0 PUT TITLE HERE TCA Implementation - Common Questions OASBO Finance Committee Workshop Transfer...

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PUT TITLE HERETCA Implementation - Common Questions

OASBO Finance Committee WorkshopTransfer Payments & Financial Reporting BranchMarch 2008

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Question # 1Question # 1

Not a question but a comment: I suggest we speak to Not a question but a comment: I suggest we speak to external auditors now about historical cost figures for land external auditors now about historical cost figures for land and buildings. No reason they can’t look at land and and buildings. No reason they can’t look at land and buildings this spring when 7-month specified procedures buildings this spring when 7-month specified procedures are completed.are completed.

Answer:Answer:

Absolutely Absolutely

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If boards want, can we implement full TCA reporting in If boards want, can we implement full TCA reporting in 2007/08 instead of waiting for 2008/09 (I’m thinking about 2007/08 instead of waiting for 2008/09 (I’m thinking about it as it’s a relatively small job in a board this size and if I it as it’s a relatively small job in a board this size and if I go to the trouble of getting note information, I may as well go to the trouble of getting note information, I may as well go all the way) ?go all the way) ?

Answer:Answer:

We are making changes to the financial statements We are making changes to the financial statements reporting forms for the 2008/09 year end and not 2007/08 reporting forms for the 2008/09 year end and not 2007/08 therefore reporting the information will be impossible. therefore reporting the information will be impossible. You can however do a full note disclosure of all TCA You can however do a full note disclosure of all TCA classes.classes.

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Can you go over the FS presentation regarding how to Can you go over the FS presentation regarding how to report both the asset and the amounts to be recovered report both the asset and the amounts to be recovered offset, impact on statement of capital fund, etc.?offset, impact on statement of capital fund, etc.?

Answer:Answer:

Gross Book ValueGross Book Value $832,280,457$832,280,457

Accumulated AmortizationAccumulated Amortization (108,570,636(108,570,636))

NBVNBV $$723,709,821 723,709,821 **

Capital Fund BalanceCapital Fund Balance ( 41,513,905) ( 41,513,905)

ATBR: Capital FinancingATBR: Capital Financing (317,669,366)(317,669,366)

Net Investment in TCANet Investment in TCA $364,526,550$364,526,550 * *

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Regarding the change in estimated useful life for Regarding the change in estimated useful life for buildings, will there be future direction from the Ministry buildings, will there be future direction from the Ministry (e.g.. Algorithms, use of system such as ReCapp)?(e.g.. Algorithms, use of system such as ReCapp)?

Answer:Answer: TCA Guide paragraphs 123 - 128:TCA Guide paragraphs 123 - 128:

““Boards are required to review RSL upon Boards are required to review RSL upon

- replacing major components- replacing major components

- making additions or retrofits to buildings- making additions or retrofits to buildings

- making investments in buildings with RSL < 10 years” - making investments in buildings with RSL < 10 years”

Look to see what else we can incorporate into guideLook to see what else we can incorporate into guide

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Will there be more funding for PSAB initiative?Will there be more funding for PSAB initiative?

Answer:Answer:

Permanent dollars rolled into GSN Permanent dollars rolled into GSN

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On the 2On the 2ndnd year of TCA reporting, the Ministry clarified year of TCA reporting, the Ministry clarified what external auditors are required to do for the specified what external auditors are required to do for the specified procedures report and when the external auditors finally procedures report and when the external auditors finally understood, the audit costs plummeted. I know that full understood, the audit costs plummeted. I know that full TCA implementation is a bit different but guidance and TCA implementation is a bit different but guidance and knowledge transfer will help greatly.knowledge transfer will help greatly.

Answer:Answer:

Pass along the earlier presentation material.Pass along the earlier presentation material.

If we can help any particular board with their auditors, If we can help any particular board with their auditors, we’d be happy to we’d be happy to

If you believe a formal communication with auditors is If you believe a formal communication with auditors is required, please contact us and we can discuss further.required, please contact us and we can discuss further.

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““Capital budget” PSAB (future compliance) vs. “Capital Capital budget” PSAB (future compliance) vs. “Capital fund” - what are the similarities and the differences? fund” - what are the similarities and the differences? Where will the differences end up?Where will the differences end up?

