I N T R O D U C T I O N
A fixed asset accounting system is a system of policies, procedures, and methods for recording and reporting monetary amounts associated with fixed asset transactions. A fixed asset policy is a system of procedures that address the acquisition, use, control, protection, maintenance and disposal of assets. The establishment of a capital fixed asset policy and procedure for Hamilton County, Tennessee, was approved by the Hamilton County Commissioners on April 21, 2004.
A C C O U N T I N G P O L I C I E S
Accounting policies address the capitalization policy, controllable assets, and classes of property. A capital asset is defined as assets having a useful life of more than one year and a historical cost of $5,000 or more (fair market value of donated assets). These assets will be included in the property inventory. Major additions, including those that significantly prolong a fixed asset’s economic life or expand its usefulness, should be capitalized. Normal repairs that merely maintain the asset in its present condition should be recorded as expenses and should not be capitalized. Hamilton County does not currently own any historical art or treasures. If in the future the County acquires historical art or treasures, they will be recorded at historical costs. However, depreciation will not be required as they do not depreciate in value. The fixed asset class schedule that follows clearly states the useful lives for each class of capital asset that will be used to determine the depreciation charge annually. These assets will be tagged according to tagging procedures laid out in the Asset Tagging Procedure.
Controllable assets are those assets that do not meet the criteria for a capital asset, usually because their historical cost is between $1,000 - $4,999 (fair market value of donated assets). Controllable assets are maintained for tracking purposes only. The County is responsible for including the controllable assets in the physical property inventory; however, they will not be included as depreciable assets reported in the Comprehensive Annual Financial Report. Exceptions to this rule are computers and firearms, which should be tracked regardless of historical cost. These assets will be tagged according to tagging procedures laid out in the Asset Tagging Procedure.
Assets with a historical cost less than $1,000 or with a useful life of less than one year will not be included in the property inventory (fair market value of donated assets). However, if the department heads feel like it is necessary to track the assets due to the sensitive, portable, and/or theft-prone nature of the asset, they may keep their own listing separate from the property listing within the fixed asset system. Departments may choose to tag these items with a sticker stating Property of Hamilton County which must be obtained by them. These tags will not be issued by the Property Accountant.
Classes of Capital Property
Below is an outline of capital property classes which include but are not limited to the sub-categories listed. 1. Real Property
a. Land b. Buildings
c. Improvements other than Building d. Construction in progress
2. Machinery and Equipment
a. Office Machinery and Equipment b. Furniture and Fixtures
c. Computer Software d. Computer Hardware
e. Communication Equipment f. Clinical/Dental Equipment g. Telecommunication Equipment h. Law Enforcement Equipment i. Capitalized Leases
3. Motor Vehicles a. Cars b. Trucks
i. Passenger ii. Medium Service iii. Heavy Service iv. Road Tractors v. Garbage Trucks c. Vans d. Ambulance 4. Infrastructure a. Roads b. Bridges c. Sewer systems d. Docks e. Outdoor Lighting
After capital assets have been acquired and made ready for use, additional costs may be incurred. Costs incurred to achieve greater future benefits should be capitalized, whereas expenditures that simply maintain a given level of services should be expensed. Keep in mind that most expenditures below the capitalization threshold are not capitalized.
Fixed Asset Classes and Depreciable Life
Land - The land account includes all land purchased or otherwise acquired by the County. All costs for legal services incidental to the acquisition, costs relating to the razing of a structure and other charges incurred in preparing the land for use normally are capitalized and carried in the land account. If the purchaser assumes certain obligations against the land at the time of purchase, the cost of the land would include the cash paid for the land plus the assumed obligation.
Object Code Sub-category Description Life
(Yr.)
9001 Land N/A
Buildings – The building account includes the value of all buildings at purchase price or construction cost. The cost should include all charges applicable to the building, including broker or architect’s fees.
Additions, improvements, and Leasehold Improvements to buildings as well as the cost of the heating and ventilating system or other permanently attached fixtures should be added to the building account when these costs are considered betterments. Heaters and air conditioners that are portable in nature and not physically attached to the building will be classified as machinery and equipment if the purchase price meets the threshold.
Object Code Sub-category Description Life
(Yr.)
