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HomeMy WebLinkAbout04-016 . . . t ~ ~!:lILLS CITY OF ARDEN HILLS COUNTY OF RAMSEY STATE OF MINNESOT A RESOLUTION No. 04-16 RESOLUTION APPROVING A CAPITAL ASSET POLICY WHEREAS, the Governmental Accounting Standard Board's Statement Number 34 requires governments to report capital assets and to depreciate the capital assets over their estimated useful lives; and WHEREAS, as a result of the Governmental Accounting Standard Board's Statement Number 34 it is necessary for the City to develop and implement a Capital Asset Policy that meets the new financial statement rep011ing requirements, and provides managcment intormation; and WHEREAS, the City of Arden Hills has developed a policy that detines capitalization thrcsholds for different types of capital assets, provides direction ou capital asset reporting and depreciation, and oullines the useful life of various classes of capital assets. NOW THEREl'ORE, BE IT RESOLVED by the City Council of the City of Arden Hills. Minnesota, that the Capital Asset Policy attached as "Exhibit A" to this resolution is hereby adopted. ADOPTED BY THE CITY COUNCIL OF THE CITY OF ARDEN HILLS THIS 12th DAY OF JANUARY, 2004. ~~~~. BeYerly Apli ",ski, AYOR ~~( YUill Michelle Wolfe, Administrator ~ \\Em1h\Admin\Council\Resolutiolls\2004\04-16, Approving the Capital Asset Policy.doc , . I Exhibit A . EN HILLS . . City Council Approval Draft January 12, 2003 . . . INTRODUCTION For fiscal-year ending December 31, 2004, the City of Arden Hills will be required to implement Governmental Accounting Standards Board (GASB) Statement No. 34, Basic Financial Statements and Management's Discussion and Analysis for State and Local Governments. Statement No. 34 establishes new financial reporting requirements for state and local governments throughout the Unitcd States. When implemented, it will create new information and will restructure much of the information that the City of Arden Hills has presented in its annual reports in the past. The intent of these new requirements is to make annual reports more comprehensive and easier to understand and use. Two key components of Statement No. 34 require governments to report capital assets and to depreciate the capital assets over their estimated useful lives. Therefore, it will be necessary for the City to develop and implement a Capital Asset Policy that meets the new financial statement reporting requirements, and provides management information. While the Capital Asset Policy is not all encompassing, it will provide guidance to implementing the new reporting requirements, i.e., meeting the primary objective of financial reporting as it pertains to valuation, allocation, presentation and disclosure; thcrefore this policy will not used for property control purposes. This policy is effective January 1,2004. 2 . TABLE OF CONTENTS SECTION I Define Capital Assets and Capitalization Thresholds 4 SECTION II Capital Asset Reporting 4 SECTION III Capital Asset Depreciation 5 SECTION IV Capital Asset Definitions and Categories 5 SECTION V Capital Assets Estimated Useful Life 9 . . 3 . . . CITY OF ARDEN HILLS CAPITAL ASSET POLlCY PURPOSE It is the policy of the City of Arden Hills to maintain appropriate procedurcs regarding thc procurement, management, and disposal of all capital assets, in accordance with Governmental Accounting Stands Board Statement No. 34 (GASB 34). The Capital Assets Policy addresses classcs of assets, determination of useful lives, and calculation of depreciation. SECTION I DEFINE CAPITAL ASSETS AND CAPITALIZATION THRESHOLDS A capital asset is real or personal property used in operations and having a value equal to or greater than the capitalization thrcshold set forth by the City, for that specific asset classification, and has an estimated useful life greater than one year. For financial reporting purposes only, the City will classify and cstablish capitalization thresholds for each asset class as follows: CAPITAL ASSET CLASSIFICATION CAPITALIZATION THRESHOLD Land and land improvements; $10,000 Other improvcments $25,000 Buildings and building imurovements; $25,000 Machinery and equipment; $ 5,000 Vehicles; $ 5,000 Infrastructure; and $100,000 Constructi on-in -progress. Accumulate all costs and capitalize if over $25,000 for buildings or other improvements and $100,000 for infrastructure. Other assets $ 5,000 Another criterion for recording capital assets is capital-related debt. Capitalizing these assets will minimize the potential of reporting negative net assets in the statement of net assets. In most cascs, these assets will mect the thresholds and guidelines for recording as a capital asset. SECTION II CAPITAL ASSET REPORTING Capital assets should be recorded and reported at their historical costs, which includes costs necessary to placing a capital asset into its intended use or state of operation. Historical cost includes the vendor's invoice, the value of any trade-in or allowance, sales tax, initial installation cost (excluding in-house labor), modifications, attachments, accessories or apparatus; and ancillary charges such as freight and transportation charges, site preparation costs, and professional fees. In the event the historical cost of a capital asset is not determinable, it will be necessary to record an estimated historical cost of the asset using alternative methods. Alternative methods include standard costing and normal costing. Standard costing estimates the historical cost of a capital assct by establishing thc average cost of obtaining the same or a similar asset at the time of 4 . 