HomeMy WebLinkAboutFIN-08-076 - Asset Accounting Policy
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REPORT
Report To: Councillor B. Vrbanovic, Chair, and Members of the Finance
and Corporate Services Committee
Date of Meeting: May 26, 2008
Submitted By: Dan Chapman, General Manager of Financial Services
Prepared By: Ruth-Anne Goetz, Senior Financial Analyst
Ward(s) Involved: All
Date of Report: May 16, 2008
Report No.: FIN 08-076
Subject: Asset Accounting Policy
RECOMMENDATION:
THAT the City of Kitchener Asset Accounting Policies (I-XXX and I-XXX) be approved, as
attached to staff report FIN 08-076.
BACKGROUND:
The Public Sector Accounting Board ("PSAB") of the Canadian Institute of Chartered
Accountants has approved the recommendation of Section 3150, Tangible Capital Assets in
September 2006, as it applies to local governments. This standard requires all Canadian local
governments to account for tangible capital assets in their financial statements for fiscal years
beginning on or after January 1, 2009. Therefore, the City of Kitchener is required to show
tangible capital assets in the December 31, 2009 financial statements, along with comparative
balances as of December 31, 2008.
REPORT:
The attached Asset Accounting Policies are designed to address the issues brought forth in
PSAB 3150. Given the newness of the accounting standard, it is necessary for the City to
develop two policies, one relating to the initial data collection and the transition from current
practices to the new practices, as well as another policy to regulate the processes to be used
for ongoing capital asset accounting.
The policies propose a pragmatic approach to capital asset accounting, using straight line
amortization, discounted current values for initial asset valuation and the use of pooled assets
when necessary. The policies are also based on best practices, as business process studies
were conducted, and their findings are being used to assist City staff. In addition, the City is
utilizing the experience of other municipalities who have already implemented the standard.
Ultimately, capital asset accounting will help the City to better manage its many physical assets.
The tools that will be put in place will help staff to keep track of each asset's age and condition,
thus allowing City staff to make more informed decisions regarding when a replacement is
required, or whether maintenance of the asset is sufficient.
City staff have met with the City's auditors, KPMG LLP, to review these policies. Any
questions and/or concerns have been addressed in the attached policies.
FINANCIAL IMPLICATIONS:
As noted in report.
Dan Chapman, CA MPA
General Manager of Financial Services
Roger LeBrun, CMA
Director of Financial Planning & Reporting
Ruth-Anne Goetz, CA
Senior Financial Analyst
COUNCIL POLICY RESOLUTION
POLICY NUMBER DATE:
POLICY TYPE: FINANCIAL
SUBJECT: TANGIBLE CAPITAL ASSET POLICY
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1. - -~
POLICY CONTENT ........................................................................................................................ 2
2. AUTHORITY ....................................................................................................................................2
3. DEFINITIONS ..................................................................................................................................2
4. INTRODUCTION ............................................................................................................................ 3
5. ACCOUNTABILITY FRAMEWORK ............................................................................................ 4
6. PSAB STANDARDS ...................................................................................................................... 5
7. TANGIBLE CAPITAL ASSETS ................................................................................................... 5
8. COST ................................................................................................................................................ 9
9. DONATED TANGIBLE CAPITAL ASSETS ............................................................................ 10
10. FUTURE SITE RESTORATION COSTS .................................................................................. 10
11. BETTERMENTS VERSUS MAINTENANCE ........................................................................... 11
12. AMORTIZATION OF TANGIBLE CAPITAL ASSETS ........................................................... 11
13. TRANSFERS OF TANGIBLE CAPITAL ASSETS ............................................................ 14
14. IMPAIRMENT OF ASSETS WRITE DOWNS OF TANGIBLE CAPITAL ASSETS)........ 15
15. DISPOSALS ....................................................................................................................... 16
16. CAPITAL LEASES ............................................................................................................. 17
17. LEASEHOLD IMPROVEMENTS ....................................................................................... 17
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SUBJECT: TANGIBLE CAPITAL ASSET POLICY
1. POLICY CONTENT
This policy prescribes the accounting and financial reporting treatment of tangible capital assets
for all departments of the City of Kitchener (the City). This policy applies to financial results for
fiscal years ending after January 1, 2009.
2. AUTHORITY
The Public Sector Accounting Board (PSAB} of the Canadian Institute of Chartered Accountants
(CICA} issues standards and guidance with respect to matters of accounting and financial
reporting in the public sector. PSAB issues such standards and guidance which reflect solid
financial accounting and reporting to serve the public interest by strengthening accountability in
the public sector. Under section 294 of the Municipal Act (the Act), municipalities must follow the
generally accepted accounting principles as follows:
"A municipality shall, for each fiscal year, prepare annual financial statements for the
municipality in accordance with generally accepted accounting principles for local
governments as recommended, from time to time, by the Public Sector Accounting Board
of the Canadian Institute of Chartered Accountants."
3. DEFINITIONS
"Accrual Based Accounting" means a system of accounting that measures the economic
impact of transactions and economic events rather than cash flows.
"Acquisition" means the process that will be followed when purchasing new inventory stock or
fixed assets
"Amortization" is the systematic recognition of the cost of utilizing a tangible capital expenditure
over its service life. The cost, less any residual value, of a tangible capital asset with a limited life
should be amortized over its useful life in a rational and systematic manner appropriate to its
nature and use by the City.
"Betterment" is a cost incurred to enhance the service potential of a tangible capital asset.
In general, for tangible capital assets service potential is enhanced when there is an increase in
the previously assessed physical output or service capacity; where associated operating costs
are lowered; when the useful life of the property is extended; or the quality of the output is
improved.
"City" means the Corporation of the City of Kitchener.
"Council" means Council of the Corporation of the City of Kitchener.
"Councillor" is defined as an elected member of City Council and includes the Mayor.
"Department" means any department within the City.
"Director" means the director or senior manager of a division with the Corporation of the City of
Kitchener.
"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.
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"Historical cost" means the sum of all costs that were incurred in the past to acquire or better
an asset.
"Net Book Value" means the historical cost of an asset less accumulated amortization to date.
"Residual Value" means the estimated net recoverable amount from disposal ortrade-in of an
asset at the end of its estimated useful life.
"Realizable value" is the amount that would be received by selling an asset. Market value may
be used to estimate realizable value when a market for an asset exists.
