**USSGL Scenario for Intragovernmental Transactions Involving Capital Assets**

**Intragovernmental Transactions**

**Capital Asset Buy/Sell Transactions**

**Effective Date Fiscal Year 2016**

**Prepared By:**

**Financial and Budgetary Reports Division**

**Governmentwide Accounting**

**Bureau of the Fiscal Service**

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***Introduction***

This scenario focuses on intragovernmental activities related to the buy/sell transactions of capitalized assets. 

The purpose of consolidated statements are to show the result of operations and the financial position of the related entities as **one entity.**According to ARB 51, Consolidated Financial Statements, “the complete elimination of the intercompany profit or loss is consistent with the underlying assumption that consolidated statements represent the financial position and operating results of a single business enterprise.” Therefore, from the consolidated perspective, changing hands of capitalized assets should not impact the overall net position of the consolidated entity.  Any profit or loss associated from these transactions should be eliminated as well on the Financial Report of the U.S. Government (FR).

Within GTAS, memorandum accounts 880100-880400 are used to eliminate intragovernmental asset transactions as stated in the June 2015 TFM 2-4700. However, the memo accounts are not crosswalked into GFRS at year end causing elimination issues as well as an overstatement of expenses and revenues at year-end on the FR.

This scenario proposes changes to the Reclassified Statement of Net Cost, a new USSGL account, and modifying domain values for the Federal Non-Federal Attribute in GTAS for various USSGL accounts. By making these changes, and agencies following the guidance to follow, it will eliminate current intragovernmental elimination issues (currently in the billions) and accurately reflect the Reclassified Statement of Net Cost at the governmentwide level for Capital Asset Buy/Sell Transactions.

***Proposed New USSGL Accounts***

Account Title: Expensed Capitalized Asset

Account Number: 615000

Normal Balance: Debit

Transaction Codes: Add to B402 and F336

Definition: The amount of expenses recognized when the capitalized asset acquired does not meet agency’s capitalization threshold.

Justification: This account was established to separate activity out of account 610000 pertaining to an asset purchase, not capitalized.  This will allow for proper presentation of the FR, reflecting this expense at the governmentwide level.

**USSGL Proprietary Account Reporting**

**Bulk File Proprietary Account Reporting**

**Draft USSGL Proprietary and Budgetary Account Attribute Table**

**Impact on Crosswalks**

***Proposed USSGL Account Domain Value Modification***

Account Title: Cost of Goods Sold

Account Number: 650000

Definition: The total cost of inventory sold including raw materials, direct labor, and overhead.

Attribute:  Fed/Non 

Domain Values: Current “N”, Proposed “F/N”

Justification: The current process recognizes Cost of Goods Sold (COGS) as “N” activity only.  The reason “N” domain value was assigned to account 650000 is because by definition the inventory is an “N” account, therefore any cost associated with the inventory should also be treated as “N” activity.  The same methodology applies to gains and losses on deposition of assets.  After reviewing the current process, the determination of “N” is causing the COGS to not be eliminated at year-end on the FR. According to ARB 51, Consolidated Financial Statements, “the complete elimination of the intercompany profit or loss is consistent with the underlying assumption that consolidated statements represent the financial position and operating results of a single business enterprise.” Therefore, from the consolidated perspective, changing hands of capitalized assets should not impact the overall net position of the consolidated entity.  Any profit or lost associated should be eliminated when reconciling all “F” accounts.  The consolidated entity still has the ownership of the same asset throughout the transfer between government entities. Including an F attribute to 650000 will allow the account to eliminate with 880100 (offset to Purchase) and properly reflect the Net Position of the FR.

Account Title: General Property, Plant, and Equipment and Inventory and Related Property 

Account Number: 171100-189900 and 151100-152900

Attribute:  Current Fed/NonFed, proposed elimination of attributes

Domain Value: Current “N”, Proposed “ “

Justification:  All inventory accounts are non-fed accounts for consolidation purposes and should be reflected on the Balance Sheet. To avoid any confusion with eliminations or possible system issues, the attribute was removed.

***Proposed USSGL account Crosswalk Modifications***

Account Title: Memorandum Accounts

Account Number: 880100-880400

Normal Balance: 880100 Credit, 880200-880400 Debit

Definition:

880100: The amount recorded to offset activity in USSGL accounts 880200-880400 which close into this account at yearend.  This account does not close at yearend.

880200: The amount of capitalized property, plant, and equipment purchased during the fiscal year.  

	880300: The amount of inventory and related property purchased during the fiscal year.

	880400: The amount of other assets purchased during the fiscal year, not otherwise 

classified in the USSGL accounts 880200 & 880300.

Crosswalks: Currently Not Crosswalked, see proposal below

Justification: Currently, COGS and Revenue are being overstated at yearend because accounts 880100-880400 are not crosswalked into GFRS. These accounts will be added to RC24 affecting lines 7.4 (Purchase of Assets) and 7.5(Purchase of Assets Offsets) of the Reclassified Statement of Net Cost.  These lines will be associated with the Federal Gross Cost section of the statement that will offset each other having no effect on the overall Net Cost. However, they will be used for elimination purposes.

Impact on Crosswalks

***Proposed New lines being added to TFM 2-4700 guidance, other line numbers were adjusted accordingly**

**Listing of USSGL accounts used in this scenario:**

**Proposed Buy/Sell Process of Capitalized Assets**

**Assumptions:**

· **Buying Agency 1: Asset meets capitalization threshold and is recorded as PPE.**

· **Buying Agency 2: Asset did not meet capitalization threshold, therefore expensed.**

· **Buying Agency 3: Asset is recorded as inventory.**

**Beginning Trial Balance (Selling Agency Only)**

**1. To record the funding, assume the resources are apportioned and allotted when applicable.**

**Selling Agency**

**Buying Agency 1, 2, and 3 – All transactions are the same**

**2. To record Reimbursable Agreement**

**Selling Agency**

**Buying Agency 1, 2, and 3 – All transactions are the same**

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**3. Under Economy Act, selling agency sells its inventory to buying agency (1, 2 & 3). The book value of the sold equipment is the same for seller and buyer.**

**Selling Agency ( Entry consistent regardless of Buying Agency entry)**

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**Buying Agency 1 – Meetings the capitalization threshold and is recorded as PPE**

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**Buying Agency 2 – Asset did not meet capitalization threshold, therefore expensed**

**Buying Agency 3 – Asset is recorded as inventory**

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**Pre-Closing Trial Balance of Each Scenario**

**Closing Entry for End of Year (For Proprietary USSGL Accounts)**

**Selling Agency (Entry consistent regardless of Buying Agency entry)**

**Buying Agency 1**

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**Buying Agency 2**

**Buying Agency 3**

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**Financial Statements:**

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**Reclassified Financial Statements:**

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**Intragovernmental Eliminations:**

Page 2 of 21		IRC Handout August 6, 2015