(A) General information.
(1) The town will be implementing a new capital asset policy that will become effective May 20, 2019, and will be known as the “Capital Asset Policy”.
(a) This policy is to include capital assets as well as infrastructure assets, which are to be accounted for at the network or subsystem level.
(b) The policy is being put in effect to comply with the provisions of GASB 34 and the requirements of the Indiana State Board of Accounts.
(c) All infrastructures acquired after GASB 34 implementation will be reported on a prospective basis.
(d) Assets that do not meet the specified threshold will be expensed in the year of purchase.
(e) An inventory of capital assets will be maintained by the town at all times and verified on an annual basis through confirmations by each department head.
(f) Capital asset thresholds will be configured to account for 80-90% of the total cost of all town assets.
(2) The town is making this policy effective to enhance financial and operational accountability to the citizens of the town and to all other concerned constituents.
(3) The purpose of establishing a capital asset policy is to:
(a) Comply with the standards of GASB 34;
(b) Maintain accurate records of all capital assets that are capitalized, including infrastructure;
(c) Increase accuracy and transparency of financial reporting;
(d) To better serve the citizens of town and the town’s constituents.
(4) This policy will only serve to classify all capital assets, including capital and infrastructure, for accuracy in financial reporting through the Indiana State Board of Accounts.
(B) Definition of capital assets.
(1) CAPITAL ASSETS include: land, land improvements, buildings, building improvements, machinery and equipment, vehicles, construction work in progress, easements, works of art and historical treasures, and infrastructure. These assets are to have a cost of greater than a specified threshold, and a useful life of greater than one year. The cost of the asset will include all expenses necessary to make the asset fully operational. Assets acquired through lease purchase agreements that meet these specifications are to be capitalized. This cost will be determined as the present value or discounted value of the future stream of lease payments, and not the total lease. Items that do not meet this definition of capital assets are to be expensed in the year the asset is used. A separate database or inventory is to be established for assets with a unit or network cost not above the thresholds. All capital assets are to be reported at cost.
(2) Exceptions.
(a) Office equipment, which is custom fit to the needs of a particular office, will be capitalized as a portion of the cost of the building or area in which it is located. All other office supplies and equipment will be capitalized if they meet the specified requirements for capitalization.
(b) Inexhaustible assets, such as land, improvements, artwork, statues, and the like, will be reported at cost.
(c) Separate thresholds will be established for tracking and capitalization purposes.
(d) Certain items that do not individually meet the assigned threshold may be aggregated for capitalization purposes.
(e) Properties and improvements reverted to the town through Commissioner Tax Sales are excluded.
(f) Properties and improvements reverted to the town through flood mitigation are also excluded.
(C) Classification of capital assets. Capital assets are to include any item that falls into one of the following categories: land, land improvements, buildings, building improvements, machinery and equipment, construction work in progress, vehicles, easements, works of art and historical treasures. These categories of capital assets are to be defined as follows.
(1) Land. LAND consists of all lots, parcels, rights-of-way, easements, parks, police and fire stations, and acreages owned by the town government. This includes all bodies of water and natural vegetation growing on these properties. Gains or losses on the sale of land are to be reported as a special item in the statement of activities.
(2) Land improvements. LAND IMPROVEMENTS include such items as retaining walls, driveways, landscaping, parking areas, sprinkler systems, fencing, and other items that add value to ormay be considered an improvement in making the land ready for its intended use. Land improvements are to be classified into two categories:
(a) Non-exhaustible - includes items that do not require maintenance or repair and, therefore, are not to be depreciated;
(b) Exhaustible - includes items that do require maintenance or repair and, therefore, are depreciated.
(3) Buildings. BUILDINGS include all structures erected by the town for the purpose of conducting business, providing service, or facilitating work to the citizens of the town. This includes all fixtures and systems within the building, as well as specifically designed equipment. This may also include all porches, balconies, canopies, flagpoles, stairwells, fire escapes, patios, decks, and any other attachments that add to the value of the building. Certain building components should be recorded and capitalized separately as they have a distinguishably different useful life.
(4) Building improvements. BUILDING IMPROVEMENTS are those items that extend the useful life of the building, and are to be capitalized, including remodeling, roofing projects, energy conservation projects, and the like. These items are to be inventoried, including project description, year completed, funding source, and dollar amount.
