Policy 4.3
Reference: Resolution No. 26.XX
Section 1. Purpose
The intended purpose of the City of Laguna Beach Capital asset Policy is to ensure adequate control, appropriate use of and proper reporting of the City’s infrastructure assets and capital assets. The policy and the related procedures are intended to establish guidelines for budgeting, purchasing, using, transferring, disposing, depreciation and financial reporting for all assets.
Section 2. Policy
It is the policy of the City of Laguna Beach that City assets be properly accounted for and used for appropriate City uses. The Finance Department, with assistance from the Departments will be responsible to ensure capital assets are tagged, whenever feasible, inventoried, and properly accounted for by fund and asset category. It is the responsibility of City Department Heads to ensure that proper budgeting purchasing guidelines are followed, and to ensure that capital assets are adequately controlled and used for appropriate City purposes.
The City of Laguna Beach’s Capital Asset Policy has two (2) objectives:
1. Accounting and Financial Reporting: To accurately account for City assets in financial reports issued to the City Council and external reporting agencies.
2. Safeguarding: The City has fiduciary responsibility
Section 3. Procedures
3.1 Accounting and Financial Reporting
Except as indicated below, assets with an original cost of $10,000 or more and a useful life of more than one year will be subject to capitalization (classified as capital assets for financial reporting purposes). The capitalization threshPold for infrastructure and sewer plants and lines, is $100,000 applied at the individual project/asset level. See Leases and Subscription-based Information Technology Arrangements sections in this policy for the capitalization threshold related to those assets.
City Council Policy/Procedure
CAPITAL ASSET POLICY AND
PROCEDURES
Exhibit A
Policy 4.3
Specific capitalization requirements are identified below:
a. All costs associated with the purchase or construction shall be considered, including ancillary costs such as freight and transportation charges, site preparation expenditures, installation charges, professional fees, and legal costs directly attributable to asset acquisition.
b. The capitalization threshold is applied to individual units of fixed assets. For example, eleven chairs purchased through a single purchase order each costing $1,000 will not qualify for capitalization even though the total cost of $ $11,000 exceeds the threshold of $10,000.
c. Repair costs for infrastructure will generally not be subject to capitalization unless the repair extends the useful life of the asset.
d. Capital projects will be capitalized as “construction in progress” until the project is completed. Costs to be capitalized include direct costs, such as labor, materials, and transportation and indirect costs such as engineering and construction management.
For construction in progress assets, no depreciation is recorded until the asset is placed in service. When the asset is completed and placed in service, it should be reclassified to the proper asset category, such as infrastructure, buildings, sewer plant and lines, etc., and depreciated.
3.2 Inventory Control Level – Safeguarding
Department Heads are responsible for safeguarding assets under their control from theft or loss.
However, the Finance Department is responsible for establishing and maintaining systems and procedures that enable Department to properly safeguard assets.
The objectives of a physical inventory are to ensure that the capital assets recorded in the system physically exist; to detect whether unrecorded or improperly recorded transactions have occurred, and to identify any excess, defective or obsolete assets on hand.
Departments shall notify the Finance Department of all related transactions such as trade-ins, returns, and items disposed of as junk.
The Finance Department will send the capital asset listing to each department at least once every two years. This list shall be compared to items physically on hand. Each department in cooperation with Finance shall reconcile any differences and make corrections as necessary.
Policy 4.3
3.3 Donated Assets
Capital assets acquired by gift, donation, or payment of a nominal sum shall be recorded. This also holds true for assets purchased with grant monies. The operating department that becomes the beneficiary of any such assets shall notify the Finance Department. Donated assets shall be reported at their estimated fair market value at the time of receipt.
3.4 Depreciation
Capital assets used in operations are depreciated over their estimated useful lives. Depreciation is computed using the straight-line method. Depreciation is charged as an expense against operations and accumulated depreciation is reported on the respective statement of net position.
The ranges of lives used for deprecation for each capital asset class are as follows:
Description Useful Life in Years
Storm Drains 40
Beach Stairways 30
Streets 50
Sidewalks 50
Sewer Line Relining 40
Sewer Lines 50
Nuisance Water Diversion Units 30
Buildings and Improvements 30
Office Equipment and Machines 5
Furniture and Fixtures 3 to 8
Equipment, Machinery and Tools 3 to 8
Automotive Equipment 2 to 20
Leases Shorter of the lease term or the useful life of
the underlying lease asset
Subscription Based Information Technology
Arrangements
Shorter of the subscription term or the useful
life of the underlying IT asset
3.5 Disposal/Surplus Property
All assets that have reached the end of their useful life and have a zero ($0) book value for reporting purposes will be accounted for under the “Surplus” category. Surplus property for the purposes of this policy includes furniture, fixtures, machinery, equipment and obsolete computer equipment.
The operating department shall complete the “Surplus Property/Capital Asset Disposition” form prior to disposition and submit the completed form to the Finance Department. The form shall include a description of the property, reason for disposal, method of disposition, and estimated value or expected proceeds from disposal. The Department Head or authorized designee shall approve the request prior to the disposal of the property.
