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FC CASE <br /> <br />ESTABLISHMENT OF CAPITALIZATION THRESHOLD FOR FIXED ASSETS <br /> By: Diana Lund, Finance Officer <br /> <br />Background: <br /> <br />In the public sector, the term "fixed assets" typically is used to refer to land, buildings, <br />equipment, and improvements other than buildings acquired by a government for use in <br />the provision of goods or services to citizens. <br /> <br />Not all fixed assets are required to be reported on a government's balance sheet. <br />Specifically, fixed assets with extremely short useful lives and fixed assets of small <br />monetary value are reported as an "expenditure" or "expense" in the period in which they <br />are acquired. Those fixed assets that are reported on the balance sheet are said to be <br />"capitalized." The monetary criteria used to determine whether a given fixed asset <br />should be reported on the balance sheet is known as the "capitalization threshold." <br /> <br />The Government Finance Officers Association recommends that local goverments <br />consider the following guidelines in establishing thresholds for their fixed assets: <br /> <br />Fixed assets should be capitalized only if they have an estimated useful <br />life of a least two years following the date of acquisition. <br /> <br />Fixed assets' capitalization thresholds should be applied to individual <br />fixed assets rather than to groups of fixed assets (ex: desk, tables). <br /> <br />o <br /> <br />In no case should a government establish a capitalization threshold of less <br />than $1,000 for any individual item. <br /> <br />Governments should exercise control over their noncapitalized fixed assets <br />by establishing and maintaining adequate control procedures at the <br />department level. <br /> <br />Currently, the City of Ramsey does not have a capitalization threshold policy in place. It <br />has been previous practice to depreciate any and all fixed assets no matter how small <br />their monetary value. Practice has demonstrated that this attempt to incorporate data on <br />"all" fixed assets is often very time consuming and thus can be costly and difficult to <br />maintain. <br /> <br />Committee Action: <br /> <br />Following Discussion direct staff to apply the guidelines established by the Government <br />Finance Officers Association and create a policy for the capitalization threshold of fixed <br />assets for the City of Ramsey. <br /> <br /> <br />