CITY OF COLUMBIA CITY FIXED ASSET AND CAPITALIZATION POLICY

Transcription

1 CITY OF COLUMBIA CITY FIXED ASSET AND CAPITALIZATION POLICY Adopted by Resolution No R; Amended by Resolution No R Exhibit "A" - Page 1

2 TABLE OF CONTENTS INTRODUCTION CAPITALIZATION DEFINITIONS FIXED ASSET CHANGE PROCEDURES Fixed Asset/Inventory System Change Form TAGGING METHODS DEPRECIATION POLICIES Exhibit "A" - Page 2

3 INTRODUCTION The Fixed Asset Policy has been developed to assist each City of Columbia City Department in properly accounting for the fixed assets under its control. Fixed asset inventory control requires constant attention from department personnel. This attention covers the entire time the fixed asset is within department control; from original purchase or donation, through possible transfer to another department, and ultimately through final disposition whether it is through loss, voluntary retirement, disposal, trade-in or sale. Fixed asset accounting has been undertaken by the City of Columbia City to centralize fixed asset records in the City Administrator/Recorder's office. As a result of this centralized record keeping, the following goals should be met: 1. To help safeguard the City's investment in fixed assets; 2. To establish responsibility for custody of fixed assets; 3. To provide financial data for financial reporting of fixed assets; 4. To provide informational data for insurance coverage purposes. Exhibit "A" - Page 3

4 CAPITALIZATION In general, fixed assets are defined as long-lived tangible assets obtained or controlled as a result of past transactions, events or circumstances. Fixed assets include buildings, equipment, improvements other than buildings and land. These assets are also referred to as property, plant and equipment. A Fixed Asset: 1. is tangible property; 2. has a useful life longer than one year; 3. costs $5,000 or more; 4. is not consumable with use; 5. is a capital outlay item in one of the 700 series accounts, OR is a replacement item which is a betterment over the item being replaced (i.e. if a 50-hp pump is replaced with a 75-hp pump). Fixed assets, by definition, exclude the following categories: 1. Spare parts; 2. Discarded equipment. Inventory Flow Method: Assets which are grouped by lots, such as portable radios, will be added and deleted from the fixed asset inventory records by the first-in-first-out inventory flow method. Exceptions: As with most definitions there are some exceptions to the general rules, such as the following: 1. Some items should be controlled as fixed assets even though they do not meet the fixed asset definition due to their specialized nature. Examples: cameras, radios, pagers, cell phones, etc. The department personnel in charge should decide whether this type of fixed asset will be valued at cost or entered in the fixed asset system at $0 to merely insure physical accountability. 2. Items which meet all definitions of a fixed asset but which were not purchased through a capital outlay account number should still be treated and capitalized as a fixed asset. Please contact the Administrator/Recorder's office for any questions regarding whether an item should be capitalized or otherwise recorded in the fixed asset system. Exhibit "A" - Page 4

5 DEFINITIONS In all accounting discussions, definitions become extremely important. Common terminology must be used by all people using an accounting system; otherwise, the system will not truly reflect what it is supposed to represent. The following definitions are important in the implementation of a uniform Fixed Asset Inventory System. 1. Fixed Asset: Real or personal property that is tangible, costs $5,000 more, cannot be consumed, materially altered, or reduced with use, and has an estimated useful life of longer than one year. 2. Real Property: Property which is land, buildings, or other capital improvements which become an integral and connected part to the real property (playground equipment, etc.). 3. Personal Property: Tangible property of an extended life value which is movable and thus not a part of real property (machinery, equipment, vehicles, etc.). 4. Inventory Assets: Inventory items which are desirable to be accounted for in the Fixed Assets Inventory system but which do not meet the definition of a true fixed asset. 5. Grouped Assets: Assets which meet the definition of a fixed asset by all criteria, but which individually cost less than $5, Asset Changes: Any change of status that a fixed asset or inventory asset experiences. The following are the listed types for the City of Columbia City's Fixed Asset System: A. Purchase (or Lease-Purchase); B. Donation; C. Sale; D. Trade-In; E. Retirement or Disposal; F. Loss; G. Transfer to a different department. 7. Cost: The original total cost of all payments made to place an asset in service. The following costs for each type of property are to be included in the historical cost: Exhibit "A" - Page 5

6 REAL PROPERTY: Land: Purchase Price Appraisal and/or Survey Fees Legal and Title Fees Site Preparation including Demolition Costs Buildings, Underground Assets, and other Capital Improvements: Purchase or Construction Costs Building Fixture Costs-- All attached systems and fixtures such as heating, plumbing, electrical, air conditioning, lighting, elevator, stairs, etc. Architecture and Engineering Fees Inspection and Other Related Construction Fees Costs of Permits, Licenses, Bid Advertisements Insurance and Interest during Construction PERSONAL PROPERTY: Equipment, Machinery, Vehicles and Rolling Stock: Purchase or Construction Costs Freight Costs Installation Costs Major Betterment Costs of Upgrading the Fixed Asset INFRASTRUCTURE: Roads Sidewalks Bridges Water Systems Sewer Systems Drainage Systems 8. Replacement Value: The estimated replacement cost of a fixed asset at any particular date. This value is generally used for insurance purposes and is not a factor in costing fixed assets. 9. Market Value: The estimated sale price of a fixed asset at any particular date. This value is not a factor in costing fixed assets. 10. Estimated Historical Cost: An estimate of the original historical cost of a fixed asset only when the original historical cost is not ascertainable. 11. Estimated Useful Life: An estimate made by department personnel as to the length of service life the fixed asset will have as City property under normal circumstances without unusual happenings. Exhibit "A" - Page 6

