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HomeMy Public PortalAboutTangible Capital Asset PolicyPage 1 of 8 COUNCIL POLICY Effective Date: March 14, 2022 Page 1 of 8 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. Page 2 of 8 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. Page 3 of 8 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. Page 4 of 8 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. Page 5 of 8 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 Page 6 of 8 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. Page 7 of 8 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; Page 8 of 8 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