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POLICYFA‐1 APPROVED: AUTHORITY: FISCALPOLICYMANUAL AccountingforCapitalAssets Auditor‐Controller‐Treasurer‐TaxCollector(ACTTC) Auditor‐Controller‐Treasurer‐TaxCollector ISSUE/REVISEDDATE: June 16, 2016 I. INTRODUCTION A. Purpose ThepurposeofthispolicyistopresentauniformmethodofmaintainingSonomaCounty’s capitalassetrecordsandtoapplyaconsistentmethodofaccountingforcapitalassets.This policydoesnotaddressexistingbudgetproceduresrelatedtocapitalassets.Thispolicyis intendedtobeinaccordancewithGenerallyAcceptedAccountingPrinciples(GAAP),GASBNo. 34,No.35,andNo.51,andfollowthebestpracticesestablishedforthemaintenanceofcapital assetrecords. InadditiontoprovidingapointofreferencetoSonomaCountyofficialsandothersrelativeto capitalassetsaccounting,theobjectiveofthispolicyistoprovideguidanceforproperand consistentcapitalassetaccounting,whichwillenhancetheabilityoftheCountyto: B. Preparefinancialreports(ComprehensiveAnnualFinancialReport). Safeguardsizablepublicinvestments. Establishresponsibilityandaccountabilityforcustodyofassets. Ensureriskmanagementhasanaccuratelistofassetstoensureproperinsurance coverage. Formulatefutureacquisitionandretirementpolicies. RecovereligiblecostsfromFederalandStateprogramsorfeereimbursementprograms. Overview Capitalassetsaredefinedastangibleandintangibleassetsofsignificantvaluethatareusedin operationsandhaveausefullifebeyondoneyear.Capitalassetsinclude: Landandlandimprovements Buildingsandbuildingimprovements Equipment,furniture&vehicles FiscalPolicyFA‐1:AccountingforCapitalAssets Infrastructure Software Intangibles Leaseholdimprovements Capitalleases Easements Constructioninprogress OtherCapitalAssets Page2of32 Thispolicydefinescapitalassetsundereachclassification,identifiesusefulliferanges,sets minimumcapitalizationthresholds,providesexamplesofassetsthatwouldbeproperly includablewithincategories,andexamplesofcoststoincludeinthevalueofthecapitalasset. Additionally,thispolicydiscussesthetreatmentofuniqueitemssuchasCapitalLeases,Self‐ ConstructedAssets,WorksofArt,Weapons,LibraryBooksandEquipment,DonatedAssets, ConstructioninProgress,CostsincurredSubsequenttoAcquisition,andTransfersofAssets betweenFunds. C. Auditor‐ControllerResponsibilities CaliforniaGovernmentCode§26881statesthattheAuditor‐Controller“…shallprescribe,and shallexerciseageneralsupervisionovertheaccountingformsandthemethodofkeepingthe accountsofalloffices,departmentsandinstitutionsunderthecontroloftheboardof supervisors…”.Accordingly,theAuditor‐Controller‐Treasurer‐TaxCollector(ACTTC)has producedthisPolicyforAccountingforCapitalAssets.TheACTTCwillmakerevisionstothis policyasrequiredbylaw,generallyacceptedaccountingprinciples,orpracticalnecessity.Final determinationastodefinitions,valuations,andproperaccountingentriesrequiredtorecord capitalassettransactionsrestswiththeACTTC.TheACTTCshallmaintainaCapitalAsset systemtobeusedfortrackingtheCounty’scapitalassets.TheACTTCmayverifytheintegrity ofcapitalassetrecordsbyconductingperiodicphysicalinventorycountsofcapitalassets,and makeanynecessaryadjustmentstothecapitalassetsystemandfinancialrecords.TheACTTC isrequiredtoprovideaninventoryunderoath,showingindetailallcountypropertyinhisor herpossessionorchargeatthecloseofbusinessontheprecedingJune30th.Thedatefor submissionoftheinventoryofCountypropertytotheBoardofSupervisorsistobenolater thanDecember15thoftheyearofinventory. D. DepartmentResponsibilities CaliforniaGovernmentCode§24051statesthat“…eachcountyofficerorpersoninchargeof anyoffice,department,service,orinstitutionofthecounty,…shallfilewiththecountyclerk,or withthecountyauditor,accordingtotheprocedureprescribedbytheboard,aninventory underoath,showingindetailallcountypropertyinhispossessionorinhischarge…”.To facilitatethefulfillmentoftherequirementsofthissectionandinordertoprepareaccurate FiscalPolicyFA‐1:AccountingforCapitalAssets Page3of32 financialreports,eachdepartmentshallappointaLiaisontoworkwiththeACTTC’sOfficeto maintainaccurateandup‐to‐datecapitalassetaccountingrecords.Responsibilitiesofthe Liaisonarestatedinthispolicy.CountyDepartmentsarealsoresponsibleforsafeguarding assetsthatarenotdefinedascapitalassetsbythispolicy.Capitalassetswillberecordedand maintainedinthecapitalassetsystem.CountyDepartmentsarerequiredtocompletea certificationoftheircapitalassetstobesubmittedtotheACTTCnolessthaneverytwoyears. ForadditionalinformationregardingassetresponsibilitypleaseseeAdministrativePolicy5‐2 PolicyforCapitalProjectandAssetResponsibilityathttp://sc‐intranet/cao/admin_policy_5‐ 2.htm. II. CAPITALASSETDEFINITIONSANDGUIDELINES A. CharacteristicsofaCapitalAsset Whenpurchasingcertainitemsadecisionmustbemadewhethertorecordtheitemasa capitalasset(itemwillbeusedinoperationsforthebenefitofmultipleperiods)orasacurrent periodexpenditure.Therearecertaincriteriawhichdistinguishwhetheranitemshouldbea capitalizedassetandreportedontheStatementofNetPosition(Government‐Widefinancial statement,includingbothgovernmentalandbusinesstype)orrecordedasacurrentperiod expenditureontheStatementofRevenues,ExpendituresandChangesinNetPosition (ProprietaryFundsfinancialstatement).Thecriteriaforcapitalassetsare: NatureoftheAsset–Byitsnature,theassetisintendedtobeusedintheordinarycourse ofbusinessandfallswithinoneofthecategoriesofcapitalassetsincluding:Tangible Assets(Land,LandImprovements,Buildings,BuildingImprovements,Equipment, Furniture,Vehicles,Infrastructure,LeaseholdImprovements,CapitalLeasesandcertain OtherCapitalAssets),or;IntangibleAssets(includingInternallyCreatedSoftware, PurchasedSoftware,Patents,CopyrightsandRightsofUsageorWay,andEasements). UsefulLife–Thebenefitprovidedbytheassetisreasonablyexpectedtolastbeyondone year. CostBasis–Thecostbasis,includingpurchasepriceandothercostsincurredinacquiring andplacingtheassetinservice,mustsurpassaminimumlevel(CapitalizationThreshold) fortheassetclass.ThisCapitalizationThresholdmightbethoughtofasthelevelatwhich anasset’smaterialityjustifiescontinuedbookkeepingexpenseandattention. Ownership–TheCountyisidentifiedaseitherthetitledownerorlegallyresponsibleparty (leaseditems)fortheasset.Incaseswheretheentitywhichreceivesthe“useand enjoyment”oftheassetisnotthetitledowner,theassetisconsideredacapitalleaseand recordedonthenon‐ownersbooksandrecords.Jointlyfundedcapitalassetspaidforby twogovernmentalentitiesshouldbecapitalizedbytheentityresponsibleformanagingthe assetorfuturemaintenance.PleasecontacttheACTTC’sofficeforfurtherinformation. FiscalPolicyFA‐1:AccountingforCapitalAssets B. Page4of32 CharacteristicsofanExpenditure(RepairsandMaintenance) Repairsandmaintenancearecurrentperiodexpenditures/expensesincurredinconnection withexistingcapitalassetsthatneitherlengthenstheoriginallyestimatedusefullifenor increasetheservicecapacityoftheasset. Examplesofexpenditures/expenseswhichareappropriatelyclassifiedasrepairsand maintenanceinclude: Plumbingorelectricalrepair Cleaning,pestexterminationorotherperiodicmaintenance Interiordecorationssuchasdraperies,blinds,curtainrods,wallpaper,paint,etc. Exteriordecorationssuchasdetachableawnings,decorativefences,etc. Maintenancetypeinteriorrenovationssuchasrepainting,touch‐upplastering, replacementofexistingflooringwithsimilarmaterial,fixturerefinishing,etc. Maintenancetypeexteriorrenovationssuchasrepainting,replacementofsectionsof deterioratedsiding,roof,ormasonry,etc. Adding,removingand/ormovingwallsrelatingtorenovationprojectsthatarenot consideredmajorrehabilitationprojectsanddonotincreasethevalueofthebuilding Improvementprojectsofminimalornoaddedlifeexpectancyand/orvaluetothebuilding Anyothermaintenance‐relatedexpenditure/expensewhichdoesnotincreasethevalueof theasset Generalequipmentrepairstobringassettooriginalcondition.