True or False: A surplus from setting capital-related charges based on estimated replacement costs violates internal service fund principles.

Setting capital-related charges based on estimated replacement costs does not inherently violate the principles of internal service funds. Internal service funds are designed to account for the financing of goods or services provided by one department or agency to other departments or agencies of the government on a cost-reimbursement basis. The objective is to ensure that the funds generated through charges align with the costs incurred in providing those services.

If a surplus occurs from setting these charges based on estimated replacement costs, it can indicate that the charges are effectively covering the costs of acquiring and maintaining the capital assets, allowing for proper funding of future replacements or upgrades. The internal service fund principles allow for a focus on cost recovery, and as long as the charges are justifiable and reflect the true cost of services, generating a surplus is not a violation. Instead, it may simply represent prudent financial management that ensures adequate resources for long-term asset sustainability.