(A) To be considered a capital asset for financial reporting purposes, an item must be at or above the capitalization threshold and have a unit historical cost of $5,000 or more. Assets will remain as part of the property record until they are retired or are disposed of, sold, traded in, and the like, regardless of net book value amount.
(B) The capitalization threshold for the following classes of assets shall be:
Land | N/A |
Land improvements | $10,000 |
Building improvements | $10,000 |
Machinery and equipment and vehicles | $5,000 |
Computer software | $5,000 |
General infrastructure improvements | $50,000 |
Construction in progress | N/A |
(C) With regard to improvements to buildings and general infrastructure, a capital outlay must be significant and increase capacity, increase efficiency, or extend the asset’s estimated useful life beyond the original expectation.
(D) A change in capacity increases the level of service provided by the asset. A change in efficiency increases the level of service but without increasing the size of the asset or the change maintains the same level of service at a lower cost. For example, an addition to a building provides increased square footage, hence, the capacity is increased and the capital outlay is capitalized. Widening a road with additional lanes increases capacity and, hence, the capital outlay is capitalized. An extended estimated useful life involves a significant alternation, structural change or improvement.
(E) While substantial repairs and renovations will be reviewed for potential capitalization, it is anticipated that most will be expensed in the current year. These expenses often merely restore the asset to the original service potential but do not necessarily improve the asset.
(F) All land, including rights-of-way, is capitalized at the time of acquisition regardless of historical costs or fair value if donated.
(Ord. 10-2023, passed 12-19-23)