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Resolution No. 2023-040Rd✓ CITY OF CLERMONT .d« RESOLUTION NO.2023-04OR A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CLERMONT, LAKE COUNTY, FLORIDA ADOPTING A CAPITALIZATION POLICY FOR THE CITY OF CLERMONT; PROVIDING FOR CONFLICT, SEVERABILITY, ADMINISTRATIVE CORRECTION OF SCRIVENERS ERROR, PUBLICATION AND EFFECTIVE DATE. WHEREAS, the City Council of the City of Clermont deems it advisable and in the best interest of the City to establish a Capitalization Policy. NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Clermont as follows: SECTION 1. The City Council does hereby adopt the City of Clermont Capitalization Policy as set forth in Exhibit A, attached hereto and incorporated herein. The City Council of the City of Clermont may amend the Capitalization Policy by Resolution when deemed necessary and in the best interest of the City of Clermont. SECTION 2: CONFLICT All resolutions or parts of resolutions in conflict with any of the provisions of this Resolution are hereby repealed. SECTION 3: SEVERABILITY If any portion of this Resolution is declared invalid, the invalidated portion shall be severed from the remainder of the Resolution, and the remainder of the Resolution shall continue in full force and effect as if enacted without the invalidated portion, except in cases where such continued validity of the remainder would clearly and without doubt contradict or frustrate the intent of the Resolution as a whole. SECTION 4: ADMINISTRATIVE CORRECTION This Resolution may be re -numbered or re -lettered, and/or corrected for typographical and/or scrivener's errors which do not affect the intent of said resolution, as authorized by the City Manager or designee, without need of public hearing, by filing a corrected copy of same with the City Clerk. SECTION 5: PUBLICATION AND EFFECTIVE DATE This Resolution shall take effect immediately upon its adoption. d<✓ CAR' M, CITY OF CLERMONT A -6«- RESOLUTION NO.2023-04OR DONE AND RESOLVED by the Mayor of the City Council of the City of Clermont, Lake County, Florida, this 28th day of November 2023. ., t•' Mitt S.4.. CITY OF CLERMONT t rt Tim Murry, ayor ATTEST: Tracy Ackroyd Howe, MMC City Clerk nd Legality: Daniel F. Mantzaris, City Attorney Exhibit A Capitalization Policy ALE ONT Choice of Champions - City of Clermont, Florida Rev. 11/28/23 A. GENERAL OBJECTIVES This purpose of the policy is to define capitalization standards in the accounting for city assets. This policy, in conjunction with Property Control Policy managed by the City's Procurement Services Department, acts to: 1) to provide control and accountability over capital assets, and 2) to gather and maintain information for the preparation of the Annual Comprehensive Financial Report (ACFR) in conformity with Generally Accepted Accounting Principles (GAAP) and Governmental Accounting Standards Board Statements (GASB). The Capitalization Policy establishes guidelines for determining: • Which types of expenditures should be capitalized as a capital asset and those expenditures which should be expensed. • How to value capital assets that are reported. • The estimated useful lives of capital assets. • The depreciation threshold of city assets. B. CAPITAL ASSETS By definition any asset, tangible or intangible, that benefits the City greater than one fiscal period could potentially be classified as a capital asset. As a practical matter, however, governments capitalize only their higher cost assets. Capitalization thresholds are established to determine which assets are capitalized and which assets are expensed when purchased. The City must maintain adequate control over all assets, including lower -cost capital assets. Capitalization is designed to focus on the City's financial reporting needs, and is not designed for or particularly suited for the purposes of ensuring control over lower -cost assets. Capitalizing numerous small cost items will actually overburden the overall capital asset management system. C. CAPITAL ASSET TYPES Capital assets are divided between assets that are not subject to depreciation and assets that are subject to depreciation. Assets that are not subject to depreciation include: • Land. The amount that should be capitalized for land should include the cost of the land itself; professional fees used to acquire the land (legal, engineering, appraisal, survey fees); costs for Rev. 11/28/23 excavation, fill, grading, or drainage; demolition of any existing buildings or other improvements; and any other costs that are incurred to acquire the land and make the land suitable for use by the City. The value of easements should also be capitalized. Land is characterized as having an unlimited life and is therefore not depreciated. • Construction in progress. The costs of assets that the City is constructing, where expenses are incurred over more than one fiscal year, are accumulated as construction in progress until the asset is placed in service. At that time, the total costs are then transferred to the appropriate asset type and depreciated. Assets that are subject to depreciation include: • Buildings and building improvements: Buildings are permanent structures that are intended for shelter of persons, materials or equipment. Building improvements are capital events that extend the useful life of a building or increase the value of a building, or both. Repairs that simply maintain the existing life or restore a building to its original condition do not constitute an improvement. • Improvements Other Than Buildings: Improvements Other Than Buildings are those improvements, other than ordinary and regular site