What should happen with material losses from the sale of capital assets in governmental activities?

Material losses from the sale of capital assets in governmental activities should be reported as an expense in the function related to that capital asset. This approach follows the principles of governmental accounting, which emphasize transparency and accountability.

When a governmental entity sells a capital asset at a loss, it is essential to reflect that loss in the financial statements to provide an accurate representation of the financial performance and position of the organization. Recording the loss as an expense ensures that users of the financial statements understand the impact of the sale on the overall financial results of the entity, particularly in the context of the specific function or program that the capital asset supported.

This reporting method ties the financial consequences of the asset sale back to the specific activity or program responsible for the asset, making it easier for stakeholders to assess the performance and effectiveness of various governmental functions. Additionally, this aligns with the overall financial reporting framework that seeks to highlight the operational results of government entities.