HIGHWAY COST ACCOUNTING -- QUESTIONS AND ANSWERS
1. How will GASB 34 affect the highway department cost accounting records?
Answer: The affect will be very minimal. GASB 34 primarily impacts the annual report prepared by the county auditor. The highway departmentâ€™s role concerning GASB 34 will be to assist the county auditor in maintaining a complete fixed asset listing of highway equipment and establishing proper useful lives and depreciation schedules for those fixed assets.
2. Should culverts with an opening of over twenty feed be considered a separate bridge project?
Answer: Yes, project records applicable to bridges apply to culverts.
3. If a bridge is replaced by a culvert, should this expenditure be reflected as construction or maintenance?
Answer: This expenditure should be reported as maintenance because the total value of the structure in most cases will not have been increased, but maintained. The quality of the structure will also not have increased.
4. Should indirect costs be charged to bridges which have an opening to twenty feet or more?
and roads based upon the number of miles of roads and the number of bridges in the county.
Answer: Yes, administrative costs will be charged at year end to bridges
5. Are we required to use the chart of account numbers as listed in Appendix A and Appendix B?
Answer: No, the numbers have been provided as an option or alternative to existing systems. Numbers are not required at all as long as the function and object descriptions are the same as suggested. However, for the sake of uniformity, we strongly urge all counties to use the same chart of accounts.
6. Should the county auditor's chart of accounts and the highway department chart of accounts agree?
Answer: The highway chart of accounts works with project costs and equipment records. The county auditorâ€™s chart of accounts has a budgetary forcus. They should not be an attempt to make them coincide because they are separate charts established for separate purposes.
7. How do you estimate a rental rate on equipment not used?
Answer: Rental rates of previous years should be used and adjusted for changing factors such as inflation.
8. Will it be required to adjust project cost records to reflect the actual rental rate on equipment used?
Answer: We do not require that project costs be adjusted to reflect the actual rental rate, but the records will provide the information to compute the actual project cost if requested or needed.
9. Can the county charge more than the computed rental rate to other political subdivisions?
Answer: There are no laws to regulate the rental rate which may be charged, but the county as a good business practice should not charge less than its costs.
10. Is there guidance available to determine the useful life for depreciation schedules?
Answer: Equipment purchased should be patterned after the depreciation schedule of Appendix D. The depreciation schedule provided is a suggested format and rates may vary based on work condition between counties.
11. What value should be used for fixed assets purchased by utilizing a trade-in?
Answer: Fixed assets acquired by way of a trade-in should be recorded at the list price without a trade-in which would represent the cash outright purchase price.
12. When work is done for another political subdivision, how do you charge for indirect labor costs before year end as they have not yet been determined?
Answer: The previous year's indirect labor ratio should be applied to the direct labor costs charged to the work done for political subdivisions. This estimate is used only for billing purposes; the actual indirect labor costs will be determined at year end to give the true project cost.
13. When work is done for another political subdivision, is a specific rate charged for each employee?
Answer: No, a project cost record is established for this work and the actual labor costs will be reflected in the direct labor costs.
14. Where do we charge the cost of the highway superintendent's pickup?
Answer: The costs of the pickup are accumulated in the equipment cost record and added to the administrative costs which are prorated to roads and bridges at year end.
15. How is the cost of driving a vehicle home at night charged?
Answer: This cost of labor, if minimal, should be charged to the first project worked on in the morning. If the time is significant, the time should be accumulated as part of the indirect labor costs which are spread at year end to all projects and equipment based on direct labor hours.
16. Where should the cost of moving REA poles be charged?
Answer: This cost is a contracted project cost and should be charged directly to the project in the miscellaneous voucher journal or similar journal.
17. Are items taken from inventory recorded on a stock issue ticket?
Answer: Yes, but some counties may prefer to use another source document such as a time record or equipment record to record the inventory consumed.
18. How do you charge for costs on projects which are partially funded from federal funds?
Answer: All costs to the project should be charged regardless of financing sources.
19. How do you bill townships for work on a monthly basis?
Answer: The project costs records should be used along with an estimate for indirect labor.
20. If a road maintenance project consists of both oil and gravel, should this road be recorded as one or two maintenance projects because the maintenance cost would be substantially different between the two?
Answer: As a minimum requirement, a road consisting of both oil and gravel will be reported as one maintenance project. If separate cost information between oil and gravel maintenance is desired, the road maintenance project should be split into two projects.
21. How is overtime charged to projects?
Answer: If the overtime can be entirely charged to a single project, it should be recorded as direct labor. If the overtime can not be related to a specific project the amount of hours worked at straight time should be charged as direct labor. The amount of overtime compensation should be charged to all projects and equipment as an indirect labor costs at year end.
22. How do you account for major equipment repairs in this system?
Answer: The costs of the fixed asset should be increased and the depreciation schedule should be adjusted in which to charge these expenses through the useful life of the equipment.
23. Are rental rates computed individually or averaged for equipment?
Answer: The rental rates are averaged by the type or class of equipment being used. The total costs of equipment by class are divided by the total hours of all equipment of the class to determine an average rental rate.
