HomeMy WebLinkAbout5D - Fixed Asset Policy
16200 Eagle Creek Avenue S.E.
Prior Lake, MN 55372-1714
STAFF AGENDA REPORT
MEETING DATE:
AGENDA #:
PREPARED BY:
AGENDA ITEM:
SEPTEMBER 7, 2004
5D
RALPH TESCHNER, FINANCE DIRECTOR
CONSIDER APPROV AL OF FIXED ASSETS POLICY
DISCUSSION:
History
The City's auditing firm, Abdo, Eick and Meyers has recommended
that the City adopt a formal fixed asset policy to comply with GASB
34 requirements. As a result, Staff has prepared the attached City of
Prior Lake Fixed Asset Policy for Council consideration.
Current Circumstances
Fixed assets account for virtually all capital items owned by the City
with a value greater than $5,000.00 and a useful life of more than
one year. The fixed asset policy outlines how such assets are to be
accounted for and depreciated over their useful life. Typically a
fixed asset policy will also include identification all city property as
well. The policy sets forth a process for recording the acquisition of
new assets and the appropriate disposal procedures for existing
assets.
The most important criteria within a fixed asset policy are to identify
a minimum fixed asset value for equipment, capitalization
thresholds for the major asset categories and a depreciation schedule
for the various fixed asset classes. For financial statement purposes
the following capitalization thresholds are recommended within the
fixed asset policy:
$5,000.00
$5,000.00
$5,000.00
$10,000.00
$25,000.00
$25,000.00
$100,000.00
Under Section 7 of the Fixed Asset Policy standard estimated useful
lives have been established and outlined within a table by Class
Code.
The auditors have reviewed the Fixed Asset Policy and have
indicated that it is consistent with GAAP (Generally Accepted
Accounting Principals).
H:\AUDIliAgenda fixed asset.doc
www.cityofpriorlake.com
Phone 952.447.4230 / Fax 952.447.4245
ALTERNATIVES:
RECOMMENDATION:
RECOMMENDED
MOTION:
REVIEWED BY:
Attachments:
H:\AUDIT\Agenda fixed asset. doc
The following alternatives are available to the City Council:
1. Approve City of Prior Lake Fixed Asset Policy as submitted.
2. Modify the Fixed Asset Policy per Council direction
3. Delay action according to a specific Council reason
Staff recommends approval of the draft City of Prior Lake Fixed
Asset Policy, as it is consistent with GAAP standards. Please feel
free to contact Staff prior to the meeting if you have any questions
regarding any of the provisions within the policy.
ent agenda to approve the City of Prior
City of Prior Lake
FIXED ASSETS
POLICY
(September 7, 2004)
H:\AUDIT\Fixed Asset Policy.doc
INDEX
SECTION 1.
PURPOSE
SECTION 2.
DEFINITIONS
SECTION 3.
CAPITAL ASSESTS AND CAPITALIZATION THRESHOLDS
SECTION 4.
ACQUISITIONS AND RETIREMENTS
SECTION 5.
FIXED ASSET INVENTORY VALUATION AND CAPITALIZATION
CRITERIA
SECTION 6.
SALE OF ASSETS
SECTION 7.
DEPRECIATION
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PROCEDURES FOR ESTABLISHING AND MAINTAINING A FIXED ASSET RECORD
SYSTEM
SECTION 1.
PURPOSE
These procedures are intended to provide a standard system of control for all fixed assets owned
by the City of Prior Lake. These procedures give directions to City staff regarding maintenance
of the Fixed Asset Control System (FACS).
SECTION 2.
DEFINITIONS
Asset Life
This is the standard estimated useful life of an item. To be
considered a fixed asset, an item must have a useful life greater
than one year.
Asset Value
This is the value of an item. The value will be based on the
invoice plus any additional costs of preparing the asset for use.
To be considered a fixed asset, an item must have a value greater
than $5,000.
Buildings
A building is a structure that is permanently attached to the land,
has a roof, is partially or completely enclosed by walls, and is
not intended to be transportable or movable. For example, a
picnic pavilion would be considered a structure although it may
have no walls. A building or structure is a roofed and/or walled
structure that is city owned. Certain buildings or structures that
are an ancillary part of infrastructure networks such as pumping
stations should be reported as infrastructure rather than
buildings.
Building Improvements
Capitalized costs that materially extend the useful life of a
building or increase the value, or both, beyond one year.
Building improvements should not include maintenance and
repairs done in the normal course of business.
Capital Assets
Under the requirements of GASB 34, capital assets include land,
improvements to land, buildings, building improvements,
vehicles, machinery, equipments, works of art and historical
treasures, infrastructure and all other tangible or intangible assets
that are used in operations and that have initial useful lives
extending beyond a single reporting period.
Capitalization Threshold
The dollar value at which a government elects to capitalize
tangible or intangible assets that are used in operations and that
have initial useful lives extending beyond a single reporting
period.