(replacingabroken component) FiscalPolicyFA‐1:AccountingforCapitalAssets Page5of32 C. CapitalizationChart Thebelowchartcontainsthecapitalizationthresholdsforassetclasses: Class Land LandImprovements BuildingsandBuildingImprovements Shell ServiceSystem FixedEquipment Temporarybuildings Equipment Furniture Vehicles InfrastructureandInfrastructureImprovements: Pavement Bridges Water&wastewatersystems AllOther InternallyCreatedSoftware Intangibles LeaseholdImprovements CapitalLeases Easements ConstructionInProgress forYearEndReporting OtherCapitalAssets WorksofArtorHistoricalTreasures LibraryBooksandEquipment CapitalizationThreshold $0 $25,000 $25,000 $25,000 $25,000 $25,000 $5,000 $25,000 $15,000 $100,000 $100,000 $100,000 $100,000 $25,000 $25,000 $25,000 Varies $0 Projectsexpectedtoexceed CapitalizationThresholdbasedon applicableClassatcompletion $5,000 $5,000 FiscalPolicyFA‐1:AccountingforCapitalAssets Page6of32 D. Examplesandsuggestedusefullives AssetClass AssetDescription Buildings& Improvements BuildingImprovements Buildings& Improvements Buildings& Improvements BuildingSafety Improvements Buildings Equipment Equipment Equipment Equipment Equipment Equipment Equipment Audio/Visual ComputerHardware CustodialEquipment Equipment Equipment Equipment Furniture,Office Equipment GroundsEquipment HeavyConstruction Equipment OutdoorEquipment MarineandFuel Equipment Equipment Equipment Equipment Equipment Equipment Land Improvements Land Improvements Land Improvements Land&Land Improvements Radio,Communications Weapons LandImprovements Vehicles Vehicles Vehicles Vehicles Infrastructure Infrastructure Infrastructure Cars&LightTrucks FireTrucks&Boats HeavyDutyTrucks Buses Roads Bridges Water,Light,Sewer Systems StormDrains ChannelsandBasins SmallWaterSystems PurchasedSoftware InternallyCreated Software LibraryBooks& Equipment Infrastructure Infrastructure Infrastructure Intangibles Software Library LandImprovements– GroundWork Otherstructuresand Improvements Non‐ExhaustibleLand& LandImprovements Examples HVACsystems(Air‐conditioners,heating, ventilationsystems);Signage;Roofing,electrical& lightingsystems Environmental,healthandsafety;Firesuppression systems Airports,conventioncenters,healthcarefacilities, jails,libraries,offices,parkinggarages,recreation centers,RadioTowerandhousingofradio components. Projectors,cameras(stillordigital) CPU,printers,monitors,laptops Floorscrubbers,vacuums,etc. Forklifts,appliances,etc. Pumps,labequipment,trailers Printing,bindery,insertingequipment Desks,tables,chairs,copiers Mowers,tractorsandattachments Backhoes,trucks,dozers,front‐endloaders,large tractors,earthmovers Playground,scoreboards,bleachers Docks,fingerfloats,fueltanks(aboveandbelow ground),pumps Mobile,portableradios Firearms,tacticalgear,etc. Parkinglots,sidewalks,busramps,fencing, runningtrack,flagpole GolfCourse,Ballfields,parklandscaping Depreciable Lives 15years 20years 50years 5years 5years 15years 5years 10years 15years 5years 15years 15years 15‐20years 20years 5years 7years 15‐25years 15years Reservoirs 50years Landexcavation,fill,grading,drainage,demolition, removal&relocationofpropertyofothers,certain initialcostofwaterwells IndefiniteLife Firetrucks,fireboats,sheriffpatrolboats ½Ton,350 Lifebasedonfundingsource Pavement,etc.. Networkofsystemsthatperformoperations Off‐the‐ShelfPurchasedsoftware(readytouse) Softwarecreatedinternallyorpurchasedsoftware requiringsignificantmodifications books,journals,periodicals,audio/visualmedia, computerbasedinformation,manuscripts,maps, documents 5years 10years 7years 5‐15years 25years 50years 25years 35years 75years 50years 3years 10years 10years FiscalPolicyFA‐1:AccountingforCapitalAssets Page7of32 E. Budget CapitalassetacquisitionsareincludedintheCountybudget.Foradditionalinformation regardingthecapitalassetbudgetprocess,pleaserefertotheInstructionsforBudgetRequest Submittals,CountyFiscalPolicyManualA‐1PolicyforBudgetChangesDuringYearProcessor contacttheACTTCforadditionalinformation. F. AcquisitionofCapitalAssets Acquisitionofacapitalassetisdeterminedwhenanexpenditurewouldbemoreproperly recordedasacapitalassetasitmeetsthecapitalizationcriteriadescribedinsectionII.A., CharacteristicsofaCapitalAsset.Onceithasbeendeterminedthattheexpendituremeetsthe criteriaandapplicablecapitalizationthreshold,theassetshouldberecordedinthegeneral ledgerasacapitalasset. Ifacapitalassetisacquiredusingstateorfederalfunding,oranotherrestrictivesource,the fundingsourcemustbenotedintheassetdocumentation. G. CapitalAssetCostBasis 1. CapitalAssetCostBasis Capitalassetsshouldbereportedathistoricalcostandshouldincludeapplicable additionalcosts.Ifsomethingotherthancashisusedtopayforanasset,thenthefair‐ marketvalueofthenon‐cashpaymentorconsiderationdeterminestheasset’scostor acquisitionvalue.Whenthevalueoftheconsiderationpaidcan’tbedetermined,the asset’sfair‐marketvaluedeterminesitscostbasis.Fair‐marketvalueiswhattheentity wouldnormallyspendonalikeassetpurchase. Withfewexceptions,anasset’scostbasisshouldalsoincludenecessarycostsincurredto placetheassetintoservice.Costsincludeinvoicepriceplusincidentalcosts(ex.‐ insuranceduringtransit,freight,capitalizedinterest,duties,titlesearch,registration fees,sitepreparation,architectandengineeringfees,salestax,installationcostsand legalfees).Exceptionstothisruleincludeinterestexpenseassociatedwithdeferred paymentsandcurrentrealestatetaxespaid,ifany,intheacquisitionofproperty. Certainassetsrequiretrainingfortheend‐usertoproperlyoperateandmaintainthe asset.Costsforend‐usertrainingarenoteligibletobecapitalized.Trainingprovided duringthedevelopmentandconfigurationphaseofcertainprojectsaretobecapitalized. IfyouhavequestionsregardingcapitalizationoftrainingpleasecontacttheACTTC. AllcapitalassetacquisitionsrequireaFixedAssetAdditionsForm(AppendixA)that supportsthecapitalassetcost. 2. ContributedCapitalAssets(DonatedorGifted) Contributedassetsaredefinedasvoluntarycontributionsofresourcestoa governmentalentitybyanunrelatedpersonorentity.Allcontributedassetsaretobe valuedatthefair‐marketvalueoftheassetatthedateofdonationorgift,plusancillary FiscalPolicyFA‐1:AccountingforCapitalAssets Page8of32 charges,ifany.Contributedassetsshouldbedepreciatedbasedontheassetclassand usefullife(orestimatedremainingusefullifebasedonageofcontributedasset) AccordingtoGASB33,recipientsofcontributed(donated)capitalassetsmustrecognize fixedassetcontributionsasrevenuesandnotascontributedcapital.Thecontributed assetandrelatedrevenuearetoberecognizedwhentheassetisreceived.Toqualifyasa capitalasset,thefair‐marketvalueofthecontributedassetmustexceedtheCounty’s capitalizationthresholdfortheapplicableassetclass. 3. CapitalAssetsAcquiredwithFederalorStateGrants AnassetacquiredwithFederalorStateGrantsorotherfundingsourcesoftenhave limitationsorrestrictionsenforcedbythegrantingagency.Themajorauthoritative sourcesforfederalrulesandregulationsincludetheCommonRuleissuedbyanumber ofmajorfederalagenciesandnumerousOfficeofManagementandBudget(OMB) Circularsthatareorganizationandtopicspecific.Pleaserefertothegrantforspecific guidelinesandrulesregardingpurchasingcapitalassetswiththesefunds. SinceFederalandStateGrantscanoftentimeshaveveryspecificguidelineswhichmay notalwayscoincidewiththispolicy,pleasecontacttheACTTCsothatwecanevaluate thepurchaseofcapitalassetswithGrantfunds. 