24. How do you record major equipment repairs to equipment which is fully depreciated?
Answer: If the repair are significant, the depreciation schedule should be extended to the newly determined life. If the repairs are not significant, the cost should be expensed in the current year.
25. Can equipment be depreciated more than its cost?
Answer: No, once the equipment cost has been charged completely to projects through the rental rate no further costs can be claimed. If the equipment is consistently outliving the depreciation schedule, the estimated life should be adjusted for future use.
26. How do you record standby time? (nonproductive time)
Answer: If the time is not significant, the project currently being worked on should be charged. If the amount of time is significant, the costs should be accumulated as indirect labor costs which are charged to all projects and equipment based on direct labor hours.
27. What types of materials are necessary to maintain on a perpetual basis?
Answer: Materials which are being purchased in large quantities and issued when consumed or applied to a project or equipment. Materials of small value such as nuts and bolts, etc. do not need perpetual records and replenishment of these items can be expensed annually as indirect equipment costs.
28. Do all materials have to be maintained through perpetual inventory records?
Answer: Materials which are purchased directly and issued directly to projects and equipment do not have to be maintained in the perpetual inventory records.
29. Do we have to use the straight-line method of depreciation? Can we use another method such as the declining balance method?
Answer: In the name of uniformity we should use the straight-line method of depreciation.
30. Where should shop time be charged for the parts man?
Answer: This time should be charged as indirect labor which will be spread to all projects and equipment based on direct labor hours.
31. When is it necessary to complete project estimates?
Answer: Project estimates should be prepared for all construction projects. Project estimates may be prepared for maintenance projects if the information is needed internally.
32. Where should project estimates be filed?
Answer: The project cost estimates should be prepared for and filed with the county commissioners. A copy of the estimate could also be filed in the highway superintendent's office for future reference.
33. If a bridge has an opening of less than twenty feet, is maintenance work included on the road maintenance project or is a separate bridge record established?
Answer: If specific work is done on a structure less than twenty feet, a specific bridge project is to be established. Small costs such as inspection will not constitute an expense and will be recorded as an administrative overhead costs.
34. Do all bridges have to have a specific identification number?
Answer: All bridges should be specifically identified, but cost records only need to be kept on bridges with an opening of twenty feet or more or for bridges less than twenty feet wherein work is being performed. Many counties are using the state inspection number to identify bridges.
35. May we project indirect labor costs rather than using actual costs?
Answer: It would be better to use actual costs; otherwise, we would be computing actual cost information generated from estimates. If estimated costs are used, a yearly comparison of estimated versus actual indirect labor costs should be made and their effects on projects should be determined.
36. Can we charge administrative costs to equipment?
Answer: Administrative cost should be charged to roads and bridges at year end and will not be included as an equipment cost.
37. When should a project report be submitted to the county auditor?
Answer: SDCL 31-11-6 is not specific in this area, but at the minimum a project report should be submitted annually for each road maintenance project and bridge maintenance project and a report should be submitted for each construction project upon its completion.
38. If an overlay of asphalt is placed on asphalt, is this deemed construction or maintenance?
Answer: This work is considered maintenance because the quality has not been improved.
39. How are bridge inspection costs allocated?
Answer: If the costs are significant and itemized by the engineer, the costs should be directly charged to the bridge project. If the costs are not material, they should be accumulated and recorded as administrative overhead.
40. Do indirect equipment cost include insurance?
Answer: Yes, insurance of buildings or insurance which can not be related directly to equipment, but are related to equipment functions, should be recorded as indirect equipment costs.
41. Can attachments such as plows be kept separate from the equipment in records?
Answer: Yes, separate equipment records and rental rates can be established for this type of equipment which may be attached to various units of equipment.
42. Are administrative costs allocated to work done for others?
Answer: No, administrative costs are only allocated to maintenance projects.
43. Can inventory of materials used be accounted for on time cards?
Answer: Yes, inventory used can be recorded on stock issue tickets or time cards as long as the information gets properly communicated to the bookkeeper.
44. Should pickup usage be recorded in hours or miles?
Answer: Pickup usage should be recorded in hours because the rental rates are based on hours.
45. Is the changing of road surface from oil to gravel construction or maintenance?
Answer: Maintenance, because the quality of the surface has not improved.
46. Is insurance on equipment an indirect cost?
Answer: Insurance on equipment should be a direct cost to equipment. This may require you to get a better breakdown of insurance premiums from your insurance agent.
47. How should liability insurance or other forms of insurance be charged?
Answer: If possible, insurance should be charged as a direct cost to projects or equipment. If it is not possible to relate and insurance premium to a specific project or equipment then the cost should be reflected as an administrative or indirect labor cost or indirect equipment cost depending upon the nature of the insurance being charged.
48. If fixed assets have been depreciating on a method other than straight-line, should the accumulated depreciation balances be adjusted?
Answer: No, but future depreciation schedules should reflect the straight-line method of depreciation for uniformity.
49. If a superintendent who is salaried and generally works more than a 40 hour week and does occasional work with the crew, where should this time be charged?
