Fund Accounting Q&A (March 11, 2010)
Q: Please give us an example of a "capital asset not subject to depreciation"?
A. For municipalities, capital assets are divided between assets that are not subject to depreciation and assets that are subject to depreciation.
Assets that are not subject to depreciation include:
A: One should attempt to get as current in-house financial information as possible from the city or town manager concerning actual-to-budget financial performance as well as current projections for property and sales tax revenue, unemployment levels and local economic conditions.
In addition, for potential confirmation, review local newspapers and perhaps the local Chamber of Commerce or development agencies concerning the latest trends that may affect the tax base or local economic conditions.
Q: Please give us an example of a "capital asset not subject to depreciation"?
A. For municipalities, capital assets are divided between assets that are not subject to depreciation and assets that are subject to depreciation.
Assets that are not subject to depreciation include:
- Land. The amount that should be capitalized for land should include the cost of the land itself; professional fees used to acquire the land (legal, engineering, appraisal, survey fees); costs for excavation, fill, grading, or drainage; demolition of any existing buildings or other improvements; and any other costs that are incurred to acquire the land and make the land suitable for use by the municipality. Land is characterized as having an unlimited life and is therefore not depreciated.
- Construction in progress. The costs of assets that the municipality is constructing, where expenses are incurred over more than one fiscal year, are accumulated as construction in progress until the asset is placed in service. At that time, the total costs are then transferred to the appropriate asset type and depreciated.
- Land improvements. Land improvements are those improvements, other than ordinary and regular site preparation, which ready the land for its intended use. Such improvements can include parking lots, athletic fields, fencing, paths and trails, and landscaping.
- Buildings and building improvements. Buildings are permanent structures that are intended for shelter of persons, materials or equipment. Building improvements are capital events that extend the useful life of a building or increase the value of a building, or both. Repairs that simply maintain the existing life or restore a building to its original condition do not constitute an improvement.
- Equipment. Equipment is an item of tangible, nonexpendable personal property with a useful life of more than one year, and includes machinery and vehicles.
- Infrastructure. Infrastructure assets are long-lived capital assets that are stationary in nature and can be preserved for a significantly greater number of years than most capital assets. Such assets can include streets and roadways, bridges, sidewalks, water mains and distribution lines, sewer mains and collection lines, and treatment plants.
A: One should attempt to get as current in-house financial information as possible from the city or town manager concerning actual-to-budget financial performance as well as current projections for property and sales tax revenue, unemployment levels and local economic conditions.
In addition, for potential confirmation, review local newspapers and perhaps the local Chamber of Commerce or development agencies concerning the latest trends that may affect the tax base or local economic conditions.