4. CapitalizedInterest Forproprietaryfundsonly(thisincludesenterpriseandinternalservicefunds),ifthe constructionofaprojectmeetstherequirementsprescribedunderAccounting StandardsCodification(ASC)835‐20CapitalizationofInterest,actualorimputed interest(capitalizedinterest)costsassociatedwiththeprojectshouldbecalculatedand addedtotheprojectcostsincludedinconstruction‐in‐progressandinthefinalasset. H. Depreciating/AmortizingCapitalAssets Depreciationistheprocessofallocatingthecostofatangiblecapitalassetovertheperiodof time,referredtoasthe“usefullife,”duringwhichtheownerreceivesbenefitfromtheuseof theasset,ratherthandeductingthecostasanexpenditureintheyearofacquisition. Amortizationisthesameasdepreciation,butforintangiblecapitalassets.Generally,attheend ofanasset’slife,thesumoftheamountschargedfordepreciationineachaccountingperiod (accumulateddepreciation)willequaloriginalcostbasis.Thestraight‐linedepreciation method(historicalcostdividedbyusefullife)andstraight‐lineamortization(historicalcost dividedbyusefullife)willbeusedbytheCounty. StartingJuly1,2014,theCountywillusethefollowing‐monthmethodforcalculatingthe depreciation/amortizationofassetsplacedintoservice.Allassetsplacedintoserviceonor afterJuly1,2014willbedepreciatedonafollowing‐monthconvention.Allassetsplacedinto servicepriortoJuly1,2014willcontinuetobedepreciatedusingthefollowing‐yearmethod. Allproprietaryfunds(enterpriseandinternalservicefund)willrequireavailable appropriationspriortorecordingdepreciationandamortizationexpenseonamonthlybasis. FiscalPolicyFA‐1:AccountingforCapitalAssets Page9of32 1. CapitalAssetswithNon‐ExhaustibleUsefulLives Certaincapitalassetsareconsideredtobe“non‐exhaustibleassets,”wheretheiruseful lifeisunlimitedandthereforearenotdepreciated.Examplesofnon‐exhaustibleassets includeland,certainworksofartandcertainintangibleassets. I. DisposalofCapitalAssets Disposalofacapitalassetiswhentheassetisabandoned,sold,traded‐in,scrapped,or otherwiseremovedfromserviceduringanygivenreportingperiod.Disposalsmustbe processedonatimelybasisthroughoutthefiscalyeartoensuretheaccuratecalculationof depreciationandamortizationexpense.Dispositionsarenotbudgeted;however,replacement ofequipmentorpurchasesofnewequipmentareincludedintheannualbudgetorarepartof theACO/ReplacementFundProgramdiscussedinII.O.,AccumulatedCapitalOutlay(ACO)or ReplacementFund.Forproprietaryfunds,shouldacapitalassetdisposalresultinalosson fixedasset,itwillbenecessarytoensurethereareadequateappropriationsavailabletorecord theloss. Whenanassetisretired/abandoned,itispossiblethatalossmayberecognizedforany remainingnetbookvalue.Netbookvalueisthedifferencebetweenthehistoricalcostofthe assetandtheaccumulateddepreciation.Ifthenetbookvalueoftheassetbeingdisposedis zero,nolossisrecorded. Whenanassetissold,againorlossmustberecognizedwhentheproceedsdonotequalthe netbookvalueoftheasset.Ifproceedsexceedthenetbookvalue,thenagainisrecordedand reportedasOtherFinancingSourcesforGovernmentalFundsorGainonSaleofCapitalAsset forProprietaryFunds.Ifproceedsdonotexceedthenetbookvalue,thenalossisrecordedand reportedasOtherFinancingUsesforGovernmentalFundsorLossonSaleofCapitalAssetfor ProprietaryFunds. Whenanassetisexchangedortraded‐in,forexampletradinginatruckforatruck,theoriginal assetsnetbookvalueshouldbeaddedtoanyconsideration(additionalcashoutlay)resulting intheasset’scostbasis.Whentheassetsarenotsimilarinnature,exchangeatruckfora tractor,thefair‐valueofthetruckexchangedforthefair‐valueofthetractorreceivedshouldbe recorded,withanyadditionalconsideration(additionalcashoutlay)paidaddedtothefair‐ valueoftheassetreceived. Forassetsthatarelistedasmissing(lost/stolen),theaccountingpersonnelresponsiblefor capitalassetswillprepareareportlistingthemissingitems.Thepersonnelwilldocumentall effortsmadetolocatethemissingassets.Thismissingcapitalassetreportlistingwillbe reviewedbythedepartmentheadannually.Itemswillremainonthelistingforaperiodoftwo years,atwhichpointtheassetswillberetiredasmissing. AllcapitalassetdisposalsrequireaFixedAssetAdjustmentsForm(AppendixB)that supportsthecapitalassetchangeinstatus. FiscalPolicyFA‐1:AccountingforCapitalAssets Page10of32 1. DisposalofCapitalAssetsAcquiredwithFederalorStateGrants Foralldisposalsinvolvinganassetfundedwithfederalorstatefunds,thefinance personnelforthegrantprojectmustfirstascertainifthereareanygrantrequirements surroundingthedisposalofcapitalassets.Typically,intheeventthatanassettobe sold/disposedofhasafair‐marketvalueinexcessof$5,000,thedepartmentmustreport thesale/disposaltothegrantingagencythatprovidedtheinitialfunding.Insome instances,departmentsmayberequiredtoremitsomeorallcashproceedsreceived fromthesaleoftheassetacquiredwithfederalorstatefundingtotheagencyinvolved. Pleaserefertotheoriginalfundingdocumentationforspecificcriteriarelatedtoasset disposal. J. AssetsHeldForSale Assetsheldforsaleareitemswhicharenotusedintheordinarycourseofbusiness.The economicbenefitoftheassetisobtainedthroughtheasset’ssaleratherthanthroughits continueduseinoperationsofearningrentalincomeorcapitalappreciation.Theassetmustbe availableforimmediatesaleinitspresentcondition,subjectonlytotermsthatareusualand customaryforsaleofsuchassets,anditssalemustbehighlyprobable. Forthesaletobehighlyprobable,theappropriatelevelofmanagementmustbecommittedto aplantoselltheasset,andanactiveprogramtolocateabuyerandcompletetheplanmust havebeeninitiated.Further,theassetmustbeactivelymarketedforsaleatapricethatis reasonableinrelationtoitscurrentfairvalue.Inaddition,thesaleshouldbeexpectedto qualifyforrecognitionasacompletedsalewithinoneyearfromthedateofclassification, unlesscircumstancesbeyondtheCounty’scontrolextendtheperiodtocompletethesale beyondoneyear.Anextensionoftheperiodrequiredtocompleteasaledoesnotprecludean assetfrombeingclassifiedasheldforsale. Ifanexistingasset’sstatusischangedfromaCapitalAsset(activestatus)toAssetHeldFor Sale,theassetshouldnolongerbedepreciatedasitisnolongerusedintheordinarycourseof business.ThevalueoftheassetshouldbetransferredfromCapitalAssetstoAssetHeldFor Salewithacostbasisatthelowerof:1)Assetsnetcarryingvalueor2)theasset’sfairvalue lessthesellingcosts.TheseAssetsHeldForSaleshouldbeshownseparatelyonthefaceofthe balancesheet,aboveCapitalAssets,astheyarebothnon‐currentassets.Theseitemsare recordedinEnterprise,InternalServiceFunds,PrivatePurposeTrustFundsandthe Government‐WideStatementofNetPosition(notrecordedingovernmentalfunds). Ifyouhaveasituationwhereacapitalassetisremovedfromserviceandisintendedtobesold, pleasecontacttheACTTC. K. AssetGrouping AssetGroupingisdefinedasthegroupingofseveralcomponentswhichareusedinconjunction withoneanothertoformanassettobeusedinoperations.Thoughassetgroupingistobeused inlimitedcircumstances,assetgroupingcanprovideanaccuraterepresentationofthecostsof anassetwhichunderothercircumstanceswouldnotbecapitalized.Whendeterminingthe compositionoftheasset,pleasekeepinmindthefollowing: FiscalPolicyFA‐1:AccountingforCapitalAssets Page11of32 Whenshouldindividuallyinsignificantcomponentsbecombinedintoonefixedassetor componentsofasystem? L. Ifindividuallyinsignificantitemsareapartofplacingamajorassetintoservicethenthose itemsshouldbeincludedwiththemainasset.Anexample;a10gignetworkmoduleto upgradethespeedofaswitchshouldbeincludedinthecostbasisoftheswitchasapartof thewholefixedasset. Insignificantcomponentpartsofasystemornetworkshouldbecapitalizedtogether.For exampleifthereweremultipleswitchesthatindividuallydidnotmeetthecapitalization threshold,howevertheyworkinconjunctionwithotherswitchesaspartofanoverall networkandhavelongusefullives,theyshouldbecapitalized. Ifitisexpectedthatcertaincomponentswillneedtobereplacedeithertogetherorare anticipatedtobereplacedatroughlythesametime,considergroupingthoseassets together.Bygroupingassetswithsimilarcharacteristicsorlifespanstogether,itwillbe easiertodisposeoftheoldassetwhenthenewoneisplacedintoservice. TransferofAssetBetweenDepartments/Funds Transfersaredefinedasthephysicalrelocationofacapitalasseteitherbydepartmentand/or Fund.Whenanassetisbeingtransferredwithnootherconsiderationinvolved,theassetwill betransferredwiththecurrentnetbookvalueandwillcontinuetobedepreciatedor amortizedovertheremainingusefullife.Itisnecessaryfortherespectivedepartments/funds tocompletethenecessaryassetacquisition/saledocumentationsothattheassetcanbe properlytransferredwithinthefinancialsystem Ifadepartmentsellsacapitalassettoanotherdepartment,thevalueoftheassetwillbethenet bookvalue.IftheassettransferredwasfullydepreciatedPleasecontacttheACTTC’sOfficefor assistance. M. Impairment Impairmentisasignificantorunexpecteddecreaseintheserviceutilityorabruptdecreasein itsfairvalueduetoacapitalassetthatwillcontinuetobeusedinoperations.Because impairedassetsarecontinuedtobeusedinoperations,ratherthanbesold,theirbookvalue needstobereducedtoreflectthelossinserviceutilityresultingfromtheimpairment. However,atemporarydeclineinserviceutilitywouldnotconstituteimpairment(ex.