Estimating the cost of old infrastructure is one of the most challenging problems facing governments as they implement Statement No. 34. Fortunately the GASB permits an alternative to reconstructing old records.
In 2002 a city constructed a park but has in-adequate records of its cost. Engineers estimate the cost of replacing that parking 2014 at $3million.They have also determined that the park has a total useful life of 30 years. An appropriate construction price index has a value of 108 for 2002 and 180 for 2014.
1. What value (estimated initial cost less accumulated depreciation) should the city assign to the park in 2014?
2. Suppose that the city opts to report only an annual maintenance charge for the park; it does not report a depreciation charge. At what value does it report the park?
3. In your opinion, does the depreciation charge add significant information to the financial statements? Explain and justify your response.