If a general capital asset constructed by a capital projects fund is sold by the General Fund, which funds require entries?

• A. General Fund and governmental activities
• B. General Fund only
• C. Governmental Activities only
• D. Capital Projects Fund

Answer: (A)

When a general capital asset is built with resources from a Capital Projects Fund, the asset ultimately belongs to the government’s government-wide reporting for governmental activities. If that asset is later sold by the General Fund, the sale creates interfund activity and a disposal that must be reflected in the accounting records that substantively own and report the asset.

For the General Fund, the sale brings in cash (or a receivable) and requires derecognition of the asset it effectively sold, along with any gain or loss on the sale. This fund must show the proceeds and remove its carrying amount related to that asset, aligning its books with the actual disposition.

In the governmental activities portion of the government-wide statements, the asset is retired from the capital asset balance, and any gain or loss on disposal is recognized in net position. This reflects the removal of the asset from the government’s overall financial position and records the financial outcome of the sale.

The Capital Projects Fund does not require a separate disposal entry in its fund statements for this sale because the asset’s ownership and reporting responsibility have shifted to the General Fund and to the government-wide governmental activities once the asset is constructed and disposed of. This is why the correct pairing involves the General Fund and governmental activities.