7 12. Depreciation: The systematic expensing of the cost of fixed assets against revenue. 13. Tag Number: The unique number each fixed asset is given by the department personnel in charge of fixed asset inventory tags. 14. Account Number: The expenditure account number in the budget used to purchase or improve the asset. 15. Location: The designated location of the fixed asset is important only in certain departments. Example: Ninth Street Reservoir vs. Upper Reservoir or River Club Sewer Pump Station vs. Tahoma Street Sewer Pump Station. 16. Category Type: The classification group used to designate the fixed asset for financial statement presentation. The following are the category types for the City Fixed Asset System: A. Land; B. Building; C. Construction in Progress; D. Improvements Other Than Buildings (permanent, nondetachable, improvements that add value to the land); examples: 1. Fencing and Retaining Walls; 2. Playground and Picnic Equipment; 3. Concrete Work/Paving; E. Intangibles such as Water Rights and capitalized computer software costs; F. Machinery & Equipment G. Vehicles & Rolling Stock (trailers, etc.) H. Infrastructure 17. Transaction Date: The date when the fixed asset change originally occurred whether purchase, transfer, sale, etc. 18. Shared Asset: A fixed asset purchased with funds from more than one fund. Each department should record the fund expenditure at the individual fund cost only. A note should indicate with which other fund the fixed asset is shared. 19. Serial Number: The number placed on all machinery and equipment by the manufacturer. This number should be part of the department records to tie the fixed asset tag numbers to the actual fixed asset. Exhibit "A" - Page 7

8 20. Vehicle Identification Number (VIN): The number placed on all vehicles by the manufacturer. This number should be part of the department records to tie the fixed asset tag numbers to the actual vehicles. 21. Multiple Purchase of Fixed Asset: One check disbursement (and/or one invoice) for several separate fixed assets or for a system which might later be separated into individual fixed assets for replacement or transfer purposes. 22. General Fixed Asset Account Group (GFAAG): The account group on the City financial report where all fixed asset costs or estimated historical costs are recorded except enterprise fund fixed assets. 23. Enterprise Funds: Funds which are accounted for similarly to private enterprise, thus requiring the recording of fund fixed assets and the coinciding depreciation costs as expenses of these funds. For the City of Columbia City, the Water Fund and Sewer Funds are enterprise finds. 24. Ordinary Repairs: Expenditures necessary to maintain a fixed asset in good operating condition. These expenditures should normally be charged to a maintenance budget account. 25. Extraordinary Repairs: Major expenditures necessary to lengthen the useful life of a fixed asset. These expenditures should normally be charged to a capital outlay budge account. 26. Betterment: Major expenditures to materially alter a fixed asset. These expenditures should normally be charged to a capital outlay budget account. Exhibit "A" - Page 8

9 FIXED ASSET CHANGE PROCEDURES The continual updating of the Fixed Asset Inventory System hinges on good communication of information from the departments to the City Administrator/Recorder's office. Fixed Asset Change Forms must be completed at each transaction date which affects the recording of the fixed asset in the master Fixed Asset Inventory System. The following types of fixed asset changes should be reported to the City Administrator/Recorder's office using the illustrated Fixed Asset Change Form: A. Purchase (or Lease-Purchase); B. Donation; C. Sale; D. Trade-In; E. Retirement or Disposal; F. Loss; G. Transfer of Department or Location within a Department. The Fixed Asset Change Form is due at the end of the month following authorization of the fixed asset change. ACQUISITION OF FIXED ASSETS Purchasing: Purchases made should follow the City of Columbia City's Purchasing Policy. The City Administrator/Recorder's office will reconcile a department's capital outlay expenditures with the coinciding Fixed Asset Change Forms. If multiple assets are purchased on one invoice and/or are paid for with one check, an allocation should be made as to which department and location each asset will be located in. For example, if four picnic tables are purchased, it should be noted which City Park each table will be placed in. Assets costing less than $5,000 may be grouped together for recording in the Fixed Asset Inventory System. For example, a department may want to group pagers and cellular phones which individually cost less than $5,000, and record the total dollar value as "communication equipment." All assets which will be inventoried at year end, whether they meet the fixed asset capitalization policy or not, may be recorded in the Fixed Asset Inventory System. Such items will be listed by descriptions and locations within departments, but no cost will be recorded. This will enable the departments to keep on list of inventory rather than separate Fixed Asset and Inventory lists. Exhibit "A" - Page 9

