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Tangible Capital Assets Where Are We At? What Next? AAMDC Spring Convention & Trade Show Edmonton, Alberta March 18, 2008 Presenters Christina Parkins Financial Advisory Services Municipal Affairs Harold Johnsrude, CA Harold Johnsrude Consulting Inc. Barb Lyons, CGA Director of Corporate Services Yellowhead County 2 AMA Project Goals Provide tools and training Raise awareness Mitigate the cost 3 Session Overview Status Report TCA Toolkit On-site example What’s next 4 Definition angible – can be touched apital – lasts over time sset – has measurable value 5 Global View Canada & Provinces 2000-2003 USA 2006 Australia 1998 New Zealand 1990 Canadian Municipalities 2009 6 Why? 7 Outside Contributions Provincial grants Federal grants Developers Constructed assets funded from third parties require replacement 8 Toolkit www.MEnet.ab.ca 9 Toolkit Overview Section 2 - Implementation PS 3150 Summary of PS 3150 Implementation plan Implementation budget 10 Toolkit Overview Section 3 Policies & Guidelines 11 Major Asset Classifications Land Land improvements Buildings Engineered structures Machinery & equipment Vehicles Cultural & historical 12 Engineered Structures Minor Asset Classifications Roadway system Light rail transit system Water system Wastewater system Storm system Fibre optics Electricity system Gas distribution system 13 Guideline #2 – Useful Life and Amortization Methods Recommended maximum life Amortization methods 14 Guideline #3 Capitalization Thresholds The minimum value of an expenditure that meets the criteria of a TCA and that will be recorded as a TCA. 15 Capitalization Thresholds Factors to consider: Materiality Record keeping Asset management Rate setting 16 Suggested Rural Thresholds Land Land improvements Buildings Engineered Structures Machinery & Equipment Vehicles $0 $5,000 $50,000 $50,000 $5,000 $5,000 17 Guideline #5 – Networks, Segments & Components 18 Networks 19 Network 20 Segments 21 Components 22 Network Approach Simplest form Easier to track Historically – easier to value More difficult to • • Establish capitalization thresholds Determine the value of components replaced 23 Segment Approach Better basis for asset management More accurate information Easier to identify costs of assets replaced More detail requires more recording 24 Component Approach Better basis for asset management More accurate – useful life and amortization Deals with unique components better More detail requires more recording 25 Road System Networks Network by road type Gravel Chip seal Asphalt Townships Intersections Mile 26 Network Decision Initially, keep it simple! Progressively increase detail. 27 Guideline #6 – Valuation Date Change in municipal entity Dissolution Amalgamation Annexations 28 Capital Asset Policy 1. 2. 3. 4. 5. 6. 7. 8. 9. Purpose & Scope Asset Definitions & Classification Asset Recording & Valuation Amortization Methods and Rates Review & Write-downs Maintaining Records Asset Disposal Systems Reporting & Budgeting 29 Toolkit Overview Section 4 – Asset Inventory & Valuation Guidelines to determine asset data Data to record by type of asset Essential Important Optional 30 Valuation Approaches Actual Cost Estimated Cost Reproduction (discounted) Replacement (discounted) Appraisal (discounted) Residual Nominal 31 Valuation Tools Linear Roads Drainage Water & Wastewater Bridges 32 Implementation Example Yellowhead County Barb Lyons, CGA Director of Corporate Services 33 Project Overview 18 months and still more to do! Supportive Council Provided necessary resources Supports finance staff Funding provided for Computer hardware/software Staff time 34 Project Principle Benefit of having the information must outweigh the cost of collecting it. 35 Benefits Expected Will provide a picture of assets owned with the age and condition. Will assist in determining future infrastructure requirements resulting in better resource allocation. 36 Free Resources! Other municipalities Government Finance Officers Association Accounting manuals Workshops AMA toolkit 37 Capital Policy Formal approval of a TCA policy is crucial! 38 Technical Side of Project Data Entry Verification of historical cost New software training Interface with GIS Asset valuation Recording amortization 39 Future Challenges Asset valuation Meeting the January 1, 2009 deadline Budgeting for annual amortization Revised financial statement format Revised Financial Information Return 40 Important Points to Remember Keep the project in perspective Use good judgment and common sense Take advantage of all the resources available Don’t re-invent the wheel 41 Impact to Our Municipality Each municipality will be different. Factors include: Age of TCA TCA’s recorded/not recorded Donated assets 42 PS 3150 TCA’s on Balance Sheet will be: At cost, less amortization and write downs Amortization and write-downs will be a charge against annual income 43 Impact of Recording TCA’s Brings a non-cash dimension to financial reporting and budgeting Full Accrual Accounting This change does not require a change in behavior, but it may cause you to change because there will be more information available 44 Legislative Impact Municipalities will not be required to fund amortization 45 Future Changes PS Handbook 1200 Changes to Financial Reporting 46 Summary Resources • Considerable work is required to implement this change • Resources and expertise will be required •Involve auditors, engineers and facility management personnel early on! Benefits • Awareness of problem and magnitude • Better internal information for decision makers • Significant step towards good asset management Next Steps • Replacement cost reassessment • Status of reserve fund levels • Asset Management 47 Questions? 48