HomeMy Public PortalAboutBy-Law 2008-21 Adopt Policy with Respect to Capital AssetsCORPORATION OF THE MUNICIPALITY OF TWEED
BY-LAW NO. 2008-21
Being a By -Law to adopt a policy with respect to the capital assets of the Municipality of
Tweed.
WHEREAS the Municipal Act, 2001 gives general authority for municipalities to adopt
policies;
AND WHEREAS as of 2009 municipalities financial responsibilities will include the
reporting of tangible capital assets;
AND WHEREAS the Council of the Corporation the Municipality of Tweed deems it
necessary to adopt a policy to prescribe the financial reporting of tangible capital assets;
NOW THEREFORE the Council of the Corporation of the Municipality of Tweed enacts as
follows:
1. That the Policy for Capital Assets attached hereto as Schedule "A" to this by-law is
hereby adopted as the capital asset policy for the Municipality of Tweed.
2. That this by-law shall come into force and take effect immediately upon the passing
thereof by the Council of the Corporation of the Municipality of Tweed.
Read a first and second time this 10`h day of June, 2008.
Read a third and final time, passed, signed and sealed in open Council this 10th day of June,
2008.
CORPORATION OF THE
MUNICIPALITY OF TWEED
O
POLICY for
CAPITAL TANGIBLE ASSETS
This Capital Asset Policy is issued under the authority of the
Council of the Corporation of the Municipality of Tweed in
accordance with By -Law No. 2008-21 dated June 10, 2008.
CAPITAL ASSET POLICY
PURPOSE:
The objective of this policy is to prescribe the accounting treatment for tangible capital assets so
that users of the financial report can discern information about the investment in property, plant
and equipment and the changes in such investment. The principal issues in accounting for
tangible capital assets are the recognition of the assets, the determination of their carrying
amounts and amortization charges and the recognition of any related impairment losses.
SCOPE:
This policy applies to all Municipal departments, boards and commissions, agencies and other
organizations falling within the reporting entity of the Municipality.
DEFINITIONS:
Tangible Capital Assets:
Assets having physical substance that;
a) Are used on a continuing basis in the Municipality's operations.
b) Have useful lives extending beyond one year.
c) Are not held for re -sale in the ordinary course of operations.
Betterments:
Subsequent expenditures on tangible capital assets that:
• increase previously assessed physical output or service capacity;
• lower associated operating costs;
• extend the useful life of the asset; or
• improve the quality of the output.
Any other expenditure would be considered a repair or maintenance and expensed in the
period.
Group Assets:
Assets that have a unit value below the capitalization threshold but have a material value as a
group; normally recorded as a single asset with one combined value. Although recorded in the
financial systems as a single asset, each unit may be recorded in the asset sub -ledger for
rnonitoring and control of its use and maintenance. Examples could include personal computers,
furniture and fixtures, small moveable equipment, etc.
Fair Value:
Fair value is the amount of consideration that would be agreed upon in an arm's length
transaction between knowledgeable, willing parties who are under no compulsion to act.
Page 2 of 7
- Capital Lease:
A capital lease is a lease with contractual terms that transfer substantially all the benefits and
risks inherent in ownership of property to the Municipality. For substantially all of the benefits
and risks of ownership to be transferred to the lessee, one or more of the following conditions
must be met;
a) There is reasonable assurance that the Municipality will obtain ownership of the leased
property by the end of the lease term.
b) The lease term is of such a duration that the Municipality will receive substantially all of
the economic benefits expected to be derived from the use of the leased property over
its life span.
c) The lessor would be assured of recovering the investment in the leased property and of
earning a return on the investment as a result of the lease agreement.
Capital Asset Addition Overview:
A. Purchased Capital Assets greater than the capitalization threshold for the asset class should
be recorded at historical/original cost. The cost of a capital asset should include capitalized
interest and ancillary charges necessary to place the asset into its intended location and
condition for use. Ancillary charges include costs that are directly attributable to asset
acquisition — such as freight and transportation charges, site preparation costs and professional
fees.
Group purchases of assets greater than the capitalization threshold should be recorded at
historical cost. Group assets are assigned to one specific location, are movable property
requiring loss control, and have a useful life extending beyond a single reporting period. Group
assets include office furniture, library books, and computer equipment. Group purchases less
than the threshold are not capitalized.
Capital Assets should be amortized over their useful lives as determined for each asset class.
Land, and some land improvements, are considered inexhaustible and are, therefore, not
subject to amortization.
B. If determining historical costs is not practical due to inadequate records, reporting should be
based on estimates of original cost at the date of construction or purchase.
Page 3 of 7
C. Depending upon the information available and the category of the asset, capital asset
records should include at or part of the following:
Description Estimated Useful Life
Asset Class Amortization Method
Serial Number Salvage Value
Cost Accumulated Amortization
Location or Functional Area Amortization Expense
Acquisition Date Replacement Cost
Categories
A category of assets is a grouping of assets of a similar nature or function in the Municipality's
operations. The following list of categories shall be used:
• Land
• Land improvements
• Buildings
• Roadway systems
• Water systems
• Wastewater systems
• Storm sewer systems
• Machinery and equipment
• Vehicles
• Computer systems (hardware and software)
• Furniture and office equipment
Donations:
Donated Capital Assets must be reported at fair market value plus ancillary charges, if any, at
the time of donation. Donated assets are amortized over their useful lives as determined for
each asset class. If determining historicalcosts is not practical due to inadequate records,
reporting should be based on estimated fair market value at the date of donation.
