Chapter 3.30 CAPITAL ASSETS POLICY

Chapter 3.30
CAPITAL ASSETS POLICY

Sections:

3.30.010 General information.

3.30.020 Definitions of capital assets.

3.30.030 Valuation of capital assets.

3.30.040 Asset definitions by major category.

3.30.050 Depreciation methods.

3.30.060 Nonmodified approach for roadways and curbs.

3.30.070 Capital assets acquisition.

3.30.080 Asset transfers and dispositions.

3.30.090 Periodic inventories.

3.30.100 Responsibilities of department managers.

3.30.110 Authority for administration and application to all departments.

3.30.010 General information.

The fixed asset policy is being revised effective January 1, 2003. The new policy will be referred to as the capital asset policy. This revision was instituted to change the minimum dollar value of capital assets reported on our financial reports from $1,000 to $5,000 and to include infrastructure assets. The policy will apply to all departments of the municipality, including its utilities. The revision is related to the implementation of the new reporting model, Governmental Accounting Standards Board Statement 34. The new reporting model will require the town to depreciate capital assets. Recommendations from several sources suggested a capital asset threshold of $5,000. An asset with a value of under $5,000 will be expensed in the year of purchase.

The town of Highland has established a comprehensive fixed assets management system in order to provide a higher degree of control over its considerable investment in capital assets, and to be able to demonstrate accountability to its various constituencies: citizens, rate-payers, oversight bodies and regulators.

The purpose of establishing a formalized capital assets management system is fivefold:

(A) To safeguard the investments of the citizens of Highland;

(B) To fix responsibility for the custody of equipment;

(D) To provide data for financial reporting;

(E) To demonstrate appropriate stewardship responsibility for public assets.

This portion of the capital assets policy is limited to outlining the broad classifications of property, the definitions of assets, methods of creating asset data, acquisitions, transfers, and retirements of town-owned property for which the town is fiscal agent. It does not include data processing, programming requirements, or computer operations procedures. [Ord. 1235 § 1, 2004. Code 2000 § 35.20].

3.30.020 Definitions of capital assets.

(A) Capital assets include:

(1) Land, land improvements, including monuments, buildings, building improvements, construction in progress, machinery, equipment, vehicles and infrastructure and computer software.

(2) All land will be capitalized but not depreciated.

(3) All items with a useful life of more than one year, and having a unit cost of $10,000 or more shall be capitalized (including acquisitions by lease-purchase agreements and donated items). A capital asset meeting these criteria will be reported and depreciated.

(4) Assets that are not capitalized (items less than $10,000) are expensed in the year of acquisition. An inventory will be kept of all computers and of all items costing less than $10,000 but more than $1,000. They will be classified as noncapitalized items in the fixed asset management system.

(B) Exceptions are:

(1) Items costing less than the above limits which are permanently installed as a part of the cost of original construction or installation of a larger building or equipment unit will be included in the capitalized cost of the larger unit;

(2) Modular equipment added subsequent to original construction of a larger building or equipment unit which may be put together to form larger units costing more than the prescribed limits will be charged to capital assets even though the cost of individual items is less than such limits;

(3) Cabinets, shelving, bookcases, and similar items, added subsequent to original construction, which are custom made for a specific place and not adaptable elsewhere, will be capitalized.

(C) Purchases made using grant funds must comply with grant requirements or the above procedures, whichever are the most restrictive.

(D) Town utilities will follow this same definition of capital assets.

(E) Threshold Levels for Capital Assets. The following schedule will be followed for the different types of capital assets:

	Tracking/Inventory	Capitalize/Depreciate
Land	$1.00	All/Capitalize only
Land Improvements	$1.00	$10,000
Building	$1.00	$10,000
Building Improvements	$1.00	$10,000
Construction in Progress	$1.00	All/Capitalize only
Machinery and Equipment	$1,000	$10,000
Vehicle	$1,000	$10,000
Town Utility Assets	$1.00	$10,000
Computer Software	$1.00	$20,000

[Ord. 1663 § 1, 2017].

3.30.030 Valuation of capital assets.

Capital assets must be recorded at actual cost. Normally the cost recorded is the purchase price or construction costs of the asset, but also included is any other reasonable and necessary cost incurred to place the asset in its intended location and intended use. Such costs could include the following:

(A) Legal and title fees, closing costs;

(B) Appraisal and negotiation fees, surveying fees;

(D) Land preparation costs, demolition costs;

(E) Architect, engineering and accounting fees;

(F) Insurance premiums during construction;

(G) Transportation charges;

(H) Interest costs during construction – on enterprise funds only.

Donated or contributed assets should be recorded at their fair market value on the date donated. [Ord. 1235 § 1, 2004. Code 2000 § 35.22].

3.30.040 Asset definitions by major category.

(A) It is important to the maintenance of accurate records that each asset category is properly defined and that all persons responsible for records maintenance be fully aware of the categorization systems. This section further clarifies the assets definitions by major category.

