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HomeMy WebLinkAboutCapital AssetCAPITAL ASSET POLICY Adopted September 7, 2004 Revised November 26, 2012 PURPOSE The Capital Asset Policy outlines the proper accounting treatment for capital assets. The policy will define capital as sets and the depreciation method used for financial reporting. C APITAL ASSETS The City defines capital assets as assets that are used in operations, have an initial , individual cost of $5,000 or more and an estimated useful life in exc ess of one year. Such assets are recorded at their historical cost or estimated historical cost for assets where actual historical cost is not available. Assets acquired by donation, forfeiture or seizure are recorded at their estimated fair market value . The C ity reports capital assets in the following categories:  land  easements  construction in progress  land im provements  buildings and structures  machinery and equipment (including software)  vehicles  infrastructure The City many incur additional costs to put an asset into service , such as: sales tax, initial installation, modifications, attachments, accessories, freight, site preparation, professi onal fees, city staff time and interest . The city will only capitalize additional costs that occur after it has become probable that an asset will be acquired. Interest incurred during the construction phase of capital assets for business - type activities is included as part of the capitalized value of the assets constructed. To promote consistency the City wi ll use a general guideline for construction projects; only costs incurred after a feasibility report is approved by City Council will be capitalized. The costs of normal maintenance and repairs that do not add to the value of the asset or materially exte nd lives are not capitalized. D EPRECIATION METHOD Capital assets are recorded in the government - wide and proprietary fund financial statements, but are not reported in the government fund financial statements. Capital asset d epreciation will be calcul ated using the straight - line method over the est imated useful lives of assets and zero salvage value. Land, easements and construction in progress are not depreciated. Useful Lives Assets in Years Land improvements 5 – 20 Buildings and structures 50 Machinery and equipment 5 – 30 Vehicles 8 – 25 Infrastructure 10 – 65 City of Prior Lake 1 Capital Asset Policy GLOSSARY BUILDING S AND STRUCTURES – A ttachments to the land that have roofs , are partially or completely enclosed by walls, and are not intended to be mobile. CONSTRUCTION IN PROGRESS – Costs for projects not completed in the year begun are tracked over time needed to complete the job and then capitalized at the time the project is placed into service. D EPRECIATION – The process of allocating the cost of an asset over a p eriod of time, rather than recognizing the cost as an expense in the year of acquisition. Generally, at the end of an asset’s life, the sum of the amounts charged for depreciation in each accounting period (accumulated depreciation) will equal the origina l costs less salvage value. EASEMENTS – The right to use the real property of another for a specific purpose. ESTIMATED USEFUL LIFE – 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. FAIR MARKET VALUE – The current amount that would be paid if the item were sold in a transaction between a willing buyer and a willing seller. FEASIBILITY REPORT – An analysis of the ability to complete a project successfully, taking into account legal, economic, technological, scheduling and other factors. HISTORICAL COST – The cost of an asset at the time of acquisition INFRASTRUCTURE – Long - lived capital assets that normally can be preser ved for a significantly greater number of years than most capital assets. They are stationary in nature and are of value only to the government entity. Examples of infrastructure assets include roads, bridges, tunnels, drainag e systems , water systems an d sewer systems. LAND IMPROVEMENTS – Attachments to the land that have limited lives and are recorded separately and are depreciable. MACHINERY AND EQUIPMENT – Tangible property other than land, buildings, land improvements, or infrastructure which is used in operations and with a useful life greater than one year. Machinery and equipment may be attached to a structure for purposes of securing the item, but unless it is permanently attached to, or an integral part of, the building or structure, it is to be classified a s equipment and not buildings. This category includes software. SALVAGE VALUE – The subsequent value of an asset at the end of its useful life. V EHICLE – A fixed asset that can move itself under its own power. City of Prior Lake 2 Capital Asset Policy