Answer:Answer:

Getting rid of fund accounting -- no longer capital fundGetting rid of fund accounting -- no longer capital fund

Everything ends up in surplus / deficitEverything ends up in surplus / deficit

Look at Schedule 1.3 – Statement of net debtLook at Schedule 1.3 – Statement of net debt

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Depreciation and/or asset details: What details will Depreciation and/or asset details: What details will Ministry need (now or in the future)? For example, by Ministry need (now or in the future)? For example, by school/department, by function, by panel, by category, school/department, by function, by panel, by category, etc). Once asset opening balances and depreciation etc). Once asset opening balances and depreciation system is set up, it will be difficult to change or to get system is set up, it will be difficult to change or to get details.details.

Answer:Answer:

Current thinking is a one-line expense itemCurrent thinking is a one-line expense item

Should this change we will let the sector know as soon as Should this change we will let the sector know as soon as possiblepossible

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With regards to building costs, interest costs related to With regards to building costs, interest costs related to financing costs incurred during the time the asset is under financing costs incurred during the time the asset is under construction should be capitalized. Does this mean that construction should be capitalized. Does this mean that we will have to report interest that is capitalized on we will have to report interest that is capitalized on schedule 3 as part of the building costs?schedule 3 as part of the building costs?

Answer: Answer:

With the new reporting model, statements will change.With the new reporting model, statements will change.

With the prospective changes, the interest costs will be With the prospective changes, the interest costs will be reported on Schedule 8 as part of the building costs.reported on Schedule 8 as part of the building costs.

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When building a new school, under what capital asset When building a new school, under what capital asset category should the costs of a parking lot be capitalized? category should the costs of a parking lot be capitalized? Building or land improvement?Building or land improvement?

Answer:Answer:

Land improvement unless costs are included in total Land improvement unless costs are included in total construction costs and can not be separatedconstruction costs and can not be separated

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When the Ministry provided the opening balance for When the Ministry provided the opening balance for buildings, if we disagree with the opening balance or the buildings, if we disagree with the opening balance or the remaining life of the building do we have the authority to remaining life of the building do we have the authority to make the change or are we required to contact the make the change or are we required to contact the Ministry before making any change?Ministry before making any change?

Answer:Answer:

Opening balances were determined using the data input Opening balances were determined using the data input from CAPEdu (information from boards). The info coming from CAPEdu (information from boards). The info coming out of the BVC is only as good as the data going into it - if out of the BVC is only as good as the data going into it - if that data is wrong, output likely is wrong.that data is wrong, output likely is wrong.

We would appreciate a conversation to make sure the We would appreciate a conversation to make sure the basis for the change is reasonable. basis for the change is reasonable.

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Can books (textbooks and / or library books) purchased Can books (textbooks and / or library books) purchased for new schools be capitalized as F&E - First-time for new schools be capitalized as F&E - First-time equipping?equipping?

Answer:Answer:

Yes.Yes.

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My question concerns capital assets PRFS. As per the My question concerns capital assets PRFS. As per the Provincial Accounting Policies & Guideline, the carrying Provincial Accounting Policies & Guideline, the carrying value should be written down to the residual value. How value should be written down to the residual value. How does one determine the residual value ? Can you provide does one determine the residual value ? Can you provide guidelines? Does the residual value become the amount guidelines? Does the residual value become the amount realized on disposal? Can the change in the valuation of realized on disposal? Can the change in the valuation of the asset be deferred until the asset is disposed of? Are the asset be deferred until the asset is disposed of? Are there any timing issues concerning the actual write-down? there any timing issues concerning the actual write-down? Should the removal process be formalized by Board Should the removal process be formalized by Board motion?motion?

Answer:Answer:Depends, no, yes, no, yes, left to board discretionDepends, no, yes, no, yes, left to board discretion

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For the pooled asset class of portables, how will the For the pooled asset class of portables, how will the future depreciation work…will it start with another 20 future depreciation work…will it start with another 20 years to go? years to go?

Answer:Answer:

Depends on approach of pooled vs. non-pooled.Depends on approach of pooled vs. non-pooled.

a) Pooled = additions are amortized over 20 years a) Pooled = additions are amortized over 20 years (treated as new assets)(treated as new assets)

b) Non-pooled = additions are amortized over RSL of the b) Non-pooled = additions are amortized over RSL of the asset (need to revise RSL just as with school buildings) asset (need to revise RSL just as with school buildings) upon significant investments.upon significant investments.

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Damage and theft (maybe insurance recovered) - do we Damage and theft (maybe insurance recovered) - do we capitalize new costs? Do we write-down anything ? It’s capitalize new costs? Do we write-down anything ? It’s probably impossible to find or assess old costs.probably impossible to find or assess old costs.