–usinga schoolbuildingasawarehouseforoneyear).Impairmentisassumedtobepermanentunless thereissufficientevidencetodemonstratethatitisnot,inwhichcasethecapitalassetshould notbewrittendown. Indicatorsofimpairmentare: Physicaldamagewhereactionwouldbeneededtorestorelostserviceutility Changesinlaws,regulations,orotherenvironmentalfactorsthatnegativelyaffectservice utility(beyondthecontrolofCounty’sManagement) FiscalPolicyFA‐1:AccountingforCapitalAssets Page12of32 Technologicaldevelopmentsthatnegativelyaffectserviceutilityorevidenceof obsolescence Achangeinthemannerordurationofuseofacapitalassetthatnegativelyaffectsservice utility(underemployingtheassetfromitsoriginallyintendeduse) Stoppageofconstructionordevelopment Thecostoftheimpairedassetmustbeadjustedtoreflecttheimpairmentusingoneofthe followingthreemethods: RestorationCostApproach ServiceUnitsApproach DeflatedDepreciationReplacementCostApproach Forimpairmentsresultingfromstoppageofconstructionordevelopment,thelowerof carryingvalueorfairvaluewouldbeutilized. Annually,theACTTCconductsaCapitalAssetImpairmentsurveyrequiringdepartmentsto identifyimpairments.Ifyoubelievethatanassetisimpairedorhaveidentifiedanimpaired assetpriortothissurvey,pleasecontacttheACTTC. N. ReplacementofCapitalAssets Foraccountingpurposes,replacementofequipmenthasthesameprocedureasretiringor disposingoftheoldassetandaddingthenewasset.Whenthenewassetisadded,newasset numbers/tagsaretobeassigned.Theredoesnotneedtobeaonetoonereplacementof equipment.Ifminorcomponentsofafixedasset,suchaspowercablecordsorincidentalparts arereplacedpriortothemainassetbeingreplaced,thesecostsshouldberecordedasan expenditureintheperiodincurred. O. AccumulatedCapitalOutlay(ACO)orReplacementFund TheAccumulatedCapitalOutlay(ACO)orReplacementFundisdesignedtorecordthe accumulationoffundstobespentonfuturecapitalprojects.Inanefforttoavoidyearswith largespikesinexpendituresforcapitalpurchasesorreplacementofequipment,sponsoring departments(ex.–Fleet,ISD,etc.)identifyassets,basedonassetuseandfunctionality,then anticipatethecosttoreplacetheassetwithalikemodelatpre‐determinedreplacementdate. Thesecostsarebilledtoparticipatingdepartmentsmonthlyandthefundsareretainedbythe sponsoringdepartmentuntilthereplacementispurchased.Insomecircumstances,ifthecost ofanewassetisgreaterthantheamountscontributedtothereplacementfund,the departmentwillbeinvoicedfortheremainderofthecostuponacquisition. FiscalPolicyFA‐1:AccountingforCapitalAssets Page13of32 III. CAPITALASSETCLASSIFICATIONS A. Land 1. LandDefinition Landistheinvestmentinthesurfaceoftheearth,whichcanbeusedtosupport structures,constructroadsandhighways,ormaybeusedtogrowcrops,grass,shrubs, andtrees. Landischaracterizedashavinganon‐exhaustiblelife(unlimitedlife). 2. LandCapitalizationThreshold Allland,regardlessofcost,iscapitalized. Inthecaseofacquiringaparceloflandwithanexistingstructure/improvement,the purchasepricemustbeallocatedbetweenthelandandstructure/improvement.Thisis necessaryasthestructure/improvementmayqualifyasadepreciableasset(s). 3. LandDepreciationMethodology Landisanon‐exhaustibleassetandisnotdepreciatedovertime. 4. ExamplesofExpenditurestobeCapitalizedasPartofLandCosts Purchasepriceorfair‐marketvalueattimeofgift Professionalfees(ex.‐titlesearches,consents,condemnation,legal,appraisal, surveying,environmentalassessments,commissions,etc.) Landexcavation,fill,clearing,andgradinglandforuse Demolitioncostsofexistingbuildingsandimprovements(lesssalvage)onland purchasedwiththeintenttodemolishandrebuildwillbeincludedinthecostofthe land.(Pleasenotethatdemolitioncostsrelatedtoassetsalreadyplacedinservice shouldbeexpensed) Removal,relocation,orreconstructionofpropertyofothers(ex.‐railroad, telephone,andpowerlines) Hazardouswasteclean‐up Interestonmortgagesaccruedatdateofpurchase Accruedandunpaidtaxesatdateofpurchase Othercostsincurredinacquiringtheland FiscalPolicyFA‐1:AccountingforCapitalAssets Page14of32 NOTE:Receiptsfromsalesofsalvageshouldbecreditedagainstthelandcost(ex.‐ sellingmaterialfromdemolishedstructures,rockordirt,etc.). B. LandImprovements 1. LandImprovementsDefinition Landimprovementsarenon‐buildingassetswhichenhancethequalityorfacilitatethe useofland. Landimprovementsinclude: Betterments Excavation Fencingandgates Parkinglots,driveways,parkingbarriers,sidewalksnotassociatedwith infrastructure(roadways,bridges,etc.) Retainingwalls,certainlighting,landscapingandirrigationsystems, Sitepreparation Landscaping,fountains,pathsandtrails Outsidesprinklersystem Golfcourses,recreationareasandathleticfields(includingbleachers) Landscapingofnon‐temporarynature Septicsystems Waterimpoundmentstructuresorattachments(dam,liner,otherwatercontrol structure) Swimmingpools,tenniscourts,basketballcourts,etc. Landimprovementsdonotincluderoads,bridges,pipelines,etc.,astheseareclassified asinfrastructure. Landimprovementscanbefurthercategorizedasnon‐exhaustibleorexhaustible. Non‐Exhaustible–Expendituresforimprovementsthatdonotrequiremaintenance orreplacement;expenditurestobringlandintoconditiontocommenceerectionof structures;expendituresforimprovementsnotidentifiedwithstructures;and expendituresforlandimprovementsthatdonotdeterioratewithuseorpassageof FiscalPolicyFA‐1:AccountingforCapitalAssets Page15of32 timeareadditionstothecostofland,aregenerallynotexhaustible,andtherefore, notdepreciable. 2. Exhaustible–Otherimprovementsthatarepartofasite,suchasparkinglots, landscaping,andfencing,areusuallyexhaustibleandarethereforedepreciable. Depreciationofsiteimprovementsisnecessaryiftheimprovementisexhaustible. LandImprovementCapitalizationThreshold Landimprovementswithaprojectcostswhichreachesorsurpasses$25,000mustbe capitalized. 3. LandImprovementDepreciationMethodology Landimprovementsmustbeclassifiedaseithernon‐exhaustible(notdepreciable)or exhaustible(depreciable).Forexhaustiblelandimprovements,theassetwillbe depreciatedusingthestraight‐linemethodofdepreciation(historicalcost/usefullife). Intheeventalandassetandtheaccompanyinglandimprovementsaredisposed,allland improvementsshouldreferencethelandassetitisaffiliatedwithforeasyidentification. 4. ExamplesofExpenditurestobeCapitalizedasPartofLandImprovementCosts Professionalfees(ex.‐architect,legal,engineering,surveying,environmental assessments,inspections,permits,licenses,etc.) Landexcavation,fill,clearing,andgradingofexistinglandtoreadyforuse Removal,relocation,orreconstructionofpropertyofothers(ex.‐railroad, telephone,andpowerlines)onexistingpropertytoreadyforuse Waterwells(initialcostfordrilling,thepumpanditscasing) Accidentorinjurycostsandpaymentofdamages Insuranceduringconstruction NOTE:Receiptsfromsalesofsalvageshouldbecreditedagainstthelandimprovement cost(ex.‐sellingmaterialfromdemolishedstructures,rockordirt,etc.). C. BuildingandBuildingImprovements 1. BuildingDefinition Abuildingisastructurethatispermanentlyattachedtotheland,hasaroof,ispartially orcompletelyenclosedbywalls,andisnotintendedtobetransportableormoveable. Buildingsshouldberecordedateithertheiracquisitioncostorconstructioncost.The costofnewconstructionshouldbecarefullyevaluated.Usuallyprojectsconsistofmajor componentssuchasland,landimprovements,buildingconstruction(including FiscalPolicyFA‐1:AccountingforCapitalAssets Page16of32 professionalfeesandpermits),furniture,fixtures,andequipment.Inaddition,buildings includecomponents(ex.‐roof,airconditionersystem,boilers,elevators,etc.)that shouldberecordedasaseparateassetwithinthebuildingclassification.Thesebuilding componentstypicallyhaveshorterusefullivesthanthebuildingstructureandarelikely tobereplacedduringtheusefullifeofthebuilding.Thevalueofeachcomponentgroup needstobedeterminedandgivenanappropriateusefullife. 