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
 signed
_________________________________ 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) 5
Computer software (programs) 5
Cooking equipment 10
Dogs 5
Drafting equipment 10
Furniture - Office furniture 10
Gas engines, pumps (large) 10
Horses 10
Ice machines 10
Lab/medical equipment 10
Mechanical files 5
Microfilm cameras 10
Microfilm equipment 10
Photocopiers 5
Photographic equipment (cameras, projectors, etc.) 10
Printing, bindery, inserting equipment 15
Repair and maintenance equipment 10
Small engines/light motorized equipment 3
Steam generating systems 20
Surveying equipment 10
Trailers 10
Vehicles - Fire engines 15
Vehicles - Heavy duty vehicles 10
Vehicles - Light trucks 5
Vehicles - Paramedic vans 5
Vehicles - Police vehicles 2
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.
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