(a) Definition of Capital Assets.
(1) Capital Assets are assets that are used in operations and have an initial useful life in excess of one year. The term includes both tangible assets (land, construction in progress, buildings, building improvements, vehicles, machinery, equipment, works of art, historical treasures, infrastructure) and intangible assets (easements, software, water rights). Assets acquired for the purpose of sale or investment do not qualify as capital assets, regardless of their form, because they are not used in operations.
(2) The City has a minimum capitalization threshold of $5,000. The capitalization threshold is applied to individual items in a group of items, rather than to the group as a whole, unless the effect of doing so would be to eliminate a significant portion of total capital assets. Assets that are not capitalized (items less than $5,000 and greater than $1,000) are expensed in the year of acquisition. An inventory is kept of all assets greater than $1,000.
(b) Major Capital Asset Classes and. In order to ensure that governmental entities have an accurate, complete, and current record of capital assets, it is important that asset categories are appropriately determined. This section further clarifies the asset definition by major category.
(1) Land. Land is defined as specified land, lots, parcels or acreage including rights of way owned by the City of Carmel, its various departments, boards or commissions, regardless of the method or date of acquisition. Easements are not included, as the City does not own them, but as an interest in land owned by another (i.e. property owner) that entitles its holder to a specified limited use. The City Utility, however, does capitalize easements.
(2) Buildings.
a) Buildings are defined as permanent (non-moveable) structures. Any structures designed and erected to house equipment services or functions are included. This includes systems, services, and fixtures within the buildings, as well as attachments such as porches, stairs, fire escapes, canopies, areaways, lighting fixtures, flagpoles, sound equipment, security cameras, lifts and riggings, curtains and staging and all other such units that serve the building.
b) Plumbing systems, lighting systems, sound systems, surveillance systems, passenger and freight elevators, escalators, built-in casework, walk-in coolers and freezers, fixed shelving and other fixed equipment are included as part of the building if it is owned. Communications antennas and/or towers are not included because they are treated as part of the equipment unit.
(3) Improvements Other Than Buildings. Improvements other than buildings have a limited useful life. Examples of the Civil City assets in this category are parking areas, drives, fencing, pools, fountains, underground sprinkler systems, decorative street lighting and other similar items. Examples of the City Utilities assets are water supply mains, collection sewers, wells, fences, intake pipes, manholes, and fire hydrants.
(4) Furnishings and Equipment. The furnishings and equipment asset class is used to account for moveable items. Included within this category are office equipment, office furniture, appliances, furnishings, machinery items, maintenance equipment, communication equipment, police, fire, laboratory equipment, vehicles, road equipment, aircraft, emergency equipment, earth moving equipment, text equipment, civil defense equipment, law enforcement equipment, and data processing equipment. Supplies are excluded.
(5) Infrastructure. Infrastructure assets are long-lived capital assets that normally are stationary in nature and 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, and water lines. 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 described above.
(6) Construction in Progress. Construction, or development, in progress is a special class of capital assets that are still in the process of construction (tangible) or development (intangible). Depreciation does not begin until the capital assets are substantially ready to be placed in service.
(7) Other Capital Assets. This is a separate category for capital assets that do not fit into any of the major asset classes listed above.
(c) Threshold Levels for Capital Assets. The following schedule will be used for capitalization and depreciation of the City's capital assets. Amounts are based on governmental entities with revenues exceeding $100 million.
Capitalize/Depreciate
|
Capitalize/Depreciate
| |
Land | Capitalize only |
Land Improvements | $50,000 |
Buildings | $100,000 |
Building Improvements | $100,000 |
Construction in Progress | Capitalize only |
Machinery and Equipment | $5,000 |
Vehicles | $5,000 |
City Utility Assets | $5,000 |
Computer Software | $5,000 |
Infrastructure | $3,000,000 |
(d) Valuation of Capital Assets.
(1) Capital assets should be recorded at historical cost and should include the cost of freight, site preparation, architect and engineering fees and other costs as applicable. If a method other than cash is used to pay for the asset, then the fair-market value of the non-cash payment or consideration determines the asset's cost or acquisition value. When the value of the consideration paid cannot be determined, the asset's fair market value determines its cost.
(2) With a few exceptions, an asset's cost should also include necessary costs incurred to place the asset in service. Costs include the invoice price plus incidental costs (insurance during transit, freight, capitalized interest, duties, title search, registration fees and installation costs). Exceptions to the rule include interest expenses associated with deferred payments and real estate taxes paid, if any, in the acquisition of property.
(e) Depreciation Method and Salvage Value.
(1) Depreciation is the process of allocating the cost of tangible property over a period of time, rather than deducting the cost as an expense in the year of acquisition. Generally, at the end of the asset's life, the sum of the amounts charged for depreciation in each accounting period (accumulated depreciation) will equal original cost less salvage value. The City depreciates its capital assets by using the Straight-line Method. Under this method, the basis of the asset is written off evenly over the useful life of the asset. The same amount of the depreciation is taken each year. Depreciation is calculated at the end of each fiscal year.
