In for the Long Haul: Accounting for Capital Assets

1 In for the long haul : Accounting for Capital Assets Tuesday, May 24 I 3:35-4:50 I CPE Moderator: Frances Lee, Deputy Chief Financial Officer, San Francisco Public Utilities Commission Speaker: Brian W. Caputo, , , Chief Financial Officer / City Treasurer, City of Aurora, Illinois Speaker: Michael M. Nielsen, Director, Government Fixed asset Services, Inc., long Beach, Indiana 2016 GFOA ANNUAL CONFERENCE In for the long haul : Accounting for Capital Assets Brian W. Caputo, , Chief Financial Officer/City Treasurer City of Aurora, Illinois Capital Assets DEFINED 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.

2 GASB Statement No. 34, para. 19. FINANCIAL REPORTING OF Capital Assets Must be reported by major class either on the face of the financial statements or in the notes. Major classes are not defined by GAAP. Assets being depreciated/amortized and those not being depreciated/amortized must be reported separately. Intangibles should be broken down into separate classes if significant. FINANCIAL REPORTING OF Capital Assets (continued) Depreciation is generally reported by function in the government-wide statement of activities. Allocate depreciation between functions if asset provides services through multiple functions.

3 Depreciation on infrastructure may be reported as functional expense of department associated with related Capital outlays or maintenance. FINANCIAL REPORTING OF Capital Assets (continued) Depreciation related to governmental activities not allocated to functions: o Report as general government expense or o Report as unallocated depreciation expense. FINANCIAL REPORTING OF Capital Assets (continued) Summary of significant Accounting principles: o Capitalization threshold. o Methodology for estimating historical cost. o Extent of infrastructure reporting for items exempt from mandatory reporting.

4 O Methodology used for calculating depreciation or amortization expense. o Estimated useful lives for depreciating or amortizing Capital Assets . Example- Summary of Significant Accounting Principles J. Capital Assets Capital Assets , which include property, plant, equipment and infrastructure Assets ( , roads, bridges, sidewalks and similar items), are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Capital Assets are defined by the City as Assets with an initial, individual cost in excess of the following and an estimated useful life in excess of one year.

5 Capitalization asset Class Threshold Land $ - Buildings, Building and Land Improvements, Infrastructure, Intangible Assets 100,000 Vehicles, Machinery, Furniture and equipment 50,000 Works of Art, Historical Artifacts 50,000 Example- Summary of Significant Accounting Principles Such Assets are recorded at historical cost or estimated historical cost if purchased or constructed. Donated Capital Assets are recorded at estimated fair market value at the date of donation The costs of normal maintenance and repairs, including street overlays that do not add to the value of the asset or materially extend asset lives are not capitalized.

6 Example- Summary of Significant Accounting Principles Major outlays for Capital Assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of Capital Assets of business-type activities is included as part of the capitalized value of the Assets constructed. Property, plant and equipment is depreciated using the straight-line method over the following estimated useful lives: Assets Years Buildings, Land Improvements and Infrastructure 20-65 Vehicles 8 Machinery, Furniture and equipment , Software 5-15 FINANCIAL REPORTING OF Capital Assets (continued) Detailed note disclosures: o Separate reporting for governmental and business-type activities.

7 O Separate reporting for depreciable and non-depreciable Assets . o Recorded value by major class. o Changes in recorded value by major class. o Accumulated depreciation by major class. o Changes in accumulated depreciation by major class. o Depreciation expense for governmental activities by function. o asset impairments. o Assets leased to others under operating leases. Beginning Balance, Ending Reclassified Increases Decreases Balances GOVERNMENTAL ACTIVITIES Capital Assets not Being Depreciated Land $ 39,953,773 $ 1,006,288 $ 13,532,901 $ 27,427,160 Land Right of Way 103,180,520 - - 103,180,520 Works of Art 977,267 - - 977,267 Construction in Progress 40,528,939 4,285,418 17,896,665 26,917,692 Total Capital Assets not Being Depreciated 184,640,499 5.

8 291,706 31,429,566 158,502,639 Capital Assets Being Depreciated Buildings and Land Improvements 171,269,426 17,509,352 46,130,053 142,648,725 Machinery and equipment 22,919,299 294,446 141,084 23,072,661 Vehicles 13,979,322 1,532,738 1,166,440 14,345,620 Infrastructure 369,364,875 1,767,976 18,690 371,114,161 Total Capital Assets Being Depreciated 577,532,922 21,104,512 47,456,267 551,181,167 Less Accumulated Depreciation for Buildings and Land Improvements 42,999,051 3,025,388 20,069,321 25,955,118 Machinery and equipment 9,211,414 1,677,539 49,379 10,839,574 Vehicles 9,576,518 822,978 1,127,991 9,271,505 Infrastructure 125,811,269 6,987,089 18,690 132,779,668 Total Accumulated Depreciation 187,598,252 12,512.

9 994 21,265,381 178,845,865 Total Capital Assets Being Depreciated, Net 389,934,670 8,591,518 26,190,886 372,335,302 GOVERNMENTAL ACTIVITIES Capital Assets , NET $ 574,575,169 $ 13,883,224 $ 57,620,452 $ 530,837,941 Beginning Balance, Ending Reclassified Increases Decreases Balances BUSINESS-TYPE ACTIVITIES Capital Assets not Being Depreciated Land $ 12,389,135 $ 13,532,901 $ - $ 25,922,036 Construction in Progress 3,808,509 4,632,473 512,267 7,928,715 Total Capital Assets not Being Depreciated 6,197,644 18,165,374 512.

10 267 33,850,751 Capital Assets Being Depreciated Land Improvements 8,783,601 33,484,765 - 42,268,366 Building 90,349,956 12,643,288 - 102,993,244 Infrastructure 165,157,801 2,943,963 5,456 168,096,308 Machinery and equipment 5,064,361 620,701 97,045 5,588,017 Vehicles 2,554,300 644,265 - 3,198,565 Total Capital Assets Being Depreciated 271,910,019 50,336,982 102,501 322,144,500 Less Accumulated Depreciation Land Improvements 5,197,196 18,333.