(B) Land. “Land” is defined as specified land, lots, parcels or acreage including rights-of-way, owned by the town of Highland, its various departments, boards of authorities, regardless of the method or date of acquisition. Easements will not be included as they are not owned by the town, but represent an interest in land owned by another (i.e., property owner) that entitles the easement holder to a specific limited use.

(C) Improvements Other Than Buildings (Land Improvements). Examples of civil town assets in this category are walks, parking areas and drives, fencing, retaining walls, pools, fountains, planters, underground sprinkler systems, and other similar items.

Examples of town utilities assets in this category are water supply mains, collection sewers (wastewater), wells, dams, fences, intake pipes, manholes, and fire hydrants.

(D) Buildings. All structures designed and erected to house equipment, services, or functions are included. This includes systems, services, and fixtures within the buildings, and attachments such as porches, stairs, fire escapes, canopies, areaways, lighting fixtures, flagpoles, and all other such units that serve the building.

Plumbing systems, lighting systems, heating, cooling, ventilating and air handling systems, sprinkler systems, alarm systems, sound systems, and surveillance systems, passenger and freight elevators, escalators, built-in casework, walk-in coolers and freezers, fixed shelving, and other fixed equipment are included with the building, if owned.

Communications antennas and/or towers are not included as buildings. These are parts of the equipment units that they serve.

(E) Equipment (Major Movable Equipment, Vehicles). Equipment includes all other types of physical property within the scope of the capital asset management system not previously classified. Included within this category are office mechanical equipment, office furniture, appliances, furnishings, machinery items, maintenance equipment, laboratory equipment, vehicles, road equipment, aircraft, emergency equipment, earth moving equipment, text equipment, and civil defense equipment. All supplies are excluded.

(F) Infrastructure. Infrastructure assets are long-lived capital assets that normally can be preserved for a significantly greater number of years than most capital assets and that are normally stationary in nature. Examples include roads, streetlights, traffic signals, drainage systems (storm water sewers), and water systems. Infrastructure assets do not include buildings, drives, parking lots or any other examples given above that are incidental to property or access to the property above.

(G) Maintenance and Repairs Versus Additions and Improvements. Additions and improvements to infrastructure, which increase the capacity of efficiency of the asset, will be capitalized. For example, roadway reconstruction is considered an improvement and will be capitalized. Maintenance/repairs will be considered as necessary to maintain the existing asset, and therefore not capitalized. For example, patching, resurfacing, snow removal, etc., are considered maintenance activities and will be expensed. Also, any normal department operating activities will be expensed and not capitalized. However, activities which are deemed preliminary and related to a capital project such as feasibility studies, and preliminary engineering and design, will be capitalized as an element of the infrastructure asset.

Alleys will not be included as part of infrastructure for the following reasons:

Existing improved alleys will be maintained as gravel alleys, and the town is responsible only for the maintenance, such as patching and repairing. Any investments to upgrade the condition of the alleys will be done by homeowner participation. Therefore, the town will not track and value alleys, and the patching/repairs will be expensed as they occur.

The historical reporting requirement of GASB 34 requires the town to report items put into use from 1980 forward, and gives the town the option to report items put into use prior to 1980. The town may, in addition to the required timetable, report prior to 1980. [Ord. 1269 § 2, 2005. Code 2000 § 35.23].

3.30.050 Depreciation methods.

(A) Depreciation will be calculated using the straight-line method and full-year convention. No depreciation will be recorded for the year of acquisition and will commence following the year the asset is placed in service and be calculated in accordance to the town’s estimated useful lives as stated above. No salvage value or residual value will be recognized.

(B) Retirements apply to all capital assets including land, buildings, machinery and equipment, vehicles, and general infrastructure.

When an asset is disposed of, scrapped, sold, subject to demolition, etc., it is to be removed from the property record and the appropriate reduction will be made to historical cost, accumulated depreciation, and net book value amounts.

Retirements will reflect the actual historical cost of the asset when the amount is ascertainable. When historical cost is not ascertainable, an estimated historical cost will be determined.

(C) Straight-Line Depreciation. All the following assets will be depreciated using the straight-line method of depreciation. A gain or loss on disposal will be recorded. Following is a list of the most common useful lives:

Vehicles	4.0 years
Office equipment	5.0 years
Heavy equipment	5.0 – 10.0 years
Fire trucks	15.0 years
Fire-fighting equipment (ladders, hoses)	10.0 years
Buildings	40.0 years
Building components (HVAC systems, roofing)	10.0 – 20.0 years
Leasehold improvements	10.0 years
Land improvements – structure (parking lots, athletic courts, swimming pools)	8.0 – 25.0 years
Land improvements – ground work (golf course, athletic fields, landscaping, fencing)	10.0 – 25.0 years
Outdoor equipment (playground equipment, radio towers)	10.0 years
Grounds equipment (movers, tractors, attachments)	5.0 – 15.0 years
Town utilities’ useful lives are as follows:
Mains	40.0 years
Pump stations	40.0 years
Structure and improvements	40.0 years
Pump equipment	20.0 years
Treatment equipment	20.0 years
Furniture and equipment	20.0 years
Other equipment	5.0 – 20.0 years
Transportation equipment	4.0 – 10.0 years
Shop and lab equipment	5.0 – 15.0 years
Computer software	5.0 years
Communication equipment	5.0 years

[Ord. 1663 § 2, 2017].