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 . are addcd to the cost of the land. Land improvements can be further categorized as inexhaustible, not requiring maintenance or replacement; or exhaustible, e.g., parking lots, landscaping and fencing. Examples of items to bc capitalized as land and land improvements include: . Purchase price or fair value at time of gift; . Commissions; . Professional fees, includes title searches, architect, legal, engineering, appraisal, surveying, environmental assessments; . Land excavation, fill, grading, and drainage; . Demolition of existing buildings and improvements, less salvagc; . Removal, relocation, or reconstruction of property owned hy others, i.e., power, telephone and railroad lines; . Interest on mortgages accrued at date of purchase; . Accrued and unpaid taxcs at date of purchase; . Other costs incurred in acquiring the land; . Water wells, including initial cost for drilling, the pump and its casing; and . Permanent right-of-way. Other Improvements include land improvements that are exhaustible in nature and enhance the quality or facilitate the use of land for a specific purpose. Examples of items to capitalize as other improvements include: . . . . . . . . . . . . . Fencing and gates; Landscaping; Parking lost, driveways, and parking barriers; Outdoor sprinkler and irrigation systems; Recreation areas and athletic fields, including bleachers; Golf courses; Paths and trails; Septic systems; Swimming pools, tennis courts, basketball courts, skate parks; Fountains, Plazas and pavilions; and Retaining walls. Buildings refer to 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 movcable. Certain buildings or structures that are ancillary parts of infrastructure networks, such as well houses and pumping stations will be reported as infrastructure rather than as buildings. Examples of items to be capitalized as buildings: Purchased Buildings . . Original purchase price; . Expenses for remodeling, reconditioning, or altering a purchased building to make it ready for its intended purpose; . Environmental compliance, i.e., asbestos abatement; 6 . . Professional fees, includes architect, engineer, management fees for design and supervision, legal; . Cancellation or buyout of existing leases; and . Other costs required to place or render the asset into operation. Constructed Buildings . Completed project costs; . Cost of excavation or grading or filling of land for a specific building; . Expenses incurred for the preparation of plans, specifications, blueprints; . Building permits; . Costs of temporary buildings used during construction; . Additions to buildings, i.e., expansions, extensions, or enlargements. Building improvements include capitalized costs that materially extend the useful life of a building or increase the value of a building, or both, beyond one year. Building improvements should not include maintenance and repairs done in the normal course of business. Examples of items to be capitalized as building improvements include: . . Installation or upgrade of heating and cooling systems, including ceiling fans and attic fans; . Original installation or upgrade of wall or ceiling covering such as carpeting, tiles, paneling, or parquet; . Structural changes such as reinforcement of floors or walls, installation or replacement of beams, rafters, joists, steel grids, or other interior framing; . Installation or upgrade of window or door-frames, upgrading windows or doors, built-in closet and cabinets; . Interior renovation of casings, baseboards" light fixtures, ceiling trim; . Installation or upgrade of plumbing and electrical wiring; and . Installation or upgrade of telecommunication systems. Examples of items considered repairs or maintenance in nature and should not be capitalized as buildings or building improvements include: . . Adding, removing and/or moving of walls relating to renovation projects that are not considered major rehabilitation projects and do not increase the value of the building; . Improvement projects of minimal or no added life expectancy and/or value to the building; . Plumbing or electrical repairs; . Cleaning, pest extermination, or other periodic maintenance; . Interior decoration, i.e., draperies, blinds, curtain rods, wallpaper; . Exterior decoration, i.e., detachable awnings, uncovered porches, decorative fences; . Maintenance-type interior rcnovation including repainting, touch-up plastering, replacement of carpet, tile, or pane sections, and refinishing of sinks and fixtures; . Replacement of a part or component of a building with a new part of the same type and performance capabilities, e.g., replacement of an old boiler with a new one of the same type and performance capabilities; . Any other maintenance-related expenditure, which does not increase the value of the building. 