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CITY OF ARDEN HILLS, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Fixed Assets Fixed assets used in governmental fund types of the City are recorded in the general fixed assets account group at cost or estimated historical cost if purchased or constructed. Donated fixed assets arc recorded at their estimated fair value at the date of donation. Assets in the general fixed assets account group are not depreciated. Interest incurred during construction is not capitalized on general fixed assets. Public domain (infrastructure) general fixed assets (e.g., roads, bridges, sidewalks and other assets that are immovable and afvalue only to the City) are not capitalized. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend assets' lives are not included in the general fixed assets group or capitalized in the proprietary funds. Property, plant and equipment in the proprietary funds afthe City are recorded at cost. Property, plant and equipment donated to these proprietary fund type operations are recorded at their estimated fair value at the date of donation. Major outlays for capital assets and improvements are capitalized in proprietary funds as projects are constructed. Interest incurred during the construction phase of proprietary fund fixed assets is reflected in the capitalized value of the asset constructed, net of interest earned on the invested proceeds over the same period. Property, plant and equipment are depreciated in the proprietary funds of the City using the straight-line method over the following estimated useful lives: Assets Lives Furniture and equipment Sewer and collection system \Vater distribution system 5 - 10 years 40 - 80 years 40 - 100 years Compensated Absences Employees with at least ten years of service are entitled to receive one-third of their unused sick leave up to a maximum of 800 hours upon tennination in addition to any unused vacation and compensatory time. The accrual of these benefits is recorded as a liability in the enterprise funds and expensed. The accrual in the enterprise funds was $26,997 at December 31, 2002. The liability for the governmental funds is recorded in the general lang-term debt account group and recorded as an expenditure when paid. The liability in the general long-term account group was $75,724 at December 31, 2002. Long-term Obligations The City reports long-term debt of goverlllllental funds at face value in the general lang-term debt account group. Long-term debt and other obligations financed by proprietary funds are reported as liabilities in the appropriate funds. For governmental fund types, bond premiums and discounts, as well as issuance costs are reeogruzed during the current period. Bond proceeds are reported as another financing source net of the applicable premium or discount. Issuance costs, other than those withheld from the actual net proceeds received, are reported as debt service expenditures. For proprietary fund types, bond discounts are deferred and amortized over tbe life of the bonds using the straight-line method. -15- I .- I I I I I I I e. I - - . - I .- - I