preparation, which ready the land for its intended use. Such improvements can include parking lots, athletic fields, fencing, paths and trails, and landscaping. • Infrastructure: Infrastructure assets are long-lived capital assets that are stationary in nature and can be preserved for a significantly greater number of years than most capital assets. Such assets can include streets and roadways, bridges, sidewalks, water mains and distribution lines, sewer mains and collection lines, and treatment plants. • Infrastructure equipment: Infrastructure equipment is an item of tangible, nonexpendable personal property that supports an infrastructure asset with a useful life of less than 20 years. Such assets can include Waste Water Treatment Plant and Lift Station machinery and equipment. • Equipment: Equipment is an item of tangible, nonexpendable personal property with a useful life of more than one year, and includes machinery, vehicles and furniture. • Capital Lease Assets: Assets acquired by a capital lease and shall be treated as a City owned asset and capitalized according to the appropriate capitalization threshold. Rev. 11/28/23 • Operating Lease Assets: Assets acquired through an operating lease are returned to the lessor at the end of the lease term and are not deemed to be owned by the City and are not capitalized. • Computer Equipment: Computer equipment is an item of tangible, nonexpendable personal property with a useful life of more than one year. Such assets can include laptops, desktops and servers. • Intangible or Other Capital Assets. Intangible assets can be identified by determining if the asset can be separated or divided from the government by sale, transfer, license, rental or exchange or if it arises from contractual or other legal rights. • Software. Software is an intangible item that is used on a computerized piece of equipment. Software is capitalized only when it is an integrated system that entails several modules such as accounting software used city wide or the historical cost of the system exceeds the capitalization threshold. • Other intangible assets could include water rights, patents, trademarks, etc. D. ACQUISITION AND VALUATION OF ASSETS All capital assets are acquired in accordance with the City's budget and according to purchasing policy. Capital assets should be reported at their historical cost. In the absence of historical cost information, the assets estimated historical cost may be used. If capital assets are moved from one fund or activity to another, the recipient fund or activity should continue to report those assets at their historical cost as of the date they were originally acquired. All capital assets are valued at a per unit cost equal to or greater than the capitalization threshold with the exception of Land. Items with a per unit cost below the capitalization threshold are not capitalized but may be tracked in compliance with the Property Control Policy. The historical cost of a capital asset should include ancillary charges necessary to place the asset in its intended location (freight charges, for example); ancillary charges necessary to place the asset in its intended condition for use (installation or site preparation charges, for example); and capitalized interest (only for those assets that are utilized in enterprise funds that are reported as a part of business -type activities). Estimating the historical cost of capital assets for which invoices or similar documentation of historical cost are not available can use either standard costing or normal costing. Standard costing involves using historical sources, such as old vendor catalogs, to establish the average cost of obtaining the same or a Rev. 11/28/23 similar asset at the time of acquisition. Normal costing involves establishing the current cost of the same or similar asset and deflating that cost using an appropriate price index. Donated capital assets are recorded at fair market value at the time of acquisition. Assets estimated to have a value in excess of the capitalization threshold must be appraised by a person knowledgeable and qualified with respect to that type of asset. All land or building acquisitions will then be recorded at historical cost. Assets acquired through capital leases should be recorded at the historical cost of the asset, not including any lease interest payments. Assets acquired by the exercise of eminent domain powers shall be capitalized in the General Fixed Asset Account Group in the amount of compensation awarded the property owner plus legal service costs incidental to the acquisition. E. EXPENDITURE TYPES Repair and Maintenance costs are expenditures necessary for the upkeep of the property that neither add to the permanent value of the property nor appreciably prolong its intended life, but keep it in an efficient operating condition. All repair and maintenance costs to capital assets are to be treated as an annual operating expense and charged to the appropriate cost center or fund. F. CAPITALIZATION THRESHOLDS The City establishes a Capitalization Threshold of $5,000 for all eligible asset types. G. DEPRECIATION Assets that are capitalized will be depreciated and calculated on the straight-line basis, using estimated useful lives as follows: Buildings and building improvements 10 - 30 years Furniture, fixtures, equipment and vehicles 3 - 10 years Computer Equipment 3 - 5 years Infrastructure — Utility systems, roads and sidewalks 5 - 40 years Infrastructure Equipment 5 - 10 years Intangibles (excluding land related assets) 7 years H. AUTHORITY Approved and adopted by the Clermont City Council by Resolution 2023-040R on November 28, 2023. Rev. 11/28/23