3.30.060 Nonmodified approach for roadways and curbs.

Roads, streets and curbs will be depreciated on a straight-line basis according to the following useful life schedule:

Roads:
	Paved (asphalt):	40.0 years
	Nonpaved	50.0 years
Curbs:
	Highback concrete	15.0 years
	Low (roll) back concrete	15.0 years

[Ord. 1235 § 1, 2004. Code 2000 § 35.25].

3.30.070 Capital assets acquisition.

(A) The method of acquisition is not a determining factor under this policy. Each department should report items acquired by:

(1) Regular purchase;

(2) Lease purchase agreement; see below;

(3) Construction by town personnel;

(4) Construction by an outside contractor;

(5) Resolution/condemnation;

(6) Donation/contribution;

(7) Transfer from another department;

(8) Trade or barter;

(9) Annexation.

(B) Leased equipment should be capitalized if the lease agreement meets any one of the following criteria:

(1) The lease transfers ownership of the property to the lessee by the end of the lease term.

(2) The lease contains a bargain purchase option.

(3) The lease term is equal to 75 percent or more of the estimated economic life of the leased property.

(4) The present value of the minimum lease payments at the inception of the lease, excluding executory cost, equals at least 90 percent of the fair value of the leased property.

Leases that do not meet any of the above criteria should be recorded as an operating lease and reported in the notes of the financial statement. [Ord. 1235 § 1, 2004. Code 2000 § 35.26].

3.30.080 Asset transfers and dispositions.

Property should not be transferred, turned in for auction, or disposed of without prior approval of the department head and the proper board or council of jurisdiction. A vehicle/equipment out-processing checklist (attached to the ordinance codified in this chapter) should be sent to the chancery/bursar clerk in all cases. This form is a dual-purpose form for transfer (defined as any movement of an asset by virtue of change in location, either by account, department, building, floor, or room) or retirement (disposal) of property. This form should also be forwarded to any risk management group or the relevant insurer’s agent to keep insurance schedules current.

The main points to be remembered when using this form are:

(A) Always provide sufficient detail to properly identify the asset, most importantly the asset’s tag number or town ID.

(B) Be accurate and do not overlook any of the needed entries.

(D) Complete each column for every asset listed on the form.

(E) Enter information in correct row, depending on whether you are transferring or deleting an asset.

(F) Have department head sign at the bottom of form.

(G) Return the form to the chancery/bursar clerk.

If an asset is stolen, the department should notify the designated risk management task group as well as the chancery/bursar clerk. [Ord. 1235 § 1, 2004. Code 2000 § 35.27].

3.30.090 Periodic inventories.

A physical inventory of all capital assets (any item over $5,000) will be conducted in each department at least every two years. Department heads will be accountable for the capital asset inventory charged to their departments by verifying a list of their capital assets at year-end. Department heads will still be responsible for maintaining a timely inventory of all other assets which fall below the $5,000 threshold for internal, insurance and related operational purposes. [Ord. 1235 § 1, 2004. Code 2000 § 35.28].

3.30.100 Responsibilities of department managers.

It is the responsibility of the department manager to act as or designate a steward for each piece of property. The steward will become the focal point for questions regarding availability, condition, and usage of the asset as well as the contract during the physical inventory process.

Someone should be designated to record the receipt of the asset, to examine the asset to make sure that no damage was incurred during shipment and to make sure that the asset was received in working order.

The steward is also responsible for arranging for the necessary preventative maintenance and any needed repairs to keep the asset in working condition. It is necessary to have a responsible person available for questions that arise during a physical inventory or when someone wants to borrow the asset. The steward ensures that the asset is used for the purpose for which it was acquired and that there is no personal or unauthorized use. In addition, the steward should report any property damage or theft. [Ord. 1235 § 1, 2004. Code 2000 § 35.29].

3.30.110 Authority for administration and application to all departments.

The town clerk-treasurer shall have continuing authority for the administration and implementation of this policy. This shall include the authority to interpret its provisions in a manner not in conflict with any of its terms. As a management policy, all departments shall cooperate in its execution. This policy shall apply to all offices and departments of the municipality including the municipal utilities. [Ord. 1235 § 1, 2004. Code 2000 § 35.30].