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CITY OF LINO LAKES, MINNESOTA <br />NOTES TO FINANCIAL STATEMENTS <br />December 31, 1994 <br />PROPRIETARY FUNDS <br />Fixed assets of the Proprietary Funds are stated at historical cost, estimated historical cost, or in the <br />case of contributions, at fair market value at the time received. Depreciation has been provided using <br />the straight -line method over the estimated useful lives of assets, as follows: <br />Purchased assets: <br />Water 5 - 50 years <br />Sewer 5 - 25 years <br />Contributed assets: <br />Water 20 - 50 years <br />Sewer 20 - 50 years <br />Fixed assets of the water and sewer utility operations include the water distribution system and sewage <br />collection system. These systems have been wholly (or substantially) financed by non - operating funds <br />(special assessments, general taxes, federal and state grants, and other sources) and contributed to the <br />sewer and water operating funds. City policy is to finance these assets by the sources indicated rather <br />than by user charges. Accordingly, the water and sewer user rates are not established at levels sufficient <br />to cover depreciation on these assets. <br />Depreciation on these assets is shown in the operating statements; however, the depreciation is <br />eventually transferred against the contribution account rather than retained earnings in accordance with <br />generally accepted accounting principles. Consequently, the contribution account reflects the net book <br />value of contributed assets rather than the original cost of such assets. <br />M. COMPENSATED ABSENCES <br />It is the City's policy to permit employees to accumulate earned but unused vacation and sick pay <br />benefits. Amounts that are expected to be liquidated with expendable available fmancial resources is <br />reported as an expenditure and a fund liability of the governmental fund that will pay it. Amounts that <br />are not expected to be liquidated with expendable available fmancial resources are reported in the General <br />Long -Term Debt Account Group. No expenditure is reported for these amounts. An unpaid vacation <br />and severance pay is payable when used or upon termination of employment. In accordance with the <br />provisions of Statement of Government Accounting Standards No. 16, Accounting for Compensated <br />Absences, no liability is recorded for nonvesting accumulating rights to receive sick pay benefits. Sick <br />leave is payable when used and in some cases upon termination of employment. For several <br />employees, sick leave is payable upon retirement or termination in accordance with the terms of their <br />employment contracts. The remaining sick leave amounts are not recorded as liabilities because <br />payment is not probable. <br />N . LONG -TERM OBLIGATIONS <br />Long -term debt is recognized as a liability of a governmental fund when due, or when resources have <br />been accumulated in the Debt Service Fund for payment early in the following year. For other long- <br />term obligations, only that portion expected to be fmanced from expendable available financial <br />resources is reported as a fund liability of a governmental fund. The remaining portion of such <br />obligations is reported in the General Long -Term Debt Account Group. Long -term liabilities expected <br />to be financed from proprietary fund operations are accounted for in those funds. <br />O. FUND EQUITY <br />Contributed capital is recorded in Proprietary Funds that have received capital grants or contributions <br />from developers, customers or other funds. Reserves represent those portions of fund equity not <br />appropriable for expenditure or legally segregated for a specific future use. Designated fund balances <br />represent tentative plans for future use of financial resources. <br />25 <br />