HomeMy WebLinkAbout5.F.5. Fixed Asset Capitalization Level~: ~= S;
CITY OF SHAKOPEE
Memorandum
TO: Mayor and Council
Mark McNeill, City Administrator
FROM: Gregg Voxland, Finance Director
SUBJ: Fixed Asset Capitalization Level
DATE: October 5, 2010
CONSEtdi
Introduction
Council is requested to increase the threshold at which the purchase of an item is capitalized
and recorded as a fixed asset.
Background
The current threshold of capitalization of a purchase is generally a life of more than one year
and a cost of $5,000 or more. This has been in place for more than a decade. Due to inflation
and the few items purchased and capitalized that cost between $5,000 and $10,000, it is
recommended to increase the threshold from $5,000 to $10,000 and the life from more than
one year to more than two years.
When an item is capitalized, it is recorded as a fixed asset and becomes a balance sheet amount
versus an expenditure amount. It is then generally depreciated over an estimated useful life.
For the General Fund, depreciation only affects the very top level financial statements that are
in the front of the Comprehensive Annual Financial Report. It does not affect the budget where
it shows as a capital expenditure.
This change will have a very minimal impact on operation or the financial statements of the City.
Action Requested
Move to increase the capitalization threshold from $5,000 to $10,000 due to inflation and the
few items purchased that cost between those two amounts and to increase the life from more
than one year to more than two years.
Gre~ xland
Finance Director