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NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) K. Capital Assets (Continued) maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. As a llowed by accounting principles generally accepted in the United States of America, the City has elected not to retroactively capitalize the infrastructure of its governmental activities acquired prior to January I, 2004. Capital assets are recorded in the government-wide and Proprietary Fund financial statements, but are not reported in the Governmental Fund financial statements. Interest incurred during the construction phase of capital assets for .business --type activities is included as part of the capitalized value of the assets constructed. Capital assets are depreciated using the straight -line method over their estimated useful lives. Land and construction in progress are not depreciated. Useful lives vary from 15 to 50 years for buildings and improvements, 5 to 10 years for machinery, vehicles, and equipment, and 20 to 50 years for collection and distribution systems and other infrastructure. L. Compensated Absences Payable Certain city employees earn personal time off, vacation, compensation time, and sick leave at various rates based on longevity. These compensated absences are paid to an employee leaving in good standing, at their current rate of pay, with the exception of sick leave. One third is paid to the departing employee if they have completed 5 or more years of service prior to termination. Compensated absences payable are accounted for as long -term liabilities as described in the following section. M. Long - Term Liabilities In the government -wide and Proprietary Fund financial statements, long -term debt and other long -term obligations are reported as liabilities. If they are material, bond premiums, discounts, and issuance costs are deferred and amortized over the life of the bonds using the straight-line method. In the Governmental Fund financial statements, long -term debt and other long -term obligations are not reported as liabilities until due. The face amount of debt issued is reported as other financing sources. Premiums or discounts on debt issuances are reported as other financing sources or uses, respectively. Issuance costs, whether or not withheld from the actual debt proceeds received, are reported as debt service expenditures. N. Net Assets Net assets represent the difference between assets and liabilities in the government -wide and Proprietary Funds financial statements. Net assets invested in capital assets, net of related debt consists of capital assets, net of accumulated depreciation, reduced by the outstanding balance of any long -term debt used to build or acquire the capital assets. Net assets are reported as restricted when there are limitations imposed on their use through external restrictions imposed by creditors, grantors, or laws or regulations of other governments.