"Tangible capital assets" are assets containing physical substance that are purchased,
constructed, developed or otherwise acquired and:
(a} Are held for use in the production or supply of goods, the delivery of services or to
produce program outputs;
(b} Have a useful life extending beyond one fiscal year and are intended to be used on a
continuing basis; and
(c} Are not intended for resale in the ordinary course of operations.
"Service potential" is tangible capital asset's output or service capacity, normally determined by
reference to attributes such as physical output capacity, quality of output, associated operating
costs and useful life.
"Useful life" is the estimate of either the period over which the City expects to use a tangible
capital asset, or the number of production or similar units that it can obtain from the tangible
capital asset. The life of a tangible capital asset may extend beyond its useful life. The life of a
tangible capital asset, other than land, is finite, and is normally the shortest of the physical,
technological, commercial and legal life.
"Write-down" is a reduction in the cost of a tangible capital asset to reflect the decline in the
asset's value due to the permanent impairment of future economic benefits of the asset.
4. INTRODUCTION
4.1. Purpose
The objective of this policy is to outline the accounting treatment for tangible capital assets. In
particular, this policy is intended to:
4.1.1. Establish accounting policies for tangible capital assets in accordance with PS 3150-
Tangible Capital Assets, PS 3060- Government Partnerships, Public Sector
Guideline 2 (PSG-2) -Leased Tangible Capital Assets and their respective
representation on the financial statements of the City effective January 1, 2009.
4.1.2. Establish consistent approach to accounting estimates in areas where measurement
uncertainty exists in accordance with CICA Section 1508 -Accounting for Estimates.
4.1.3. To ensure consistent, transparent treatment of all tangible capital assets and the
reporting of the financial results.
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4.2. Application And Scope
4.2.1. This policy applies to all City departments.
4.2.2. This policy applies to all tangible capital assets owned, purchased, constructed by
the City or donated to the City by other governments and non-governmental parties.
Intangible assets are not covered by this policy.
4.2.3. This policy should be read in conjunction with PSAB Handbook Section PS 3150 and
PS Sections 1000 -Financial Statement Concepts, PS 1100 -Financial Objectives,
PS 1200 -Financial Statement Presentation, PS 2700 -Segment Reporting, PS
3060- Government Partnerships and Public Sector Guideline 2 (PSG-2} -Leased
Tangible Capital Assets.
4.3. Principles
The policy is designed to ensure that the generally accepted accounting principles contained in
PSAB 3150 -Tangible Capital Assets are reflected in all accounting practices within the City.
The following principles and goals should be considered when determining the accounting
treatment of tangible capital assets and during the procurement activities.
4.3.1. Authority is to be delegated to the appropriate level to enable City departments to
meet service requirements while preserving the asset accounting policies and
principles.
4.3.2. Efficient, effective and quality service and product delivery through effective asset
management practices while meeting the generally accepted accounting principles as
set out in the PSAB standards are the responsibility of all managers within the City.
5. ACCOUNTABILITY FRAMEWORK
5.1. City Council Responsibilities
As per the Municipal Act, City Council is responsible for setting and amending the
Tangible Capital Asset Policy for the municipality.
5.2. Financial Services Department Responsibilities
The Financial Services Department (Treasurer) is responsible to:
5.2.1. Liaise with the City appointed auditors regarding accounting policy matters and
providing appropriate documentation for accounting estimates as required.
5.2.2. Ensure tangible capital asset accounting policies are applied consistently and
assisting with determination of accounting estimates;
5.2.3. Ensure that business transactions are conducted ethically and in accordance with
generally accepted accounting principles (GAAP};
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5.2.4. Evaluate, on a regular basis, the appropriateness of the accounting policies in light of
City operations and make recommendations for changes as appropriate, and provide
the impact of such changes on the current and comparative financial statements;
5.2.5. Update this policy to reflect changes in City programs and services and as new
tangible capital asset classes are acquired, purchased or constructed.
5.2.6. Develop and monitor procedures regarding purchase orders, commitments,
receiving, payables, asset management and property to ensure that asset accounting
practices are effective;
5.2.7. Train staff on policies and procedures regarding tangible capital asset accounting
including purchasing functions;
5.2.8. Advise and assist in preparation of budgets and contracts in order to implement this
policy.
5.2.9. Maintain records of business transactions. Ensure that all purchasing transactions
are reflected in the books of account and documentation is retained in accordance
with the Tangible Capital Asset Policy.
5.2.10. Produce the City's annual financial statements in accordance with GAAP and prepare
audit papers as required.
5.3. City Staff Responsibilities
5.3.1. Ensure that procurement activities and budget preparation of tangible capital assets
will provide the information required to afford the treatment of all tangible capital
assets is in accordance with this policy.
5.3.2. Liaise with the Financial Services Department where required in order to ensure that
financial information is sufficient for the Treasurer to render decisions in accordance
with GAAP as it pertains to tangible capital assets.
5.3.3. Manage tangible capital assets with prudence and probity to ensure best value for
tax dollars and appropriate long term capital planning.
6. PSAB STANDARDS
PSAB Section 1000 -Financial Statement Concepts, PS 1100 -Financial Statement
Objectives and PS 1200- Financial Statement Presentation outline the design,
accounting concepts and objectives under full accrual accounting for local governments
including the recognition of tangible capital assets. These sections should be read in
conjunction with this policy.
7. TANGIBLE CAPITAL ASSETS
7.1. As defined in PS3150, tangible capital assets are non-financial assets having physical
substance that:
i. Are held for use in the production or supply of goods and services, for rental to
others, for administrative purposes or for the development, construction,
maintenance or repair of other tangible capital assets:
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ii. Have useful economic lives extending beyond an accounting period;
iii. Are to be used on a continuing basis; and
iv. Are not for sale in the ordinary course of operations.
7.1.1. For the City, tangible capital assets have the following characteristics:
i. Beneficial ownership and control clearly rests with the City, and
ii. The tangible capital asset is utilized to achieve City plans, objectives and
services with the intention of being used on a continuous basis and is not
intended for sale in the ordinary course of business.
7.1.2. For further clarification, tangible capital assets:
Include land, land improvements, buildings, leasehold improvements,
infrastructure assets, vehicles, machinery and equipment including purchased
computer software, in-house developed software, computer hardware and assets
acquired by capital leases or by donations;
ii. Do not include intangible assets such as copyrights, trademarks, patents and
human capital;
iii. Include operational heritage assets. Heritage assets are those assets, usually
irreplaceable, that are intended to be preserved in trust for future generations.
