HomeMy Public PortalAboutTangible Capital Asset PolicyPage 1 of 8
COUNCIL
POLICY Effective Date: March 14, 2022
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SECTION: Finance
TITLE: Tangible Capital Asset Policy
POLICY STATEMENT
The Public Sector Accounting Board (PSAB) of the Canadian Institute of Chartered
Accountants requires that municipal financial statements be prepared in accordance
with generally accepted accounting principles. This policy applies to all departments
operating within the reporting entity of the Town of Oliver.
1.0 PURPOSE
All tangible property owned by the City, either through donation or purchase and
which qualifies as capital assets are addressed in this policy. In accordance with PSAB
3150, tangible capital assets (TCA) are non-financial assets having physical substance
that:
a) are held for use in the production or supply of goods or services, for
rental to others, for administrative purposes or for the development,
construction, maintenance or repair of other tangible capital assets;
b) have useful economic lives extending beyond an accounting period;
c) are to be used on a continuing basis; and
d) are not for sale in the ordinary course of operations.
2.0 POLICY PRINCIPLES
Principles in this policy provide guidance for policy development and assist with
interpretation of the policy once applied.
a) The purpose of this policy is for the benefit of the City as a whole; for the
users of the City’s financial statements and managers of the City’s
tangible capital assets.
b) The cost associated with data collection and storage is balanced with
the benefits achieved by users of the data and reports.
c) Budgeting follows PSAB 3150. Only capital items meeting the capital
asset criteria in this policy will be budgeted as capital.
d) Compliance is with all legislation applicable to municipalities.
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e) Financial, operational and information technology system limitations
are considered.
f) Materiality is considered.
g) Reporting deadlines are met.
A framework is established for the management and control of the City’s capital
assets. Included in this framework is proper recognition, measurement, thresholds,
aggregation, segregation, amortization, reporting, safeguarding and disposal.
3.0 DEFINITIONS:
3.1 TCA Inventory – Acquisition: Tangible Capital Assets (TCA’s) are recorded at historical
cost. TCA’s are recognized as assets on the City’s Statement of Financial Position on date of
receipt for capital goods or when the asset is available for use for capital projects.
3.2 Cost, as defined by PSAB 3150, is the gross amount of consideration given up to acquire,
construct, develop or better a TCA, and includes all costs directly attributable to acquisition,
construction, development or betterment of the TCA, including installing the asset at the
location and in the condition necessary for its intended use. The cost of a contributed TCA,
including a TCA in lieu of a developer charge, is considered to be equal to its fair value at the
date of contribution. Capital grants would not be netted against the cost of the related TCA.
The cost of a leased TCA is determined in accordance with Public Sector Guidelines PSG-2,
Leased Tangible Capital Assets.
3.3 Fair value is the amount of the consideration that would be agreed upon in an arm’s
length transaction between knowledgeable, willing parties who are under no compulsion to
act. For assets owned by the City but not paid by the City including contributions gifts, and
donations, valuation may be assessed by fair value.
4.0 PROCESS & REQUIREMENTS:
4.1Thresholds
Thresholds are established for a minimum dollar value and number of years of useful life.
Thresholds help to determine whether expenditures are to be capitalized as assets and
depreciated or treated as a current year expense. For financial reporting purposes thresholds
are set high, however, details may be useful for the City’s capital asset management program.
Therefore, an optimal threshold for each asset category is a balance between the two.
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Tangible capital assets should be capitalized and recorded in the fixed asset sub-ledger when
they meet or exceed the following thresholds:
Asset
Category
Threshold
Land Capitalize
Only
Land Improvements/Parks Infrastructure $10,000
Buildings $25,000
Building Improvements $25,000
Construction in Progress Capitalize
Only
Machinery and Equipment $10,000
Vehicles $10,000
IT Infrastructure $10,000
Roads $25,000
Water Supply and Distribution Lines $50,000
Water Treatment and Distribution and supporting
infrastructure $25,000
Sewage Sanitary Lines $50,000
Sewage supporting infrastructure $25,000
Thresholds apply to capital goods purchased and capital projects constructed with the total
cost of the good or project meeting the threshold criteria. Long term assets not individually
meeting threshold limits but when purchased volumes meet the limit are to be capitalized.
