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City of Little Canada, Minnesota Notes to the Financial Statements December 31, 2023 Note 1: Summary of Significant Accounting Policies (Continued) Capital Assets Capital assets, which include land, buildings, improvements, equipment, infrastructure (utility systems, roads, bridges, sidewalks, and similar items), and intangible assets such as easements are reported in the applicable governmental or business-type activities columns in the government-wide financial statements. Such assets are capitalized at historical cost, or estimated historical cost for assets where actual historical cost is not available. Donated assets are recorded as capital assets at their acquisition value at the date of donation. The City defines capital assets as those with an initial, individual cost of $5,000 with an estimated useful life in excess of one year. The cost of normal maintenance and repairs that do not add to the value of the asset or materially extend asset lives are not capitalized. In the case of the initial capitalization of general infrastructure (those reported by governmental activities) the City chos e to include all such items, regardless of their acquisition date or amount. The City was able to estimate the historical cost for the initial reporting of these assets through back-trending (i.e. estimating the current replacement cost of the infrastructure to be capitalized and using an appropriate price-level index to deflate the cost of the infrastructure to the acquisition year or estimated acquisition year). Capital assets are recorded in the government-wide and proprietary fund financial statements, but are not reported in the governmental fund financial statements. Capital assets are depreciated using the straight-line method over their estimated useful lives. Land and construction in progress are not depreciated. The estimated useful lives are as follows: Assets Years Buildings 40 Other Improvements 5 to 25 Machinery and Equipment 5 to 15 Infrastructure - Streets 25 Infrastructure - Water and Sewer 50 Deferred Outflows of Resources In addition to assets, the statement of net position will sometimes report a separate section for deferred outflows of resources. This separate financial statement element, deferred outflows of resources, represents a consumption of net assets that applies to future periods and so will not be recognized as an outflow of resources (expense/expenditure) until then. The City has one items that qualifies for reporting in this category. The item, deferred pension resources, is reported only in the statements of net position and results from actuarial calculations and current year pension contributions made subsequent to the measurement date. Compensated Absences It is the City’s policy to permit employees to accumulate earned by unused vacation and sick pay benefits. Employees may accrue up to 240 hours of vacation and 40 hours of compensation time. All vacation pay is accrued when incurred in the government-wide and proprietary fund financial statements. For governmental activities, compensated absences are generally liquidated by the General Fund. A liability for these amounts is reported in governmental funds only if they have matured, for example, as a result of employee resignations and retirements 65