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Depreciation
Depreciation Method
Estimated Useful Life
Fixed Asset
Furniture & Fixtures
Infrastructure
The process of allocating the cost of assets over a period of time,
rather than deducting the cost as an expense in the year of
acquisition.
The method used to calculate the allocation (depreciation) of the
cost of a capital asset over its estimated useful life. The most
commonly used method is straight-line depreciation, which
allocates the cost evenly over the life of the asset.
An accounting estimate of time period that an asset will be able
to be used for the purpose for which it was purchased or
constructed.
An item obtained by the city with a value greater than $5,000
and an estimated useful life greater than one year.
Assets that are used in any city facility that are considered
furniture or fixtures.
Assets that are long-lived capital assets which normally are
stationary in nature and can be preserved for a significantly
greater number of years than most capital assets. They are
permanent installations with a value greater than $100,000.
Examples include water/sewer mains, roads, bridges, stormwater
drainage systems, etc.
Infrastructure Improvements Infrastructure improvements are capital costs that materially
extend the useful life or increase the value of the infrastructure,
or both.
Land
Land Improvements
Machinery & Equipment
Park Improvements
Salvage Value
Vehicles
Any parcel of land that is city owned whether developed or
undeveloped. Include costs for professional fees, demolition,
interest, taxes, commissions, etc.
Grading, roads, trails, sidewalks and parking lots on city owned
land that will be capitalized.
Motorized and non motorized equipment that has a primary
function or use for a city street, park, fire fighting or utility
maintenance, etc. including items such as tractors, mowers, snow
plows.
Improvements made to a city park that will be capitalized. This
category would include items such as playground equipment,
back stops, bleachers, flagpoles, etc.
The salvage value of an asset is the value it is expected to have
when it is no longer useful for its intended purpose.
Motorized vehicles owned by the city such as trucks.
4
Vehicle Equipment
Equipment that is installed in/on a motor vehicle such as radios,
wing plows, sanders, lighting packages and tool boxes.
SECTION 3. CAPITAL ASSETS AND CAPITALIZATION THRESHOLDS
A capital asset is real or personal property that has a value equal to or greater than the
capitalization threshold for the particular classification of the asset and has an estimated useful
life greater than one year. The city reports capital assets in the follow categories:
Land/Land Improvements
Other Improvements
Buildings/Building Improvements
Machinery and Equipment
Vehicles
Infrastructure
For financial statement purposes only, a capitalization threshold is established for each capital
asset category as follows:
Machinery and Equipment
Vehicles
Miscellaneous assets
Land/Land Improvements
Buildings
Building Improvements
Infrastructure
$5,000
$5,000
$5,000
$10,000
$25,000
$25,000
$100,000
Capital assets should be recorded and reported at their historical costs, which include the vendor's
invoice (plus the value of any trade-in or allowance, if reflected on the invoice) plus sales tax,
initial installation cost (excluding in house labor), modifications, attachments, accessories or
apparatus necessary to make the asset usable and render into service. Historical costs also include
ancillary charges such as freight and transportation charges; site preparation costs, and
professional fees.
Capital asset improvement costs should be capitalized if the costs exceed the capitalization
threshold and either the value of the asset or estimated life is increased by 250/0 of the original
cost, or the cost results in an increase in the capacity of the asset.
SECTION 4. ACQUISITIONS AND RETIREMENTS
When a department acquires a new asset, the department head is responsible for
completing an "Asset Acquisition Form" and providing the Finance Officer with the
Original. (An example of this form is attached.)
Noted on the Asset Acquisition Forms should be the following:
1. Description:
The description should clearly describe the asset, keeping in
mind that this description will be used to help identify the asset
in the future, without being too lengthy.
5
2. Expenditure Account:
This is the expenditure account that the invoice for the asset is
coded to.
3. Location:
This is the intended location in which the asset will be stored.
4. Function Code:
This is the code, which describes the function of the department.
that owns the asset. Examples include general government,
public safety, public works and parks and recreation department.
This code will be assigned by the Finance Department and may
be left blank by the purchaser.
5. Activity Code:
This is the code, which describes which department purchased
the asset. This code will be assigned by the Finance Department
and may be left blank by the purchaser.
6. Vendor:
This is the name of the vendor from whom the asset was
purchased.
7. Acquisition Date:
This is the date the asset was acquired.
8. Manufacturer:
This is the name of the manufacturer of the asset, if applicable.
9. Model Number:
This is the model number assigned to the asset by the
manufacturer, if applicable.
10. Serial Number:
This is the serial number assigned to the asset by the
manufacturer, if applicable.
11. Cost:
This is the cost of the item. Cost will be based on the invoice
plus additional costs of preparing the asset for use. Trade-in
values will be included to determine the carrying cost of the new
asset.