9002 Building and Structures 40
Improvements other than buildings – The improvements other than building account should be used to record such items as excavation, non-infrastructure utility installation, driveways, parking lots, flagpoles,
retaining walls, and fencing. Items not included are landscaping, demolition, land acquisition, and movable equipment such as picnic tables.
Object Code Sub-category Description Life
(Yr.) 9027 Land Improvements 0101 0102 0104 0105 Land – Clearing Land – Paving Pole Structures Fencing 20 20 20 20
9029 Ball Field Improvements 30
9037 Construction - Lighting N/A
9040 Construction – Potable Water N/A
9041 Construction – Roadway N/A
9042 Construction – Sewer N/A
9043 Construction – Site Prep. N/A
9045 Construction Contingency N/A
9046 Appraisals & Easement Drawings N/A
9054 Const – Recreation Courts N/A
9061 Const – Flood Control N/A
Construction Work In Progress (CWIP) – This account should be used when a government reports amounts expended on an uncompleted building or other capital construction project. When the project is complete, the cumulative costs are transferred to the appropriate permanent fixed asset account. It is the duty of the Property Accountant to keep CWIP current. This means the Property Accountant knows what he included in CWIP, and he is responsible for finding out when the project is complete. The completion should be noted and CWIP should be relieved of all charges included and moved to a permanent asset account.
As a recap, the cost of a fixed asset includes not only its purchase price or construction cost, but also any other reasonable and necessary costs incurred to place the asset in its intended location and use. Such costs could include but are not limited to the following:
Legal and title fees Closing costs
Appraisal or negotiation fees Surveying fees
Damage payments Site preparation costs Demolition costs
Architect and accounting fees Shipping and handling charges
Machinery and Equipment - The machinery and equipment account should consist of property that does not lose its identity when removed from its location and is not changed materially or expended in use. This property should be recorded at cost, including freight, installation and other charges incurred to place the asset in use.
The cost of the asset acquired when payment includes both cash and a trade-in is the sum of the cash paid plus the fair market value of the asset traded-in. If the fair market value of the asset being traded-in is not readily determinable, cost may be recorded as the cash paid plus the book value (asset cost minus accumulated depreciation) of the asset traded-in.
All assets acquired by gift should be recorded on the basis of their estimated fair market value at the time of acquisition.
Object Code Sub-category Description Life (Yr.)
9002 Portable Buildings 25
9003 Recycling Equipment 10
9004 Furniture and Fixtures
0401 0402 0403 0404 0405 0406 0407 0408 0409 0410 0411 0412 0413 0414 Tables Chairs Decorative Chairs/Sofa Desks/Credenzas Workstations File Cabinets Pictures Mirrors Lockers Shelving Misc. Furniture Storage Cabinets Misc. Fixtures Book Shelves 10
9005 Office Machines & Equipment 0501 0502 0503 0504 0506 0507 Typewriters Calculators Copy Machines Fax Machines Misc. Office Machines/Equip 5
9006 Heating Ventilating & AC Equip 0601
0602
Air Conditioners
Combination Heat/Air Unit
10
9007 Highway Constr & Maint Equip 0701 0702 0703 0704 0705 0706 0707 0708 0709 0710 0711 Dozers Shovels Loaders Graders Backhoes Cement Mixers Rollers Asphalt Pavers Right of Way Cutters Chip Spreader Farm Tractor
10
9009 Machinery & Shop Equipment 0901 0902 0903 0904 0905 0906 0907 0908 0909 0910 0911 Tire Breaker Tire Balancer Alignment Tune-Up Computer Air Compressor Jacks Welders Metal Lathe Wood Lathe Table Saw Band Saw 10
0912 0913
Pressure Washer
Gas Power Electric Generator
9010 Farm Machinery & Equipment 10
9011 Recreation Equipment 1101 1102 1103 1104 1105 1106 1107 Bleachers Athletic Equipment Fitness Equipment Tanning Bed Picnic Tables Park Benches Play Structures 20
9012 First Aid Equipment
1201 Heart Monitor/Defibrillator
5
9013 Hospital & Institutional Equip. 5
9015 Lawn & Ground Maint. Equip. 1501 1502 1503 1504 1505 1506 1507 1508 Lawnmower Weedeater Leaf Blower Leaf Vacuum Gas Utility Vehicle Soil Tiller
Electric Utility Vehicle Utility Trailer
15
9016 Kitchen & Dining Room Equip. 12
9017 Telecommunication Equip.
1701 Telephone Systems
10 9018 Radio & Communication Equip.
