easier:
- Use project ledgers to track asset-related expenses in one place
- Record costs throughout the year—don’t wait until year-end!
- Break major projects into phases (land, building, equipment) to keep things organized
Not Everything Belongs on Your Capital Asset List
Overcapitalizing can distort financial statements and create audit issues. Avoid including:
- Feasibility studies — exploratory by nature and should be expensed.
- Routine maintenance and repairs — these costs maintain current functionality but don’t extend the asset’s life or value.
A good rule of thumb: If it’s something you expected to do when you bought the asset, it probably isn’t a capital improvement.
Donated Infrastructure: Don’t Overlook It
Let’s say a developer builds streets and sidewalks in a new neighborhood and hands them over to your city. You didn’t spend any money—but it’s still a capital asset. Record it at acquisition value on the date of donation, and back it up with:
- Cost estimates from the developer
- Bonding or permit documents
- Engineering reports
This stuff is easy to overlook, but it’s important for transparency—and it’s something auditors will ask about.
Depreciation: The Long Game
Once you’ve added the asset, you need to spread its cost over time through depreciation. Here’s how to keep it on track:
- Review useful lives during physical inventories. If your trucks are still running five years after they were “fully depreciated,” maybe their useful life was too short.
- Watch for errors if you’re using spreadsheets. Automation is great, but if you’re managing it manually, be sure assets aren’t depreciated past their original value.
- Check your schedules—many systems can alert you when assets are nearing end-of-life so you can plan ahead.
Disposals: Don’t Let Them Sneak By
Disposing of assets isn’t always front of mind—but it should be. If you don’t remove them properly, your books will get cluttered with “ghost assets” that don’t exist anymore.
Here’s how to stay on top of it:
- Do regular inventories to spot missing, outdated, or fully depreciated assets
- Keep disposal documentation—especially for sales, transfers, or surplus approvals
- Account for partial disposals when replacing pieces of infrastructure (square footage or capacity percentages can help here)
And if you find out something was disposed of last year but never recorded—go back and fix it. It’s better to clean it up than let it linger.
Capital Asset Audit Preparation
When audit season rolls around, clear documentation makes all the difference. Here’s what to prepare:
- Supporting documentation: Upload invoices, checks, and receipts to a shared network throughout the year.
- CIP expense listings: Especially for enterprise funds, ensure Construction in Progress (CIP) activity is clearly broken down and updated.
- Rollforward schedules: These show each project’s starting balance, current-year spending, completed transfers, and ending balance—crucial for catching outdated or stagnant projects.
Policy Considerations
Keep your capitalization policies up to date, especially in light of newer GASB standards:
- GASB 87 (Leases): Ensure thresholds are properly defined and applied.
- GASB 96 (SBITAs): Subscription-based IT arrangements must follow updated guidance.
Consistent policy application prevents misstatements and supports accurate financial disclosures.
Why It All Matters
Capital assets are the backbone of your agency—they reflect your capacity to serve the community and support day-to-day operations. When managed well, they become powerful tools for informed budgeting, accurate financial reporting, and audit readiness. They also play a key role in supporting grant applications and maintaining strong bond ratings. Simply put, good capital asset management means fewer surprises, smoother operations, and a more confident approach to long-term planning.
Want More Guidance?
If you’re looking for a more detailed breakdown of the capital asset lifecycle—including hands-on example—register for the upcoming webinar: https://us02web.zoom.us/webinar/register/WN_sWabfhtmQ7yBR582kxvIlQ or contact us today!
More Helpful Resources
- GFOA: Capitalization Thresholds for Capital Assets
- GFOA: Estimated Useful Lives of Capital Assets
- GFOA: Inventories of Tangible Capital Assets
