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CITY OF CENTERVILLE, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Major outlays for capital assets and improvements are capitalized in proprietary funds as projects are constructed, Interest incurred during the constnlction 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 foHowing estimated useful1ives: Assets Years Collection system Wate! distribution system Equipment 60 40 5-]0 Compensated Absences It is the City's policy to permit employees to accumulate a limited amount of earned but unused vacation, which is paid to the employee upon separation. Sick leave may be accumulated but is not payable upon termination from City employment for regular employees. Union employees are allowed severance equal to their \mused compensatory time and half their accrued sick leave up to a maximum of 400 hours after 10 years ofsemce, In governmental fund types the cost of these benefits is recognized when payments are made to the employees. A liability of $14,347 represents accrued vacation, sick and compensatory time unused at year end. The liability has been recorded in the general long-telD1 debt account group. Long-term Obligations The City reports long-term debt of governmental funds at face value in the general long-term debt account group. Certain other governmental fund obligations not expected to be financed with current available fmancial resomces are also reported in the generallongwterm 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 recognized during the current period. Bond proceeds are reported as an other 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 issuance costs and discounts are deferred and amortized over the life of the bonds using the straight line method. Fund Equity ReseIVations of fund balance represent amounts that are not appropriable or are legally segregated for a specific purpose. Reservations of retained earnings arc limited to outside thiId-party restrictions. Designations of fund balance represent tentative management plans that are subject to change. The proprietary fund's conlnbnted capital represents equity acquired through capital grants and capital contributions from devetopers, customers or other funds. Memorandum Only - Total Columns Total colunms on the. general purpose [mandaI stateme.nts are captioned as llmemorandl1m only" because they do not represent consolidated financial information and are presented only to facilitate fmancial analysis. The columns do not present information that reflects fmancial position, results of operations or cash flows in accordance with accounting principles generally accepted in the United States of America. futerfund eliminations have not been made in the aggregation of this data.