1801 1802 1804 1805 1806 1807 1808 1809 1810 1811 Portable Phones Portable Radios Televisions Video Recorders Cellular Phones Radio Transmitters
Misc. Radios/Comm. Equip VCR
Record Players Portable Pager
10
9019 Other Capital Expenditures 5
9020 Educational Equipment 10 9021 Photographic Equipment 2101 2102 2103 Cameras Camera Lenses Camcorders 10
9022 Sound Recording Equip. 10
9023 Special Law Enforcement Equip. 2301 2302 2303 2304 2305 2306 Radar Gun Intoximeter Sirens Police Dog K-9 Equipment Firearms 10 9024 Dental Equipment 10 9025 Clinical Equipment 10
9026 Firearms Protection Equip. 2601
Emergency Mgmt Equipment
2602 2603
Self Contain Breath Aparatus PPV Ventilator Life Jacket
9028 Computer Software 5
9030 Computer Equipment 5
9032 Microfilm Equipment 10
9033 Topographical Map 5
9047 Traffic Control Equip. 10
Motor Vehicles – The motor vehicle account should include all vehicles for which title and license must be obtained such as cars, trucks, buses, ambulances, boats, airplanes, motorcycles, and road-going trailers. Vehicle accessories will be identified as a component asset (same tag ID with a suffix) of the vehicle to which it was attached. This procedure will be more tedious to the asset custodian who will have to report asset transfers (Exhibit B) when vehicle accessories are taken off one vehicle and placed on another. Vehicle accessories depreciation will follow the depreciable life of the vehicle. Please note that this asset class is the only one where depreciation varies based on the category type.
Object Code Sub-category Description Life
(Yr.)
9008 Motor Vehicles
0801 Passenger Autos 5
0802 4WD Autos 5
0803 Pickups & Vans (Lt. Service) 5
0804 Medium Service 10
0805 Dump Truck (Heavy Srv.) 8
0806 Double Axle 8 0807 Triple Axle 8 0808 Cab/Chassis 15 0809 Semi Trailers 15 0810 Road Tractors 15 0811 Garbage Trucks 10 0812 Buses (9-20 Pass.) 8 0816 Ambulances 5 0817 Fire Trucks 15 0818 Motorcycles 10 0819 Boats 10
After the purchase of a new vehicle has been approved by the County Commission and requisitioned, a purchase order is originated. The department head signs the purchase order as proof of receipt upon getting the vehicle and checking to make sure the vehicle meets order specifications. Then, the purchase order is sent to Accounts Payable for payment to vendor. The title is received and filed in Accounting. Odometer statements are signed by a departmental designee or a Purchasing associate upon receipt of the vehicle. The Purchasing Director is responsible for signing the title for the purpose of co-titling a vehicle. Upon disposal/sale of motor vehicles, the Purchasing Director gains custody of the title from Accounting and is responsible for signing the title at the time of disposition.
Infrastructure – The infrastructure account should include roads, bridges, curbs and gutters, streets and sidewalks, drainage systems, docks, outdoor lighting systems, and similar assets that are immovable and of value only to the governmental unit.
Object Code Sub-category Description Life
(Yr.)
9027 Land Improvements 40
9041 Construction - Roadway 40
9042 Construction – Sewer 40
9043 Construction – Site Prep. 40
9045 Construction Contingency 40
9046 Appraisals & Easement Drawings 40
9054 Const – Recreation Courts 40
9061 Const – Flood Control 40
Infrastructure assets are long-lived capital assets that normally can be preserved for a significantly greater number of years than most capital assets. Because of this difference, controllable infrastructure assets have a historical value between $50,000 and $249,999 and capital infrastructure assets have a historical value of $250,000 or more. Please note that this dollar threshold is different from all other asset categories. Road costs are capitalized when the physical attributes are changed such as a road widening or if the road base is changed. Resurfacing of roads is considered a maintenance cost and will be expensed instead of capitalized.
Depreciation Definition
The usefulness of most assets, other than land and historical art or treasures, declines over time.
