If an asset impairment is recorded for a public works facility, which entry is correct in the governmental activities accounts?

• A. The governmental activities accounts would record a debit to Expenses—Public Works.
• B. The government-wide accounts would record a debit to a Loss on Impairment.
• C. The fund balance would be reduced.
• D. No entry is required until disposal.

Answer: (A)

When a capital asset like a public works facility is impaired, government-wide (governmental activities) accounting records the loss in the period as an expense and reduces the asset’s carrying amount. This reflects the decrease in net position due to the asset’s diminished value. Therefore, the correct entry is to debit the expenses for the Public Works function, recognizing the impairment as a period cost, with a corresponding credit to the asset account to write down its value. The effect is a higher expense in the public works function and a lower net position.

This approach matches accrual reporting in the government-wide statements, where impairment losses are shown as expenses that reduce net position. It is not recorded as a fund balance change in the government-wide view, and it is recognized when impairment occurs—not only at disposal, so delaying the entry would be incorrect.