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ELK RIVER MUNICIPAL UTILITIES <br /> ELK RIVER,MINNESOTA <br /> NOTES TO THE FINANCIAL STATEMENTS <br /> DECEMBER 31,2015 <br /> Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-CONTINUED <br /> Performance Metrics and Incentive Compensation <br /> Through Utilities Performance Metric-based Incentive Compensation system(UPMIC)the Utilities employees will have <br /> an opportunity,as a group,to each earn a maximum of 2 percent of their total gross wage paid during the Measurement <br /> Period.The percentage of UMPIC is calculated using a Score Card.The Score Card has three categories: Safety, <br /> Reliability and Quality of Utility Services which are divided into various weighted factors. This incentive was created to <br /> help the Utilities to become more efficient and successful in meeting strategic goals and mission and deliver improved <br /> value to the Utilities customers.The liability at year end is recorded as part of accrued wages. <br /> Deferred inflows of resources <br /> In addition to liabilities,the statement of financial position and fund financial statements will sometimes report a <br /> separate section for deferred inflows of resources.This separate financial statement element,deferred inflows of <br /> resources,represents an acquisition of net position that applies to a future period(s)and so will not be recognized as an <br /> inflow of resources(revenue)until that time. The Utility has only one type of item which qualifies for reporting in this <br /> category. The item,deferred pension resources,is reported only in the statements of net position and results from <br /> actuarial calculations. <br /> Net position <br /> Net position represents the difference between assets and liabilities and deferred inflows.Net position is displayed in <br /> three components: <br /> a. Net investment in capital assets-Consists of capital assets,net of accumulated depreciation reduced by any <br /> outstanding debt attributable to acquire capital assets. <br /> b. Restricted net position-Consists of net position restricted when there are limitations imposed on their use <br /> through external restrictions imposed by creditors,grantors,laws or regulations of other governments. <br /> c. Unrestricted net position-All other net position that do not meet the definition of"restricted"or"net <br /> investment in capital assets". <br /> When both restricted and unrestricted resources are available for use,it is the Utilities'policy to use restricted resources <br /> first,then unrestricted resources as they are needed. <br /> 130 <br />