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. acquisition. Normal costing estimates historical cost based on the current cost to either reproduce or replace the capital asset, indexed by a reciprocal factor from the estimated acquisition date, i,e., taking the value of acquiring the asset new today and then discounting that amount by an appropriate inflation factor back to the datc of acquisition. Capital assets donated to the City shall be reported at fair value. Fair value is the amount at which an asset could be exchanged in a current transfer at arm's length between willing parties, other than in a forced or liquidation sale. Donations are defined as voluntary contributions of resources to the City by a non-governmental entity. A voluntary contribution of resources between governmental entities is not a donation. SECTION III CAPITAL ASSET DEPRECIATION Depreciation is the proccss of allocating the cost of a tangible asset to the periods of benefit. Capital assets shall be depreciated over their estimated useful live with exception of the following: . Inexhaustible assets, i.e., land, and land improvements that do not require maintenance or replaccment, e.g., certain works of art and historical treasures; . Infrastructure assets reported using the modified approach; and . Construction work,in-progress. . For financial purposes the City will use the straight-line method of depreciation, which allocates the cost evenly over the life of thc asset. Generally, at the end of an asset's life, the sum of the amounts charged for depreciation in each accounting pcriod, or accumulated depreciation, will equal the original cost less salvage value. A significant issue when recording capital assets is thc question of when expenditures are capitalized as improvements versus recorded as repairs or maintenance expenses. The key consideration for determining whether to capitalize expenditures depends on whether the cost incurred, significantly extends the asset's useful life, increases its capacity, or improves its efficiency. Therefore, capital asset improvement costs are capitalized if: . The costs excceds the capitalization thresholds; and . One of the following criteria is met: o The value of the asset or estimated life is increased by 25% of the original cost or Iifc period; o The cost results in an increase in capacity of the asset; or o The efficiency of the asset is increased by more than 10%. SECTION IV CAPITAL ASSET DEFINITIONS AND CATEGORIES Land is the surface or crust of the earth, which can be used to support structures, and may be used to grow crops, grass, shrubs, and trees; and is characterized as having an unlimited life, i.e., indefinite. Land is an inexhaustible asset and not depreciable. . Land improvements consist of betterments, site preparation, and site improvements (other than buildings) that ready land for its intended use. The costs associated with improvements to land 5