Collections:
Works of art, historical treasures and similar assets should not be capitalized.
Infrastructure:
Definition: Infrastructure assets are long-lived capital assets that normally are stationary in
nature and can normally be preserved for a significantly greater number of years than most
capital assets. Infrastructure includes roads, electrical distribution systems, street lighting, water
wells, etc,
A. Infrastructure assets should be amortized over their useful lives.
Page 4 of 7
B. Routine repairs and maintenance costs are charged to operations as incurred. Expenditures
that extend the useful life of the infrastructure are capitalized as part of the asset and amortized
over the newly established useful life.
Useful Lives:
Useful lives of capital assets relate to the life expectancy as used by the specific governmental
unit. The following table should be used to assist the municipality in estimating the useful life of
a capital asset:
Asset Class Examples Years/Range
Land N/A
Site Improvements Paving, flagpoles, retaining walls, sidewalks, fencing, outdoor lighting 15-20
Buildings 40-50
HVAC Systems Heating, ventilation and air conditioning systems 20-25
Roofing 20-25
Interior Construction 25-30
Carpet Replacement 5-7
Electrical/Plumbing 25-30
Sprinkler/Fire System 20-25
Outdoor Equipment Playground, radio towers, fuel tanks, pumps 15-20
Machinery & Tools Shop & maintenance equipment, tools 10-15
Kitchen Equipment Appliances 10-15
Custodial Equipment Floor scrubbers, vacuums, other 5-10
Furniture & Accessories Classroom and office furniture 15-20
Business Machines Fax, duplicating & printing equipment 5-10
Communication Equipment Mobile, portable radios, non -computerized 5-10
Computer Hardware PC's, printers, network hardware 3-5
Computer Software Instructional, other short-term 5-10
Audio Visual Equipment Projectors, cameras (still & digital) 7-10
Library Books Collections 5-7
Licensed Vehicles Buses, other on -road vehicles 8-10
Grounds Equipment Mowers, tractors, attachments 10-15
Amortization:
A. Amortization is required for the Municipality's Capital Assets. Amortization is allocated to
expense in a systematic and rational manner. Amortization is calculated using the Straight Line
method and reported by areas of activity (function). The municipality calculates amortization on
all capital assets reported in the municipality's financial statements other than land, permanent
improvements to land, and construction in progress.
B. Amortization may be calculated for a class of assets, a network of assets`or individual assets.
Page 5 of 7
C. Additions and disposals/reductions/writedowns will be deemed to have. occurred on January
51 in the year of the change. A full year of amortization will be taken in the year of acquisition
and none in the year of disposal.
Disposals:
A. Sale of Capital Assets: When capital assets are sold, calculation of gain or loss on disposal is
required. The calculation is based upon the amount of proceeds received less the net book
value (cost less accumulated amortization taken on the asset).
B. Trade-ins: The value given for a trade is part of the cost of the newly acquired asset. The
costs and accumulated amortization of the traded -in asset must be removed from the books.
Any gain or loss resulting from the disposition of the asset will be recognized as a gain or loss
on disposal.
Assets Acquired by Capital Lease:
Assets acquired by Capital Lease are recorded at the net present value of the future minimum
lease payments. A corresponding liability is established at this time. Assets acquired under the
terms of capital leases are amortized over the useful lives designated for the asset class.
Scheduled Review
The capital assets in each asset class should be reviewed periodically to ensure the
municipality is still actively using ail the assets and the assumptions regarding useful life and
value remain the same.
Page 6 of 7
Summary Table of Classes, Capitalization Thresholds and Amortization Method
Major Asset
Class
Minor Asset Capitalization
Class Threshold
Amortization
Method
Review
Schedule
Standard
Useful Life
Land
All land will be
recorded
N/A
N/A
N/A
Land
Improvements
$10,000
Straight Line
Every 3 years
20 years
Buildings
$10,000
Straight Line Every 5 years
40 — 50 years
Engineered
Structures
Roadway
System
$10,000
Straight Line Every 5 years
Water
System
$10,000
Straight Line
Every 5 years
Wastewater
System
$10,000
Straight Line
Every 5 years
Storm
System
$10,000
Straight Line.
Every 5 years
Machinery &
Equipment
$10,000
Straight Line
Every 3 years
4 — 20 years
Vehicles
$10,000
Straight Line
Every 3 years
5 — 10 years
Computer
System
(Hardware &
Software)
$10,000
Straight Line
Every 3 years
4 — 10 years
Furniture &
Office Equip.
$10,000
Straight Line
Every 3 years
5 — 20 years
Group assets
(all
categories)
$15,000
Straight Line
N/A
Average of
group
Page7of7
Categories
Land
Land Improvements
Buildings
Roadway Systems
Water Systems
Wastewater Systems
Storm Sewer Systems
Machinery & Equipment
Vehicles
Computer System
Furniture and Office Equipment
Municipality of Tweed
Data C ollection Sheet
Category:
Asset
Serial
Acquisition
Estimated
Amortization
Salvage
Accumulated
Amortization
Replacement
Description
Class
Number
Cost
Location
Date
Useful Life
Method
Value
Amortization
Expense
Cost
file_belty\infoalry oture committee \da ta colle ction fo rm