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Capital Assets Policy - Fauquier County

Capital Assets Policy - Fauquier County

When assets are acquired

When assets are acquired by gift or donation, the asset will be recorded at the fair market value on the date of donation. If the original cost of an item already in service is unavailable at the time of capitalization, then the current estimated replacement cost will be used. Both fair market value and current estimated replacement cost are subject to the capitalization thresholds detailed in this section. Certain grants may impose restrictions that differ from this policy. In such an instance, the County will apply the standard required by the grant. 7. Departmental Roles and Responsibilities This policy sets forth responsibility for the custody and use of specific assets, and the accounting requirements to accumulate and report essential data, including the computation of depreciation and amortization, when necessary. Department’s and Agency’s Role Report to the Finance Department any changes in assets as prescribed by the Capital Asset Procedure, to include the acquisition, donation, transfer, and disposal of capital assets; and Report to the Finance Department any significant and unexpected decline in the useful life or service utility of an asset. Detailed guidelines are provided in section 9 below and the Capital Asset Procedure. Finance Department’s Role Record acquisition of assets, from the purchase order/accounts payable records, and information submitted by responsible department/office/agency; and Record information on donations, transfers, and disposals as reported by the responsible department/office/agency; and Implement an annual inventory process to accurately account for all capital assets; and Compute and record depreciation and amortization expense annually; and Reduce the book value of impaired assets as necessary; and Comply with the requirements of the Virginia Auditor of Public Accounts, federal and state grants, and GAAP as prescribed by this policy; and Report annual depreciation and amortization expense and book value of capital assets in the County’s Comprehensive Annual Financial Report 8. Estimated Useful Life and Depreciation / Amortization The estimated useful life of an asset is the period during which a capital asset provides service. Fauquier County follows the Government Finance Officers 4

Association recommended practice of estimating the useful lives of capital assets by taking into account the following factors: Quality – Similar assets may differ substantially in quality (and hence their useful lives) because of differences in materials, design, and workmanship. Application – The useful life of a given type of capital asset may vary significantly depending upon its intended use. Environment – Environmental differences among governments can have an important impact on the useful lives of their respective capital assets. Life estimates are required for all classes except land and land rights that are granted in perpetuity and have indefinite useful lives. Industry guidelines are used to estimate useful lives of capital assets. Any extended life resulting from a major change in the asset unit is specified at the time of the change. Replacement must add to the useful life of the original asset, if capitalized as part of a larger asset. The following are the County and Schools’ primary asset classes and useful life guidelines: Asset Class Years Buildings and improvements 40 – 45 Infrastructure 15 – 50 Machinery and equipment 5 – 15 Vehicles 3 – 12 Intangible assets 3 - 5 Depreciation / amortization is calculated and recorded annually to allocate the expense associated with the acquisition of an asset over its estimated useful life, except for assets that have an indefinite useful life. The method used is the straight line method with the modified half-year convention. 9. Asset Impairment Each department shall be responsible for reporting asset impairments to the Finance Department. A capital asset is considered impaired when its useful life / service utility has declined significantly and unexpectedly. Capital asset impairments most often result from one of the following events or changes in circumstances: Physical damage where action would be needed to restore lost service utility; Changes in laws, regulations, or other environmental factors that negatively affect service utility; 5

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