2. BuildingImprovementDefinition Buildingimprovementsarecapitaleventsthatmateriallyincreasethebuildingsvalue eitherby1)lengtheningitsestimatedusefullifeor2)increasingtheasset’sabilityto provideservice(byincreasingitseffectivenessorefficiency).Abuildingimprovementis identifiedasanexpenditurewhichmateriallyincreasesthelifeorvalueofthebuilding, anexpenditurethatmeetsorexceedsthecapitalizationthresholdandincreasesthe usefullifeofthebuildingbymorethan1year,beyondtheoriginalusefullifeorhistorical cost.Theimprovementwhichreachesorexceedsthecapitalizationthresholdshouldbe capitalizedandrecordedasanaddition,referencingtheexistingbuildingtowhichthe improvementisapplied. Forareplacementtobecapitalized,itmustbeapartofamajorrepairorrehabilitation project,whichincreasesthevalue,and/orusefullifeofthebuilding,suchasthe renovationofahealthcenter.Areplacementmayalsobecapitalizedifthenewitem/part isofsignificantlyimprovedqualityandhighervaluecomparedtotheolditem/part,such asreplacementofanoldshingleroofwithanewfireprooftileroof.Replacementor restorationtooriginalworkingconditionwouldnotqualify. Determinationsmustbemadeonacase‐by‐casebasis.PleasecontacttheACTTCfor assistance. 3. BuildingandBuildingImprovementCapitalizationThreshold Allbuildingsandbuildingimprovementswithacostwhichreachesorsurpasses$25,000 mustbecapitalized.Improvementsmustalsoextendtheusefullifebymorethan1year. Inthecaseofacquiringaparcelwithlandandbuildings,avalueshouldbeassignedto bothlandandbuilding,recordedanddepreciatedappropriatelybasedontheassetclass. 4. BuildingandBuildingImprovementsDepreciationMethodology Buildingandbuildingimprovementswillbedepreciatedusingthestraight‐linemethod ofdepreciation(historicalcost/usefullife). Assetsshouldbebrokenintocomponentsbasedonestimatedusefullivesincluding,but notlimitedtothefollowingexamples: Shell–structureofbuilding Servicesystems–electrical&lightingsystems,heating,ventilation,airconditioning, HVAC,plumbing,fireprotectionsystem,elevator FiscalPolicyFA‐1:AccountingforCapitalAssets Page17of32 5. 6. Fixedequipment–sterilizers,casework,fumehoods,coldrooms. ExamplesofExpenditurestobeCapitalizedasPartofBuildingandBuilding ImprovementCosts Allcostsassociatedwiththeconstructionofanewbuilding(includingexcavation, grading,fillinglandforspecificbuilding)orpurchaseofanexistingbuilding Costsassociatedwithremodeling,reconditioningoralteringapurchasedbuildingto makeitreadytouseforthepurposeforwhichitwasacquired,shouldbecapitalized asbuildingcosts Professionalfees(ex.‐legal,architect,inspections,titlesearches,etc.) Paymentofunpaidoraccruedtaxesonbuildingstodateofpurchase Costsoftemporarybuildingsusedduringconstruction BuildingandBuildingImprovementstobeCapitalizedInclude ConstructionorPurchaseofBuilding(seeabove) Remodeling,reconditioningoralteringabuildingforitsintendeduse(seeabove) NewRoofing,roofreplacementwithdifferentmaterialtoenhanceusefullifeand servicecapacity(ex–replaceashingleroofwithatileroof)orreplacementofroof whichhasexceeditsusefullife Majorenergyconservationprojectsorenvironmentalcompliance(ex.‐asbestos abatement) Remodelingorreplacingmajorbuildingcomponents Conversionofattics,basements,etc.,intousableoffice,clinicorresearchspace Structuresattachedtothebuildingsuchascoveredgarages,enclosedstairwells,etc. Installationorupgradeofheatingandcoolingsystems,includingceilingfansand atticvents Originalinstallationofwallorceilingcoveringsuchascarpeting,tiles,panelingor parquet Structuralchangessuchasreinforcementoffloorsorwalls,installationor replacementofbeams,rafters,joists,steelgrids,orotherinteriorframing Interiorrenovationassociatedwithalargescaleproject(includingcasings,light fixtures,etc.) FiscalPolicyFA‐1:AccountingforCapitalAssets Page18of32 D. Exteriorrenovationsuchasinstallationorupgradeofsiding,roofing,masonry,etc. Installationorupgradeof:windowordoorframe,built‐inclosetsorcabinets, plumbing,electricalwiring,phoneorclosedcircuittelevisionsystems,networks, fiberopticcable,wiringrequiredintheinstallationofequipment Stadiums,plazasandpavilions Equipment,FurnitureandVehicles 1. EquipmentDefinition Equipmentisdefinedasfixedormovabletangibleassetstobeusedforoperations. Improvementsoradditionstoexistingequipmentthatconstitutecapitaloutlayor increasethevalueorlifeoftheassetshouldbecapitalizedandrecordedasanaddition, referencingtheexistingasset. Examplesofequipmentinclude: Computers(ex.‐desktops,laptops,servers,etc.,includingsoftwarerequiredfor operation) Shoptools,machinery,trailers,forklifts Officetrailers/mobilehomes Desks,tables,chairs,copiers Appliances,televisions Votingequipment,labequipment Firearms,weapons,tacticalgear Cameras,cameraequipment,audioequipment,projectors Taperecordersanddictatingequipment Mobile,portableandtwo‐wayradioequipment Playgroundequipment,scoreboards,bleachers,marineequipment,fueltanks Backhoes,heavydutytrucks,dozers,front‐endloaders,largetractors,earthmovers Mowers,tractorsandattachments,groundsmaintenanceequipment NOTE:Equipmentdoesnotincludemajorsystemsintegratedintoabuildingorstructure suchaselevators,boilers,roofsorHVAC. FiscalPolicyFA‐1:AccountingforCapitalAssets Page19of32 2. FurnitureDefinition Furnitureisdefinedascertaintypesofequipmenttobeusedforoperations. Examplesoffurnitureinclude: Filingequipment Officeequipment Desks,modularunits,tables,etc. Examplesoffurnitureprojectstobecapitalizedinclude: 3. Furnishinganewbuildingorofficespacenecessarytoconductbusiness Largeorsignificantinsizeimprovementsoradditions VehicleDefinition Avehicleisdefinedasanassetthatcanmoveitselfunderitsownpower.Cars,trucks, firetrucks,boatsandbussesshouldbeclassifiedasvehicles.Traveltrailers,horse trailers,equipmenttrailers,ATV’s(AllTerrainVehicles),etc.,shouldbeclassifiedas equipment.Carefulconsiderationshouldbegivenastowhetheranassetisavehicleor equipment. Bussescanrangeinsizeandutilityandtheirusefullifeisoftendictatedbasedonthe fundingsource.Consultfundingsourceforanyusefulliferequirements. 4. Equipment,FurnitureandVehiclesCapitalizationThreshold Allequipmentwithprojectcostswhichreachorsurpass$5,000mustbecapitalized. Allfurniturewithprojectcostswhichreachorsurpass$25,000mustbecapitalized. Vehicleswithprojectcostswhichreachorsurpass$15,000mustbecapitalized. Inlimitedcircumstances,theassetgroupingmethodofcapitalizationmaybeused. Typically,theseassetsworkinconjunctionwithoneanotherandreplacementofthe assetsisintendedtobedoneatapproximatelythesametime.PleaseseeII.K.,Asset GroupingformoredetailsorconsulttheACTTCwhenconsideringtheassetgrouping method. 5. Equipment,FurnitureandVehicleDepreciationMethodology Equipment,furnitureandvehicleswillbedepreciatedusingthestraight‐linemethodof depreciation(historicalcost/usefullife).Theseassettypesaretobedepreciatedovera 5yearusefullife,unlessotherwisenotedinII.D.,Examplesandsuggestedusefullives. FiscalPolicyFA‐1:AccountingforCapitalAssets Page20of32 Vehiclesareconsideredreadytobeplacedintoservicewhenallnecessaryadd‐on componentsareinstalledin/ontothevehicle. 6. ExamplesofExpenditurestobeCapitalizedasPartofEquipment Originalcontractorinvoiceprice,lessanydiscounts Freight,handling,storage,in‐transitinsurancechargesandimportduties Sales,useorothertaxesimposedontheacquisition Installationchargestoplaceassetinservice Chargesfortestingandpreparationforuse Costsofreconditioningwhenauseditemispurchased Partsandlaborassociatedwiththeconstructionofequipmentorinstallation Partsandlaborassociatedwithadditionalcomponentsnecessarytobringassetinto servicecondition(lightbars,radios,security,paint/branding,etc.) NOTE:Ifincidentalitems,suchasextendedwarrantiesormaintenanceagreements,are includedontheinvoiceasaseparatelineitem,thosechargesshouldbeexpensedwhen purchased.Ifextendedwarrantiesormaintenanceagreementsarebundledwiththecost oftheasset,thentheincidentalchargesareconsideredapartoftheassetcost. E. Infrastructure 1. InfrastructureDefinition Infrastructureisdefinedaslong‐livedcapitalassetsthatnormallyare:1)stationaryin natureand2)canbepreservedforasignificantlygreaternumberofyearsthanmost capitalassets.Examplesinclude: Pavements Curbs,gutters,tunnels,canals,dams,wharfs,seawalls,restareas,firehydrants Sidewalksassociatedwithroadways,bridges,sewersystems,waterdistribution systemsandwaterdrainagesystems. Trafficlightsystem Signage Airportrunway,strip,taxiwayorapron Electric,water,andgas(ex.