Depreciation is the term most often used to indicate that tangible assets have declined in service potential. In accounting terms, depreciation is the process of allocating the cost of tangible property over a period of time. Generally, at the end of an asset’s life, the sum of the amounts charged for depreciation (accumulated depreciation) will equal original cost less salvage value. Hamilton County will calculate depreciation based on the straight-line method, ½ year convention. The information needed to calculate depreciation is as follows:
1. date the asset was placed in service 2. asset cost or acquisition value
3. asset salvage value (Hamilton County’s salvage values will be zero.) 4. asset estimated useful life, Fixed Asset Class table set forth above
Under the straight-line depreciation method, the basis of the asset is written off evenly over the useful life of the asset. In general, the amount of annual depreciation is determined by dividing an asset’s depreciable cost by its estimated useful life. The total amount depreciated can never exceed the asset’s historical cost less salvage value. At the end of the asset’s estimated life, the salvage value will remain. Under the half-year convention, an asset is treated as though it were placed in service or disposed of on the first day of the seventh month of the fiscal year. One-half of a full year’s depreciation is allowed for the asset in its first year placed in service, regardless of when it was actually placed in service during the year. Likewise, one-half of a full year’s depreciation is allowed for the asset in its year of disposition, regardless of when it was actually disposed during the year. Depreciation ends when an asset’s basis is fully recovered, or when it is disposed of or sold. If an asset becomes temporarily idle, depreciation continues to be claimed. Should an asset not be fully depreciated prior to being taken out of service (transferred to surplus inventory),
depreciation will be discontinued. If the asset is ever put back into service, the depreciation will resume. If the asset is disposed or sold, the remaining depreciation on the asset will be recognized as a gain/(loss) at that time.
Depreciable property must meet the following qualifications: It must have a useful life of more than one year.
It must wear out or lose value over time.
In summary, the annual amount of straight-line depreciation is determined by the following equation: Annual depreciation = (historical cost – salvage value)/useful life in years
Annual depreciation = ((historical cost – salvage value)/useful life in years)*50%
Asset Tagging Procedure
The fixed asset identification number tags should be physically attached to the property in a visible location whenever possible. The black numbered asset tags are affixed to “capital” assets and the red tags prefaced with a “C” stating Property of Hamilton County are affixed to the “controllable” assets. These tags are issued by the Property Accountant. Each custodian should make sure that the tags are affixed upon receipt of the tags since, in most cases, the asset is received prior to the asset tag. In all cases, the custodian should have the asset tags affixed prior to a physical audit by the Property Accountant. Once the asset is tagged, the custodian needs to fill out the Fixed Asset Tag Number Log Sheet with serial number, make, and model (See Exhibit A). The asset description should be filled out so that the custodian can distinguish the asset. Once the Property Accountant has received the log sheet, it is his responsibility to update the asset record in the asset system. If the description is different than what was used in the asset record, it is the
responsibility of the Property Accountant to update.
An asset purchased or constructed as an accessory or modification to an asset that is already included in the asset inventory should not be tagged; it should be treated as an improvement to the existing asset.
However, if it is not a permanent addition to the existing asset, it should be tagged and monitored separately.
If a tag becomes misplaced, destroyed, or in need of replacement, it is the custodian’s responsibility to notify the Property Accountant. The Property Accountant will fill in a blank asset tag with the asset number that reportedly needed replacement and send to the custodian. Again, upon receipt of the replacement asset tag, it should be affixed to the asset.
If a tag cannot physically be affixed to the asset, a file should be kept detailing the asset description with serial number and location. This file should be kept in a secure location.
Asset Audit Trails
A purchase order is requested from the purchasing department. It is the combined responsibility of the requisitioning party, Purchasing, Accounts Payable, and Property Accountant to ensure that the purchase orders are charged to the correct general ledger code for all assets. Once payment is made against a purchase order, the detail of information is available on the C611 report. This report, along with the payment voucher and purchase order, is the support used to determine whether items are included in the general fixed assets or not. Therefore, if an asset is purchased with excess fees in fee offices, it is the asset custodian’s responsibility to notify the Property Accountant of the acquisition by filling out a Fixed Asset Physical Inventory Form (Exhibit C). Once an asset is added into the general fixed asset inventory, asset maintenance as described below will need to be reported to the Property Accountant. Asset maintenance includes the following transactions:
1) Transfers
It is the responsibility of the asset custodian from the transferring department to provide the Property Accountant with the transfer form (See Exhibit B). The exception to this rule is if a department is given clearance from Purchasing to send an asset to Surplus Inventory. It then becomes the responsibility of the Purchasing Department to provide the Property Accountant with copies of the transfer form when the asset is actually taken into Surplus Inventory. (See Exhibit E).
