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CITY OF LINO LAKES, MINNESOTA <br />NOTES TO FINANCIAL STATEMENTS <br />December 31, 2002 <br />Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) <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 />U.S. generally accepted accounting principles. Consequently, the contribution account reflects the net <br />book value of contributed assets rather than the original cost of such assets. <br />N. 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 financial resources are <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 financial resources are reported in the <br />General Long -Term Debt Account Group. No expenditure is reported for these amounts. An unpaid <br />vacation and severance pay is payable when used or upon termination of employment. In addition, an <br />amount is recorded for those individuals not eligible for retirement at December 31, 2002, but for <br />whom a payout of the amount earned to that date is expected. In accordance with the provisions of <br />Statement of Government Accounting Standards No. 16, Accounting for Compensated Absences, a <br />liability is recorded for nonvesting accumulating rights to receive sick pay benefits. Sick leave is <br />payable when used and in some cases upon termination of employment. For several employees, sick <br />leave is payable upon retirement or termination in accordance with the terms of their employment <br />contracts. The remaining sick leave amounts are not recorded as liabilities because payment is not <br />probable. <br />O. 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 financed 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 />P. 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 />Q. INTERFUND TRANSACTIONS <br />Quasi - external transactions are accounted for as revenues, expenditures or expenses. Transactions that <br />constitute reimbursements to a fund for expenditures /expenses initially made from it that are properly <br />applicable to another fund, are recorded as expenditures /expenses in the reimbursing fund and as <br />reductions of expenditures /expenses in the fund that is reimbursed. <br />All other interfund transactions, except quasi - external transactions and reimbursements, are reported as <br />transfers. Nonrecurring or nonroutine permanent transfers of equity are reported as residual equity <br />transfers. During 2002, the City made a residual equity transfer to close a capital project fund. All <br />other interfund transfers are reported as operating transfers. <br />26 <br />