‐mainlinesanddistributionlines,tunnels,etc.) FiscalPolicyFA‐1:AccountingforCapitalAssets Page21of32 Fiberopticandtelephonedistributionsystems(betweenbuildings) InfrastructureacquiredbytheCountymusthaveavalueforcapitalization.Historical costsorestimatedvaluesshouldbeavailableinreportsrequiredfromtheoriginal developerwithinthepermitprocess.Landmustbecapitalizedasaseparatenon‐ depreciableassetwithintheLandaccountatfairmarketvalueasofthedateof acceptance. 2. InfrastructureCapitalizationThreshold Allinfrastructureprojectswithtotalcoststoreachorsurpass$100,000mustbe capitalized. 3. InfrastructureDepreciationMethodology Infrastructurewillbedepreciatedusingthestraight‐linemethodofdepreciation (historicalcost/usefullife).Theassetshouldbebrokenintocomponentsbasedon estimatedusefullives,ifapplicable. 4. F. ExamplesofExpenditurestobeCapitalizedasPartofInfrastructureCosts Constructioncosts(ex.‐contractamounts,payroll,fringebenefits,rentalvalueof equipment,insurance,etc.) Legalandengineeringfees Materials Paymentofdamageclaimsconnectedwithconstruction Conservationorenvironmentaleasementrequiredaspartofconstruction. IntangibleAssets: 1. IntangibleAssetDefinition AsdefinedbyGASBStatementNo.51,“AccountingandFinancialReportingfor IntangibleAssets,”anintangibleassetisdefinedbasedonthefollowing: LackPhysicalSubstance–AnassetthatmaybecontainedINorONanitemwith physicalsubstance,suchascomputersoftwareonacompactdisk,landuserights, patents,trademarks,computersoftware,websites,etc. NonfinancialInNature–Cannotbereceivablesorprepaymentsofgoods,anasset thatisnotinmonetaryformorrepresentsneitheraclaimorrightto. InitialUsefulLife–Extendsbeyondasinglereportingperiod. FiscalPolicyFA‐1:AccountingforCapitalAssets Page22of32 2. IntangibleAssetCapitalizationThreshold Intangibleassetswithaprojectcostwhichreachesorsurpasses$25,000mustbe capitalized. 3. IntangibleAssetDepreciationMethodology Intangibleassetsareamortizedusingthestraight‐linemethod(historicalcost/useful life).Iftheintangibleassetisdeterminedtohaveanindefinitelife,thenitwillnotbe depreciated. 4. G. ExamplesofExpenditurestobeCapitalizedasIntangibleAssets Off‐the‐ShelfSoftware(readytousewithnosignificantmodificationsnecessary) Patents,copyrights,trademarks,franchises,goodwill Timberrights Landrights(includingminerals,etc.) Easements(IntangibleAsset) 1. EasementsDefinition Aneasementisdefinedasaninterestinlandownedbyanotherindividualorentitythat entitlestheeasementholdertoaspecificlimiteduseorenjoyment(righttouseland). Easementsaretypicallyusedtoaccessanotherproperty. 2. EasementsCapitalizationThreshold Alleasements,regardlessofcost,aretobecapitalized. 3. EasementsDeprecationMethodology Easementsaredepreciatedusingtheusefullifedeterminedbytheeasementcontractin place.Iftheeasementhasalimitedlifebeyondoneyear,thenitwillbedepreciatedusing thestraight‐linemethodofdepreciation(historicalcost/usefullife).Iftheeasementhas anon‐exhaustiblelife(indefinitelife),thenitwillnotbedepreciated. 4. TemporaryEasementsasPartofConstructionProjects Temporaryeasementsacquiredduringtheconstructionphaseofaprojectwillbe capitalizedaspartoftheoverallcapitalassetprojectandnotasastandaloneeasement. Asanexample,whencertaininfrastructureprojectsareconstructed,itisnecessaryto obtaineasementsfortheuseofneighboringlandduringtheproject.Thecostsofthese temporaryeasementsareimmaterialtotheoverallinfrastructureprojectandare includedinthecostoftheinfrastructureproject. FiscalPolicyFA‐1:AccountingforCapitalAssets Page23of32 H. CapitalLeases 1. CapitalLeaseDefinition Capitalleasesaredefinedasaleasethattransferssubstantiallyallbenefitsandrisksof ownershipofpropertyduringthetermofthelease.Leaseswhichmeetoneofthefour requirementsbelow,asdefinedbyASC840‐10,areconsideredcapitalleasesandshallbe accountedforasacapitalassetifthecostofthepropertyreachesorsurpassestheclass’s capitalizationthreshold. 2. Theleasetransfersownershipofthepropertytothelesseebytheendofthelease term(ex.–thetitleoftheleasedcartransfersatendofleaseterm). Theleasecontainsabargainpurchaseoption(ex.‐youcanpurchasethecarfor $5,000whichisabargaincomparedtotheremainingvalueof$15,000). Theleasetermequals75%ormoreoftheestimatedusefullifeoftheleasedproperty (ex.‐youleaseacarfor4yearsandthecarhasausefullifeof5years). Thepresentvalueoftheminimumleasepaymentsexceeds90%ofthefairmarket valueoftheleasedpropertyatthedateoftheleaseagreement(ex.–youwillmake 60monthlyleasepaymentsof$450equaling$27,000onacarwithapurchaseprice of$30,000). CapitalLeaseCapitalizationThreshold Assetsclassifiedascapitalleasesaredeemedorestimatedtomeetorexceedthe capitalizationthresholdbasedontheirapplicableassetclass.Theassetcostsshouldbe depreciatedinaccordancewiththestandardusefullivesfortheapplicableassetclass. 3. CapitalLeaseDepreciationMethodology Costsassociatedwithcapitalleasesaredepreciatedinaccordancewiththeparticular assetclass’depreciationmethodology. I. LeaseholdImprovements 1. LeaseholdImprovementsDefinition Leaseholdimprovementsaredefinedasimprovementstoincreasetheservicecapacity ofaleasedpropertythatwillreverttothelessorattheexpirationofthelease.Leasehold improvementsincludeconstructionofnewbuildingsorimprovementsmadetoexisting structuresbythelessee,whohastherighttousetheleaseholdimprovementsoverthe termofthelease(ex.–ifyoumakeimprovementstoaleasedbuildingthatyouwould normallycapitalizeifthosesameimprovementsweremadetoaCountyownedbuilding, thenitshouldbeclassifiedasaleaseholdimprovementandcapitalized). FiscalPolicyFA‐1:AccountingforCapitalAssets Page24of32 2. LeaseholdImprovementCapitalizationThreshold Thecapitalizationthresholdforleaseholdimprovementsisthesameasbuildingsand buildingimprovementsof$25,000. PleaserefertoBuildingsandBuildingImprovementsectionsIII.C.5,Examplesof ExpenditurestobeCapitalizedasPartofBuildingandBuildingImprovementCostsand III.C.6.,BuildingandBuildingImprovementstobeCapitalizedIncludeforadditional informationofwhatcoststocapitalizeorexpense. 3. LeaseholdImprovementDepreciationMethodology LeaseholdImprovementswillbedepreciatedusingthestraight‐linemethodof depreciation(historicalcost/usefullife).Theusefullifeisdeterminedtobetheshorter oftheassetclassusefullifeorleaseterm.Assetshouldbebrokenintocomponentsbased onestimatedusefullivesincluding(sameasbuildingsandbuildingimprovements): J. Shell–structureofbuilding Servicesystems–electrical&lightingsystems,heating,ventilation,airconditioning, HVAC,plumbing,fireprotectionsystem,elevator Fixedequipment–sterilizers,casework,fumehoods,coldrooms. InternallyCreatedSoftware 1. InternallyCreatedSoftwareDefinition InternallyCreatedSoftwareisdefinedaseitherinternallydevelopedsoftwareor purchasedsoftwarewhichissignificantlymodifiedtomeettheCounty’sinternalneeds. SeeGASBStatementNo.51,AccountingandFinancialReportingforIntangibleAssets,for additionalguidance. 2. InternallyCreatedSoftwareCapitalizationThreshold Thecapitalizationthresholdforsoftwarewithaprojectcostwhichreachesorsurpasses $25,000mustbecapitalized. 3. InternallyCreatedSoftwareDepreciationMethodology Softwareisamortizedusingthestraight‐linemethod(historicalcost/usefullife). Capitalizationshouldceasenolaterthanthetimeatwhichsubstantialtestingis completeandthesoftwareisreadyforitsintendedpurposeorrenderedinservice. 