Although capital assets are expensed for budget purposes, they are shown as capital assets in the government-wide balance sheet of a financial statement. They are reclassified to capital assets through fiscal year-end worksheet adjustments. Depreciation of these assets is also done by worksheet adjustments. The formula for calculating straight-line depreciation is:
Straight Line Depreciation = (Cost of the Asset - Estimated Salvage Value)/Estimated Useful Life of an Asset |
(A) Depreciation. Depreciation is the systematic and rational allocation of net cost (cost less estimated residual value) over the depreciable asset’s estimated useful life. The city calculates depreciation on a straight-line basis over the estimated useful fife. The city begins depreciation in the first month of use for a frill month, or if the starting month is not known, depreciation is assumed for one-half of the fiscal year of implementation.
(B) Modified approach. For infrastructure, the city utilizes a modified approach. Under the modified approach, depreciation expenses are not recorded for infrastructure capital assets that meet certain condition requirements. Land acquired, easements acquired, and drainage are not depreciated.
(C) Salvage. Generally, at the end of an asset’s life, the sum of the amounts charged for depreciation in each accounting period (accumulated depreciation) will equal its original cost less salvage value. The salvage value is the amount for which the asset could be sold at the end of its useful life. The city determines salvage value on an asset-by-asset basis.
(Ord. 22-44, passed 10-24-2022)