What amount should be reported as an expenditure in a governmental fund related to trade-ins of capital assets?

In governmental accounting, when dealing with capital assets, the treatment of trade-ins can involve a couple of different approaches. The appropriate amount to report as an expenditure can either be the cash paid for the new asset or the total cash paid plus the trade-in value of the old asset.

When a government entity trades in a capital asset for a new one, it may record the transaction in such a way that reflects either the cash outflow or the total cost incurred to acquire the new asset.

If the focus is solely on the cash paid, the expenditure can be recognized as the actual cash outflow associated with the acquisition. However, considering the trade-in value offers a more comprehensive view of the total cost of obtaining the new asset, which may provide a better reflection of the economic sacrifice made by the governmental fund.

Therefore, reporting the expenditure in either manner — just the cash paid or the cash paid plus the value of the trade-in — is acceptable under governmental accounting standards. This flexibility is common in practice to match the accounting treatment with the reporting objectives of the organization.