Answer:Answer:

For Pooled Assets:For Pooled Assets:

- Money received goes directly to gain on disposal - Money received goes directly to gain on disposal (revenue) as likely impossible to find related old costs. (revenue) as likely impossible to find related old costs. You only remove the cost and accumulated amortization You only remove the cost and accumulated amortization from the asset class where you can:from the asset class where you can:

a) find the related costs, anda) find the related costs, and

b) the amount is materialb) the amount is material

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Question # 15 (continued)Question # 15 (continued)

Answer:Answer:

For Non-Pooled Assets:For Non-Pooled Assets:

- Receive $500,000 cash from insurance for school - Receive $500,000 cash from insurance for school building. GBV of $400,000 and AA of $200,000.building. GBV of $400,000 and AA of $200,000.

DR CashDR Cash $500,000$500,000 DR AADR AA 200,000 200,000

CRCR GBVGBV $400,000$400,000CRCR Gain on DisposalGain on Disposal $300,000$300,000

- When you rebuild the school- When you rebuild the schoolDRDR GBVGBV $500,000$500,000 CR CR CashCash $500,000$500,000

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We have not tried to integrate this process into our GL yet We have not tried to integrate this process into our GL yet because we don’t know how the depreciation will be because we don’t know how the depreciation will be reported. Will there be something like a Schedule 10ADJ reported. Will there be something like a Schedule 10ADJ where the PSAB adjustments are identified by fairly broad where the PSAB adjustments are identified by fairly broad category? Or will we be expected to provide more category? Or will we be expected to provide more details?details?

Answer:Answer:

Yet to be determined.Yet to be determined.

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Question # 17Question # 17How do you expect individual budget holders to account How do you expect individual budget holders to account for capital purchases and amortization? How do you see for capital purchases and amortization? How do you see the budget process changing? What do you want reported the budget process changing? What do you want reported each year, the total capital purchases or the amortization? each year, the total capital purchases or the amortization? It is really hard to implement a process when you can’t It is really hard to implement a process when you can’t see where we expect to end up. see where we expect to end up.

Here’s an example: Computer refresh plan. We expect to acquire Here’s an example: Computer refresh plan. We expect to acquire about $1.5M worth of computer equipment in year 1 of the plan. What about $1.5M worth of computer equipment in year 1 of the plan. What do I report on Schedule 10 - the total capital cost or the depreciation? do I report on Schedule 10 - the total capital cost or the depreciation? Will there be a change to the amount of revenue we receive? If we Will there be a change to the amount of revenue we receive? If we only report depreciation in year 1, do we have to create a depreciation only report depreciation in year 1, do we have to create a depreciation reserve to bring our annual spending up to our revenue?reserve to bring our annual spending up to our revenue?

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Question # 17Question # 17Answer: Answer:

For budgeting purposes, the expenditure is important – For budgeting purposes, the expenditure is important – see statement of net debtsee statement of net debt

For the statement of operations, the amortization expense For the statement of operations, the amortization expense is important – impact on surplus/deficitis important – impact on surplus/deficit

The differences between these issues are the source of The differences between these issues are the source of the balance budget legislation discussionsthe balance budget legislation discussions

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We are consolidating two entities with our board financial We are consolidating two entities with our board financial statements. They have the following notes to their FS in statements. They have the following notes to their FS in terms of capital assets: terms of capital assets:

1) F&E 7 years, Computers 4 yrs 1) F&E 7 years, Computers 4 yrs

2) The organization has average annual revenues of less 2) The organization has average annual revenues of less than $500,000 and therefore does not recognize capital than $500,000 and therefore does not recognize capital assets in their balance sheet.assets in their balance sheet.

Do we need to align the accounting policies of these Do we need to align the accounting policies of these entities with the board policies on TCAs?entities with the board policies on TCAs?

Answer:Answer:

No - as long as the entities’ tangible capital assets are not No - as long as the entities’ tangible capital assets are not material to the board. Use the information provided.material to the board. Use the information provided.

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I’m concerned over the Internal Financial Reporting I’m concerned over the Internal Financial Reporting Standards (IFRS) that publicly accountable organizations Standards (IFRS) that publicly accountable organizations need to adopt for years starting on January 1, 2011. need to adopt for years starting on January 1, 2011. Those standards state the necessity to use the Those standards state the necessity to use the components approach for building capitalization…will we components approach for building capitalization…will we have to redo all this work in a few years?have to redo all this work in a few years?

Answer:Answer:

No - IFRS apply to those organizations using the Blue No - IFRS apply to those organizations using the Blue Handbook - not Public Sector Accounting Handbook Handbook - not Public Sector Accounting Handbook users.users.