(5) Machinery and equipment. MACHINERY AND EQUIPMENT include furniture and machinery and equipment. This may include items such as office equipment, furnishings, appliances, earth moving equipment, construction equipment, communication equipment, maintenance equipment, supplies, and the like. Items that do not individually meet the established threshold may be aggregated for capitalization purposes. This may include computers, library books, and the like.
(6) Construction work in progress. CONSTRUCTION WORK IN PROGRESS includes all partially completed portions of construction projects that are not completed. This includes all current cost
of the project, including such items as assessment fees, architect fees, licensing, supplies, labor, and the like.
(7) Vehicles. Vehicles should be inventoried and depreciated when applicable. Gains or losses on the sale of vehicles will be reported as a special item in the statement of activities.
(8) Easements. An EASEMENT is a specific land interest held by an owner that entitles them to a specific use or right to the land. Since easements are rights to use, they will not be reported in the financial statements unless they are owned by the town.
(9) Works of art and historical treasures. These items are to be recorded at historical cost.
(D) Valuation of capital assets.
(1) All capital assets will be valued at the unit or system level. If these costs exceed a specified threshold, they will be capitalized. Separate thresholds will be established for tracking purposes. Any expense pertaining to the cost of making the asset operational may be included in this cost. This may include the following:
(a) Legal and title fees, closing costs;
(b) Appraisal and negotiation fees, surveying fees;
(c) Damage payments;
(d) Land preparation costs, demolition costs;
(e) Architect, engineering and accounting fees;
(f) Insurance premiums during construction;
(g) Transportation charges.
(2) Capital assets are to be recorded at actual cost, which includes all expenses to make the asset fully operational. If no cost is available, replacement cost or a historic cost index may be used. It will not be sufficient to use appraisal cost to determine the cost of the capital assets, as this is a violation of the matching principle.
(3) Capital assets will be capitalized when they exceed the following thresholds of each specific category. The threshold the asset must meet will be contingent on which category the asset falls in. The thresholds are as follows:
Category | Tracking and Inventory | Capitalize |
Category | Tracking and Inventory | Capitalize |
Land | $1 | $1 |
Land improvements | $500 | $5,000 |
Building | $500 | $5,000 |
Building improvements | $500 | $5,000 |
Machinery and equipment | $500 | $5,000 |
Construction in progress | $500 | $5,000 |
Vehicle | $500 | $5,000 |
Works of art | $500 | $5,000 |
Historic treasures | $500 | $5,000 |
(4) Other factors that will be considered in capitalizing assets will be the estimated useful life, asset cost, and associated debt.
(5) Exception for capitalization may also be made for items that must be tracked and inventoried regardless of the costs. Also, individual items may be aggregated for reporting and capitalization purposes.
(E) Physical inventory and reconciliation policy. All capital assets will be inventoried no less than every year. A physical inventory will be the responsibility of each department head to account for all capital assets at year-end, as well as inventory items that are simply tracked and inventoried. The physical inventory will include the following items: asset description, year of acquisition, method of acquisition, funding source, cost or estimated cost, salvage value, and estimated useful life. This information will be aggregated and maintained in a database managed by the town.
(F) Capital asset acquisition.
(1) The means of capital asset acquisition may determine how the asset is to be accounted for. In general, there are eight major methods of acquiring or making capital purchases:
(a) Proceeds of debt issues;
(b) Tax revenues transferred in;
(c) Special assessments;
(d) Interest on investments;
(e) Interfund transfers;
(f) Tax revenues;
(g) Gifts, grants, entitlements;
(h) Capital leases.
(2) The various means of making capital acquisitions are to be accounted for at the fund level, and in some instances will be reported at the government-wide level. Capital leases are to be reported at the discounted cost of the stream of future lease payments upon inception.
(G) Capital asset disposition and transfer.
(1) A distinction must be made as to whether the action is a betterment or a replacement. A BETTERMENT adds to or extends the useful life of the asset. These costs are to be added to the current carrying cost of the asset and continue along the depreciation schedule. A REPLACEMENT requires that the asset be removed from the books and new asset be recorded at cost.
(2) Some situations may be considered to be part betterment and part replacement. This requires determining the distribution of part betterment and part replacement. Once the distribution is determined, the respective portions should be handled in the usual manner for a replacement or betterment. In situations where assets are traded, the asset is to be removed from the books. If only one part of the asset is being disposed of, that asset must be removed from the books using a pro-rata share of the cost.
(Ord. 2019-2, passed 5-20-2019)