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Article AD04-A
CAPITAL ASSET POLICY
Sections:
AD04-A-1 OBJECTIVES.
AD04-A-2 SCOPE.
AD04-A-3 DEFINITIONS.
AD04-A-4 PROVISIONS.
AD04-A-5 PROCEDURES.
AD04-A-6 RESPONSIBILITY FOR ENFORCEMENT.
AD04-A-7 REFERENCES.
Section AD04-A-1 OBJECTIVES.
The City has established this policy to:
A. Safeguard the significant investment in capital assets and establish a capitalization policy whereby dollar values assigned to capital assets are permanently recorded.
B. Identify all capital assets in order to provide a management tool for the replacement of re-occurring items avoiding duplication and inefficient use of capital assets.
C. Comply with State laws and regulations concerning governmental accounting, auditing, and reporting requirements and, thereby providing information for the preparation of financial statements in accordance with generally accepted accounting principles.
D.Work in conjunction with the City's Risk Management Program to ensure that capital assets are insured adequately to cover losses.
Section AD04-A-2 SCOPE.
This policy pertains to all Management Team members and/or their designees who are accountable for capital assets owned by the City of Lenexa.
Section AD04-A-3 DEFINITIONS.
The following words when used in connection with this policy shall have the meanings respectively ascribed to them herein:
ANTICIPATED USEFUL LIFE: The time allotment in years of the estimated time the asset will be in use.
BUILDINGS: All permanent walled and/or roofed structures.
CAPITAL ASSETS: Land, improvements to land, easements, buildings, building improvements, vehicles, machinery, equipment, works of art and historical treasures, infrastructure, and all other tangible or intangible assets that are used in operations and that have initial useful lives extending beyond a single reporting period.
CAPITALIZATION THRESHOLD: Dollar value at which the City elects to capitalize tangible or intangible assets that are used in operations and that have initial useful lives extending beyond a single reporting period. Generally, capitalization thresholds are applied to individual items rather than groups of items unless the result would be to exclude items that would clearly be material to the financial statements in the aggregate.
DEPRECIATION: Depreciation is the systematic and rational allocation of the cost of a capital asset over its estimated useful life. Depreciation normally begins when an asset is purchased or substantially completed and accepted.
FURNISHINGS/EQUIPMENT: Movable personal property and distinguished from supply items with the following characteristics:
A. It retains its original shape and appearance with use.
B. It is non-expendable; that is if the article is damaged or some of its parts are lost or worn out, it is usually more feasible to repair it rather than replace it with an entirely new unit.
C. It represents an investment of money which makes it feasible and advisable to capitalize the item.
D. It does not lose its identity through incorporation into a different or more complex unit or substance.
E. It is not permanently incorporated into the structure of a building.
GAAP: Generally Accepted Accounting Principles. A widely accepted set of rules, conventions, standards, and procedures for reporting financial information as established by the Financial Accounting Standards Board.
INFRASTRUCTURE: Long-lived capital assets that normally are stationary in nature and normally can be preserved for a significantly greater number of years than most capital assets. Examples of infrastructure assets include streets, bridges, stormwater systems and dams.
LAND: All real estate owned by the municipality, exclusive of improvements.
Section AD04-A-4 PROVISIONS.
This policy is based on generally accepted accounting principles and generally accepted auditing standards, and should be interpreted in accordance therewith.
Section AD04-A-5 PROCEDURES.
A. Capitalization:
1. In determining whether assets, as defined above, should be capitalized, the following items should be considered:
cost, estimated cost, or market value (when acquired by gift).
2. Land assets will always be capitalized without regard to cost; and will not be depreciated.
3. Infrastructure will be capitalized if it has a life expectancy of five (5) years or greater and a designated value exceeding $300,000. Infrastructure acquired after January 1, 1980, will be recorded as capitalized if it meets the criteria for capitalization.
4. Assets other than land or infrastructure will be capitalized if the asset has a useful life of two (2) years or more and a designated value exceeding $10,000. (See Life Charts Guideline Attachment A)
5. Assets which are acquired with grant funding or other committed revenues and which do not meet the criteria for capitalization will nonetheless be capitalized whenever the Finance Director determines it to be necessary or advisable.
B. Valuation of Capital Assets:
Capital asset accounting maintains total capital asset costs rather than current market or replacement cost. Capital assets which are to be capitalized shall be assigned a dollar value in accordance with one of the following bases:
1. Actual historical cost: This cost can be obtained by reference to documents such as invoices, checks, vouchers, contracts, or purchase orders.
2. Estimated historical cost: Although historical costs are more desirable, they may be impossible or impractical to obtain. In this case, an estimated fair market value (estimated cost) as of the date of acquisition should be placed on each item. Estimated costs may be obtained from such sources as minutes, contracts, purchase orders, bond indentures, vendors, appraisers, newspaper articles, or inquiries of persons on hand at the time the asset was acquired.
3. Estimated fair market value: Gifts or donations shall be valued at fair market value at the time of receipt. This value can generally be obtained from the donor.
