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<br />CITY OF CENTERVILLE, MINNESOTA <br />NOTES TO FINANCIAL STATEMENTS <br />DECEMBER 31,2003 <br /> <br />Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ~ CONTINUED <br /> <br />Inventories and Prepaid Items <br /> <br />All inventories are valued at cost using the first-inlfirst-out (FIFO) method. Inventories of governmental funds are <br />recorded as expenditures when consumed rather than when purchased. <br /> <br />Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items <br />in both government-wide and fund fmancial statements. <br /> <br />Capital Assets <br /> <br />Capital assets, which include property, plant, equipment, and infrastructure assets (e.g., roads, bridges, sidewalks, <br />and similar items), are reported in the applicable governmental or business-type activities columns in the <br />government-wide fmancial statements. Capital assets are defined by the City as assets with an initial, individual cost <br />of more than $5,000 (amount not rounded) and an estimated useful life in excess of three years. Such assets are <br />recorded at historical cost or estimated historical cost if purchased or constructed. Donated capital assets are <br />recorded at estimated fair market value at the date of donation. <br /> <br />The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend assets <br />lives are not capitalized. <br /> <br />Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred <br />during the construction phase of capital assets of business-type activities is included as part of the capitalized value <br />of the assets constructed. <br /> <br />Property, plant, and equipment of the City, as well as the component units, are depreciated using the straight line <br />method over the following estimated useful lives: <br /> <br />Assets <br />Buildings and building improvements <br />Other improvements <br />Infrastructure <br />Equipment, machinery and vehicles <br /> <br />Years <br />7-50 <br />20-25 <br />25-50 <br />3-25 <br /> <br />Compensated Absences <br /> <br />It is the City's policy to permit employees to accumulate earned but unused vacation and sick pay benefits. There is <br />no liability for unpaid accumulated sick leave since the City does not have a policy to pay any amounts when <br />employees separate from service with the City. All vacation pay is accrued when incurred in the government-wide <br />and proprietary funds. A liability for these amounts is reported in governmental funds only if they have matured, for <br />example, as a result of employee resignations and retirements. Union employees are allowed severance equal to <br />their unused compensatory time and half their accrued sick leave up to a maximum of 400 hours after 10 years of <br />service. In governmental fund types the cost of these benefits is recognized when payments are made to the <br />employees. <br /> <br />-19- <br />