4. ExamplesofExpenditurestobeCapitalizedasPartofInternallyCreatedSoftware Costsofinternallydevelopedsoftwarearetobecapitalizedbasedon: FiscalPolicyFA‐1:AccountingforCapitalAssets Page25of32 5. o PreliminaryProjectStage–Activitiesinthisstageincludetheconceptual formulationandevaluationofalternatives,thedeterminationoftheexistenceof neededtechnology,andthefinalselectionofalternativesforthedevelopmentof thesoftware.ThesecostsareNotCapitalized. o ApplicationDevelopmentStage‐Activitiesinthisstageincludethedesignofthe chosenpath,includingsoftwareconfiguration,softwaredevelopmentand configurationtraining,softwareinterfaces,third‐partyservicefees,coding, installationtohardware,andtesting,travelcostsincurredbyemployees,and parallelprocessingphase.ThesecostsareCapitalized. o Post‐Implementation/OperationStage‐Activitiesinthisstageincludeend‐user trainingandsoftwaremaintenance.ThesecostsareNotCapitalized. Costsrelatedtothesignificantmodificationofpurchasedsoftwareforusebythe County. Coststodeveloporobtainsoftwarethatallowsforaccessorconversionofolddata bynewinformationsystemsshouldalsobecapitalized. AccumulatingandTrackingCostsDuringtheWork‐In‐ProgressStageofInternally CreatedSoftware InternallyCreatedSoftwareprojectcostsshouldbeupdatedascostsareincurred.Once theprojectiscompletedforitsintendedpurposeandreadytobeplacedintoactive service,allcostsassociatedwiththedevelopmentphaseshouldbeevaluatedand capitalized.Fordiscussiononwhetheritisnecessarytocapitalizeinterestduringthe constructionphase,pleaseseeII.G.4.,CapitalizedInterest.Anycostsassociatedwithend‐ usertrainingormaintenanceshouldberecordedasanexpenditureintheperiod incurred. K. OtherCapitalAssets 1. WorksofArtandHistoricalTreasuresDefinition WorksofArtandHistoricalTreasuresaredefinedascollectionsorsignificantindividual itemsthatareownedbyacountyagencyandarenotheldforfinancialgain,butrather forpublicexhibition,educationorresearchaspartofapublicservice. 2. WorksofArtandHistoricalTreasuresCapitalizationThreshold Thecapitalizationthresholdofworksofartandhistoricaltreasuresis$5,000foreithera collectionorindividualitem. Governmentsareencouraged,butnotrequired,tocapitalizeacollection(andall additionstothatcollection)whetherdonatedorpurchasedthatmeetsallofthe followingconditions.Thecollectionis: FiscalPolicyFA‐1:AccountingforCapitalAssets Page26of32 3. Heldforpublicexhibition,education,orresearchinfurtheranceofpublicservice, ratherthanfinancialgain; Protected,keptunencumbered,caredfor,andpreserved;and Subjecttoanorganizationpolicythatrequirestheproceedsfromsalesofcollection itemstobeusedtoacquireotheritemsforcollections. WorksofArtandHistoricalTreasuresDepreciationMethodology Ifacollectionoritemisheldforfinancialgainandisnotcapitalized,disclosuresmustbe madeinthenotestothefinancialstatementsthatdescribethecollectionoritemandthe reasonstheseassetarenotcapitalized. Somecollectionsoritemsareconsideredexhaustible(diminishedbydisplay, educationalorresearchapplications)andshouldbedepreciatedovertheirestimated usefullife. Collectionsoritemswhicharenon‐exhaustibleareitemswhoseeconomicbenefitor serviceisusedupsoslowlythattheestimatedusefullivesareextraordinarilylong. Becauseoftheircultural,aestheticorhistoricalvalue,holdersprotectandpreservethese assetsmorethansimilarassetswithoutsuchvalue.Depreciationisnotrequiredfor collectionswhicharenon‐exhaustible. ForfurtherinformationpleaseseeGASB34. 4. ExamplesofExpenditurestobeCapitalizedasPartofWorksofArtandHistorical Treasures Allcostsofacquiringworksofartandhistoricaltreasuresshouldberecorded. Collectionsanditemsacquiredbygiftordonationshouldberecordedusingthe followingacceptablevaluationmethods:FairMarketValue(FMV),historicalcost,orthe costmaybedeterminedbythegiftingartistupondonationtotheCounty. 5. LibraryBooksandEquipmentDefinition Librarybooksandequipmentincludeinformationresourcesthatarecirculatedto studentsorthegeneralpublicsuchasbooks,journals,periodicals,audio/visualmedia, computerbasedinformation,manuscripts,maps,documents,andsimilaritemswhich provideinformationessentialtothelearningprocessorwhichenhancethequalityof academic,professionalorresearchlibraries. 6. LibraryBooksandEquipmentCapitalizationThreshold Thecapitalizationthresholdoflibrarybooksandequipmentis$5,000.Purchasesof librarybooksandcertainequipmentshouldbegroupedbyyeartodeterminethe amountcapitalizedratherthanindividualpurchases. FiscalPolicyFA‐1:AccountingforCapitalAssets Page27of32 7. LibraryBooksandEquipmentDepreciationMethodology Librarybooksandequipmentaredepreciatedusingthestraight‐linemethodof depreciation(historicalcost/usefullife). 8. L. ExamplesofExpenditurestobeCapitalizedasPartofLibraryBooksandEquipment Invoiceprice Handlingandfreight/shippingcharges In‐transitinsurancecharges Electronicaccesscharges Reproductionandlikecostsrequiredtoplaceassetsinservice,withtheexceptionof librarysalaries Construction‐In‐Progress 1. Construction‐In‐ProgressDefinition Construction‐in‐progressisdefinedastheaccumulationofallcostsincurredon uncompletedlandimprovements,buildings,buildingimprovements,infrastructure,or othercapitalconstructionprojects. 2. Construction‐In‐ProgressCapitalizationThreshold Projectsclassifiedasconstruction‐in‐progressaredeemedorestimatedtomeetor exceedthecapitalizationthresholdfortheapplicableassetclassupontheearlier occurrenceoffilingofNoticeofCompletiondocuments,occupancy,orwhentheassetis placedintoservice.Atthetimeofcompletion,theassetcostsshouldbetransferredto theapplicableassetclassanddepreciatedinaccordancewiththestandardusefullives. 3. Construction‐In‐ProgressDepreciationMethodology CostsassociatedwithConstruction‐in‐progressarenottobedepreciateduntilthe finishedassetisplacedintoservice.Theassetshouldbedepreciatedbasedonthe depreciationmethodologyoftheparticularassetclass.Whileitisconsidered construction‐in‐progress,thecostshouldbereportedwithlandandothernon‐ depreciableassets. 4. Construction‐In‐ProgressAccumulatingandTrackingCosts Constructionprojectcostsshouldbeupdatedascostsareincurred.Oncetheprojectis completedforitsintendedpurposeandplacedintoactiveservice(ex.‐filingofnoticeof completion,occupancy,etc.),allcostsassociatedwiththeconstructionphaseshouldbe evaluatedandcapitalized.Allcostsincurredsubsequenttotheprojectbeingplacedin serviceneedstobeaddressedwithACTTC.Fordiscussiononwhetheritisnecessaryto FiscalPolicyFA‐1:AccountingforCapitalAssets Page28of32 capitalizeinterestduringtheconstructionphase,pleaseseeII.G.4.,CapitalizedInterest. Anycostsassociatedwithend‐usertrainingormaintenanceshouldberecordedasan expenditureintheperiodincurred. IV. SPECIFICSITUATIONS A. BusShelterCapitalization 1. BusShelterDefinition Abusshelterisastructurewiththreepanelsandaroof. 2. BusShelterCapitalizationThreshold Duringthefiscalyear,theTransitdepartmentwilltrackallsheltersandinstallationcosts associatedwithsheltersplacedintoserviceduringtheyear.Ifthoseexpensesreachor exceed$25,000,inaggregate,theshelterswillbeplacedintoserviceaseitherseparate assets,notingthestopnumber,orasoneassetforallshelters,notingallstopnumbers includedintheasset. 3. BusShelterDepreciationMethodology Bussheltersaredepreciatedusingthestraight‐linemethod(historicalcost/usefullife) overausefullifeoffiveyears. 4. 5. ExamplesofCurrentPeriodExpensesRelatedtoBusShelters Repair/replacementofpanelsonexistingshelters Garbagecans Polesandsignage Standalonebenches Othersmallbusstopamenities BusShelterReporting Claimsforsheltersbeingplacedintoservicearetoinclude: Allapplicablecostsassociatedwithplacingtheshelterintoservice(including deliverycharges,installationlabor,concretepads/footings,etc.) BusStopnumberstofacilitatecoordinationofdatabetweenTransitassetand Countyfixedassetsystem FiscalPolicyFA‐1:AccountingforCapitalAssets Page29of32 Beforetheendofthefiscalyear,Transitmanagementistoprovidealistingofallbus stoplocations,notingthefollowinginformation,inordertocertifysheltersareingood workingcondition: B. Sites/StopswithSheltersonly YearShelterwasacquiredandinstalled TypeofShelter ManufacturerofShelter LandfillsandPollutionRemediation 1. LandfillsandPollutionRemediationDefined PollutionRemediationistheobligationtoaddressthecurrentorpotentialdetrimental effectsofexistingpollutionbyparticipatinginpollutionremediationactivitiessuchas siteassessmentsandcleanups.Onceaspecifiedeventoccurs,agovernmentisrequired toestimatethecomponentsofexpectedpollutionremediationoutlaysanddetermine whetheroutlaysforthosecomponentsshouldbeaccruedasaliabilityor,ifappropriate, capitalizedwhengoodsandservicesareacquired. 