i) Intradepartmental ii) Interdepartmental 2) Disposition Process
a) Lost or Stolen
i) It is the responsibility of the asset custodian by location to provide the Property Accountant with the disposition form. (Exhibit D)
ii) A police report should be obtained on all losses suspected of being stolen. b) Scrap, Non-useable
i) When desiring to transfer an asset out to Surplus Inventory, all departments should notify the Purchasing Department. It is the Purchasing Department’s responsibility to determine whether the asset in question is either scrap or surplus. Assets should not be disposed of without the Purchasing Department’s signature. Purchasing will provide the Property Accountant with copies of the disposition form. (Exhibit E)
c) Surplus
i) Computer Hardware is surplussed to Purchasing with assistance from IT Services. All computer hardware is to be tagged as to whether it works or not. When desiring to transfer computer equipment out to Surplus Inventory, a pre-numbered PC Inventory Control Sheet is acquired from Purchasing. A copy of the control sheet should be attached to the physical asset when IT Services retrieves the asset. The Purchasing Department will be responsible for providing the Property Accountant with the control sheet. (Exhibit F)
ii) All other inventory should be coordinated with the Purchasing Department. All inventories to be surplussed will remain in your current inventory until the physical asset is taken to the warehouse. At that point, the inventory will be moved from current inventory to surplus inventory. The Purchasing Department will be responsible for providing the Property Accountant with a copy of the transfer form. (Exhibit E)
d) Auction/Sale
Assets for sale should come through the Surplus Inventory process and the auction/sale process will be coordinated with the Purchasing Department. The Purchasing Department will be responsible for providing the Property Accountant with a copy of the disposal form. (Exhibit E) 3) Inventory/Verification
The departmental asset custodian is responsible for reporting any additions or deletions to the physical inventory to the Property Accountant. (Exhibit C)
Surplus Property - Disposition of Capital Fixed Assets
Note: Please do not remove asset tags from the asset upon moving to Surplus Inventory.
Surplus property is defined as assets retained by the County that are not currently in use. The Purchasing Department administers assets when they are declared surplus by their respective users. Once an asset is determined to be surplus, it is the responsibility of the owning location to coordinate with Purchasing on getting the asset picked up or delivered to a storage location. The asset remains in owning location’s inventory until the asset is physically removed. All surplus property is stored at the Highway Department (vehicles mostly), White Oak warehouse or in Newell Tower (computer equipment only) until Purchasing disposes of it. Purchasing utilizes the public auction process to dispose of surplus property (not to include computers) either manned by county employees or a commercial auction service. An outside recycling vendor is used to dispose of surplus/scrap computers. Surplus computer equipment that is in working order is available to view on the County intranet, www.home.hamiltontn.gov. Surplus equipment is not available for sale to County employees. However, County employees can purchase surplus property at public auctions.
The disposal of all County surplus property is the responsibility of the Purchasing Department. The Scrap and Surplus Property Disposal Authorization Form shall be completed and approved by the elected official, department director or a division administrator prior to declaring property surplus. The Purchasing Department will provide a copy of the Scrap and Surplus Property Disposal Authorization Form (Exhibit E) to the Property Accountant. The Purchasing Department, as outlined below in the Recognition of
Gain/(Loss), will provide proceeds from the sale of fixed assets to the Hamilton County Accounting Department.
Any retirement of fixed assets by sale, trade or scrapping will require approval by the County Purchasing Department to guard against illegal, unauthorized disposition. The Purchasing Department will follow the Hamilton County Purchasing Rules, Section 9, and other applicable state laws to dispose of capital fixed assets.
Recognition of Gain/(Loss) Upon Disposition of Capital Fixed Assets
In accordance with GASB 34, if an asset is sold, retired, or lost before its useful life has ended, then a gain or loss will need to be reported at the government-wide level. At the fund level, proceeds rather than gain or loss will be reported if the asset is sold.
