Annual Financial Report 12/31/1992

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CITY OF LINO LAKES, MINNESOTA NOTES TO FINANCIAL STATEMENTS December 31, 1992 Page 7 of 19 PROPRIETARY FUNDS Fixed assets of the Proprietary Funds are stated at historical cost, estimated historical cost, or in the case of contributions, at fair market value at the time received. Depreciation has been provided using the straight -line method over the estimated useful lives of assets, as follows: Purchased assets: Water 5 - 25 years Sewer 5 - 25 years Contributed assets: Water 20 - 50 years Sewer 20 - 50 years Totals Fixed assets of the water and sewer utility operations include the water distribution system and sewage collection system. These systems have been wholly (or substantially) financed by non - operating funds (special assessments, general taxes, federal and state grants, and other sources) and contributed to the sewer and water operating funds. City policy is to finance these assets by the sources indicated rather than by user charges. Accordingly, the water and sewer user rates are not established at levels sufficient to cover depreciation on these assets. Depreciation on these assets is shown in the operating statements; however, the depreciation is eventually transferred against the contribution account rather than retained earnings in accordance with generally accepted accounting principles. Consequently, the contribution account reflects the net book value of contributed assets rather than the original cost of such assets. M. COMPENSATED ABSENCES The accrued liability for compensated absences is not recorded as a liability in the General Long -Term Debt Account Group (for governmental funds) nor the Proprietary Funds. Unused vacation, the portion of sick leave payable as severance pay, and the compensatory time are not considered material to these financial statements. Unpaid vacation pay totaled $23,940 and $16,147 at December 31, 1992 and 1991 respectively. The City also has an unrecorded contingent liability for unused employee sick leave of $229,682 and $213,624 at December 31, 1992 and 1991 respectively. N . LONG -TERM OBLIGATIONS Long -term debt is recognized as a liability of a governmental fund when due, or when resources have been accumulated in the Debt Service Fund for payment early in the following year. For other long- term obligations, only that portion expected to be financed from expendable available financial resources is reported as a fund liability of a governmental fund. The remaining portion of such obligations is reported in the General Long -Term Debt Account Group. Long -term liabilities expected to be financed from proprietary fund operations are accounted for in those funds. O. FUND EQUITY Contributed capital is recorded in Proprietary Funds that have received capital grants or contributions from developers, customers or other funds. Reserves represent those portions of fund equity not appropriable for expenditure or legally segregated for a specific future use. Designated fund balances represent tentative plans for future use of financial resources.