Why are we here

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Why are we here?

• To help you identify your capital assets and
  infrastructure
• To show you how value your capital assets and
  infrastructure
• To show you how to depreciate your capital assets
  and infrastructure

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• How do we identify our capital assets and
  infrastructure?

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What are Capital Assets?

• Capital Assets are assets that have a useful life
  greater than one year
• Infrastructure is considered a capital asset but
  is required to be reported separately and will be
  discussed separately

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Capital Assets Examples

• Land
• Buildings
• Vehicles
• Equipment
• All other tangible or intangible assets used in
  operations and with initial lives extending
  beyond a single reporting period

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Infrastructure Asset Examples

• Roads
• Bridges
• Tunnels
• Drainage systems
• Water and sewer systems
• Dams
• Lighting Systems

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Sources of Capital Assets Data

• Always start with Internal Sources, such as
• Insurance Policies
• DLG Policy Manual Physical Property and Real
  Estate Records
• Bond Issue Documents
• County Treasurer
• Property Valuation Administrator
• Fiscal Court Orders and Minutes
• Building Commissions

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Sources of Capital Assets Data

• If more than one source is available for a
  particular group of assets, use both sources for
  comparability purposes to ensure capture of all
  applicable assets
• For example - Buildings
• PVA Exempt Properties Listing
• Insurance Policy for County Properties
  (Underwriting Detail Report)
• Building Commissions
• Deeds Property Transfers
• Fiscal Court Orders (for purchase or renovation)

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Sources of Infrastructure Data

• Internal Sources
• Road Superintendent
• County Treasurer
• Bond Issue Documents
• Fiscal Court Orders and Minutes

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Sources of Infrastructure Data

• External Sources
• KY Transportation Cabinet
• Department of Highways
• [phone]
• Public Service Commission
• Engineering Division
• [phone]
• KY Infrastructure Authority
• [phone]

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Additional Sources for Bridges

• Kentucky Transportation Cabinet has all the
  bridges listed for all the counties in the state
• Bridge Inventory
• Division of Operations
• Ken Watson 502-564-4556
• Bridge inventory includes year of construction

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• How do we value our capital assets and
  infrastructure?

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Establish a Capitalization Policy

• Before you value your assets, the Fiscal Court
  needs to establish a capitalization policy
• This sets an amount for reporting capital assets
  on the financial statements
• Keeps the bookkeeper from being overburdened by
  tracking immaterial assets for reporting purposes
• You will still need to tag and track inventory
  for internal control purposes
• The goal is to capture the material amounts or
  items of your inventory

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Capitalization Thresholds

• Example
• Equipment Threshold - 5000
• Purchase of 30 computers - 1500 each Total
  45,000
• Individually may not be significant, however,
  cumulatively may be material
• May need to consider combining assets into groups

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Historical Cost

• If you know the actual historical cost of the
  asset, use it!
• Historical cost is original cost or purchase
  price of the asset.
• Use the fair market value of donated assets at
  the time of the donation.
• Plus any installation expenses, such as
• Computer Network Installation

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Estimating Historical Cost

• Estimate the construction cost for 2002 and
  deflate that cost to the year of construction
• You can use the Road Segment Program to help you
  make the determination for infrastructure
• This will count as your historical cost estimate
  (BEST GUESS ESTIMATE!)

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Historical Costs for Buildings

• Building constructed in 1984 with no available
  construction cost records
• Estimate the construction cost of what it would
  cost to build today
• Deflate back to the year of construction using a
  Building Cost Construction Index
• 2002 Construction Cost 4,000,000
• Construction Cost Index 2417/3583 67
• Construction Cost Today x Deflation
  Rate 4,000,000 x 67
• 1984 Historical Cost 2,680,000

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Historical Cost for Infrastructure

• If you have the original cost records, use the
  actual cost of the road or bridge as historical
  cost.
• Estimate what it would cost today to build the
  same road or bridge
• Deflate the construction cost back to the year
  built using the infrastructure construction price
  index

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How to calculate historical cost

• 14 miles of 20 ft. wide paved road built in 1982
• 2001 Cost
• 14 miles x 5,280 feet (1 mile) 73,920 Linear
  Feet
• 73,290 LF x 55/LF 4,065,600
• 1982 Cost
• 4,065,600 x 59 (1982 index at 88.5)
  2,398,704
• 2,398,704 is your Historical Cost
• 88.5 index is 59 of the 2001 Construction Cost
  Index at 151.2

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Establishing Rural Road/Street System Values
Kentucky Transportation Center
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• How do we calculate depreciation on your capital
  assets and infrastructure?