Operational heritage assets are those assets used for purposes in addition to the
maintenance of local and/or national heritage (e.g. heritage building with office
space, parkland}.
iv. Non-operational heritage assets will not be capitalized. Non-operational heritage
assets include: Museum and gallery collections, other works of art, monuments
and statues.
v. Spare parts, acquired as part of the same procurement as the original capital
asset, will be considered integral to the acquisition of the asset and form part of
the total cost of the tangible capital asset.
7.2. Asset Classes
Tangible capital assets will be classified as follows:
General Capital Assets
Infrastructure Assets Capital Work in
Progress
Land Land
Land Improvements Land Improvements
Buildings & Building
Improvements Buildings & Building
Improvements
Leasehold Improvements Leasehold Improvements Asset sub-classes not
N Machinery & Equipment Machinery & Equipment applicable
Computer Hardware Computer Hardware
Computer Software Computer Software
Linear Assets
Vehicles
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7.3. Capitalization Threshold
7.3.1. Tangible Capital Assets will be capitalized if the following thresholds are met:
Asset Class Asset Sub-Class Threshold
General Capital
&Infrastructure Assets
Land
zero
Land Improvements $50,000
Buildings $50,000
Leasehold Improvements $50,000
Machinery & Equipment $5,000
Computer Hardware $5,000
Computer Software $5,000
Vehicles $10,000
Linear Assets $50,000
Capital Work in Progress zero
7.3.2. Tangible Capital Assets, that meet the definition of a tangible capital asset, and have
a useful life in excess of one year but the per item cost is less than the threshold, will
be expensed in the year of acquisition unless it is an asset that is included in an
asset pool (refer to Section 7.4}. These assets may be tracked for asset
management purposes.
7.3.3. All land will be capitalized regardless of its cost.
7.4. Pooled Tangible Capital Assets
7.4.1. Certain items such as tools, furniture and computers are generally below the
capitalization threshold individually but are typically purchased or held in large
quantities so as to represent significant expenditures overall. In such cases, it would
seem reasonable to capitalize all items acquired in a given asset class or pool and
amortize the pool over apre-determined amortization period.
7.4.2. Due to the large financial impact and large numbers purchased, there are certain
assets that represent a material pooled asset. The City will create pools of assets
when it believes that the pool of assets represent a significant pool of tangible capital
assets that has orwill have a significantfinancial impact on the City.
7.4.3. Inventory disposal will be accounted for utilizing the deemed disposal method.
7.5. Bundling of assets whole asset vs. component approach
7.5.1. For purposes of capitalization and amortization, the two methods of defining tangible
capital assets are Whole Asset and Component.
i. The Whole Asset approach considers an asset to be an assembly of connected
parts. Costs of all parts would be capitalized and amortized as one asset. For
example, a computer network could be considered as one asset.
ii. Under the Component approach, different components are individually
capitalized and amortized. Under this approach, the servers, routers, lines,
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software, etc. used in a network would all be individual assets.
7.5.2. Both the whole asset method and the component approach are equally acceptable
under GAAP. In certain circumstances, it is appropriate to allocate the total
disbursement on an asset to its component parts and account for each component
separately. This is the case when the component assets have different useful lives or
provide economic benefits or service potential to the entity in a different pattern, thus
necessitating use of different amortization rates and methods. For example, the
pavements, formation, curbs, footpaths, bridges and lighting may need to be treated
as separate items within a road system to the extent that they have different useful
lives. Additional factors influencing the choice of method include:
i. Significance of amounts;
ii. Quantity of individual asset components (volume};
iii. Availability of information with respect to specific components of the capital
expenditures; and
iv. Specific information needs of management for decision making and asset control
purposes.
7.5.3. Based upon materiality, the City will utilize the Whole Asset approach for all assets
with the following exceptions which will be accounted for on a Component basis:
i. Linear infrastructure assets
ii. Buildings >500m2
7.6. Assets Owned by Multiple Departments or Entities
7.6.1. In certain cases, more than one department has some involvement with the use of an
asset. The concept of "control" should be used in determining which department
records and amortizes the asset in their financial statements.
7.6.2. "Control" in this context means the ability to obtain future economic benefits in
fulfillment of aims and objectives of the entity and to restrict the access to others.
Legal terms and conditions, risks and liabilities also assist in determining the
ownership of an asset.
7.6.3. The Financial Services Department should be consulted where it is unclear as to
which entity should record the asset.
7.7. Tangible Capital Assets under Construction/Development
7.7.1. Determining when a tangible capital asset, or a portion thereof, is ready for
productive use requires consideration of the circumstances in which it is to be
operated.
7.7.2. Assets under Construction will be reflected in the work in progress inventory until it is
determined that the asset has been placed in service.
7.7.3. Assets under Construction will not be amortized while in progress.
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8. COST
8.1. Historical Cost
8.1.1. As per PS 3150, tangible capital assets are to be recognized on the Statement of
Financial Position as non-financial assets and are to be recorded at cost. In
accordance with GAAP and to be consistent with the Financial Statement Objectives
in PS 1100, cost is defined as historical cost as it is considered to be the only reliable
and relevant information available to appropriately represent the cost of providing
services.
8.1.2. Cost is the gross amount of consideration given up to acquire, construct, develop or
better a tangible capital asset, and includes all costs directly attributable to
acquisition, construction, development or betterment of the tangible capital asset,
including installing the asset at the location and in the condition necessary for its
intended use.
8.1.3. The cost of a tangible capital asset includes:
i. the purchase price of the asset
ii. other acquisition costs such as:
a. installation costs
b. design and engineering fees
c. legal fees
d . survey costs
e. site preparation costs
f. freight charges
g. transportation insurance costs; and
h. duties.
8.1.4. The cost of a constructed asset includes:
i. direct construction or development costs (such as materials, contracted services
and labour);
ii. overhead costs directly attributable to the construction or development activity;
iii. The activities necessary to prepare a tangible capital asset for its intended use
encompass more than the physical construction of the tangible capital asset.
They include the technical and administrative work prior to the commencement of
and during construction provided that it can be shown it is directly attributable to
the construction of the tangible capital asset.
iv. Interest will be capitalized provided that financing was undertaken during the
construction phase of the asset.
v. City supplied labour will only be capitalized as part of the tangible capital asset
cost as directly attributable costs in situations where the documentation is
satisfactory, provides sufficient detail and substantiates the cost for the capital
project.
8.1.5. The cost of each tangible capital asset acquired as part of a single purchase (for
example, the purchase of a building and land for a single amount) is determined by
allocating the total price paid for all of the tangible capital assets acquired to each
asset class on the basis of its relative fair value at the time of acquisition.