(2) The salvage value of an asset is the value it is expected to have when it is no longer useful for its intended purpose. In other words, the salvage value is the amount for which the asset could be sold at the end of its useful life. The City determines salvage value on an asset-by-asset basis.
(f) Estimated Useful Lives of City Assets. The following 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 reported. The most common useful lives are as follows:
(1) City Civil.
a) Vehicles - 5 years.
b) Police Vehicles - 4 years.
c) Office Equipment - 5 years.
d) Office Furniture - 20 years.
e) Heavy Equipment - 10 years.
f) Fire Trucks - 15 years.
g) Ambulances - 10 years.
h) Buildings - 50 years.
i) Building Components (HVAC systems, roofing) - 20 years.
j) Leasehold Improvements - useful life of asset or lease term (whichever is shorter).
k) Land Improvements - structure (parking lots, athletic courts, swimming pools) - 20 years.
l) Land Improvements - groundwork (golf course, athletic fields, landscaping, fencing) - 20 years.
m) Outdoor Equipment - (playground equipment, radio towers) - 15 years.
n) Grounds Equipment - (mowers, tractors, attachments) - 15 years.
o) Computer Software - 5 years.
p) Security Cameras -10 years.
q) Stage Lighting - 5 years.
r) Mobile Stage Trailer - 10 years.
s) Rigging and Lifts - 10 years.
t) Sound Equipment for Palladium - 10 years.
(2) City Utility - Water.
a) Buildings and Improvements - 50 years.
b) Transmission and Distribution Mains - 50 to 75 years.
c) Meters/Meter Installation - 25 to 30 years.
d) Pumping Equipment - 50 years.
e) Water Treatment Equipment - 50 years.
f) Elevated Storage - 75 years.
g) Office Equipment - 5 years.
h) Machinery - 5 to 40 years.
i) Hydrants - 50 to 75 years.
j) Well Equipment - 15 to 20 years.
k) Wells - 50 to 100 years.
l) Communications Equipment - 10 years.
m) GPS - 100 years.
n) Clearwell - 100 years.
(3) City Utility - Sewer.
a) Buildings and Improvements - 50 years.
b) Sewer Lines - 50 years.
c) Lift Station - 50 years.
d) Treatment Plant Equipment - 10 years.
e) Office Equipment - 5 years.
f) Machinery - 6-20 years.
g) Vehicles - 5 years.
h) HVAC Systems - 25 years.
i) GPS - 100 years.
j) Computer Software - 5 years.
(4) Infrastructure. The following is the list of networks and their useful lives:
a) Roads/Streets Network.
Subsystems: Types of Roads/Streets, Curbs, and Sidewalks - 45 years.
b) Traffic Components Network.
Subsystems: Traffic Signals -35 years.
Street lights - 25 years.
c) Drainage Systems Network - 50 years.
(g) Capital Leases.
(1) Leased equipment should be capitalized if the lease agreement meets any one of the following criteria:
a) The lease transfers ownership of the property to the lessee by the end of the lease term.
b) The lease contains a bargain purchase option.
c) The lease term is equal to 75% of the estimated economic life of the leased property (and the lease is non-cancellable during that time).
d) The present value of the minimum lease payments at the inception of the lease (excluding executory costs) equals at least 90% of the fair-value of the leased property.
(2) Leases that do not meet any of the above criteria are considered operating leases.
(h) Assets not Capitalized.
(1) Assets less than $5,000 are expensed in the year of acquisition. Assets greater than $1,000 are recorded in the General Ledger.
(2) Exceptions are:
a) 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 cost of the larger unit;
b) Modular equipment added subsequent to original equipment 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 units; and
c) Cabinets, shelving, bookcases, and similar items, added subsequent to original construction, which are custom made for a specific place and adaptable elsewhere, will be capitalized.
(i) Capital Assets Purchased with Grant Funds. When Federal Grant Funds are used to purchase capital assets, compliance with the applicable Subparts of Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards in the Code of Federal Regulations is required. All grant types typically have requirements specified in the Grant Award Letter with which the City must comply.
(j) Asset Acquisition, Transfer and Disposal. City assets may be acquired or disposed of using various methods, as described in supplemental City documentation and forms. The following procedure must be observed for all acquisitions, transfers and disposals of assets: complete the requisite forms, obtain the signature of the Department Director and forward the completed documentation to the Fiscal Office for recording purposes.
(k) Reporting of Fraud. Any city employee who suspects the misappropriation of capital assets should follow the applicable requirements outlined in Ordinance No. D-2286-16. This Ordinance establishes a policy on materiality and the process for reporting material variances.
(Ord. D-1680-04, 3-1-04; Ord. D- 2067-11, 11-7-11; Ord. 2191-14, As Amended, 11-3-14; Ord. D-2451-18, § 2, 2-4-18)