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Mayonayze

Capital Assets and Project Assets

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Team,

Where can i find some information detailing the treatment of these two kinds of assets? To be clear, a project asset is something procured for use on a single program whereas a capital asset is something purchased that can benefit multiple programs.

Is there a difference in the time period of capitalization? Who takes title to the asset and when? Does CAS treat them differently or is it something that varies by each contractor's disclosure?

Is there a distinct diffference in how to price either of these two classifications of assets?

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Mayo, in your description of project assets, are you talking about assets that are acquired for a single contract or assets that are acquired for a project consisting of several contracts?

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Mayonayze,

You are dabbling in something that is more complex than you realize.

1. Reference your definition of "project asset" and "capital asset". No. You've got that wrong. First of all, "project assets" aren't assets because they are expensed. "Capital assets" may benefit multiple programs, or not. Because "project assets" are expensed, they have no useful life. They are consumed.

2. You are confusing direct vs. indirect expense decisions with capital vs. expense decisions.

3. When and where title passes is a very complex topic in and of itself. The timing turns on contract type, funding, and the payment and property clauses in the contract (among other things).

4. Yes, CAS treats them differently. Which is why there is an entire Section of the Disclosure Statement devoted to the topic (Part V).

5. Yes, you price capital assets and their resultant depreciation differently from direct-charged project expenses.

I wanted to give you a sense of how deep this rabbit hole goes. Unless you work these issues routinely, you will not get them right. You need assistance.

Hope this helps.

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Mayonayze,

You are dabbling in something that is more complex than you realize.

1. Reference your definition of "project asset" and "capital asset". No. You've got that wrong. First of all, "project assets" aren't assets because they are expensed. "Capital assets" may benefit multiple programs, or not. Because "project assets" are expensed, they have no useful life. They are consumed.

2. You are confusing direct vs. indirect expense decisions with capital vs. expense decisions.

3. When and where title passes is a very complex topic in and of itself. The timing turns on contract type, funding, and the payment and property clauses in the contract (among other things).

4. Yes, CAS treats them differently. Which is why there is an entire Section of the Disclosure Statement devoted to the topic (Part V).

5. Yes, you price capital assets and their resultant depreciation differently from direct-charged project expenses.

I wanted to give you a sense of how deep this rabbit hole goes. Unless you work these issues routinely, you will not get them right. You need assistance.

Hope this helps.

Thanks! I understand the complexity (as it eludes many of our resident CPA's) and that i probably have been taught a few wrong things about it along the way. Which is why i was looking for a good resource or reference for making better sense of it and educating myself on it. The cash flow implications are of particular interest, so if there is a certain rung of the rabbit hole addressing that area, specifically, i would like to pull my chute there.

TIA!!!!

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Mayo, in order to apply many of the principles mentioned by H2H, you need to answer my question as to whether the assets at issue will be used on a single contract or on more than one contract. If they are to be used on a single contract, their cost should be expensed and charged as a direct cost of that contract. If they are to be used on more than one contract, you may be able to amortize their cost. Think the B-52 bomber. That is a project/program that has been going on since the 1950s, but involving many different contracts.

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Mayo,

The cash flow implications are even more fun. For example CAS 409 permits use of an estimated economic life in lieu of the standard expected service life. The amortization life chosen is going to SIGNIFICANTLY affect cost recovery and cash flow. That's just one nuance to noodle on.

Your company goes this alone, trying to figure out the rules of the road and the cost accounting/billing implications along the way ... well, good luck with that.

** Shrug **

H2H

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