Policy 4.3
Departments are responsible for initiating the disposal process for surplus property and estimating the value of surplus property. Property should not be disposed without prior approval of the Department Head or authorized designee. If the estimated fair market value or expected proceeds from the sale of surplus property, whether sold as a unit or as a single item, is $10,000 or more, the property must be disposed of through advertisement to the general public or auction companies.
Property with an estimated value less than $10,000 may be disposed of through a method approved by the Department Head or authorized designee.
Scrapping, as one method of surplus property disposal, means disposing of an item through recycling, salvage, or other means when the item has little or no remaining useful value. Scrap is recommended only after determining that other methods of disposal – selling, auction, trade-in, donation - is not feasible. City Manager approval is required for scrapping of surplus items with an estimated value greater than $1,000.
3.6 Leases
In accordance with Governmental Accounting Standard Board (GASB) Statement No. 87, Leases, a lease is defined as a contract that conveys control of the right to use another entity’s nonfinancial asset (the underlying asset) as specified in the contract for a period of time in an exchange or exchange-like transactions (i.e., buildings, land, vehicles, and equipment). Any contract that meets this definition should be accounted for under the lease guidance as identified in GASB Statement No. 87. Subject to certain provisions and exceptions noted in the guidance, leases are generally reported as follows in a government’s external financial statements:
Lessee: A lessee should recognize a lease liability and a lease asset at the commencement of the lease term. A lessee should reduce the lease liability as payments are made and recognize an outflow of resources (i.e., expense) for interest on the liability. The lessee should amortize the lease asset in a systematic and rational manner over the shorter of the lease term or the useful life of the underlying asset.
Lessor: A lessor should recognize a lease receivable and a deferred inflow of resources at the commencement of the lease term. A lessor should recognize interest revenue on the lease receivable and an inflow of resource (i.e., revenue) from the deferred inflows of resources in a systematic and rational manner over the term of the lease.
Effective July 1, 2024, the City has established a materiality dollar threshold for determining the inclusion or exclusion of leases in the external financial statements as a lessee. At the commencement of the lease term, City will analyze the terms and provisions of the lease agreement (contract) in order to calculate the value of the underlying asset.
An individual lease agreement (contract) that generates a right-to-use underlying asset value calculated at greater than or equal to $25,000 will be included in the external financial statements.
A lease agreement (contract) with an underlying asset value less than $25,000 may be included in the external financial statements at the discretion of City Finance Department should it be Policy 4.3
determined that its exclusion might otherwise cause the financial statements to be incomplete or misleading in some manner.
3.7 Subscription-based Information Technology Arrangements (SBITA) In accordance with Governmental Accounting Standard Board (GASB) Statement No. 96, Subscription-Based Information Technology Arrangements, a SBITA is defined as a contract that conveys control of the right to use another party’s (a SBITA vendor’s) information technology (IT) software, alone or in combination with tangible capital assets (the underlying IT assets), as specified in the contract for a period of time in an exchange or exchange-like transactions. Any contract that meets this definition should be accounted for under the SBITA guidance as identified in GASB Statement No. 96.
Subject to certain provisions and exceptions noted in the GASB guidance, SBITAs are generally reported as a right-to-use subscription asset – an intangible asset – and a corresponding subscription liability in a government’s external financial statements:
Effective July 1, 2024, the City has established a materiality dollar threshold for determining the inclusion or exclusion of SBITAs in the external financial statements. At the commencement of the SBITA term, the City will analyze the terms and provisions of the agreement (contract) in order to calculate the fixed and fixed in-substance future payments to the end of the subscription term.
An individual agreement (contract) that generates future payments over the subscription term calculated at greater than or equal to $25,000 will be included in the external financial statements.
An agreement (contract) that generates future payments over the subscription term calculated at less than $25,000 may be included in the external financial statements at the discretion of the City’s Finance Department should it be determined that its exclusion might otherwise cause the financial statements to be incomplete or misleading in some manner. The subscription asset shall be amortized over the shorter of the subscription term or the useful life of the underlying IT asset.
Adopted: [update with CC adoption date]
Surplus Property / Capital Asset Disposition
City of Laguna Beach · Finance Division
REQUEST INFORMATION
Department
Requestor Name
Date Submitted
PROPERTY INFORMATION
Complete one row per item. Attach additional pages if needed.
Asset # Description Make / Model Serial Number Location Qty
DISPOSAL INFORMATION
Reason for Disposal (check one)
No longer needed Obsolete
Damaged/beyond repair Replacement/upgraded equip.
Trade-in Other:
Condition of Property
Good working condition Fair condition
Poor condition Non-functional
Estimated Value / Expected Proceeds: $
Requested Method of Disposition
Transfer to another City department Trade-in
Public auction Donation
Advertisement to general public Recycling/scrap
Other:
CERTIFICATIONS & APPROVALS
I certify that the property listed above is no longer required for City operations and that the information provided is accurate. The department has determined the estimated value of the property and will ensure disposition complies with the City's surplus property policy.
Department Head or Authorized Designee
Signature
Printed Name / Title
Date
City Manager Approval (Required if scrapping over $1,000) Signature
Date
City of Laguna Beach · Finance Division