5.1. ERMUSR 05-14-2013 - Laserfiche WebLink

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ELK RIVER MUNICIPAL UTILITIES ELK RIVER,MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31,2012 AND 2011 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUED Interfund receivables and payables Transactions between funds that are representative of lending/borrowing arrangements outstanding at the end of the fiscal year are referred to as either"interfund receivables/payables"(i.e.,the current portion of interfund loans)or "advances to/from other funds"(i.e.,the non-current portion of interfund loans). All other outstanding balances between funds are reported as"due to/from other funds". Inventories Inventories are stated at lower of average cost or market on the first-in, first-out(FIFO)method. Prepaid items Certain payments to vendors reflect costs applicable to future accounting periods and are recorded as prepaid items. Restricted assets The amounts in the restricted cash account are set aside in accordance with the issuing resolution for specific bond issues. They will be used for future debt service. Capita!assets Capital assets are stated at cost. Capital assets are defined by the Utilities as assets with an initial individual cost of more than$5,000 and an estimated useful life in excess of two years. Expenditures for maintenance and repairs are charged to operations and expenditures that extend the useful life of the asset are capitalized and depreciated.When assets are retired or sold,the related cost and accumulated depreciation are removed from the accounts and any gain or loss on disposition is included in operations. Major expenditures for improvements or capital asset projects are capitalized as projects are constructed.Interest incurred during the construction phase is reflected in the capitalized value of the asset constructed,net of interest earned on the invested proceeds over the same period. Interest incurred during the construction phase of capital assets of business-type activities is included as part of the capitalized value of the assets constructed. The Utilities follow the policy of providing depreciation on the straight-line method over the estimated useful lives of the assets, which are as follows: Lives in Years Description Electric Water Production 4-20 25-50 Transmission 30 - Distribution 10-33 25-50 General 10-50 10-50 Long-term obligations Long-term debt is reflected as a liability in the fund issuing the obligation. Bond premiums and discounts are amortized over the life of the bonds using the straight-line method. Bond issuance costs are reported as an expense in the period incurred. 34