10 Donations Donated items should be valued at their estimated market value on the date of donation. This value should be established by department personnel and communicated to the City Administrator/Recorder's office with a Fixed Asset Change Form. DISPOSITION OF FIXED ASSETS Disposition of fixed assets must be pre-approved by the City Administrator/Recorder. Sale The department personnel selling the asset should fill out a Fixed Asset Change Form. Money received from the sale should be given to accounting staff for proper account coding. The value deleted from the Fixed Asset Inventory System will be the historical cost of the sold fixed asset, not its sale price. Sale shall be through public auction, sealed bid, or in a manner approved by the City Administrator. Trade-In On trade-in, a Fixed Asset Change Form should be prepared so that the historical cost of the traded-in fixed asset can be removed from the financial records and the purchase cost of the new fixed asset can be adjusted to include the trade-in cost data. Retirement, Disposal, or Loss A Fixed Asset Change Form should be filled out to remove the asset description and cost from the Fixed Asset Inventory System. Transfer of Department Location within a Department A Fixed Asset Change Form should be filled out to transfer the asset description and cost from one department fixed asset inventory list to the other, or from one department location to another. Yearly A copy of the Fixed Asset Inventory will be provided by the City Administrator/Recorder's office to each department. After the annual department inventory at June 30, any further corrections to the Fixed Asset Inventory should be communicated to the Administrator/Recorder/s office through Fixed Asset Exhibit "A" - Page 10

11 Change Forms noting that the corrections are to June 30 balances, and not current year changes. Exhibit "A" - Page 11

12 FIXED ASSET/INVENTORY SYSTEM CHANGE FORM Department: Location: Type of Change: Purchase (or Lease-Purchase) Donation Sale Trade-In Retirement or Disposal Loss Transfer to department Transaction Date: Description of Asset: Cost: Account Number Charged: Vendor Name: Number of Units: Tag Number: License Plate No.: Serial or Vehicle Identification Number: Estimated Useful Life: Category Type: Land Building(s) Underground Asset Machinery/Equipment Improvements other Than Buildings By: Item is: New Used Inventory Only Grouped Asset Construction in Progress Vehicle/Rolling Stock Shared Asset (with (Department) Date: Fixed Asset Change Forms are due at the end of the month. ******************************************************************************************** For City Administrator/Recorder's Office Use Received by: Date: Added to Financial System by: Date: Exhibit "A" - Page 12

13 TAGGING METHODS All fixed assets must be tagged. The preferred method of marking fixed assets is with the numbered foil tags. The foil tags have adhesive back and are issued by the City Administrator/Recorder's office to each department in a block of numbers. In most cases, these tags are easily applied and will stay permanently affixed. On occasion, fixed assets are composed of materials or are constructed or used in a way that the foil tags will not adhere. In these cases, the number from the foil tags should be used to mark the fixed asset in another manner as described below, and the foil tag should be destroyed so that it will not be inadvertently affixed to another fixed asset. An engraving tool is the best method of marking certain fixed assets when a foil tag cannot be used. The engraving tool should be used for items: which are small or of an unusual shape or material; which receive rugged use; or, when the foil tag might interfere with the operation or appearance of the item. An indelible ink-marking pen may be used to mark fixed assets and inventory items which cannot be marked by either the foil tags or with an engraving tool. For example, items constructed of fabric such as bulletproof vests. Tagging Principles When tagging fixed assets, please follow as closely as possible the tagging procedures listed below. This will enable other employees to more easily locate fixed asset tags. Place the foil tag, or number, in an easily locatable position. If the fixed asset has a serial number or VIN, the foil tag, or number, should be located as close to the serial number or VIN as practical. The foil tag, or number, should not interfere with the operation of the fixed asset. Exhibit "A" - Page 13

14 DEPRECIATIION POLICIES Depreciation is the expiration in the service life of fixed assets attributable to wear and tear, deterioration, action of the physical elements, inadequacy and obsolescence. Also, depreciation is the portion of the cost of a fixed asset charged as an expense during a particular period. In accounting for depreciation, the cost of a fixed asset is prorated over the estimated service life of such an asset, and each period is charged with a portion of such cost. Through this process, the entire cost of the asset is ultimately charged off as an expense. The straight-line method of computing depreciation will be utilized with no provision for salvage value. Depreciation will be a fund cost only for enterprise funds in the City of Columbia City financial records. Currently, the Water and Sewer Funds are the only funds which have estimated useful lives for all fund fixed assets. The Water and Sewer Funds will use a half-year convention for figuring depreciation. Thus, in the year of purchase, one-half year of depreciation will be charged against income; in the year of disposal, one-half year of depreciation will be charged against income. In each case, the specific date of acquisition or disposal will not affect this computation. Generally, the following estimated useful lives will be followed: Buildings & Construction Equipment & Machinery (excluding computers & electronics) Computers & Portable Electronic Equipment Vehicles & Rolling Stock years years 1-3 years 5-10 years Exhibit "A" - Page 14