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HomeMy WebLinkAbout7737 RESOLUTION NO 7737 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF REDLANDS ESTABLISGHING A CAPITAL ASSET POLICY WHEREAS, as part of City staff's continuing effort to enhance the fiscal and operational practices of the City, a Capital Asset Policy has been developed and submitted to the City Council for review, and WHEREAS, the purpose for establishing a Capital Asset Policy is to establish the criteria required to determine the types of costs that should be capitalized as a Capital Asset versus an Expense, the appropriate Capital Asset classification and related depreciation period for each Capital Asset classification, and the process for taking inventory of such Capital Assets,and WHEREAS, the Management Services / Finance Department will be responsible for determining which costs are capitalized or expensed, based on accounting standards, NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF REDLANDS AS FOLLOWS Sectionl The City Council hereby adopts the Capital Asset Policy attached hereto as Exhibit "A " ADOPTED, SIGNED AND APPROVED th 20th day of June, 2017 Paul Barich, Mayor Pro Tempore ATTEST Jeqt6k Donaldson, City Clerk 1 I 1ca\Reso%7737 ESTABLISGI-I1NG A CAPITAL ASSET POLICY docx I, Jeanne Donaldson, City Clerk of the City of Redlands, hereby certify that the foregoing resolution was duly adopted by the City Council at a regular meeting thereof held on the 20th day of June, 2017, by the following vote AYES Councilmembers Gilbreath, Barich, Tejeda NOES None ABSENT Councilmember Harrison, Mayor Foster ABSTAIN None Jeiie Donaldson, City Clerk I lcclerklResolutionslRes 7700 7799/7737 ESTASLISGHING A CAPITAL ASSET POLICY docx 2 "EXHIBIT A" City of Redlands Capital Asset Policy PURPOSE The definition of Capital Assets is established by Government Accounting Standards Board (GASB)Statement 34`Basic Financial Statements—and Management's Discussion and Analysis- for State and Local Governments " This policy establishes the criteria required to determine the types of costs that should be capitalized as a Capital Asset versus an Expense, the appropriate Capital Asset classification and related depreciation period for each Capital Asset classification, and the process for taking inventory of such Capital Assets The Management Services/Finance Department will be responsible for determining which costs are capitalized or expensed, based on accounting standards DEFINITIONS • Capital Asset Non-financial assets that are used in operations and have an initial useful life in excess of one year • Capitalization Thi eshold: The minimum cost and useful life which an asset must exceed in order to be capitalized • CIP (Construction in Progress): Any expenditure for the purchase, construction, replacement, addition or major repair of public facilities and mayor equipment • Depreciation The process of allocating the cost of an asset over a period of time,usually it is the estimated useful life • Depreciation Method The City utilizes the straight-line depreciation method For example,if an asset has a cost of$50,000 and a useful life of 5 years,the asset is depreciated at $10,000 per year(Historical Cost divided by Useful Life) • Historical Cost: The value placed on the asset at the time of acquisition, including ancillary costs (value of trade-ins, shipping costs, installation costs, etc ) • Intangible Assets An asset that is not physical in nature, such as computer software owned by the City • Tangible Assets: An asset that has a physical form, such as a vehicle • Useful Life: The amount of time that an asset is expected to provide benefit to the City GENERAL POLICY: Purchased, donated, or internally developed assets meeting the City's capitalization definition and threshold will be classified and recorded to the City's financial records as capital assets The value of the asset must meet the City's capitalization threshold of at least $5,000 and have a useful of life of at least three vears to be recorded as a capital asset MAJOR ASSET CLASSIFICATIONS Land — An inexhaustible asset that has an unlimited life and therefore is not depreciated Land Inim ovements — Betterments, improvements, and site preparations that ready land for its intended use Like the Iand itself, these improvements are inexhaustible and therefore are not depreciated Examples of land improvements include acquisition costs, excavation, filling, grading, demolition of existing buildings, and removal or relocation of other property (telephone or powerlxnes) Depreciable Land Imm ovements --- Improvements made to land that have a determinable estimated useful life and deteriorate with use or passage of time These improvements are built and/or installed to enhance or facilitate the use of the land for a particular purpose Examples of depreciable land improvements can include walking paths and trails,fences and gates,landscaping, irrigations systems, and fountains These are unlike undepreciable land improvements and land since the useful life or the improvement is determinable Leasehold Improvements -Improvements made by the lessee to leased property such as land and buildings The lessee has the right to use such facilities and improvements during the life of the lease,but the improvements made to the property would