Fixed Assets - Depreciation ( Auditor-Controller
Only )
SUBJECT:
FIXED ASSETS – DEPRECIATION
NUMBER:
FA.3.
DEPARTMENTS & DISTRICTS AFFECTED:
ALL AGENCIES, DEPARTMENTS, AND DISTRICTS
GOVERNED BY THE BOARD OF SUPERVISORS
EFFECTIVE: 7/01/79
REVISED: 7/22/99
_________________________________
David E. Sundstrom, Auditor-Controller
1.
POLICY
Depreciation shall be computed for equipment and
for structures and improvements using the straight-
line method, and limited to the total cost of the
item, less its estimated salvage value. Each fixed
asset shall be depreciated over its estimated useful
life.
Depreciation shall be computed on a "full-month
basis," with no depreciation being taken in
the month of acquisition. Depreciation shall start
on the first day of the month following the month
of acquisition. A full month of depreciation shall
be taken for the month of disposition, regardless
of the specific date of disposition during the month.
The only exception to using the "full-month
basis" is for funds where depreciation was
calculated prior to July 1, 1979. For these funds,
depreciation of fixed assets acquired before July
1, 1979 will continue using the same useful lives
and a "full-year basis," but with a full-year’s
depreciation computed for the year of disposal.
1.1
Purpose
To establish procedures to ensure accurate
computation of depreciation on County fixed
assets. County fixed assets are depreciated
to allocate appropriate costs to reimbursable
programs and used in the income determination
process for proprietary funds.
1.2
Authority
Authority
Subject
Chapter 15, Section 15.27 of the
State Controller’s Manual, Accounting
Standards and Procedures for Counties
Discusses the application
of depreciation and methodology.
National Council on Governmental
depreciation Accounting (NCGA), Governmental
Accounting and Financial Reporting
Principles Statement 1.
Discusses treatment of
for financial reporting purposes.
OMB Circular A-87
Defines depreciation and
discusses methodology and allowances.
1.3
Definitions
1.3.1
Straight-Line Depreciation Method
and Formula
The straight-line method of depreciation
spreads the cost of a fixed asset equally
over the estimated useful life of the
asset. The following formula is used
in computing depreciation on the "full-month
basis."
d = (c - s - a) x m / [(12 x y) - r]
d = current annual depreciation
c = cost of asset
s = salvage value
a = accumulated depreciation through
prior year
m = number of months in current year
applicable
y = useful life in years
r = accumulated months depreciated through
prior year
1.3.2
Proprietary Funds
Proprietary funds are income determining
or commercial type funds used to account
for ongoing government organizations
or activities that are similar to those
of the private sector.
The measurement focus is based upon
determination of net income, financial
position, and changes in financial position.
Proprietary funds include the Airport
and Integrated Waste Management Enterprise
Funds; and the Telephone, Unemployment
Insurance, County Indemnity Health,
Workers’ Compensation, Property
& Casualty Risk, Retiree Medical,
Transportation, Reprographics, and Self-Insured
Benefits Internal Service Funds. (See
Section 2.)
1.3.3
Fixed Assets
Tangible assets of significant value
having a utility which extends beyond
the current year that are broadly classified
as land, buildings and improvements,
and equipment.
1.3.4
Equipment
Moveable property of a relatively
permanent nature with a significant
value. Significant value is defined
as a cost of $5,000 or more. "Relatively
permanent" is defined as a useful
life of one year or longer.
1.3.5
Buildings and Improvements
Physical property of a permanent nature,
examples of which are buildings, structures,
monuments, fences, retaining walls,
pavement, sidewalks, bridges, docks
and waterfront improvements, tunnels,
viaducts, canals, and anything else
which adds value to property. This would
include the cost of improvements made
by the County to leased property. Fixtures
are permanent attachments to structures
which are not intended to be removed,
and which function as part of the structure,
such as boilers, lighting fixtures,
and plumbing, heating and ventilating
systems.
1.3.6
Capitalized Expenditures (Betterments)
Expenditures which materially add
to the value of property or appreciably
extend its life. The cost of capitalized
expenditures should be added to the
book value of the asset where the original
cost of a component being improved can
be specifically identified. If a component
is being replaced, the cost of the old
component should be written off and
the new cost capitalized. Capitalized
expenditures are on occasion referred
to as betterments.
The decision as to whether an expenditure
should be capitalized shall be made
by an evaluation of engineering, physical,
or other relevant factors apart from
cost.
With respect to buildings and improvements,
a "significant" betterment
is defined as one which results in an
improvement of at least $150,000.
2.
ACCOUNTING PROCEDURES
2.1
General Fixed Assets Account Group
The General Fixed Assets Account Group is
used to establish accounting control and accountability
for the County’s general fixed assets.
The general fixed assets include all fixed
assets except those accounted for in proprietary
funds. Depreciation of general fixed assets
is calculated for cost allocation purposes
only. Accumulated depreciation is not recorded
in the General Fixed Assets Account Group.
2.2
Proprietary Funds
Because of the measurement focus of proprietary
funds (Section 1.3.2), depreciation expense
and accumulated depreciation are recorded
in the accounts of such funds.
3.
STANDARD USEFUL LIVES
3.1
Equipment Useful Lives
The following list of standard useful lives
will be used for all equipment acquired on
or after July 1, 1979 and certain equipment
purchased prior to July 1, 1979:
Equipment
Years
Air conditioners
10
Boats - Large boats (fire boats, patrol
boats, etc.)
15
Boats - Small boats
10
Communications equipment (except ISF)
10
Communications equipment (ISF)
10
Computer equipment (large systems
with a cost of $100,000 or more)
5
Computer equipment (personal computers,
data processing equipment, hardware)
Vehicles - Police vehicles (unmarked,
under cover)
5
Vehicles - Regular vehicles
5
3.2
Structures and Improvements Useful Lives
3.2.1
Pre-Fiscal Year 1979-80
The following useful lives were assigned
to structures and improvements completed
prior to Fiscal Year 1979-80 and for
which depreciation was calculated:
Structures and Improvements
Years
All buildings
30
Reservoirs
50
All other Structures and Improvements
20
3.2.2
Fiscal Year 1979-80 and After
The following useful lives will be
assigned to structures and improvements
completed in Fiscal Year 1979-80 and
after, utilizing component breakdowns
and existing items not previously depreciated.
Buildings:
Years
Basic Structure
45
Ventilating and heating systems
10
Air conditioning (up to 5 tons)
20
Air conditioning (5 - 15 tons)
15
Air conditioning (20 or more
tons)
20
Electrical and lighting systems
20
Elevators/escalators
20
Plumbing pipes and fixtures
20
Sidewalks, parking, and landscaping
20
Fire alrams,/sprinkler systems
20
Improvements other than Buildings:
Years
Resevoirs
50
All other (parks, tiedowns,
runways, transmission lines, etc.)
20
3.3
Guidelines for Useful Lives
These standard useful lives for equipment,
structures, improvements, and structural components
are general guidelines based on Internal Revenue
Service publications and specific requirements
for the County of Orange. The useful lives
assigned may be based on actual experience
when available, although deviations from the
above guidelines should be justified by the
department/agency that owns the asset. Such
justifications should be submitted in advance
in writing to the manager of the General Ledger
Unit. The useful lives for components of structures
should be determined for each structure based
on materiality and availability of cost data.
Legal