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9. DONATED TANGIBLE CAPITAL ASSETS
9.1.1. The cost of a contributed or donated tangible capital asset, including a tangible
capital asset in lieu of a developer charge, is considered to be equal to its fair value
at the date of contribution.
9.1.2. Assets transfers from other governments will be accounted for in accordance with PS
3410 -Government Transfers.
9.1.3. In order to determine the fair value, an independent valuation of the tangible capital
asset will be undertaken such as an appraisal, professional opinions or quotes from
independent sources. These accounting estimates must be documented and
provided to the Financial Services Department for the appropriate financial
transactions.
9.1.4. In the case where a tangible capital asset is being constructed on behalf of the City
or as part of a development, the responsible Director should attempt to acquire the
fair value from the developer and include this as a requirement of the contract.
9.1.5. If the fair value cannot be determined by any means outlined above, the asset should
be recorded at a nominal value and disclosed in the notes to the financial statements.
10. FUTURE SITE RESTORATION COSTS
10.1.1. Although PS 3150- Tangible Capital Assets does not specifically address the issue of
future site restoration costs, CICA Section 3110 -Asset Retirement Obligations
addresses such requirements for non-public entities. Consequently, although not a
requirement of PS 3150, the requirement to address future site restoration costs is
considered to be a best practice and considered by the City with respect to long life
assets.
10.1.2. Future site restoration costs encompass costs for dismantling, abandoning, and
cleaning up a property. These costs may be incurred as a result of a contract or
because the municipality has established a policy to restore a site. When such costs
can be reasonably estimated, they should be accrued (net of expected recoveries),
as part of the capital asset and amortized over its useful life. The provision for future
site restoration costs is to be recorded as a liability until the future site restoration
takes place.
10.1.3. This policy applies in situations where the City constructs an asset on leased land,
with the condition that it restore the site to its original condition at the end of the lease
term. In this case, an estimate of the cost of demolishing the asset and cleaning-up
the site should be capitalized as part of the cost of the asset and amortized to
expense at the same rate as the asset.
10.1.4. The rationale behind this accounting treatment is that the site restoration costs are
linked to the use of the asset and hence should be recognized over the years of use
rather than at the time the restoration work is performed.
10.1.5. Where future site restoration costs are expected to be significant but cannot be
reasonably estimated, a contingent liability should be reported.
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10.1.6. Costs to be capitalized exclude costs related to environmental liabilities due to
contaminated sites and solid waste landfills.
11. BETTERMENTS VERSUS MAINTENANCE
11.1.1. Costs of betterments are considered to be part of the cost of a tangible capital asset
and would be added to the recorded cost of the related asset. A betterment is a cost
incurred to enhance the service potential of a tangible capital asset.
11.1.2. Betterments are expenditures relating to the alteration or modernization of an asset
that appreciably prolong the item's period of usefulness or improve its functionality.
11.1.3. In general, for tangible capital assets other than complex network systems, service
potential may be enhanced when there is an increase in the previously assessed
physical output or service capacity, where associated operating costs are lowered,
the useful life of the property is extended or the quality of the output is improved.
11.1.4. Therefore, for complex network systems, the following basic distinctions can be used
to identify maintenance and betterments:
i. Maintenance and repairs maintain the predetermined service potential of a
tangible capital asset for a given useful life. Such expenditures are charged in the
accounting period in which they are made.
ii. Betterments increase service potential (and may or may not increase the
remaining useful life of the tangible capital asset). Such expenditures would be
included in the cost of the related asset.
11.1.5. Determination of betterments will be undertaken during the annual budget exercise
as much as possible in order to determine the impact on the financial statements.
11.1.6. Where a cost cannot easily be differentiated between a repair and a betterment, the
cost should be expensed in respecting the accounting principle of conservatism.
Departments must provide the rationale to the Financial Services Department both at
the budget stage and following project completion.
12. AMORTIZATION OF TANGIBLE CAPITAL ASSETS
12.1. General
12.1.1. Amortization of tangible capital assets reflects the cost to the municipality of utilizing
the tangible capital asset in providing services. The cost of property, equipment and
other capital assets is essentially along-term prepayment of an expense in advance
of the use of the asset. As the economic service life of the asset expires, the cost of
the asset is systematically allocated to operations as an expense called
"amortization".
12.1.2. Periodic amortization expense should be an allocation of the historical cost of the
asset less expected residual value, if applicable, to operations in proportion to the
economic benefits received each period from the use of the asset.
12.1.3. The cost of the tangible capital asset, less any residual value, is amortized over its
useful life in a rational and systematic manner appropriate to its nature and use by
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the municipality.
12.1.4. Land generally has an unlimited life and will not be amortized.
12.1.5. The amortization of the costs of tangible capital assets is accounted for as an
expense in the statement of operations. Amortization expense is an important part of
the cost associated with providing government services, regardless of how the
acquisition of tangible capital assets is funded.
12.1.6. The service life of an asset should be determined on a basis that is linked with the
expiration of the economic benefits. For example, service life may be measured in
terms of years; total units of output; or total hours of operating time. Vehicles might
use hours of operation as the appropriate measure of service life.
12.1.7. Amortization of constructed assets will commence starting the fiscal year following
the year that the tangible capital asset is put in service.
12.1.8. Amortization of minor purchased assets that meet the capitalization threshold shall
be recorded monthly commencing on the first day of the month following the month
that the asset was put into service.
12.1.9. For pooled assets, where purchases and disposals affect the pool balance
throughout the year, the amortization calculation may be based on the estimated pool
balance rather than actual.
12.2. Determination of Residual Value of a Tangible Capital Asset
12.2.1. Where a Department expects the residual value of a tangible capital asset to be
significant, it would be factored into the calculation of amortization.
12.2.2. The Department in consultation with the Financial Services Department, will
determine the appropriate residual value based upon market information and
experience with the particular tangible capital asset.
12.3. Determination of Useful Life of a Tangible Capital Asset
12.3.1. Useful life is the estimate of either the period over which a tangible capital asset is
expected to be used by a municipality, or the number of production or similar units
that can be obtained from the tangible capital asset by a government. The life of a
tangible capital asset may extend beyond the useful life of a tangible capital asset to
the City. The life of a tangible capital asset, other than land, is finite, and is normally
the shortest of the physical, technological, commercial and legal life.
12.3.2. The useful life of a tangible capital asset depends on its expected use by the
government. Factors to be considered in estimating the useful life of a tangible capital
asset include:
experience with similar assets through use;
ii. expected future usage
iii. effects of technological obsolescence;
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iv. expected wear and tear from use or the passage of time;
v. the maintenance program;
vi. studies of similar items retired; and
vii. the condition of existing comparable items.
