(A) Adoption.
(1) The village has received a recommendation that it adopt a capitalization policy in order to be in compliance with applicable accounting standards. The Board has reviewed the Village Capitalization Policy, attached to the ordinance incorporated herein and in division (B) below, and approves the adoption of that policy.
(2) The President is authorized and directed to execute said policy, and the proper officers of the village are directed to carry out and apply the terms of that policy to all future audits.
(B) Policy.
(1) Purpose.
(a) This capitalization policy is intended to provide guidance for the capitalization and depreciation of capital assets to comply with the requirements of Governmental Accounting Standard Board Statement 34, Basic Financial Statements and Management’s Discussion and Analysis for State and Local Governments. This statement requires the reporting of the village capital assets and depreciation in their annual audited financial statement.
(b) This policy includes capital asset classes, descriptions, capitalization threshold levels, estimated useful lives, methods of depreciation and the procedures to be used in effectively identifying, recording and reporting the village’s capital assets.
(2) Asset classification. Village capital assets are used to support two major criteria of the business:
(a) General Administration; and
(b) Infrastructure.
(3) General administration.
(a) General administration is the activity that the village employees conduct to run the day-to-day operations.
(b) Capital assets that support these activities can include, but are not limited to, office furniture, fixtures, equipment, information and computer systems and the like, where the following two conditions are met:
1. Each individual item has a cost of $5,000 or more; and
2. Useful life of at least three years.
(4) Infrastructure. Activities related to infrastructure include new construction, replacement due to expansion or new technology, replacement due to the end of normal life cycle, major repairs or refurbishment and acceptance of assets through the contribution by other agencies. Capital assets that are in this group can include, but are not limited to, land, land improvement, buildings, building improvements, facilities, facility improvements and renovations.
(5) Determination of cost. GASB Statement 34 states that purchased or village constructed capital assets should be reported at historical cost. The total cost of the capital asset is the cash outlay or its equivalent that is necessary to acquire the asset and put it in operating condition. These costs include contract price, freight, licensing fees, handling and assembling, installation and testing, direct labor and material, indirect labor and materials, benefit and overhead allocations as well as any construction period interest cost as required by GASB Statement No. 34. In addition, it is the village’s policy to capitalize any cost that is specifically identifiable with a planned capital project (or asset acquisition), including public information costs and costs incurred to obtain financing for the project. Contributed capital assets will be recorded at their estimated fair market value at the date of the asset was contribution to the village.
(6) Estimated useful life. The village uses Internal Revenue Tax Law requirements, general guidelines obtained from professional or industry organizations and information for comparable assets of other governments as the guidelines when estimating the useful lives of the capital assets.
(7) Depreciation method. The village uses the straight-line method with no salvage value for all depreciable capital assets.
(8) Summary. The following table summarizes the depreciation schedule.
Asset Class | Description | Threshold | Useful Life (Years) |
Asset Class | Description | Threshold | Useful Life (Years) |
Building improvement | Buildings | $25,000 | 40 |
Infrastructure | Roads, drainage, resurfacing | $50,000 | 3-40 |
Land | Land | N/A capitalize all | N/A |
Land improvement | Sidewalks, fences, landscape shrubbery | $25,000 | 20 |
Office furniture, equipment | Desk, chair, file cabinets, telephone printers | $5,000 | 3-10 |
Police equipment | Radars, lidars, mobile equipment | $5,000 | 3-10 |
Vehicles | Car, truck, tractor, trailer, lawn mowers | $15,000 | 5 |
(9) Glossary. For the purpose of this section, the following definitions shall apply unless the context clearly indicates or requires a different meaning.
CAPITAL ASSETS. Are acquired for use in operations and not for resale. They are long-term in nature and subject to depreciation. They possess physical substance.
COMPONENT UNIT. Individual identifiable pieces of a capital asset or a group of capital assets.
DEPRECIATION. The systematic and rational allocation of the estimated historical cost of a capital asset (or if donated, the fair value of the capital asset at the time of donation), over its estimated useful service life.
ESTIMATED USEFUL LIFE. The period of time over which an asset’s cost will be depreciated.
FAIR MARKET VALUE. An estimate of what a willing buyer would pay to a willing seller, both in a free market, for an asset or any piece of property.
GASB 34. The Governmental Accounting Standards Board’s (GASB) Statement No. 34, Basic Financial Statements and Management’s Discussion and Analysis require state and local governments depreciate their exhaustible capital asset, including infrastructure.
HISTORICAL COST. The actual exchange value in dollars at the time the asset was acquired. It is measured by cash or cash equivalent price of obtaining the asset and charges necessary to bring it to its intended location and to place the asset in its intended condition for use.
INFRASTRUCTURE. The structures that support a society, such as roads, flood management systems, telecommunications, drainage and so forth.
REPLACEMENT. The substitution of a new facility or component of an existing facility.
SALVAGE VALUE. An estimate of the amount that will be realized at the end of the useful life of a depreciable asset.
STRAIGHT-LINE DEPRECIATION METHOD. Determined by the formula: (cost-salvage vale)/estimated useful life=depreciation per period.
(Ord. 20-10-01, passed 10-27-2020)