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feasibly study would not be capitalized while legal costs to acquire property would be <br />capitalized. <br />The historical cost of a capital asset should include the cost of any subsequent additions or <br />improvements but exclude the cost of repairs and maintenance. An addition or improvement, <br />unlike a repair, either enhances a capital asset's functionality (effectiveness or efficiency), or it <br />extends a capital asset's expected useful life. For example, mill and overlays or periodically <br />resurfacing a new road would be treated as a repair (the cost would not be capitalized), while <br />reconstructing a road or adding a new lane constitutes an addition (a cost that would be <br />capitalized). <br />In the event the historical cost of a capital asset is not practically determinable, it will be <br />necessary to record an estimated historical cost of the asset using alternative methods. <br />Alternative methods include standard costing and normal costing. Standard costing estimates <br />the historical cost of a capital asset by establishing the average cost of obtaining the same or a <br />similar asset at the time of acquisition. Normal costing estimates historical cost based on the <br />current cost to either reproduce or replace the capital asset, indexed by a reciprocal factor <br />from the estimated acquisition date, i.e., taking the value of acquiring the asset new today and <br />then discounting that amount by an appropriate inflation factor back to the date of acquisition. <br />Assets that the City purchases at a nominal amount or are given by another party are to be <br />recorded as donations rather than using the actual nominal cost to the City. Donated capital <br />assets should be reported at their estimated fair value at the time of acquisition plus ancillary <br />charges, if any. Fair value is the amount at which an asset could be exchanged in a current <br />transfer at arm's length between willing parties, other than in a forced or liquidation sale. For <br />assets that do not have easily obtainable fair market values, the City should use the amount it <br />would cost them to purchase or contract the asset in question. Donations are defined as <br />voluntary contributions of resources to the City by a non -governmental entity. A voluntary <br />contribution of resources between governmental entities is not a donation. <br />Section III: Major Asset Classes <br />Governments commonly report seven or more major classes of capital assets: <br />1. Land <br />Land is generally characterized by an indefinite useful life; therefore, it is not depreciated. <br />The cost of land should not only include its acquisition price, but also the cost of initially <br />preparing the land for its intended use (excavation, fill, grading). Land frequently is closely <br />associated with some other assets (e.g., land under a building or road). No matter how <br />close this relationship may be, land should always be treated separately. Examples of <br />items to be capitalized as land and land improvements include: <br />Purchase price or fair value at time of gift <br />Commissions <br />