12.3.3. Departments are in the best position to estimate the expected life of an asset.
However, departments should work with the Financial Services Department to
determine the useful lives within the range of useful lives outlined in Section 12.3.4.
12.3.4. Generally, the useful lives will be utilized for the asset classes. However, the
determination of the useful life of any particular asset must be done based upon the
factors in 12.3.2. As a guideline assets should be amortized over the following
useful life spans:
i. The original cost of land is not amortized;
ii. Land Improvements: 10 to 25 years;
iii. Buildings: 20 to 50 years;
iv. Machinery and equipment: 3 to 15 years;
v. Works and infrastructure: 20 to 100 years;
vi. Computer hardware: 3 to 10 years;
vii. Computer software: 1 to 10 years;
viii. Vehicles: 3 to 25 years;
ix. Leasehold improvements: over the useful life of the improvement or the lease
term, whichever is shorter. The lease term would include any renewal option periods
where extension of the lease is expected; and
x. Betterments: over the useful life of the asset to which the improvement was
made or the useful life of the betterment if significantly shorter.
12.4. Amortization Methods
12.4.1. Different methods of amortizing a tangible capital asset result in different patterns of
cost recognition. The objective is to provide a systematic and rational basis for
allocating the cost of a tangible capital asset, less any residual value, over its useful
life. Astraight-line method reflects a constant charge for the service as a function of
time. Avariable charge method reflects service as a function of usage. Other
methods may be appropriate in certain situations. The amortization methods that
meet GAAP are as follows:
i. Straight-line -The straight-line method of amortization is based on the
assumption that an asset provides equivalent service or value for its use each year
of its life. Straight-line depreciation has a constant amount of depreciation
recognized per time period.
ii. Declining Balance -Declining balance method of amortization accelerates the
recognition of amortization by recognizing large amounts of depreciation early in the
useful life of the asset. This method does not subtract the asset's residual value from
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the cost, instead the depreciation stops when the asset's net book value equals its
residual value. The declining balance rate is 100% divided by the Useful Life in
years. For example, if an asset had a useful life of 5 years, the declining balance
rate would be 20%.
iii. Double-Declining Balance -double-declining balance method of depreciation
uses a rate twice the straight line rate.
iv. Sum of the Years Digits -Sum of the Years Digits (SOY) method of
depreciation provides more depreciation at the beginning of an asset's life than at
the end. The SOY fraction made up of the sum of the years of the useful life as a
denominator and the numerator is the number of years remaining in the useful life.
For example if the useful life of an asset was 3 years and there were two years
remaining in the asset's useful life, the denominator would be 6 and the numerator
would be 2.
12.4.2. As a general principle, the City will utilize straight line method of amortization for its
assets.
12.5. Review of Amortization Methods and Estimate of Useful Lives
12.5.1. The amortization method and estimate of the useful life of the remaining unamortized
portion of a tangible capital asset should be reviewed on a regular basis and revised
when the appropriateness of a change can be clearly demonstrated.
12.5.2. Significant events that may indicate a need to revise the amortization method or the
estimate of the remaining useful life of a tangible capital asset include:
i. a change in the extent to which the tangible capital asset is used;
ii. a change in the manner in which the tangible capital asset is used;
iii. removal of the tangible capital asset from service for an extended period of time;
iv. physical damage;
v. significant technological developments;
vi. change in the demand for the services provided through use of the tangible
capital asset; and
vii. a change in the law or environment affecting the period of time over which the
tangible capital asset can be used.
12.5.3. Departments and the Financial Services Department will review the amortization
methods and estimates of useful lives on an annual basis prior to the finalization of
the annual financial statements. For significant and material issues, the Treasurer
may prepare a report for City Council outlining the impacts on the financial
statements.
13. TRANSFERS OF TANGIBLE CAPITAL ASSETS
13.1.1. Transfers of capital assets between departments shall be at the net book value of the
asset. The receiving department would record the asset at its original historical cost
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and accumulated amortization.
13.1.2. The transfer of land from an outside party to a department should only be capitalized
as an asset when the agreement provides for a transfer of ownership. Where the
agreement does not provide for a transfer of ownership, the land may not be
capitalized. However, the costs of buildings and infrastructure built on the land will be
capitalized if they meet the capitalization criteria. An example of this situation is when
an agreement provides for unlimited use of the land by a department but the land
reverts to the outside party once the department is no longer using it.
14. IMPAIRMENT OF ASSETS WRITE DOWNS OF TANGIBLE CAPITAL ASSETS)
14.1.1. PS 3150 -Tangible Capital Assets, states that when conditions indicate that a
tangible capital asset no longer contributes to a municipality's ability to provide goods
and services, or that the value of future economic benefits associated with the
tangible capital asset is less than its net book value, the cost of the tangible capital
asset should be reduced to reflect the decline in the asset's value.
14.1.2. The net write-downs of the tangible capital asset will be accounted for as an expense
in the statement of operations and cannot be reversed. Consequently, the decision
to write-down an impaired asset could have a significant impact on the annual
surplus or deficit. It is important to note, however, that this is simply a timing
difference. Eventually, the impairment of the asset will be reflected on the statement
of operations, that is upon disposal.
14.1.3. The City should write down the cost of a tangible capital asset when it can
demonstrate that the reduction in future economic benefits is expected to be
permanent. A write down of an asset is generally more desirable than a change in
amortization method since those decisions are policy decisions affecting prior
accounting periods.
14.1.4. Conditions that may indicate that the future economic benefits associated with a
tangible capital asset have been reduced and awrite-down is appropriate include:
i. a change in the extent to which the tangible capital asset is used;
ii. a change in the manner in which the tangible capital asset is used;
iii. significant technological developments;
iv. physical damage;
v. removal of the tangible capital asset from service;
vi. a decline in, or cessation of, the need for the services provided by the tangible
capital asset;
vii. a decision to halt construction of the tangible capital asset before it is complete or
in usable or saleable condition; and
viii. a change in the law or environment affecting the extent to which the tangible
capital asset can be used.
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14.1.5. The persistence of such conditions over several successive years increases the
probability that awrite-down is required unless there is persuasive evidence to the
contrary.
14.1.6. When the tangible capital asset no longer contributes to the municipality's ability to
provide goods and services, it would be written down to residual value, if any. This
would be appropriate when the City has no intention of continuing to use the asset in
its current capacity, and there is no alternative use for the asset.
