(A) Definitions. For the purpose of this section, the following definitions shall apply unless the context clearly indicates or requires a different meaning.
CAPITAL OUTLAYS. Expenditures which benefit both the current and future fiscal periods. This includes costs of acquiring land or structures; construction or improvement of buildings, structures, of other fixed assets; and equipment purchases having an appreciable and calculable period of usefulness. These are expenditures resulting in the acquisition of or additions to the government’s general fixed assets.
ENTERPRISE FUNDS. 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 governing body is that the costs (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 governing body 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 FUND of the town shall include the municipally owned water and sewage utilities. Operation of these utilizes shall require ENTERPRISE FUND accounting and reporting.
FIXED ASSET. Tangible assets of a durable nature employed in the operating activities of the unit and that are relatively permanent and are needed for the production or sale of goods or services are termed property, plant and equipment, or FIXED ASSETS. These assets are not held for sale in the ordinary course of business. This broad group is usually separated into classes according to the physical characteristics of the items (e.g., land, buildings, improvements other than buildings, machinery and equipment, furniture, and fixtures).
HISTORICAL COSTS. The cash equivalent price exchanged for goods or services at the date of acquisition. Land, buildings, equipment, and most inventories are common examples of items recognized under the HISTORICAL COST attribute.
TANGIBLE ASSETS. Assets that can be observed by one or more of the physical senses. They may be seen and touched and, in some environments, heard and smelled.
(B) General provisions.
(1) Land.
(a) This town will capitalize all land purchases, regardless of cost.
(b) Exceptions to land capitalization are land purchased outright, as easements, or rights-of-way for infrastructure. Examples of infrastructures are roads and streets, street lighting systems, bridges, overpasses sidewalks, curbs, parking meters, street signs, viaducts, wharfs, and stormwater collection.
(c) Original cost of land will include the full value given to the seller, including relocations, legal services incidental to the purchase (including title work and opinion), appraisal and negotiate fees, surveying, and costs for preparing the land for its intended purpose (including contractors and/or city workers (salary and benefits), such as demolishing buildings, excavating, clean up, and/or inspection.
(d) A department will record donated land at fair market value on the date of transfer plus any associated costs.
(e) Purchases made using federal or state funding will follow the source funding policies and above procedures.
(2) Machinery and equipment.
(a) The definition of MACHINERY AND EQUIPMENT is an apparatus, tool, or conglomeration of pieces to form a tool. The tool will stand alone, and not become a part of a basic structure or building. The town will capitalize and tag items with an individual value equal to or greater than $1,000. Machinery combined with other machinery to form one unit with a total value greater than the above mentioned limit will be one unit.
(b) Shipping charges, consultant fees, and any other cost directly associated with the purchase, delivery, or set up, (including contractors and/or town works salary and benefits) which make such equipment operable for its intended purpose will be capitalized.
(c) Improvements or renovations to existing machinery and equipment will be capitalized only if the result of the change meets all of the following conditions:
1. Total costs exceed $1,000;
2. The useful life is extended two or more years; and
3. The total costs will be greater than the current book value, and less than the fair market value. Examples include: a work truck being equipped with screens, lights, or radios for use as a single unit throughout its life expectancy is considered one unit.
(d) If police cars are constantly changing light bars or radios to other vehicles, the town will capitalize each piece of equipment separately, if it meets the required dollar amount.
(e) A department’s computer (CPU, monitor, keyboard, and printer) is considered one unit.
(f) A department will record donated machinery and equipment at fair market value on the date of transfer with any associated costs.
(g) Purchases made using federal or state funding will follow the source funding policies and above procedures.
(3) Buildings.
(a) A department will capitalize buildings at full cost with no subcategories for tracking the cost of attachments. Examples of attachments are roofs, heating, cooling, plumbing, lighting, or sprinkler systems, or any part of the basic building. The department will include the costs of items designed or purchased exclusively for the building.
(b) A department’s new building 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) A department improving or renovating an existing building will capitalize the costs only if the result meets all of the following conditions:
1. The total cost exceeds $5,000;
2. The useful life is extended two or more years; and
3. The total cost will be greater than the current book value and less than the fair market value.
(d) Capital building costs will include preparation of land for the building, architectural and engineering fees, bond issuance fees, interest cost (while under construction), accounting costs if material, and any costs directly attributable to the construction of a building.
(e) A department will record donated buildings at fair market value on the date of transfer with any associated costs.
(f) Purchases made using federal or state funding will follow the source funding policies and above procedures.
(4) Improvements other than buildings.
(a) The definition of this group is improvements to land for better enjoyment, attached or not easily removed, and will have a life expectancy of greater than two years.
(b) Examples are walks, parking areas and drives, golf cart paths, fencing, retaining walls, pools, outside fountains, planter underground sprinkler systems, and other similar items.
(c) Improvements do not include roads, streets, or assets that are of value only to the public. For example, Main Street is a public street with greatest value to the public. Roads or drives upon town-owned land that provides support of our facilities are assets. A sidewalk down the road for public enjoyment is an infrastructure improvement and is not capitalized. However, sidewalks installed upon town-owned land for use by the public and for the support of the town’s facility are capital assets.
(d) The town will capitalize new improvements other than buildings only if it meets the following conditions:
1. The total costs exceed $5,000; and
2. The useful life is greater than two years.
(e) A department will capitalize improvements or renovations to existing improvements other than building only if the real estate meets the following conditions:
1. The total cost exceed $5,000;
2. The asset’s useful life is extended two or more years; and
3. The total cost will be greater than the current book value and less than the fair market value.
(f) A department’s donated improvements other than buildings will be recorded at fair market value on the date of transfer with any associated costs.
(g) Purchases made using federal or state funding will follow the source funding policies and above procedures.
(C) Recording and accounting.
(1) The town and its various departments shall classify capital expenditures as capital outlays within the fund from which the expenditure was made in accordance with the chart of accounts of the cities and towns accounting manuals. The cost of property, plant, and equipment includes all expenditures necessary to put the asset into position and ready for use. For purposes of recording fixed assets of the town, the valuation of assets shall be based on historical cost or where the historical cost is indeterminable by estimation for those assets in existence. Assets may be acquired under a number of other arrangements including:
(a) Assets acquired for a lump-sum purchase price;
(b) Purchase on deferred payment contract;
(c) Acquisition under capital lease;
(d) Acquisition by exchange of nonmonetary assets;
(e) Acquisition by issuance of securities;
(f) Acquisition by self construction; and
(g) Acquisition by donation or discovery.
(2) Some of these arrangements present special problems relating to the cost to be recorded, for example in utility accounting, interest during a period of construction has long been recognized as a part of the asset cost. Reference to an intermediate accounting manual will illustrate the recording of acquisition of assets under the aforementioned acquisition arrangements.
(3) In addition, an asset register (prescribed form 211) shall be maintained to provide a detailed record of the capital assets of the governmental unit.
(D) Safeguarding of assets. Be it ordained that accounting controls be designed and implemented to provide reasonable assurances that:
(1) Capital expenditures made by the town be in accordance with management’s authorization as documented in the minutes;
(2) Transactions of the utilities be recorded as necessary to permit preparation of financial statements in conformity with generally accepted principles;
(3) Adequate detailed records be maintained to assure accountability for town-owned assets;
(4) Access to assets be permitted in accordance with management’s authorization; and
(5) The recorded accountability for assets be compared with the existing assets at least every two years and appropriate action be taken with respect to any differences.
(Ord. 2003-12, passed 7-21-2003)