2. LandfillandPollutionRemediationIdentificationandReporting Annually,theRiskManagementdivisionoftheHumanResourcesdepartmentprepares anddistributesaGASB49PollutionRemediationsurveytoallCountyDepartments, inquiringofidentifiedorpotentiallandfillandpollutionremediationactivities(ex.– obligationstoremovecontaminations,suchasasbestosremoval,waterpollution,leaking undergroundstoragetanks,etc.). Ifyouhaveanyfurtherquestionsaboutlandfillandpollutionremediationpleasecontact eithertheACTTCorRiskManagement. V. CONTROLSOVERCAPITALASSETS A. CapitalAssetControlsOverview Departments,districtsandagenciesareresponsibleformaintainingasystemofcontrolover theircapitalassetsandtominimizeriskoflossand/ormisuseoftheirproperty.Thecontrols inplaceinclude: CapitalAssetTagging CapitalAssetInventoryControls FiscalPolicyFA‐1:AccountingforCapitalAssets Page30of32 B. CapitalAssetTagging 1. CapitalAssetTaggingOverview AllcapitalassetsheldbytheCountyareassignedanidentificationnumber.Ofthose, mostwillreceiveanassetidentificationtag,thoughduetothenatureandlocationof someassets,taggingisnotpracticalforallassets.Tagswillbeissueduponreceiptand approvalofFixedAssetAdditionsformbytheACTTC.Thismustbecompletedpriorto receivingtheassetinEFS. 2. PlacementofAssetIdentificationTags Capitalassettagsshouldbeplacedonassetsinamannerwhichensureseaseof identificationwhencapitalassetinventoryisperformed,withoutdefacingorreducing thefunctionalityoftheasset.Thefollowingarerecommendedlocationstoplaceasset identificationtags: 3. ComputersandOfficeEquipment‐shouldbetaggedonthefront: Appliances‐shouldbetaggedonthetoprightcorneroneitherthefaceorside, dependingonaccessibility ShopEquipment,OtherHeavyMachinery,GroundsandMaintenanceEquipment‐ shouldbetaggedwhereminimumgrease,oil,vibrationorheatwillbeencountered. Tagsareintendedtolasttheusefullifeoftheasset,socareshouldbetakenwhen selectingtheareathetagistobeplaced.Ideally,thetagshouldbeplacedonthefront oftheassetornexttothemanufacturer'splate. Engineering/ScientificEquipment‐shouldbetaggednearthemanufacturer's identificationplateorontheupperrighthandcorneroftheasset. AudiovisualEquipment‐shouldbetaggednearthemanufacturer'sidentification plateorontheupperrighthandcorneroftheasset. ReplacementofDefacedAssetTags Ifanassetisobservedtohaveatagdefacedtothepointwherenumberrecognitionis impossible,theassetshouldhaveareplacementcapitalassetidentificationtagassigned andaffixedtoit.Uponreceiptofnotificationthattheassettagneedsreplacement,the ACTTCwillissueanewtagorassetnumberifneeded. 4. UntaggableCapitalAssets Themajorityofcapitalassetswillbeabletohaveanidentificationtagappliedtothe asset.However,thereareseveralinstanceswhereacapitalassetidentificationtagisnot functional.Belowisalistofassetswhichrequireacapitalassetnumber,butdonot requireaphysicalidentificationtag. FiscalPolicyFA‐1:AccountingforCapitalAssets Page31of32 NewConstruction‐Newconstruction,whichiscompletedwithinonefiscalyear, shouldbeenteredintoPeopleSoftatthetimeofcompletion.Often,thefinal contractor'scostsummarywillsupplytheproperoriginalcostfigures;however, specialcaremustbetakenwhenanalyzingthesesummariesastheyoccasionally includecostsforthepurchasesofequipment,land,and/ortheconstructionofland (site)improvements.Thesecostsmustbeextractedandenteredseparatelyunder theirrespectiveassetcategories.Inaddition,acontractor'scostsummarymaynot reflectfeesassociatedwiththedesign,engineering,andlegalaspectsoftheproject. Thesefeesshouldbeaccountedfortoreflectthetotalcapitalizedcostoftheproject. PurchasedConstruction‐Frequently,propertiesarepurchasedwithexisting structures,whichwillbemodifiedforuse.Inthesecases,thetotalpurchaseprice mustbeallocatedtotheappropriatecapitalassetcategoriessuchasland,land improvementsandconstruction.Itiscommontoengagealocalrealestateappraiser whennegotiatingthepurchaseofsuchproperty.Theseappraisalswillusually indicateseparatevaluesfortheaboveaccountsandareprobablythebesttool availableforallocationofthetotalpurchaseprice. Infrastructure‐Seeneworpurchasedconstruction. ConstructionInProgress(CIP)‐TheCIPaccountcanbeviewedasa"holding" accountforaccruedconstructionprojectcostswherethedurationoftheprojectwill extendtomorethanonefiscalyearandthecompletedprojectwillmeetthe capitalizationcriterionoutlinedinIII.L.2.,CapitalizationThresholds.Oncesuch projectsarecompletedandhavebeenacceptedbytheCounty,thetotalcostwillbe transferredoutofCIPandintotheappropriatecapitalassetaccount. Land‐LandisrecordedinPeopleSoftbasedonoriginalcostanddateofpurchase. Whentheinformationisnotreadilyavailable,itcanberesearchedthroughthe CountyrecordsmaintainedintheAssessor'soffice.Occasionally,verifiablecost recordswillsimplynotexist.Insuchcases,landshouldbeincludedbasedona reasonableestimateoffairmarketvalueatthetimeofacquisition. LandImprovements‐Landimprovementsconsistofitemssuchaspaving,fencing, flagpoles,outdoorlighting,etc.Iftheseassetsarepartofanewconstructionproject, theycanbeenteredintoPeopleSoftbasedoncontractorsuppliedinformationas discussedin"NewConstruction"above. LicensedVehicles‐Licensedvehiclesconsistofallmobileassetsrequiringlicensing bytheStateofCalifornia.FleetandtheRoadsdivisionsassigntheirownnumbers. ThesenumbersarerecordedinPeopleSoft. Intangibles–Anintangibleassetthatlacksphysicalsubstancethereforeitcannotbe tagged.Thisincludessoftware. FiscalPolicyFA‐1:AccountingforCapitalAssets Page32of32 C. CapitalAssetInventoryControls 1. CapitalAssetInventoryControlsOverview AcertificationinventoryofallCountycapitalassetsisperformedannually.This inventoryisbasedonallCountycapitalassetsplacedinserviceasofMarch31stofeach year.Inventoryisrequiredtobecompleted,andturnedintotheACTTC,byMay31stof thatyear. AninventoryofallCountycapitalassetsacquiredwithgrantfundsisperformed annually.Thisinventoryisbasedonallgrantfundedcapitalassetsplacedinserviceasof March31st.Inventoryisrequiredtobecompleted,andturnedintotheACTTC,byMay 31stofthatyear. 2. CapitalAssetInventoryProcedures DuringthemonthofApril,eachdepartmentwillreceivealistingoftheapplicable assetstobeobservedintheinventory.TheDepartmentHeadorapplicablemanager, whoassumestheresponsibilityofcapitalassetswithinthedepartment,willfacilitate theschedulingandtakingofcapitalassetinventory. Inventorycountsshallbeperformedbytwoindividuals:alocator(thepersonto identifytheassetandreadassettagnumberorserialnumber)andarecorder (persontolocateassetoninventorysheetandconfirmwhethertheassetexists). Duringtheinventorycount,noteanycapitalassettagswhichrequirereplacement. InventorycountsarebasedontheassetlistingreceivedfromtheACTTC.Theactual dateandtimeofinventorycountshouldbenotedontheinventorycountsheet.As assetscanbekeptatvariouslocationsorusedduringthecourseofbusiness,this countmaytakeseveraldaystoaccuratelyinventoryallassets. Ifduringtheinventorycount,additionalassetsareidentified(assetsnotincludedon theinventoryassetlisting),thevitaldata(serialnumber,year,make,model,color, style,etc.)oftheassetmustbenotedandforwardedtotheACTTC. Aftertheinventorycountiscompleted,theresultsshouldbereconciledwiththe DepartmentHeadorapplicablemanager.Alloriginalcountsheets,reconciliation notesandoutcomeofanyreconciliationaretobeprovidedtotheACTTCtothe attentionoftheCapitalAssetsAccountant. AnyassetsidentifiedasmissingmustbereviewedbytheDepartmentHeador applicablemanager.Documentallstepstakentolocatetheasset.Providethelisting ofmissingassets,stepspreformedtolocatetheasset(s)andoutcometotheCapital AssetsAccountantattheACTTC.Ifatanypointaftertheinventorycountis completed,themissingasset(s)arelocated,theDepartmentHeadorapplicable manageristonotifytheCapitalAssetsAccountantattheACTTCimmediately. Requestreplacementtagsasneeded.