revert to the Iessor at the expiration of the lease For this reason, the useful life of the leasehold improvement cannot be longer than the remaining lease term The useful life of the leasehold improvement would be the lesser of 10 to 40 years or the remaining lease term These improvements to leased property are treated as separate capital assets and are capitalized and depreciated if they are above the threshold for capitalization for the particular type of leased capital asset Some examples of leasehold improvements would be new buildings or structures built on leased land and attachments or improvements made to existing leased buildings or structures Buildrnes and Building Improvements -A structure that is permanently attached to the land,has a roof, is partially or completely enclosed by walls, and is not intended to be transportable or moveable Improvements to existing buildings that materially extend the useful life of a building, increase the value of a building, or both should be capitalized The improvement must meet one of the following criteria • The improvement adds square footage to the existing building • The Improvement is a mayor renovation that prepares an existing building for anew use • The Improvement expenditure Increases the life or value of the building by 25 percent of the original life or cost The cost of an Improvement(or betterment)normally Is added to the cost of the related structure, rather than treated as a separate asset Examples of expenditures to be capitalized as building improvements are as follows • Replacement of an old shingle roof with a new fireproof tele roof • Upgrade of heating and cooling systems • Structures attached to the building such as covered patios, sunrooms, garages, carports, enclosed stairwells, etc • Structural changes such as reinforcement of floors or walls, Installation or replacement of beards,foists, steel gnds, or other Interior framing The following are examples of expenditures not to capitalize as Improvements to buildings Instead, these Items should be recorded as maintenance expense • Adding, removing and/or moving of walls relating to renovation projects that are not considered mayor rehabilitation projects and do not increase the value or life of the building • Plumbing or electrical repairs • Cleaning, pest extermination, or other periodic maintenance • Interior decoration, such as draperies, blinds, curtain rods, wallpaper • Maintenance-type interior renovation, such as repainting, touch-up, plastering, replacement of carpet, tile, or panel sections, sink and fixture refinishing, etc • Maintenance-type exterior renovation such as repainting, replacement of deteriorated siding, roof, or masonry sections • Replacement of a part or component of a building with a new part of the same type and performance capabilities, such as replacement of an old boiler with a new one of the same type and performance capabilities Infi ash acture - Capital assets that are normally stationary in nature and can be preserved for a significantly greater number of years than most capital assets Exawples inchtde roads, bridges, tunnels, drainage systems, ii,ater•and seii,er systenis, and lighting systems Eaumment - Moveable assets that Includes all costs to place equipment into service (freight, installation, warranties, and sales tax) Each piece of equipment must meet the minimum capitalization threshold ($5,000) and is not recorded in bulk E,tamples include vehicles, f111'177SJ77n,S, inachmet)} serivis, and appliances Intangibles-Intangible assets are characterized as lacking physical form(e g, computer software, water rights,easements, and patents) Certain intangibles provide benefits indefinitely In that case, no amortization expense would be recognized Intangibles with the length of their life limited by contractual or legal provisions should be amortized over the period stated in the provisions Easements are interest in land owned by another that entitles its holder to a specific limited use The estimated value of easements is immaterial and therefore will not be capitalized Construction in Pi oat ess (CIP) - This major class is used for costs incurred to construct or develop a tangible or intangible capital asset before it is substantially ready to be placed into service The costs should remain in this category until all retention money has been paid(at which time the asset would be reclassified into the appropriate major class) CAPITAL ASSET USEFUL LIFE: The capital asset useful life is the determining factor for the number of accounting periods over which the asset must be depreciated The City can determine the useful life of an asset by using historical information or by seeking guidance from other external resources to determine the proper useful life of the asset Depreciation is recorded on a straight-line basis over the estimated useful life of the asset as follows Depreciable Land Impi ovements 10 to 40 years Buildings and Impi ovements 10 to 40 years Infi asti uctui e: 20 to 75 years Intangibles As limited by contractual or legal provisions Equipment 3 to 25 years Additionally, depreciation will be recorded on a half year depreciation basis in the year of the asset acquisition, and a half year of depreciation in the year of the asset disposition COSTS ELIGIBLE FOR CAPITALIZATION Costs should