Special item (municipal finance)

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Certain forms of financing by the municipalities are booked as special items on the liabilities side of the municipal balance sheet ( asset account). The two main types are:

  • Special items from allocations from other public bodies (funding) and
  • Special items from contributions, construction cost and investment subsidies.

Municipalities receive state or EU subsidies for certain investments. They also raise z. B. contributions from residents in road construction. These funds do not represent the municipalities' equity , as they were not generated from their own tax power. However, it is not a question of loans either , as there is no repayment obligation. Funding and contributions therefore form an independent financing element and are recognized as a special item.

Example: A municipality is building a street for € 100,000. The residents pay 60%, 10% are state subsidies, 20% are financed by a 10-year loan at 4% and the municipality can raise 10% from its own funds (reserves).
Fixed assets of € 100,000 now appear on the assets side of the municipal balance sheet.
On the liabilities side, there are now € 10,000 reserves, € 70,000 special items (residents and state funds) and € 20,000 bank liabilities.

The special items are released with the activation or with the start of depreciation over the depreciation period of the project financed with it. At the end of their intended useful life, they are used up.

Continuation of the example: The road has a useful life of 20 years. This means that € 5,000 per year is charged to the municipal income statement as depreciation . At the same time, the special item will also be canceled over 20 years. This means a return of € 3,500. Before taking the interest payments into account, the construction of the road only charges the municipal income statement with € 1,500 per year, even though the depreciation is € 5,000. If you include the interest expense of € 800, the result is a charge of € 2,300.
Neither the depreciation nor the release of the special items appear in the financial account, as they do not trigger any payments in subsequent years. In addition to the annual interest payment of € 80, the annual repayment of € 2,000 appears there. In the first year, the financial account closes (assuming there are no other items) with a minus of € 2,080.

When determining the equity ratio , the special items are usually allocated to equity, as there are no or only conditional repayment obligations (e.g. if the funding conditions are not complied with) for the grants and contributions recognized on the liabilities side. Provisions, on the other hand, are usually allocated to borrowed capital, as there is an (albeit indefinite) future payment obligation for them.

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