Chapter 3.15
CAPITAL ASSETS AND CAPITALIZATION
Sections:
3.15.020 Land capitalization provisions.
3.15.030 Building capitalization provisions.
3.15.040 Improvements other than building capitalization provisions.
3.15.050 Machinery and equipment capitalization provisions.
3.15.060 Infrastructure capitalization provisions.
3.15.070 Construction work in progress capitalization provisions.
3.15.080 Depreciation methods.
3.15.090 Recording and accounting method.
3.15.010 Definitions.
For the purpose of this chapter, the following definitions shall apply unless the context clearly indicates or requires a different meaning.
Capital Assets. Tangible assets of a durable nature employed in the operating activities of the city and relatively permanent and needed for the production or sale of goods or services are termed “property,” “plant and equipment” and “capital assets.” This broad group is usually separated into classes according to the physical characteristics of the items.
“Capital outlays” means expenditures which benefit both the current and future fiscal periods. This includes costs of acquiring land or structures; construction or improvement of buildings, structures or other capital assets; and equipment purchases having an appreciable and calculable period of usefulness. These are expenditures resulting in the acquisition of or addition to the city’s capital assets.
“Enterprise funds” means those funds used to account for operations that are financed and operated in a manner similar to private business enterprise, where the intent of the city is that the expenses, including depreciation of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges; or, where the city has decided that periodic determination of revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability and other purposes. The enterprise funds of the city include the municipally owned water and wastewater utilities and any other utility that may be established by the Common Council. Operation of these utilities shall require enterprise fund accounting and reporting.
“Historical cost” means the cash equivalent price exchanged for goods or services at the date of acquisition. Land, buildings and equipment are common examples of items recognized under the historical cost attribute.
“Inventory” means tangible assets of a lesser value than capital assets as defined in the provisions of this section.
“Tangible assets” means assets that can be observed by one or more of the physical senses that may be seen and touched and, in some environments, heard and smelled. [Ord. 1135-2004; Ord. 944-97, 1997. Code 2000 § 33.030.]
3.15.020 Land capitalization provisions.
(A) The city will capitalize all land purchases, regardless of cost, except land purchased outright as easements.
(B) The original cost of land will include the full value, including purchase price, relocation, legal services incidental to the purchase (including title work and opinion), appraisal and negotiation fees, surveying and costs for preparing the land for its intended purpose (including contractors’ and/or city workers’ salaries and benefits) such as demolishing buildings, excavating, cleanup and/or inspection.
(C) The city will account for donated land at fair market value on the date of transfer plus any associated costs.
(D) Land purchases made using federal or state funding will follow the above provisions. [Ord. 1135-2004; Ord. 944-97, 1997. Code 2000 § 33.031.]
3.15.030 Building capitalization provisions.
(A) The city will capitalize buildings at full cost with no subcategories for the cost of attachments. Examples of attachments are roofs, windows and doors, mechanical, plumbing, electrical, sprinkler systems or any part of the basic building. The city will include the cost of items designed or purchased exclusively for the building.
(B) New buildings will be capitalized only if the new building meets the following conditions:
(1) The total cost exceeds $5,000; and
(2) The useful life is greater than two years.
(C) Improvements or renovations to an existing building will be capitalized only if the result meets the following conditions:
(1) The total cost exceeds $5,000; and
(2) The useful life is extended two or more years.
(D) Capitalization of building costs will include preparation of land for the building, architectural and engineering fees, bond issuance fees, accounting costs of material and any costs directly attributable to the construction of a building.
(E) Donated buildings will be recorded at fair market value on the date of transfer with any associated costs.
(F) Building purchases using federal or state funding will follow the above provisions. [Ord. 1258-2007; Ord. 1135-2004; Ord. 944-97, 1997. Code 2000 § 33.032.]
3.15.040 Improvements other than building capitalization provisions.
(A) The city will capitalize improvements, other than buildings attached or not easily removed, that have a life expectancy of greater than two years. Examples include walks, parking areas and drives, golf cart paths, fencing, signs, retaining walls, pools, outside fountains, underground sprinkler systems and other similar items on city property. Improvements do not include roads, streets, sidewalks or assets that are of value only to the public.
(B) New improvements other than buildings will be capitalized if the new improvements meet the following conditions:
(1) The total cost exceeds $5,000; and
(2) The useful life is greater than two years.
(C) Improvements or renovations to existing improvements other than buildings will be capitalized only if the result meets the following conditions:
(1) The total cost exceeds $5,000; and
(2) The useful life is extended two or more years.
(D) Donated improvements other than buildings will be recorded at fair market value on the date of transfer with any associated costs.
(E) Improvements other than building purchases using federal or state funding will follow the above provisions. [Ord. 1258-2007; Ord. 1135-2004; Ord. 944-97, 1997. Code 2000 § 33.033.]
