ADMINISTRATIVE CITY COUNCIL POLICY MANUAL
CHAPTER ONE
FINANCE
POLICY 4.31-10
10/202509/2026
CAPITAL ASSET POLICY AND PROCEDURES
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.
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 to establish systems and procedures to prevent its assets from loss and or theft.
PROCEDURES
Accounting and Financial Reporting
In general, all assets, including land, building and improvements, office equipment and machinery, furniture and fixtures, equipment, machinery and tools, automotive equipment, infrastructure, and sewer plant and lines with an original cost in excess of $10,000 and a useful life of three or more will be subject to capitalization.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 threshold 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.
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, Attachment 3
ADMINISTRATIVE CITY COUNCIL POLICY MANUAL
CHAPTER ONE
FINANCE
POLICY 4.31-10
10/202509/2026
installation charges, professional fees, and legal costs directly attributable to asset acquisition.
Specific capitalization requirements are identified below:
a.b. The capitalization threshold is applied to individual units of fixed assets. For example, ten eleven chairs purchased through a single purchase order each costing $61,000 will not qualify for capitalization even though the total cost of $ $11,000 exceeds the threshold of $10,000.
b.c. Repair costs for infrastructure will generally not be subject to capitalization unless the repair extends the useful life of the asset.
c.d. Capital projects will be capitalized as “construction in progress” until the projected 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.
d. All computer and computer related equipment will be recorded and controlled as inventory and not depreciated. Constant change in technology, software demands, and system configurations cause this asset class to be obsolete before it reaches its useful life.
Inventory Control Level - Safeguarding
City assets that do not meet the criteria are accounted for as inventory. These assets are accounted for and controlled through the same systems and procedures used to account and control assets subject to capitalization. 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 fixed capital assets are recorded in the system physically exists; 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 an Inventory Listing the capital asset listing to each department at least once every two years. This list shall be compared to items physically on hand. The operating divisionEach department in cooperation with Finance shall reconcile any differences between the system and the inventory and make corrections as necessary.
ADMINISTRATIVE CITY COUNCIL POLICY MANUAL
CHAPTER ONE
FINANCE
POLICY 4.31-10
10/202509/2026
Donated Assets
Capital assets acquired by gift, donation, or payment of a nominal sum shall be recorded. and tagged.
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.
Construction Actively in Progress (CAIP)
A CAIP asset reflects the cost of construction work undertaken, but not yet completed. For construction in progress assets, no depreciation is recorded until the asset is placed in service.
When construction is completed, the asset should be reclassified as building, building improvement, land improvements, equipment, etc., and should be capitalized and depreciated.
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 fixed capital asset class are as follows:
Depreciation/ AssetsDescription Depreciation/Amortization Life YearsUseful 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 Lease Arrangements
Shorter of the subscription term or the
useful life of the underlying IT asset
ADMINISTRATIVE CITY COUNCIL POLICY MANUAL
CHAPTER ONE
FINANCE
POLICY 4.31-10
10/202509/2026
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, with the approval of the Finance Director, can be donated to a school or non-profit agency, sold to any public or private person or entity, transferred from one department to another department, recycled or disposed of as junk to a landfill or other appropriate waste removal facility. 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.
It is the Department’s responsibility to appraise the value of surplus properties and fixed assets. City Manager approval will be required for scrapping of surplus items with a value greater than $1,000.
If it is determined that the property sold as a unit has a value less than $1,000, the property may be disposed of in a manner approved by the City Manager. If the appraised value of the surplus properties and the capital assets, either sold as a unit or as a single piece, has a market value of $10,000 or more, the property must be disposed by advertisement to the general public or auction companies. The City Clerk is authorized to advertise such surplus property for sale to the general public and auction companies. Do not bring the surplus properties/fixed assets to the Finance Department.
All items sold, traded-in, scrapped, abandoned or in any way removed from service during the current fiscal year are classified as disposals.
Property should not be transferred, turned-in or disposed of without prior approval of the proper Department Head. The operating departments shall be responsible for initiating the transfer/disposition process. The form “Request to Transfer/Retire Surplus Property” shall be completed by the operating department and submitted to the Finance Department.
The Department then arranges the disposition or transfer of the fixed asset. Each disposal shall be recorded with the date, method, and authorization for such disposition. The Department shall then report the transfer or disposition of the asset to the Finance Department.
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.
ADMINISTRATIVE CITY COUNCIL POLICY MANUAL
CHAPTER ONE
FINANCE
POLICY 4.31-10
10/202509/2026
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.
Leases Materiality
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, both as a lessee and lessor. 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 determined that its exclusion might otherwise cause the financial statements to be incomplete or misleading in some manner.
ADMINISTRATIVE CITY COUNCIL POLICY MANUAL
CHAPTER ONE
FINANCE
POLICY 4.31-10
10/202509/2026
Subscription-based Information Technology Arrangements (SBITA) Materiality 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.