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Depreciation Important Component When It Comes To ARP Purchases

/ The Upper Cumberland's News Leader
Depreciation Important Component When It Comes To ARP Purchases

The American Rescue Plan funding has allowed for many government entities to purchase assets they might not have had before, but with something called depreciation.

Cookeville Finance Director Brenda Imel said that depreciation is recognizing the cost of an asset over its useful life. She said that funding depreciation is making sure that entities have enough revenue to offset the cost of the asset.

“Theoretically by doing that, when you reach the end of the asset’s life,” Imel said. “You should have cash in reserves to actually replace that piece of equipment.”

Imel said that the ARP funding covers the expense of the purchase, but not the depreciation of it. She said that many government agencies have a different depreciation policy to capitalize on assets such as utilities, vehicles, equipment, or having it on items over $20,000 for example.

Imel said that when smaller entities are required to fund the depreciation, it can be tough if they don’t have the funds to match it. She said that the comptroller’s office has a utility oversight board to help review the operations of the utilities and makes sure that they are financially sustainable.

“And one of the things they look at is to make sure you have net operating income every year,” Imel said.  “And then if you have like three years in net operating losses, then they get concerned and they could take you over and try to change your operations to try and get you back on stronger standing. But that’s what I think a lot of them are looking at, they’re bringing on this huge amount of assets that they didn’t have to pay for, but then they’re going to have to fund the depreciation over its useful life and you’re not going to have hte revenue to off-set that depreciation.”

Imel said that this is a non-cash expenditure–one that is an “on-the-books expense.”


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