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In the draft proposal document (April 18, 2005), page 11, In the draft proposal document (April 18, 2005), page 11, did the benchmarks for the BVC have furniture & did the benchmarks for the BVC have furniture & equipment built in ?equipment built in ?

Answer:Answer:

No - The appendix shows the benchmark calculation used No - The appendix shows the benchmark calculation used in 1998 had a F&E component in it but it was removed in 1998 had a F&E component in it but it was removed before we used it for purposes of the BVC.before we used it for purposes of the BVC.

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With respect to library books, classroom resources, play With respect to library books, classroom resources, play centres/toys, these are resources that are used over a centres/toys, these are resources that are used over a significant period of time and that could have a significant period of time and that could have a considerable cost when pooled, would they also be considerable cost when pooled, would they also be capitalized under the first-time equipping policy, or are they capitalized under the first-time equipping policy, or are they excluded entirely as operating costs?excluded entirely as operating costs?

Answer:Answer:

Depends = Depends =

1) If new school or addition to school = first-time equipping1) If new school or addition to school = first-time equipping

2) If not part of A, capitalized only if unit costs exceed 2) If not part of A, capitalized only if unit costs exceed capitalization threshold of $5,000. capitalization threshold of $5,000.

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Question # 22Question # 22How do you account for playground equipment in this How do you account for playground equipment in this scenario: scenario: 1. $2,000 School council / school through fundraising1. $2,000 School council / school through fundraising2. $5,000 from board2. $5,000 from board3. $3,000 City funding (after proof of purchase)3. $3,000 City funding (after proof of purchase)

What portion is capitalized ?What portion is capitalized ?

Answer:Answer:

DebitDebit EquipmentEquipment $10,000 $10,000 CreditCredit CashCash $10,000$10,000

DebitDebit Cash Cash $3,000$3,000 CreditCredit RevenueRevenue $3,000 -- no netting$3,000 -- no netting

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Question # 23Question # 23When I look at the computer software licensing purchases When I look at the computer software licensing purchases we have some purchases which have been as a per site we have some purchases which have been as a per site license (i.e. 22 schools), per board license (i.e. 1 web license (i.e. 22 schools), per board license (i.e. 1 web base) and others as a per user license (i.e. 1000 users). base) and others as a per user license (i.e. 1000 users). Could you clarify the threshold “where license Could you clarify the threshold “where license unit unit value value exceeds $5,000”). What is the unit?exceeds $5,000”). What is the unit?

Answer:Answer:

1 license = per unit value > $5,0001 license = per unit value > $5,000

The intention was to capture the material software The intention was to capture the material software licenses. Therefore, where you are buying Quick Books licenses. Therefore, where you are buying Quick Books packages and they do not exceed $5,000 they should not packages and they do not exceed $5,000 they should not be capitalized. be capitalized.

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Question # 24Question # 24We have equipped a principal’s office with new furniture. We have equipped a principal’s office with new furniture. Individually the pieces are under $5,000 but in total the Individually the pieces are under $5,000 but in total the whole office setup is over $5,000. This is not first-time whole office setup is over $5,000. This is not first-time equipping nor did we add GFA. Do I still look at the equipping nor did we add GFA. Do I still look at the individual piece cost vs. the whole cost?individual piece cost vs. the whole cost?

Answer:Answer: You need to look at each piece of furniture. If you bought a You need to look at each piece of furniture. If you bought a

desk for $2,000, a filing cabinet for $1,000, a small table desk for $2,000, a filing cabinet for $1,000, a small table and 2 chairs for $2,500 none of this would be capitalized. and 2 chairs for $2,500 none of this would be capitalized. If you bought a a desk that has multiple pieces (front panel If you bought a a desk that has multiple pieces (front panel for $1,500, L-shaped return for $1,000, under-mounted for $1,500, L-shaped return for $1,000, under-mounted filing cabinet for $2,000 and R-shaped return for $1,000), filing cabinet for $2,000 and R-shaped return for $1,000), then yes as they are all attached to the unit.then yes as they are all attached to the unit.

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Question # 25Question # 25Where a purchase of 55 printers has been made at an Where a purchase of 55 printers has been made at an estimated per unit cost of $500 and the purchase/invoice estimated per unit cost of $500 and the purchase/invoice exceeds $25,000, the equipment would be capitalized. exceeds $25,000, the equipment would be capitalized. However a purchase of 20 printers at $500 totalling However a purchase of 20 printers at $500 totalling $10,000 would never be capitalized if it was part of the $10,000 would never be capitalized if it was part of the computer plan allocation for that year?computer plan allocation for that year?