14.1.7. In other circumstances, it will be necessary to estimate the value of expected
remaining future economic benefits. Where a municipality can objectively estimate a
reduction in the value of the asset's service potential to the government, and has
persuasive evidence that the reduction is expected to be permanent in nature, the
tangible capital asset would be written down to the revised estimate of the value of
the asset's remaining service potential to the government.
14.1.8. Since all of the above decisions affect the City's statement of operations, the
Department and the Financial Services Department must work together to determine
the best approach. In the event that the impact is material, a report to City Council
outlining the impact on the financial statements, budget and operations may be
warranted.
15. DISPOSALS
15.1.1. Under PS3150, the difference between the net proceeds on disposal of a tangible
capital asset and the net book value of the asset should be accounted for as a
revenue or expense in the statement of operations.
15.1.2. Disposals of tangible capital assets in the accounting period may occur by sale,
trade-in, destruction, loss or abandonment. Such disposals represent a reduction in
the City's investment in tangible capital assets, regardless of how that investment is
reported.
15.1.3. Departments are required to identify the planned disposals of tangible capital assets
during the budget process. The Financial Services Department will assist in the
determination of the effect of these disposals on the statement of operations and the
budgetary impacts.
15.1.4. Upon disposal, the Departments must inform the Financial Services Department of
the result of the disposal and provide the proceeds on disposal together with the
documentation describing the disposal.
15.2. Whenever a tangible capital asset is disposed that results in a material gain or loss on
the Statement of Operations, City Council will be informed of the disposal and the impact
on the financial statements.
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16. CAPITAL LEASES
16.1.1. The determination of a capital versus an operating lease needs to be undertaken in
all leasing situations. The City of Kitchener's Statement of Leasing Policy and Goals
should be referred to with respect to the responsibilities for financing.
16.1.2. This section is designed to assist the City in determining whether or not the lease of
tangible capital assets meets the definition of a capital lease. If a capital lease meets
the definition below, the asset must be capitalized and reflected as an asset on the
City's Statement of Financial Position.
16.1.3. A leased tangible capital asset is defined in Public Sector Guideline 2 (PSG-2) as
follows:
"A leased tangible capita! asset is anon-financial asset that has physical substance
and a useful life extending beyond an accounting period, and is held under lease by a
government for use, on a continuing basis, in the production or supply of goods and
services. Under the terms and conditions of the lease, substantially all of the benefits
and risks incident to ownership are, in substance, transferred to the government
without necessarily transferring legal ownership."
16.1.4. A tangible capital asset procured and financed meeting the definition of a capital
lease must be capitalized in the same manner as all other tangible capital assets and
follow this policy. The Treasurer in conjunction with the Department will make the
determination of the type of lease. This should be determined during the budget
process as the impact on the statement of operations should be disclosed to City
Council.
17. LEASEHOLD IMPROVEMENTS
17.1.1. A leasehold improvement is a betterment made to leased property. Betterments are
expenditures relating to the alteration or modernization of an asset that appreciably
prolong the item's period of usefulness or improve its functionality.
17.1.2. To be considered a leasehold improvement, the modification must have at least four
characteristics:
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i. The modifications must be made to assets that have been leased;
ii. The lessee department/agency must pay for the improvements. If the expenses are
the responsibility of the lessor then it will account for the expenses in its own records;
iii. The leasehold improvements should be durable, they should bring benefits to the
department for more than one year; and
iv. The betterment reverts to the lessor at the end of the lease (i.e. cannot be detached
from the leased property}.
17.1.3. Examples of leasehold improvements that should be capitalized include significant
upgrades to the electrical system to meet the needs of computer systems and the
installation of walls and doors to create permanent offices. Examples of modifications
that would generally not be capitalized are items such as remodeling costs, painting
and carpeting.
17.1.4. Betterments made to an asset subject to an operating lease or a capital lease where
ownership does not transfer to the lessee (i.e. lease does not contain a bargain
purchase option or provide for transfer of ownership of the asset} should be classified
as a leasehold improvement.
17.1.5. Betterments made to an asset subject to a capital lease where ownership is expected
to transfer to the lessee, should be classified as betterments. The cost of betterments
may be capitalized as part of the cost of the capital asset and amortized over the
useful life of the asset. However, where the useful life of the betterment is
significantly shorterthan that of the asset, it should be capitalized and amortized
separately.
17.1.6. Where a department builds a building and/or infrastructure on leased land, these
costs would be capitalized as a leasehold improvement except where the land is
leased from another department or the lease provides for transfer of ownership. In
the latter cases, the building and/or infrastructure should be capitalized as an asset
rather than a leasehold improvement.
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COUNCIL POLICY RESOLUTION
POLICY NUMBER DATE:
POLICY TYPE: FINANCIAL
SUBJECT: TANGIBLE CAPITAL ASSET POLICY -TRANSITIONAL
PROVISIONS
1. POLICY CONTENT ......................................................................................................................... 2
2. AUTHORITY ..................................................................................................................................... 2
3. DEFINITIONS ................................................................................................................................... 2
4. INTRODUCTION .............................................................................................................................. 2
5. ACCOUNTABILITY FRAMEWORK ............................................................................................. 3
6. GENERAL TRANSITION PROVISIONS FOR TANGIBLE CAPITAL ASSETS .................... 4
7. TANGIBLE CAPITAL ASSETS UNDER CONSTRUCTIONIDEVELOPMENT ..................... 6
8. DONATED TANGIBLE CAPITAL ASSETS ................................................................................ 6
9. BETTERMENTS VS. MAINTENANCE ......................................................................................... 6
10. AMORTIZATION OF TANGIBLE CAPITAL ASSETS ............................................................... 6
11. IMPAIRMENT OF ASSETS (WRITE DOWNS OF TANGIBLE CAPITAL ASSETS)............ 7
12. DISPOSALS ...................................................................................................................................... 7
13. CAPITAL LEASES .......................................................................................................................... 8
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SUBJECT: TANGIBLE CAPITAL ASSET POLICY
1. POLICY CONTENT
This policy prescribes the transitional provisions forthe accounting and financial reporting
treatment of tangible capital assets owned on or before January 1, 2008. This policy applies to all
departments of the City of Kitchener (the City} for the purposes of financial statement
presentation for the transition to full accrual based accounting. This policy should be read in
conjunction with the Tangible Capital Asset Policy, Policy Number XX.