be capitalized only if directly identifiable with a specific asset and only if incurred after acquisition of the related asset is considered likely to occur Capital assets should be reported at historical cost,or in the absence of historical cost information,estimated historical cost Donated assets should be reported at fair market value at the date of donation Historical costs include the following a) Costs necessary to place the asset in its intended location (e g freight costs, legal costs and title fees) b) Costs necessary to place the asset in its intended condition for use (e g surveying fees, demolition costs, transportation costs, installation and site preparation charges) c) Interest on debt proceeds used to finance construction of the asset(only enterprise funds and under specified conditions) d) Costs for additions or improvements (excluding repairs) that either enhance the functionality or extend the expected useful life of the asset(e g adding a lane or road) COSTS NOT ELIGIBLE FOR CAPITALIZATION 1 Costs incurred before acquisition has become probable, such as feasibility or site location studies 2 Costs incurred after the asset is placed into operation 3 Equipment or furnishings purchased in a group, but individually cost less than the capitalization threshold 4 General and administrative costs (overhead) 5 Training to operate equipment or computer software 6 Maintenance agreements 7 Software maintenance agreements or software licenses/subscriptions 8 Meals or meeting support 9 Slurry seal of pavement(considered maintenance) 10 Undergrounding of utilities (e g phone, cable, electricity, gas) 11 Data conversion costs, if not required for software to operate in the manner intended (i e accounts payable applications are fully able to process payments without historical data) CAPITAL LEASE The following is criteria in order to determine if a lease can be considered a capital lease If the answer is yes to one or more of these items, then it is considered a capital lease 1 Ownership The lease transfers ownership of the property to the lessee by the end of the lease term 2 Bargain Price Option The lease contains an option to purchase the lease property at a bargain price 3 Estimated Economic Life The lease term is equal to or greater than 75%of the estimated economic life of the leased property 4 Fair Value The present value of rental and other minimum lease payments, excluding that portion of the payments representing executory costs, equals or exceeds 90% of the fair value of the leased property CAPITAL ASSET RETIREMENT When a capital asset will no longer be used in operations, voluntarily or involuntarily, the asset shall be removed from the City's financial records and removed from service For the retirement of equipment,material,or inventory,please refer to City Ordinance Chapter 2 16"City Purchasing and Disposition of Surplus Personal Property Policies" The Management Services/Finance Department will be notified when any capital asset is retired When a surplus capital asset is sold, the Management Services/Finance Department will record the sale of the asset to the appropriate fund where the asset was purchased CAPITAL ASSET REVIEW Departments are responsible in evaluating the condition and functionality of existing capital assets assigned to their department to determine if the asset is still providing the most appropriate method to deliver services Capital assets should be assessed on an annual basis PHYSICAL INVENTORY: A physical inventory of the City's capital assets equipment shall be conducted, at a minimum,once every two fiscal years Only capital assets equipment that have a value equal or greater than the $5,000 minimum threshold should be accounted for in the capital asset review The physical inventory should access the following • Any changes, such as location, sale, trade-in, or disposal of capital asset equipment • The equipment serial number if it does not appear correct or missing on the listing • Any listed equipment found to be missing during the physical inventory Any discrepancies during the inventory count will be investigated and reconciled INFRASTRUCTURE INVENTORY The City utilizes outside agencies to perform an annual inventory for all of the City's infrastructure assets The infrastructure annual inventory is incorporated into the Comprehensive Annual Financial Report (CAFR) as well as included in the City's fixed asset records REPORTING. The value of capital assets are reported in the CAFR by their respective category The CAFR is located on the City's website TAGGING OF ASSETS All capital assets that are purchased with Federal grant funding will be tagged and labeled with the name of the grant used for the purchase Land, Land Improvements and Buildings will use the legal address for identification in the City records Vehicles will use their VIN for identification purposes Equipment(where applicable) will use the serial number for identification TRANSFER OF ASSETS: Fixed assets may be required to be transferred from one department to another In this event, an "Asset Transfer Form" shall be completed by the department transferring the asset and submitted to the Management Services/Finance Department for approval The Department Director must acknowledge the receipt of any fixed asset transferred to his/her department