Comprehensive Annual Financial Report 12/31/2011

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CITY OF LINO LAKES, MINNESOTA NOTES TO FINANCIAL STATEMENTS December 31, 2011 Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) M. COMPENSATED ABSENCES It is the City's policy to permit employees to accumulate earned but unused vacation and sick pay benefits. All vacation pay and the portion of sick pay allowable as severance pay is accrued as incurred in the government -wide and proprietary fund financial statements. The current portion is calculated based on historical trends. N. LONG -TERM OBLIGATIONS In the entity-wide financial statements, long -term debt and other long -term obligations are reported as liabilities in the applicable governmental activities. Bond premiums and discounts are deferred and amortized over the life of the bonds using the straight -line method. Bond issue costs, if material, are amortized over the term of the related debt using the straight -line method. In the governmental fund financial statements, bond premiums and discounts, as well as bond issue costs are recognized during the current period. The face amount of the debt issue is reported as other financing sources. Premiums received on debt issuances are reported as other financing sources while discounts are reported as other financing uses. Issue costs are reported as debt service expenditures. O. FUND EQUITY At December 31, 2011, the City adopted GASB Statement No. 54, Fund Balance Reporting and Governmental Fund Type Definitions. In the fund financial statements, governmental funds report fund balances in classifications that disclose constraints for which amounts in those funds can be spent. These classifications are as follows: Nonspendable — portions of fund balance related to prepaids, inventories, long -term receivables, and corpus on any permanent fund. Restricted — funds are constrained by external parties (statute, grantors, bond agreements, etc). Committed — funds are established and modified by a resolution approved by the City Council. Assigned — consists of internally imposed constraints. These constraints are established by the City Council and/or management. The City Council also delegates the authority to assign fund balance to the Finance Director. Unassigned — is the residual classification for the General Fund and also reflects negative residual amounts in other funds. When an expenditure is incurred for purposes for which both restricted and unrestricted fund balance is available, it is the City's policy to use restricted first, then unrestricted fund balance. When an expenditure is incurred for purposes for which committed, assigned, and unassigned amounts are available, it is the City's policy to use committed first, then assigned, and finally unassigned amounts. Gala The City formally adopted a fund balance policy for the General Fund. The policy establishes an unassigned fund balance range of 40% - 50% of General Fund operating expenditures. 41 �.