2. AUTHORITY
The Public Sector Accounting Board (PSAB} of the Canadian Institute of Chartered Accountants
(CICA} issues standards and guidance with respect to matters of accounting and financial
reporting in the public sector. PSAB issues such standards and guidance which reflect solid
financial accounting and reporting to serve the public interest by strengthening accountability in
the public sector. Under section 294 of the Municipal Act (the Act), municipalities must follow the
generally accepted accounting principles as follows:
"A municipality shall, for each fiscal year, prepare annual financial statements for the
municipality in accordance with generally accepted accounting principles for local
governments as recommended, from time to time, by the Public Sector Accounting Board
of the Canadian Institute of Chartered Accountants."
3. DEFINITIONS
Refer to the Tangible Capital Asset Policy for general definitions. The following definitions are
specific for transition provisions.
"Betterment rate" is the rate assigned to the asset by relating the current condition to a deemed
level of betterments that have been completed prior to January 1, 2008.
"Replacement cost" is the amount that would be needed currently to acquire an equivalent
asset. This may be used, for example, when inventories are valued at the lower of historical cost
and replacement value.
"Reproduction cost" is based on the attributes of the assets a local government currently owns.
It is the cost of reproducing an asset in substantially identical form. It does not attempt to take into
account impacts on costs such as changes in technology or construction methods.
"Realizable value" is the amount that would be received by selling an asset. Market value may
be used to estimate realizable value when a market for an asset exists.
4. INTRODUCTION
4.1. Purpose
The objective of this policy is to outline the accounting treatment for tangible capital assets for the
transition period and establish opening gross and net book values of assets owned on January 1,
2008. In particular, this policy is intended to:
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4.1.1. Establish accounting policies for tangible capital assets in accordance with PS 3150-
tangiblecapital assets, PS 3060- Government Partnerships, Public Sector Guideline
2 (PSG-2) -Leased Tangible Capital Assets and their respective representation on
the financial statements of the City during transition period effective January 1, 2008.
4.1.2. Establish consistent approach to accounting estimates in areas where measurement
uncertainty exists in accordance with CICA Section 1508 -Accounting for Estimates.
4.1.3. To ensure consistent, transparent treatment of all tangible capital assets and the
reporting of the financial results.
4.2. Application And Scope
4.2.1. This policy applies to all City departments, boards and commissions, agencies and
other organizations falling within the reporting entity of the City.
4.2.2. This policy applies to all tangible capital assets owned, purchased, constructed by
the City or donated to the City by other governments and non-governmental parties.
Intangible assets are not covered by this policy.
4.2.3. This policy applies to existing tangible capital assets as of January 1, 2008.
4.2.4. This policy should be read in conjunction with PSAB Handbook Section PS 3150 and
PS Sections 1000 -Financial Statement Concepts, PS 1100 -Financial Objectives,
PS 1200 -Financial Statement Presentation, PS 2700 -Segment Reporting, PS
3060- Government Partnerships and Public Sector Guideline 2 (PSG-2} -Leased
Tangible Capital Assets.
4.3. Principles
The following principles are developed to establish opening gross and net book values for
tangible capital assets on January 1, 2008.
4.3.1. Where historical cost for tangible capital assets are readily available, historical cost
will be utilized to establish the cost of the tangible capital asset.
4.3.2. Where historical cost is not readily available due to lack of records, the City will utilize
a consistent method to estimate historical costs.
5. ACCOUNTABILITY FRAMEWORK
5.1. City Council Responsibilities
As per the Municipal Act, City Council is responsible for setting and amending the
Tangible Capital Asset policy for the municipality.
5.2. Financial Services Department Responsibilities
The Financial Services Department (Treasurer) is responsible to:
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5.2.1. Liaise with the City appointed auditors regarding accounting policy matters and
providing appropriate documentation for accounting estimates as required.
5.2.2. Ensure tangible capital asset accounting policies are applied consistently and
assisting with determination of accounting estimates;
5.2.3. Ensure that business transactions are conducted ethically and professionally within
generally accepted accounting principles (GAAP};
5.2.4. Produce the annual financial statements in accordance with GAAP and prepare audit
papers for the annual audit. In particular, provide sufficient audit evidence of opening
gross and net book values for tangible capital assets on January 1, 2008.
5.3. City Staff Responsibilities
5.3.1. Assist the Finance Services Department in developing opening gross and net book
values of the tangible capital assets on hand under their control at January 1, 2008.
6. GENERAL TRANSITION PROVISIONS FOR TANGIBLE CAPITAL ASSETS
In 2009, the new PSAB standards become effective for municipalities. This policy
outlines the City's approach to the transition to tangible capital asset accounting and
determination of valuation for assets where historical costs are not available. The
transitional provisions allow municipalities to utilize accounting estimates to determine the
opening book values of the tangible capital asset. These opening balances must be
done in a consistent manner and documented. This is discussed below.
6.1. Valuation of Tangible Capital Assets on hand at January 1, 2008
6.1.1. All tangible capital assets held by a department at January 1, 2008 must be identified
and valued using an appropriate cost base. Considerations should include
reasonableness and materiality in the approach. Specifically, in this regard:
i. Where practical and cost-effective, existing tangible capital assets will be valued
using historical costs, adjusted for the proportion of the useful life of the asset
that has already been consumed through the establishment of a provision for
accumulated amortization (see Tangible Capital Asset Policy for further
guidance);
ii. When the City does not have historical cost accounting records for its tangible
capital assets, it will need to use other methods to estimate the cost and
accumulated amortization of the assets. The City will apply a consistent method
of estimating the cost of the tangible capital assets for which it does not have
historical cost records, except in circumstances where it can be demonstrated
that a different method would provide a more accurate estimate of the cost of a
particulartype of tangible capital asset.
iii. Since there are many City assets whereby historical costs do not exist andlor it is
not practical and cost-effective to establish a reasonable estimate of an asset's
historical cost, the City will utilize appraised or some appropriate measure of
current value and extrapolate back to estimated historical cost using the
consumer price index (CPI} or some other relevant pricelcost index including
those utilized by the federal government in the Book Value Calculator or the
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Deflator Study commissioned by the Municipal Finance Officers Association.
iv. In particular, the City will utilize the following estimates for historical costs:
a. Reproduction cost, which is based on the attributes of the assets the City
currently owns. It is the cost of reproducing an asset in substantially identical
form. It does not attempt to take into account impacts on costs such as changes
in technology or construction methods.