Answer: If the work done with the crew is minimal, the entire salary of the superintendent would be charged as part of administration. If the work is substantial, a reasonable share of the superintendent's salary could be charged to direct or indirect labor.
50. Should annual leave and sick leave be recorded as earned or used?
Answer: Annual leave and sick leave may be recorded as earned or used if compensation is made for unused leave by the county. If the county does not compensate employees for unused annual or sick leave, the leave should be recorded only as used.
51. How should we record the purchase of equipment on the guarantee buy-back or total cost bidding procedure?
Answer: The total cost of equipment less the repurchase guarantee price should be depreciated over the number of years of the buy-back provision. If the equipment is kept by the county, the repurchase guarantee price should be depreciated over the remaining useful life of the equipment.
52. Do we have to depreciate buildings as some may actually appreciate?
Answer: Depreciation should be recorded for all buildings to reflect their cost to projects and equipment. (40 Years)
53. If someone is injured and the cost of their salary is paid by the insurance company, do we have to record this cost?
Answer: No, this cost has already been reflected through the insurance premiums.
54. On FAS projects where the construction is controlled by the State Department of Transportation, is it necessary to complete project cost estimates?
Answer: No, the estimates will be completed by the State Department of Transportation.
55. What kind of a cost report should be prepared annually for the county commissioners?
Answer: At the minimum a project cost report should be prepared from the project cost record for each construction project, road maintenance project and bridge maintenance project and should be detailed by total cost, total direct labor, total direct materials, total equipment cost, direct miscellaneous costs and overhead costs. More detailed or specific information can be reported in addition if deemed necessary.
56. What kind of an annual cost report should be prepared for the Department of Transportation?
Answer: Per the Department of Transportation the following information is needed:
(a) Total cost of all construction projects with the engineering costs being totaled separately.
(b) Total cost of all road maintenance projects with the snow removal costs being totaled separately.
(c) Total cost of all bridge maintenance projects.
(d) Total administrative costs.
The Department of Transportation is interested in totals only and does not need to costs of individual construction and maintenance projects.
57. How long do we have to keep highway department records?
Answer: The following minimum retention dates are suggested:
Record Minimum Retention
Direct Labor Journal Audit + 1 year
Direct Materials Journal Audit + 1 year
Standard Equipment Cost Journal Audit + 1 year
Administration and Overhead Cost Journal Audit + 1 year
Miscellaneous Voucher Journal Audit + 1 year
Project Cost Record Permanent
Fixed Asset Record Permanent or Audit + 1 year
Perpetual Inventory Record Audit + 1 year
Project Budget Worksheets Audit + 1 year
Equipment Record Audit + 1 year
Time Card Audit + 2 years
Vouchers Audit + 1 year
Stock Issue Tickets Audit + 1 year
Equipment and Vehicle Use Report Audit + 1 year
58. Does the county have to charge and remit excise tax on snow removal work done for other political subdivisions?
Answer: No, excise tax is collected only on realty improvement contracts (SDCL 10-46A). Snow removal work done for other political subdivisions is not taxable for sales tax or excise tax.
59. Does the county have to remit excise tax on snow removal done by the County Road and Bridge Fund for the General Fund? Example: Highway department cleans the snow off the courthouse parking lot.
60. Does the county have to collect sales tax on goods sold to private individuals - example surplus sales, culverts, planks, ect.?
Answer: Yes. The Department of Revenue maintains a sales tax hotline for further sales tax questions. 773-5141
61. May the county do maintenance on private roads?
Answer: Yes under certain conditions. SDCL 31-11-41 allows residents of a county to petition the county commissioners to hold a public meeting on whether the county should contract with owners of private roads within the county to provide maintenance. SDCL 31-11-42 requires the notice to be published once a week for two successive weeks in the legal newspaper. SDCL 31-11-43 allows the board after the hearing to authorize the highway superintendent to enter into contracts for the maintenance of private roads by the county. The contract cost may not be less than the county's total cost for such maintenance and the contract may not be for more than six hours of maintenance per year for any one person.
62. Are there any restrictions on the amount of maintenance done on unorganized townships?
Answer: Yes, the amount of maintenance is limited to the available cash balance of each unorganized townships controlled by the county auditor. SDCL 32-11-6 requires the collection of funds for unorganized and organized townships to be apportioned among the townships according to the number of miles of maintained township roads within the townships. SDCL 32-11-7 requires the unorganized township money be retained by the county and expended by the county for the unorganized town ships according to the number of miles of maintained township roads within the unorganized territory.
63. How should we record the cost of donated maintenance work - especially when the projects involve the exchange of work between other governmental entities?
Answer: The county should establish project cost records for work done for other governmental entities. If another entity does work for you, a cost records should also be established to measure the value of the work donated by the other entity. At the end of the year, the value of work exchanged between the county and the other entities should be compared and the differences should be reconciled between the entities. For example, if the county does substantially more work for another entity than the value of work returned, the county should submit a bill for the difference. If the other entity does not have cost records, use your own cost records to establish an estimate of the work performed.