7 . . . Equipment, Machinery and Vehicles refer to fixed or movable tangible assets used for operations, the benefits of which extend beyond one year from date ofreceipt. Examples of expenditures to be capitalized as equipment, machinery, and vehicles include: . Original contract or invoice price; . Freight chargcs; . Handling and storage charges; . In-transit insurance charges; . Sales, use and other taxes imposed on the acquisition; . Installation charges; . Charges for testing and preparation for use; . Cost of reconditioning used items when purchased; and . Parts and labor associated with the construction of equipment, machinery, or vehicle. Note that the cost of extended warranties and/or maintenance agreements, which can be separately identified from the cost of the equipment, machinery, or vehicle, shall not be capitalized. Infrastructure Assets are long-lived capital assets that are linear and stationary in nature and can be preserved for a significantly greater number of years than most capital assets. Examples of infrastructure assets include: . Roads, streets, curbs, gutters, sidewalks; . Bridges; . Water and sanitary sewer systems; . Drainage and stornl water systems; . Street light systems; and . Signage. Infrastructure assets shall be capitalized and depreciated unless the modified approach is used. The modified approach is an alternative to reporting depreciation for infrastructure assets that meet the following criteria: . The assets are managed using a qualifying asset management system; and . It is documented that the assets are being preserved at or above a condition level established by the City. Under the modified approach the infrastructure, assets are not depreciated, and only the costs that increase the capacity or efficiency of the asset are capitalized, while all other expenditures that preserve the useful life of the assets are expensed. Only infrastructure assets that comprise a network or subsystem of a network can be reportcd using the modified approach. Other Capital Assets include computer software that is either purchased or developed for internal use. Internally developed or purchased software should be capitalized if the cost of the software exceeds the capitalization threshold. The software should be depreciated over the software's estimated useful life. Capitalization of computer software includes software license fees if the total dollar amount of the fee divided by the number of units or terminals exceeds the threshold. Examples of expenditures to be capitalized as computer software include: 8 . . External direct costs of materials and services, i.e., third"party fees for services; . Costs to obtain software from third parties; . Travel costs incurred by employees in their dutics directly associatcd with devclopment; . Payroll and payroll-related costs of employees directly associated with or devoting time to encoding, installing or testing; and . Costs to develop or obtain software that allows for access or conversion of old data by new information systems. Note that upgrades and enhancements should only be capitalized to the extent that they increase the functionality of the product. Capital Leased Property includes leased real or personal property, for which ownership of the asset substantially transfers to the lessee; therefore meeting the critcria for capitalizing as an asset. The cost of the asset is capitalized if the lease agreement meets anyone of four conditions: . It transfers ownership of the property to the lessee at the end of the lease term; . Thc lease contains a "bargain purchase" option-an option that gives the lessee the right to purchase the asset for a future price less than the fair market valuc; . The lease term is cqual to at least 75% of the asset's estimated economic life; or . The present value of the minimum lease payments at the inception of the lease, excluding cxecutory costs, equals at least 90% of the fair market value of the leased asset at the time the lessee signs the lease. . Leases that do not meet any of the above conditions shall bc rccorded as an operating lease and reported in the notes of the financial statements. SECTION V CAPITAL ASSETS ESTIMATED USEFUL LIFE' Other imnrovements Fencin" and "ates; 20 years Landscaping; 20 ycars Parking lots, driveways, and parkin" barriers; 15 years Outdoor surinkler and irri"ation systems; 20 vears Recreation areas and athletic fields, including 15 years bleachers; Golf courses; 20 vears Paths and trails; 15 years Septic systems; 15 years Swimming pools, tennis courts, basketball 20 years courts, skate parks; Fountains, 20 years Retaining walls. 20 years Outdoor lighting 20 vears Buildin"s and buildin" imnrovements Buildinf's 40 vears Temporary and portable buildin"s 25 years Roof 20 vears . I Estimated useful life values derived from the Internal Revenue Service Alternative Depreciation System (ADS). 9 . . . HV AC (heating, ventilation, air conditioning) 20 years Electrical 20 years Plumbinll 20 years Snrinkler system 20 vears Security and fire alann system 1 0 years Cablinll 10 vears Floor covering other than carpet 15 years Carpeting 7 years Interior construction 15 years Interior renovation I 0 years Elevators 20 vears Eouinment machinerv, and vehicles Athletic equipment 10 years Audio visual equipment 6 years Business machines and office equipment 7 years Telecommunications equipment 10 years Computer hardware and software 4 years Fire Department equipment 10 ycars Furniture and fixtures, excluding structural I 0 years comnonents of a building Grounds equipmcnt (mowers, tractors, bobcats) 10 years Kitchen equipment (appliances) 1 0 years Lab equipment 10 vears Law enforcement equipment 10 years Machinery, tools and other equipment 5 years Outdoor equipment (playgrounds, scoreboards) 15 years Custodial equipment 10 years Photocopiers 5 years Cars, light general purpose trucks (actual weight 7 years less than 13,000 pounds) Heavy general purpose truck and equipment e.g., 9 years front loaders, graders (actual weight greater than 13,000 pounds) Firefighting trucks 20 years Infrastructure Roads, streets, curb and gutter 30 vears Parking lots 15 vears Sidewalks 20 vears Water, sanitary sewer, stonn sewer systems 50 years Bridges 30 years Q:\Community Services Director\CapitaJ and General Expenditure Policy Draft #2 - Approval Draftdoc 10