12. Estimated Useful Life:
This is the standard useful life of the item based on the chart in
Section 7.
Infrastructure associated with construction projects shall be recorded in the year completed.
When a department retires or transfers out an asset, the department head is responsible for
completion of an "Asset Retirement/Transfer Form". The Finance Department must receive the
original. (An example of this form is attached.)
The Fixed Asset Retirement/Transfer form should include the following information:
1. Asset Description:
The description should be detailed and should include the year,
model, model number, color, make, type and other pertinent
information relating to the asset.
2. Department:
This line refers to the department retiring or otherwise changing
the asset.
6
3. Date of Change:
This is the date the change took place.
4. Type of Change:
The department head should state whether the asset was sold,
transferred, destroyed or traded in.
If SOLD the amount of the sale.
If TRANSFERRED the name of the department receiving the
asset and its new location.
If TRADE IN the amount of the trade in allowance received on
a new item. Description of new item that trade was applied
towards.
If DESTROYED please note how it was destroyed, examples
would include junked, totaled in an accident, stolen, etc.
SECTION 5. FIXED ASSET INVENTORY VALUATION AND CAPITALIZATION
CRITERIA
Fixed assets that are purchased, cost will be based on the invoice plus additional costs of
preparing the asset for use. Trade-in values will be included in determining the carrying cost of
the new asset.
Assets acquired by donation, cost will be fair value on date of gift and any costs of preparing
asset for use.
Property acquired under eminent domain will have a cost determined by the court plus any
additional attorney fees, or costs associated with preparing land for intended use.
Assets acquired by forfeiture/seizure are based on the fair value on date of forfeiture/seizure and
additional costs associated with preparing the asset for intended use.
For all fixed assets the additional costs of preparing the asset for intended use includes, but is not
limited to, the following:
1. Land: Legal fees, appraisal and negotiation fees, surveying fees, site preparations costs,
demolition of unwanted structures and damage payments.
2. Buildings & Improvements: Architect fees, legal fees, appraisers, costs of fixtures, and related
construction costs.
3. Machinery, Equipment & Furniture: Transportation charges, installation costs.
4. Motor Vehicles: Transportation charges, painting and installation of additional equipment.
5. Park Improvements: Removable, replaceable fixtures or buildings such as fencing, play
equipment and picnic shelters will be capitalized.
7
It will be the responsibility of the department head to inform the Finance Department of any
additional costs associated with an asset.
SECTION 6. SALE OF ASSETS
All disposition of real and personal property shall conform to Section 110 of Prior Lake City
Code. No assets owned by the city shall be sold to an officer or employee of the city unless the
sale conforms to Minnesota Statue 15.054. Property, except real property, may be sold to an
employee after reasonable public notice at a public auction or by sealed bid, if the employee is the
highest bidder and is not directly involved in the auction sealed bid process.
SECTION 7. DEPRECIATION
Depreciation will be calculated using the straight-line method over the estimated useful lives of
assets. To avoid the complications of depreciating each asset from the specific date on which it
was placed in service, GAAP supports guidelines that assume various assets are placed in service
or disposed of at designated dates though out the year. Standard estimated useful life guidelines
are as follows:
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1......................To"(iO...................t.Iand................................................................................................ i Land...........................................
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! 1100 ! Playground equipment i Machinery & Equipment i 20.0 ;
i 1200 I Police & Fire equipment i Machinery & Equipment i 10.0 i
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I 1400 I Kitchen/appliance/custodial equip. i Machinery & Equipment i 15.0 ;
t.............................................................................................................................................................................................................................................. ...............................................................................,....................................,................................................,
I 1500 ! Engineering equipment achinery & Equipment i 10.0 ...........;
r...... ... '23'00 i Athletic equipment ; Machinery & Equipment, 19.0
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r' . 2620 i Fire trucks .......................................... ....................................... Licensed vehi~.1.~.~............................... ..........??.:9
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! 3020 ! Swimming pools i Construction ! 50.0 i
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roo 3025 I Tennis & basketball courts i Construction I 20.0
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I 3053 I Carpet ! Construction 7.0
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r......................j..3.()'O........................r...Stre.e'is/curb.................................................... ! Infrastructure ........................ .................................... .......26~o......
1..........................3.40'O.........................r..sl'dewaIksJtiiITs................... ....................i...""InfrastrUc.ture.. ........................................ .....!..............::..~.~.~~.....
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............................................i.....!.~~~:~~~.!.~~.::.::.:.::::::::::::::::::::::................ 50.
r.......................4TS.O.........................l.....TunneIs....................................................................................... I Infrastructure 60.0 !
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I 4600 i Boardwalks/docks/slips I Infrastructure i 10.0 j
I........................................................................................................................................................................................................................................................................................................................................................................................................................................................
i 4800 i Street lights I Infrastructure I 15.0 I
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9