As part of our computer plan budget, we purchase other As part of our computer plan budget, we purchase other components such as USB, letter trays, mouse, etc. Should components such as USB, letter trays, mouse, etc. Should they be capitalized as they are associated with computers?they be capitalized as they are associated with computers?

Answer:Answer:

A) That’s correct.A) That’s correct.

B) Replacing a bunch of these items are more in the line of B) Replacing a bunch of these items are more in the line of consumables and would not capitalized.consumables and would not capitalized.

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Question # 26Question # 26We will be renovating the board office in the spring, will the We will be renovating the board office in the spring, will the new furniture & equipment be classified as ‘first-time new furniture & equipment be classified as ‘first-time equipping’? We are converting the old warehouse to office equipping’? We are converting the old warehouse to office space.space.

Answer:Answer:

A) Ignoring the 2A) Ignoring the 2ndnd line of the question, no as there is no line of the question, no as there is no additional gross floor area or new asset.additional gross floor area or new asset.

B) Perhaps - the additional gross floor area is brought into B) Perhaps - the additional gross floor area is brought into play. We have advised the board no as the warehouse play. We have advised the board no as the warehouse existed before therefore not ‘REAL’ additional gross floor existed before therefore not ‘REAL’ additional gross floor area but we could argue either way.area but we could argue either way.

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Question # 27Question # 27Do you know if the first-time equipping / start-up costs Do you know if the first-time equipping / start-up costs incurred by transportation consortiums would apply to the incurred by transportation consortiums would apply to the “first-time equipping” rule?“first-time equipping” rule?

Answer:Answer:

Yes - consortium is owned by 2 or more boards therefore Yes - consortium is owned by 2 or more boards therefore each board would report it’s share of the costs.each board would report it’s share of the costs.

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Question # 28Question # 28In the TCA Guide, paragraph .167 states that assets are In the TCA Guide, paragraph .167 states that assets are recorded at gross cost or fair value at acquisition. recorded at gross cost or fair value at acquisition. Financial contributions are NOT netted against the cost. Financial contributions are NOT netted against the cost. Can the financial contribution be deferred and recognized Can the financial contribution be deferred and recognized into revenue on the same basis as the asset is amortized?into revenue on the same basis as the asset is amortized?

Answer:Answer:

PSAB is silent in regards to deferral of contributions. NPO PSAB is silent in regards to deferral of contributions. NPO accounting allows it. We have advised that the accounting allows it. We have advised that the contribution will be reported in revenue in the year the contribution will be reported in revenue in the year the asset is purchased. If the contribution is received in asset is purchased. If the contribution is received in advance of the purchase, it should be treated as deferred advance of the purchase, it should be treated as deferred revenue until purchase is made. -- Currently reviewing thisrevenue until purchase is made. -- Currently reviewing this

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Question # 29Question # 29We are attempting to create amortization schedules for our We are attempting to create amortization schedules for our assets. We have taken the information provided to you assets. We have taken the information provided to you (year of acquisition and cost) and we can’t get the same (year of acquisition and cost) and we can’t get the same information as at March 31, 2005 that it generated, why?information as at March 31, 2005 that it generated, why?

Answer:Answer:

Because of betterment rates applied through the BVC you Because of betterment rates applied through the BVC you can not replicate the output out of the BVC. Your can not replicate the output out of the BVC. Your amortization schedules should START as of March 31, amortization schedules should START as of March 31, 2005.2005.

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Question # 30Question # 30Re. Depreciation expense - Should we set up the pooled Re. Depreciation expense - Should we set up the pooled asset - F&E, computers, etc to recognize panels and asset - F&E, computers, etc to recognize panels and functions? I.e.. 1-elementary panel, 23 - library function, functions? I.e.. 1-elementary panel, 23 - library function, etc or will the depreciation expense be merely a one line etc or will the depreciation expense be merely a one line adjustment to the statement of financial activities ?adjustment to the statement of financial activities ?

Answer:Answer:

Currently we are looking at only a one-line adjustment to Currently we are looking at only a one-line adjustment to the bottom of Schedule 10 for amortization. However, for the bottom of Schedule 10 for amortization. However, for budgeting purposes, you may want to split the expense in budgeting purposes, you may want to split the expense in between things like classroom, admin, transportation, etc. between things like classroom, admin, transportation, etc. This will allow you to control the budgeting process a little This will allow you to control the budgeting process a little easier.easier.

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