6.1. ERMUSR 05-11-2004 - Laserfiche WebLink

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ELK RIVER MUNICIPAL UTILITIES ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31,2003 AND 2002 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED Fixed Assets Fixed assets are stated at cost. Expenditures for maintenance and repairs are charged to operations and expenditures, which 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 in the invested proceeds over the same period. 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 35 - Distribution 10-33 25 -50 General 10-50 10-50 Depreciation expense in 2003 and 2002 totaled$1,652,417 and$1,262,472,respectively,of which$1,067,063 and$969,913 were for the Electric fund and$585,354 and$292,559 were for the Water fund,respectively. Long-term Obligations Long-term debt is reflected as a liability in the fund issuing the obligation. Bond discounts and issuance costs are deferred and amortized over the life of the bonds using the straight-line method. Unpaid Vacation and Sick Leave All vacation benefits can be carried over from year to year and will be payable upon termination. Sick leave can be accumulated to a maximum of 100 days from year to year and a reduction percentage of 40 percent will be applied to arrive at sick leave paid upon termination. The liability for vacation and sick pay is reported as a liability in the respective funds at year end. The liability in the Electric and Water funds was$159,276 and $148,336 and$53,092 and$49,445 at December 31, 2003 and 2002,respectively. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenditures during the reporting period. Actual results could differ from those estimates. -15-