(A) Methods.
(1) The method of acquisition is not a determining factor. Each department should report items acquired by:
(a) Regular purchase;
(b) Lease purchase agreement;
(c) Construction by town personnel;
(d) Construction by an outside contractor;
(e) Resolution or condemnation;
(f) Donation or contribution; and/or
(g) Addition to an existing asset, transfer from another department, trade or barter.
(2) 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% or more of the estimated economic life of the leased property; or
(d) The present value of the minimum lease payments at the inception of the leaser excluding executory costs, equals at least 90% of the fair value of the leased property.
(3) Leases that do not meet any of the above criteria should be recorded as an operating lease and reported in the notes of the financial statement.
(4) If the town purchases like items exceeding $10,000 per year, all such purchases and/or leases shall be entered into with the prior approval or subsequent ratification. The approval is by the Town Council by ordinance or resolution duly passed by said Town Council.
(B) Process for asset purchase.
(1) The department head initiates the proper purchasing procedure (purchase requisition) to order the desired item. After delivery is made, the department originating the request acknowledges receipt of the item, completes the proper payment voucher and sends it to the accounting department.
(2) After the payment voucher has been completely processed, yet before it gets filed, the Clerk-Treasurer goes through all payment vouchers weekly to identify new fixed asset purchases. He or she then makes copies of the payment vouchers as backup of his or her data entry into the fixed asset management system (GRAMS).
(3) The following applies to the town’s Sewer Department: Where major projects are involved and actual classification of the fixed assets are not known until the end of the project or are based on allocations or engineering estimates, costs should be accumulated in work-in-progress accounts until completion of the work.
(Res. 9, passed 7-20-2004)