3.15.050 Machinery and equipment capitalization provisions.
(A) The city will capitalize machinery and equipment that is not a part of a basic structure or building and that has a life expectancy of greater than two years. Examples include trucks, cars, machinery, furniture, computer equipment and other similar items.
(B) New machinery and equipment will be capitalized only if the new machinery or equipment meets the following conditions:
(1) The total cost exceeds $5,000; and
(2) The useful life is greater than two years.
(C) Improvements or renovations to existing machinery and equipment will be capitalized only if the result meets the following conditions:
(1) The total cost exceeds $5,000; and
(2) The useful life is extended two or more years.
(D) Capitalization of machinery and equipment costs will include shipping charges, consultant fees and any other cost directly associated with the purchase, delivery or setup which makes such machinery or equipment operable for its intended purpose.
(E) Donated machinery and equipment will be recorded at fair market value on the date of transfer with any associated costs.
(F) Machinery and equipment purchases using federal or state funding will follow the above provisions. [Ord. 1258-2007; Ord. 1135-2004; Ord. 944-97, 1997. Code 2000 § 33.034.]
3.15.060 Infrastructure capitalization provisions.
(A) The city will capitalize infrastructure that has a life expectancy of greater than two years. Examples include streets, bike/jogging paths, storm sewers, sewer lines, parking lots, streetlights, and retention/detention ponds. Infrastructure does not include sidewalks.
(B) New infrastructure will be capitalized only if it meets the following conditions:
(1) The total cost exceeds $5,000; and
(2) The useful life is greater than two years.
(C) Improvements or renovations to existing infrastructure will be capitalized only if the result meets the following conditions:
(1) The total cost exceeds $5,000; and
(2) The useful life is greater than two years.
(D) Maintenance/repairs will be considered as necessary to maintain the existing asset, and therefore not capitalized. For example, patching, resurfacing, snow removal, and the like, are considered maintenance activities and will be expensed. Also, normal department operating activities such as feasibility studies will be expensed and not capitalized as an element of the infrastructure asset.
(E) Donated infrastructure will be recorded at fair market value on the date of transfer with any associated costs.
(F) Infrastructure purchases using federal or state funding will follow the above provisions. [Ord. 1258-2007; Ord. 1135-2004. Code 2000 § 33.035.]
3.15.070 Construction work in progress capitalization provisions.
Where construction work has not been completed in the current calendar year, the cost of the project shall be recorded as “construction work in progress.” When the project is complete, the project will be recorded to the applicable capital asset account and only if the capital asset meets the required conditions. [Ord. 1135-2004; Ord. 944-97, 1997. Code 2000 § 33.036.]
3.15.080 Depreciation methods.
(A) The city will depreciate capital assets by using the straight-line method. There will be no salvage value used. Depreciation will be calculated at year end. The asset current life year and ensuing depreciation shall begin the year after the year purchased (example: the asset is purchased in 2008; the 2009 current life and depreciation year is one). Land is not depreciated according to generally accepted accounting principles.
(B) Straight-Line Depreciation. All assets accounted for under the capital asset policy 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:
|
Asset |
Useful Life (years) |
|---|---|
|
Buildings and improvements |
10 to 100 |
|
Infrastructure |
10 to 100 |
|
Improvements other than buildings |
10 to 100 |
|
Machinery and equipment |
10 to 100 |
[Ord. 1506-2015; Ord. 1329-2009; Ord. 1135-2004. Code 2000 § 33.037.]
3.15.090 Recording and accounting method.
(A) The Clerk-Treasurer shall maintain an asset register, a record of all capital outlays for capital assets and inventory, as provided in this chapter and as prescribed by the State Board of Accounts.
(B) Annually, all city departments will account and inventory all capital assets, noting additions and disposals and related information, and provide the information upon request to the Clerk-Treasurer.
(C) For the purposes of recording capital assets and inventory, the valuation shall be based on historical cost or, where the historical cost is indeterminable, by estimation for those assets in existence.
(D) The Clerk-Treasurer shall record acquisition of capital assets in accordance with generally accepted accounting principles. When an asset is purchased for cash, the acquisition is recorded at the amount of cash paid, including all outlays relating to purchase and preparation for intended use. Assets may be acquired and recorded under a number of other arrangements including:
(1) Assets acquired for a lump sum purchase price;
(2) Purchase by deferred payment contract;
(3) Acquisition under capital lease;
(4) Acquisition by exchange of nonmonetary assets;
(5) Acquisition by issuance of securities;
(6) Acquisition by self-construction; and
(7) Acquisition by donation or discovery. [Ord. 1135-2004; Ord. 944-97, 1997. Code 2000 § 33.038.]