The procedure for sale of fixed assets is as follows:
1) As mentioned above, required approval for moving asset into surplus inventory
2) Purchasing will follow the Hamilton County Purchasing Rules, Section 9, and other applicable state laws for the sale of surplus property.
3) Upon the disposal of the asset, it is the responsibility of the Purchasing Department to forward the following information to the Property Accountant:
a) Copies of disposal forms complete with the asset identification and Hamilton County Fixed Asset number.
b) A reconciliation ledger of monies acquired through a sale. This ledger should include the buyer, the asset sold and the Hamilton County Fixed Asset number, or other identifying number (serial number, make, and model). In some cases, the receipt book can be used as support to calculate the gain/(loss) on sale of fixed assets.
c) The proceeds from the sale will be accounted for in the Purchasing Department. Justification for this entry is to help offset expenses for the auctions. If the asset is capital in nature, the proceeds will reside in the general ledger object code for “Sale of Capital Assets” (8921). For scrap sales, proceeds will reside in the general ledger object code for “Sale of Scrap” (8918). For assets whose historical cost was less than $5,000 or assets that cannot be identified in the asset system, the proceeds will reside in the general ledger object code for “Sale of Surplus Property” (8919).
Physical Inventory Procedure
Inventorying is necessary for accountability and control. Inventorying establishes a direct relationship between actual and recorded fixed assets. An inventory insures that fixed asset transactions have been and are being recorded properly. An inventory also insures that asset policies and procedures are being followed correctly.
In early May of each year, a complete inventory listing (through March of current year) will be furnished to each asset custodian. A comprehensive inventory should be conducted in time for the inventory to be returned to the Property Accountant no later that June 10th of that same year. After the annual inventory has been conducted, the asset custodian will reconcile differences, resolve discrepancies, and return the signed inventory listing to the Property Accountant. The Property Accountant will update the fixed asset system for the changes submitted by the asset custodian. The new asset inventory listing will be used to establish the new fiscal year inventory.
It will be the responsibility of the Property Accountant to audit each location every 4 years on a cyclical basis. This means that all locations do not have to be audited at the same time. The cyclical audit will require a cutoff date when the results are analyzed, and any interdepartmental transfers that occurred over the audit period can be reconciled. It is the responsibility of the asset custodian to have the inventory properly identified prior to the physical audit.
Policy Exceptions
Assets that are paid for through County funding but used by another entity will be considered a donation to the other entity unless specified via a resolution or other type of contractual document. Examples of donated assets are those used by the Volunteer Fire Departments and the Methamphetamine Task Force. If any of these assets come back into the possession of Hamilton County, they will be included at fair market value in the year that the County gained custody of them.
Another exception currently is the assets obtained by the Public Defenders Office. In 1999 a decision was made by the Attorney General stating that all equipment purchased for the use of the Public Defender’s Office belongs to the State regardless of the funding source.
Hamilton County Fixed Asset Policy
Table of Contents
Introduction……… Page 1 Accounting Policies………... Page 1 Classes of Capital Property………... Page 1 Fixed Asset Classes and Depreciable Life……… Page 2 Land………... Page 2 Buildings……….. Page 2 Improvements other than buildings………. Page 2 Construction Work In Progress (CWIP)……….. Page 3 Machinery and Equipment………... Page 3 Motor Vehicles……….Page 6 Infrastructure……… Page 6 Depreciation Definition………. Page 7 Asset Tagging Procedure………... Page 8 Asset Audit Trails……….. Page 8 Transfers………... Page 8 Disposals………... Page 8 Lost/Stolen………... Page 8 Scrap, non-useable………... Page 8 Surplus………. Page 9 Auction/Sale………. Page 9 Inventory Verification………... Page 9 Surplus Property – Disposition of Capital Fixed Assets……….... Page 9 Recognition of Gain/(Loss) Upon Disposition of Capital Fixed Assets……… Page 10 Physical Inventory Procedure……… Page 10 Policy Exceptions……… ……….. Page 10 Exhibits ………. Page 11 A – Fixed Asset Tag Number Log Sheet………. Page 11 B – Fixed Assets Transfer Form………... Page 12 C – Fixed Assets Physical Inventory Form………... Page 13 D – Fixed Assets Disposition Form……….. Page 14 E – Scrap and Surplus Property Disposal Authorization Form……… Page 15 F – PC Inventory Control Sheet……… Page 16