The useful life threshold is set at two years.
Further refinement to threshold levels will occur as the City develops an understanding of its
asset and reporting needs. Improvements are capitalized when they extend the useful life of
the asset.
4.2. Classification, Aggregation & Segmentation
The level of detail required in the capital asset inventory is a balance between cost of data
collection, tracking and analysis and the beneficial use of the information gathered.
The full cost of preparing a TCA for its intended use is considered the aggregate cost of the
capital asset. The aggregate cost is further segmented into elemental components based on
useful life.
LAND
Land owned by the City includes parkland, land for City owned facilities and land under roads
and sidewalks and right of ways. All land owned by the City is segmented by each parcel held.
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City parkland and the land for City facilities and leased facilities is quantified and included in
the City’s land database. Due to the age of the land under roads, sidewalks, and right of ways,
existing City land under the roads and sidewalks are considered to have a nominal value of $1.
PARKS INFRASTRUCTURE
Parks infrastructure includes playground equipment, outdoor pools, fencing, and artificial
fields. Each asset when capitalized is separately recorded with an attached useful life.
BUILDINGS
Buildings owned by the City include City Hall; City facilities including pools, arenas and
community centers; and third party leased properties. A building is segmented by envelope,
roof and equipment and other significant component parts based on useful life. This
treatment provides for capital replacement of each component over the years of ownership.
BUILDING IMPROVEMENTS
Building improvements include furniture, fixtures and equipment along with interior fit-outs
required to make the building ready for use. Furniture, fixtures, equipment and fit-outs are
capitalized if purchased in volume and the volume exceeds the threshold limit or if the
individual cost of individual items exceed the threshold. Improvements are capitalized when
they enhance the service potential or extend the life of the asset.
CONSTRUCTION IN PROGRESS
Construction in progress contains capital projects underway but not complete or put to use.
These projects are individually segmented and are capitalized if costs exceed threshold limits.
VEHICLES, MACHINERY AND EQUIPMENT
Vehicles, machinery and equipment are pooled, segmented at unit level for threshold
purposes.
INFORMATION TECHNOLOGY (IT) INFRASTRUCTURE
IT infrastructure includes software, hardware, infrastructure, computers, printers, scanners,
photocopiers and the telephone network. This IT infrastructure is capitalized if each purchase
or project meets threshold limits. Segmentation for the network is by each hub and each
software application. Computers and printers, scanners, photocopiers, etc. are capitalized if
purchased in volume and the volume exceeds the threshold limit.
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INFRASTRUCTURE
ELECTRICAL
Electrical TCA’s include substations, feeders, valves, transformers, switches, poles and vaults.
All substations are capitalized. Individual feeders are capitalized as segments. Feeders are from
the substation to the feeder end and include vaults, transformers, switches, poles and other
connected assets.
WATER
The water system components include and are segmented by water mains, valves, hydrants
and services. Aggregation for threshold purposes is by capital project. Capital projects when
complete are recorded as assets by allocating costs to each component part.
SEWER AND DRAINAGE
The sewer system components include and are segmented by sewer mains, pump stations,
manholes, catch basins and services. Aggregation for threshold purposes is by capital project.
Capital projects when complete are recorded as assets by allocating costs to each component
part.
TRANSPORTATION
Transportation assets include and are segmented by roads, lanes, sidewalks, traffic
intersections, street lights, signage, and structures. Structures include bridges and tunnels,
retaining walls and parkades. Aggregation for threshold purposes is by capital project. Capital
projects when complete are recorded as assets by allocating costs to each component part.
TCA Inventory – Ownership
Ownership of assets requires safeguarding, maintenance, amortization for replacement and
possibly write-downs. These requirements are addressed in this section.
It is the responsibility of the manager and staff members to ensure capital assets assigned to
his or her custody are maintained and safeguarded.
Amortization is an annual charge to expenditures for the use of a capital asset. The City sets
amortization rates on a straight line basis based the on number of years in service less salvage
value. The asset categories are amortized as follows:
Asset Category Amortization of Cost less Savage Value
Land Not amortized
Land Improvements Straight line over useful life of each asset unit
Buildings Straight line over useful life of each asset unit
Building Improvements Straight line over useful life of each asset unit
Construction in Progress Not amortized
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Machinery and Equipment Straight line over useful life of each asset unit
Vehicles Straight line over useful life of each asset unit
Infrastructure (e.g. water,
electrical wastewater, roads etc.)