4. Capital versus Non-Capital Assets: An asset will be classified as a capital asset (capitalized under generally accepted accounting principles), if it is a non-consumable, tangible item, valued at a single amount greater than $10,000 and with a useful life of at least two (2) years. Tangible items valued at single amounts less than $10,000 will be classified as a non-capital asset.
5. Purchased Assets: The capitalized cost of most purchased assets includes the purchase or acquisition price and related freight, installation, customs charges, taxes (net of rebates) and other direct costs of getting the asset into condition necessary for its intended use. Capital equipment purchased sometimes have add-on items that are not initially ordered as a single amount, but may be included as part of the historical cost. Other direct costs may include software if included with the physical capitalized equipment, and warranty costs for the first year only, if included in the acquisition price. Costs that will not be capitalized include training and maintenance unless these costs cannot be separated from the acquisition cost.
6.Construction in Progress: Capital assets that are construction related (e.g. buildings, streets or constructed equipment) are capitalized as work in progress and amortization commences when work is substantially completed and the building or other constructed asset is ready for occupancy or use. Construction costs include all direct costs associated with the project that are incurred during the period when planning for the construction begins and ends when the construction project is substantially complete. Costs also include any overhead directly attributable to the construction or development activity.
7. Donated Assets: Donated or contributions of capital assets are capitalized at the appraised fair market value at the date of contribution.
8. Building Improvements versus Repairs and Maintenance: Expenditures made to maintain an existing capital asset that restores the capital asset to working condition but does not extend the life of the capital asset will be considered repairs and maintenance expenditures. These may include such examples as, repairs to the roof, repainting of a building, or painting of interior offices. Building improvements which increase the value of the asset or extends the useful life will be added as a capital asset.
9. Value of Infrastructure Assets: This process is completed annually at calendar year end. Infrastructure total costs include all direct costs associated with the project that are incurred during the period when planning or construction begins and ends when the project is substantially complete. Costs also include any overhead directly attributable to the project.
C. Updating the Capital Asset System:
1. The person initiating the purchase should determine at the time of entering a requisition if the item or items being purchased are capital assets.
2. When entering an on-line requisition, note (in the appropriate place) each item determined to be a capital asset.
3. When the requisition is processed, the City’s copy of the purchase order will be noted as having an item that is a capital asset, exclusive of infrastructure.
4. When the capital asset is received, the necessary information should be obtained from the asset include the manufacturer, model and serial number, etc. before the asset is placed into service.
5. A capital asset documentation sheet (Attachment B) needs to be prepared when the invoice is coded for payment. The invoice may not be processed for payment until the necessary capital asset information is received.
D. Disposition of Capital Assets:
When a capital asset becomes surplus and/or obsolete, the asset should be disposed. Capitalized assets will not be written off from the records or accounts of the City until the asset is disposed of physically. For further information on disposition of property please reference City Code Chapter 1-10.
E. Financial Reporting:
GAAP require governments to disclose: 1) the historical cost of capital assets (or their fair value at the time of donation), 2) accumulated depreciation, 3) additions during the period, and 4) deletions during the period in a format that demonstrates the change between the beginning and ending book values. Capital assets will be reported in the government wide financial statements.
F. Depreciation
Capitalized assets, other than land, will be depreciated using the straight-line depreciation method.
G. Inventory
All capitalized assets shall be recorded and inventoried and periodic physical inventories will be required. The Finance Department will coordinate the physical inventory process. Departments may choose to maintain an inventory listing of non-capital assets in its possession for control purposes.
Section AD04-A-6 RESPONSIBILITY FOR ENFORCEMENT.
The enforcement and records management of the Capital Asset Policy shall be under the jurisdiction of the Finance Director, with day-to-day assistance from Management Team members.
Section AD04-A-7 REFERENCES.
Capital Improvement Projects Procedures (Chapter AD09A)
Purchasing Policy (Chapter AD11)
Attachment A
Life Charts – Guideline
Capital Asset Life (Years)
Buildings 30
Machinery & Equipment
Communications Equipment5-10Motor Vehicles 2-8
Operating Equipment/Mowers 3-15
Office Equipment 5-10
Playground Equipment 15Infrastructure 20-99
Attachment B
Capital Asset Number
CAPITAL ASSET DOCUMENTATION
(Please submit with invoice)
Purchase Order Number:
Description:
Invoice Date: Invoice Number:
Vendor:
Improvement to a Capital Asset? Yes What is the Capital Asset # No
Manufacturer:
Model:
Serial Number:
(If multiple items include additional serial numbers below)
Serial Number:
Serial Number:
Serial Number:
Serial Number:
Unit Number: License Number:
Asset Physical Location:
Expense Code: Activity Code:
Condition: New Used Estimated life in Years:
Total Dollar Value Of Asset:
Is this Capital Asset replacing an existing one? Yes No
If Yes, what is the existing Capital Asset and Unit #?
Was the existing Capital Asset used as a trade in? Yes No No
Please state the trade in value.
Date of Trade in:
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