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CITY OF HUGO, MINNESOTA <br />NOTES TO FINANCIAL STATEMENTS (CONTINUED) <br />1. Summary of Significant Accounting Policies (Continued) <br />D. Assets, Liabilities, Deferred Inflows of Resources, and Net Position or Equity (continued) <br />4. Capital assets <br />Capital assets, which include property, plant, equipment, and infrastructure assets (e.g., <br />roads, bridges, sidewalks, and similar items), are reported in the applicable governmental <br />or business -type activities columns in the government -wide financial statements. Capital <br />assets are defined by the government as assets with an initial, individual cost of more than <br />$5,000 and an estimated useful life greater than one year. Such assets are recorded at <br />historical cost or estimated historical cost if purchased or constructed. Donated capital <br />assets are recorded at estimated fair market value at the date of donation. The costs of <br />normal maintenance and repairs that do not add to the value of the asset or materially <br />extend assets lives are not capitalized. <br />Major outlays for capital assets and improvements are capitalized as projects are <br />constructed. Interest incurred during the construction phase of capital assets of business - <br />type activities is included as part of the capitalized value of the assets constructed, net of <br />interest earned on the invested debt proceeds over the same period. Property, plant and <br />equipment are capitalized when acquired, and depreciation is provided using the straight- <br />line method applied over the following estimated useful lives of the assets. <br />Useful Life <br />in Years <br />Buildings 20-30 <br />Infrastructure 30-40 <br />Other Improvements 10-15 <br />Machinery and Equipment 5-30 <br />The City reviews its property, plant and equipment for impairment whenever events <br />indicate the decline in service utility of the capital asset is significant in magnitude and the <br />event of change in circumstances is outside the normal cycle of the capital assets. <br />5. Comaensated absences benefits <br />Vacation, sick pay and compensatory overtime are accrued when earned in the <br />government -wide financial statements and the proprietary fund types. In the <br />Governmental Funds of the fund financial statements, vacation, sick pay and <br />compensatory overtime are recorded as expenditures and accrued as current liability only <br />if they have matured, for example, as a result of employee's resignations and retirements. <br />36 <br />