Straight line over average useful
life of each segment for cost less salvage value
Amortization is calculated using the ½ year rule in the year of acquisition and no amortization
is taken in the year of disposal. Economic useful life is used for amortization rather than
physical useful life. Attachment 1 provides a general guide for useful life.
A write down of assets occurs when reduction in future economic benefit is expected to be
permanent and the value of future economic benefit is less than the TCA’s net book value. A
write down should not be reversed. Further information regarding write-downs may be found
in Attachment 1.
TCA Inventory - Disposal
Disposal procedures for capital assets are recorded in the City’s financial statements in
accordance with PSAB 3150.
5.0 ACCOUNTING
The Public Sector Accounting Board expectations regarding transition to PSAB 3150 is
provided in PSAB 3150.43 to PSAB 3150.48. PSG-7 provides further guidance on the notes to
the Financial Statements.
Preliminary transition steps are as follows:
i. Remove Tangible Capital Assets and Investment in Tangible Capital Assets
from the Statement of Financial Position.
ii. Keep long term debt as a financial liability.
iii. Add to the Statement of Financial Position, the recently valued, currently held,
tangible capital assets along with related accumulated amortization. The
offsetting account is prior year surplus.
iv. Record new additions on the Statement of Financial Position with the
offsetting entry to cash, accounts payable or long-term debt. Do not expense
the cost of capital assets.
v. Record disposals at the time of replacement. Disposals reduce the cost of the
asset, accumulated amortization with the residual recorded as either an
expense or revenue.
vi. Amortize the assets each year. Budget for amortization.
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vii. Write-downs are an adjustment to the cost of the TCA (PSAB 3150.31) and
expense.
viii. Offsetting adjustment for amortization in the budget for the purposes of a
balanced budget is a transfer from equity.
ix. Budgeting for capital assets will be for the costs expected on the Statement of
Financial Position.
Tangible Capital Assets on the financial statements will result in net capital assets on the
balance sheet and expenditures for depreciation and write-downs on the income statement.
6.0 PRESENTATION AND DISCLOSURE
In total and for each major category of capital assets, the city will disclose the following in
accordance with CICA Public Sector Guideline 7 (PSG-7):
a) Cost at the beginning and end of the period;
b) Additions in the period;
c) Disposals in the period;
d) The amount of any write-downs in the period;
e) The amount of depreciation for the period;
f) Accumulated amortization at the beginning and end of the period;
g) Net carrying amount at the beginning and end of the period;
Also, in accordance with PSG-7 disclosure will include:
a) The method used to determine the cost of each major category of TCA;
b) The amortization method used, including amortization period or rate for each
major capital category of TCA;
c) The net book value of TCA’s not being amortized because they are under
construction or development or have been removed from service;
d) The nature and amount of contributed TCA’s received in the period;
e) The nature and use of tangible capital assets disclosed at nominal value;
f) The nature of the works of art and historical treasures held by the government;
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g) The amount of interest included in the cost in the period.
ASSET USEFUL LIFE - General Guidelines
ASSET TYPE DEPRECIABL
E LIFE IN
YEARS
Parks Infrastructure
Playground Equipment 15 - 20
Artificial Turf Field 10 - 12
Washrooms, Concessions, Picnic Shelters 40 - 50
Outdoor pools, spray pools 50 - 60
Building Structure 40 - 75
Building Improvements
Exterior Envelope 30 - 40
HVAC Systems 10 - 12
Roofs 15 - 20
Electrical/Plumbing/Fire 15 - 20
Site works – Asphalt, water and sewer lines, etc. 10 - 100
Machinery & Equipment
General Equipment 7 - 10
Grounds Equipment and Machinery 10 - 15
Heavy Construction Equipment 5 - 10
Vehicles
Cars and Light Trucks 5 – 10
Fire Trucks 15 - 20
IT Infrastructure
Hardware 4 - 5
Software 5 - 10
Telephone system 7 - 10
Infrastructure (dependent upon component and material)
Electrical 20 - 25
Water 10 - 100
Sewer 10 - 100
Drainage 10 - 100
Transportation 10 - 100