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Five elements must be known to calculate
depreciation

• Date the asset was placed in service
• Historical Cost (or fair market value for donated
  items)
• Estimated useful life
• Salvage value (if any)
• Depreciation method
• Straight-line Depreciation

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Capital Asset Useful Lives

• Most capital assets have an identifiable useful
  life and can be depreciated over that life
• Your packet includes examples of Suggested Useful
  Lives
• These are only estimates and can be modified for
  assets with a particular usage to fit your
  situation

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Capital Asset Salvage Value

• The estimated value of the asset at the end of
  its useful life

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Infrastructure Salvage Value

• Salvage Value Estimates
• 20 of construction costs for paved roads/streets
  and bridges
• 10 of construction costs for unpaved roads and
  sidewalks
• Salvage value for infrastructure would include
  the road bed which would not be replaced during
  resurfacing

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Depreciation Approach

• General straight-line depreciation to the
  original book value
• Provides accounting information only
• Cost of Asset
• Less Salvage Value
• Depreciable Cost
• Divided by Useful Life
• Depreciation Expense for each year

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How to use the Straight-Line Depreciation Method

• 21,000 Ford F150
• Useful Life of 5 years
• Placed in service July 2000
• 1000 Salvage Value
• Straight-line Depreciation
• 4,000 per year depreciation
• (Cost Salvage Value) divided by Useful Life
  Depreciation Cost per year
• (21,000 1000) / 5 years 4,000 Annual
  Depreciation
• Age of Asset x Annual Depreciation Accumulated
  Depreciation
• 2 years x 4000 8000 Accumulated Depreciation
• Cost Accumulated Depreciation Asset Value at
  June 30, 2002
• 21,000 - 8,000 13,000 Asset Value at June
  30, 2002

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Accumulated Depreciation

• Total depreciation expense from acquisition thru
  current year
• Annual Depreciation Expense x Number of Years
  (thru June 30) Accumulated Depreciation
• Historical Cost
• Less Accumulated Depreciation
• Current Asset Value

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Calculating Depreciation on Infrastructure
Kentucky Transportation Center
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Who does this apply to?

• Phase III Governments
• NOT required to report infrastructure acquired or
  constructed prior to July 1, 2003
• Only required to report newly acquired
  infrastructure after July 1, 2003
• Phase III Governments are strongly encouraged to
  retroactively report infrastructure acquired
  prior to July 1, 2003 especially if there is
  related debt reported in the financial statements

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Who does this apply to?

• Phase II Governments
• All infrastructure acquired or constructed after
  June 30, 2002 must be reported
• Have 4 additional years to report retroactive
  infrastructure assets acquired between June 30,
  1980 and June 30, 2002
• Reporting infrastructure assets acquired or
  constructed prior to June 30, 1980 is optional

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Kentucky Transportation Center

• Website (www.ktc.uky.edu)
• Has done extensive work in calculating average
  useful lives
• Has created the Road Segment Program for
  calculating depreciation
• Provided in THE LINK newsletter the Price Index
  for Highway Construction
• Patsy Anderson, Manager, Kentucky Technology
  Transfer Program
• 1-800-432-0719

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Helpful Websites

• APA Website (www.kyauditor.net)
• GASB 34
• E-mail link to GASB 34 hotline
• Frequently Asked Questions from Local Officials
• Training Materials
• Regular updates for new information
• Useful Links
• GASB Website (www.gasb.org)