b. Replacement cost, adjusted to take into account any major differences
between an actual asset and a replacement asset. That is, the current
replacement cost is the amount of cash or other consideration that would be
needed to acquire an asset having equivalent service potential to that of the
asset presently owned. It would take into account changes in technology. It would
be based on the estimated present cost of constructing the existing asset or
component of the asset by the same or (similar method} of construction using the
same or similar materials. Replacement cost may be established by reference to
the price of a similar asset in an active and liquid market.
c. Market value, where there is an open market for an asset. May be available
for many types of assets such as buildings or unoccupied land. May rely upon
appraisals.
d. Fair value, where there may not be an active market for an asset, but a
valuator, applying different valuation approaches and by referencing market data
and reasoning, can arrive at a value.
v. The appropriate deflator will depend on the asset being valued. The method
utilized will be documented and provided to the auditors in support of the 2009
audit of the financial statements.
vi. Some municipal tangible capital assets that are still in use by the government
may not have any unamortized cost remaining because of their age and the
amortization period set for that type of tangible capital asset. A record of such
tangible capital assets would, however, need to be set up for asset control
purposes. If a department has the information to estimate the historical cost and
accumulated amortization of such fully amortized assets, then that information
would be recorded in the accounting records. If the department does not have
this detailed information on its fully amortized assets, it would disclose them at an
initial value equal to their residual value, where material and previously known.
Otherwise it would disclose them at a nominal value. The determination will be
undertaken in consultation with the Financial Services Department.
vii. All City tangible capital assets would be recorded in the financial system
according to this Section. The information recorded would include the actual or
estimated original cost of the tangible capital assets, their estimated useful lives
and the related estimated accumulated amortization. When recording the initial
value of a tangible capital asset for the purposes of applying this Section,
consideration would be given to whether the net book value of the tangible capital
asset is in excess of the future economic benefits expected from its use and,
therefore, whether awrite-down is required to establish more appropriate cost
and accumulated amortization amounts for the asset.
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viii. Betterment rates of tangible capital assets on hand should be based upon a
condition assessment of the asset.
ix. Existing capital leases will be analyzed and accounted for in accordance with the
Public Sector Guideline 2, Leased Tangible Capital Assets.
7. TANGIBLE CAPITAL ASSETS UNDER CONSTRUCTIONIDEVELOPMENT
7.1.1. Determining when a tangible capital asset, or a portion thereof, is ready for
productive use requires consideration of the circumstances in which it is to be
operated.
7.1.2. Assets under Construction at January 1, 2008 will be reflected in the work in progress
inventory until it is determined that the asset has been placed in service.
7.1.3. Assets under Construction will not be amortized while in progress.
8. DONATED TANGIBLE CAPITAL ASSETS
8.1.1. The cost of a contributed or donated tangible capital asset, including a tangible
capital asset in lieu of a developer charge, is considered to be equal to its fair value
at the date of contribution. Donated tangible capital assets on hand at January 1,
2008 will be recognized at fair market value on the date of donation.
8.1.2. Assets transfers from other governments will be accounted for in accordance with
PS3410 -Government Transfers.
9. BETTERMENTS VS. MAINTENANCE
9.1.1. Costs of betterments are considered to be part of the cost of a tangible capital asset
and would be added to the recorded cost of the related asset. A betterment is a cost
incurred to enhance the service potential of a tangible capital asset.
9.1.2. Betterments are expenditures relating to the alteration or modernization of an asset
that appreciably prolong the item's period of usefulness or improve its functionality.
9.1.3. In general, for tangible capital assets other than complex network systems, service
potential may be enhanced when there is an increase in the previously assessed
physical output or service capacity, where associated operating costs are lowered,
the useful life of the property is extended or the quality of the output is improved.
9.1.4. Determination of betterments for tangible capital assets on hand at January 1, 2008
will be a combination of historical cost, reproduction, replacement and fair value
based upon the condition of the asset as of the last date of assessment.
10. AMORTIZATION OF TANGIBLE CAPITAL ASSETS
10.1.1. Amortization of tangible capital assets reflects the cost to the municipality of utilizing
the tangible capital asset in providing services.
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10.1.2. The cost of tangible capital assets on hand at January 1, 2008, as determined in
accordance with Sections 6,7 and 8 above, less any residual value, will be amortized
over the estimated useful life in a rational and systematic manner appropriate to its
nature and use by the municipality.
10.1.3. Land generally has an unlimited life and will not be amortized.
10.1.4. The amortization of the costs of tangible capital assets is accounted for as expenses
in the statement of operations. Amortization expense is an important part of the cost
associated with providing government services, regardless of how the acquisition of
tangible capital assets is funded.
10.1.5. Amortization for the period from purchase or construction of the tangible capital asset
until December 31, 2007 will be calculated based upon the estimated in service date
up based upon the useful lives and remaining useful lives of the assets.
10.2. Determination of Residual Value of a Tangible Capital Asset
Where a Department expects the residual value of a tangible capital asset to be significant, it
would be factored into the calculation of amortization for assets on hand January 1, 2008.
10.3. Determination of Useful Life of a Tangible Capital Asset
Useful life is the estimate of either the period over which a tangible capital asset is expected to be
used by a municipality, or the number of production or similar units that can be obtained from the
tangible capital asset by a government. Useful lives of assets on hand will be determined in
accordance with the Tangible Capital Asset Policy.
10.4. Amortization Methods
The City will generally utilize straight line method of amortization for all its tangible capital assets
on hand January 1, 2008.
11. IMPAIRMENT OF ASSETS (WRITE DOWNS OF TANGIBLE CAPITAL ASSETS)
11.1. PS 3150 -Tangible Capital Assets states that when conditions indicate that a tangible
capital asset no longer contributes to a municipality's ability to provide goods and
services, or that the value of future economic benefits associated with the tangible capital
asset is less than its net book value, the cost of the tangible capital asset should be
reduced to reflect the decline in the asset's value.
11.2. The net write-downs of the tangible capital asset will be accounted for and included in the
opening gross and net book values at January 1, 2008.
12. DISPOSALS
12.1. Under PS3150, the difference between the net proceeds on disposal of a tangible capital
asset and the net book value of the asset should be accounted for as a revenue or
expense in the statement of operations.
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12.2. Disposals of tangible capital assets in the fiscal year 2008 will be reflected on the books
of accounts for the year 2008 and be reflected in the closing book values at December
31, 2008.
13. CAPITAL LEASES
13.1. Leased Tangible Capital Assets will be capitalized and reflected on the Statement of
Financial Position in accordance with the Tangible Capital Asset Policy for those assets
on hand on January 1, 2008 and any new leases for 2008.
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