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Elk River Municipal Utilities <br /> Elk River, Minnesota <br /> Notes to the Financial Statements <br /> December 31, 2017 <br /> Note 1: Summary of Significant Accounting Policies (Continued) <br /> Long-term Obligations <br /> Long-term debt is reflected as a liability in the fund issuing the obligation. Bond premiums and discounts are amortized <br /> over the life of the bonds using the straight-line method. Bond issuance costs are reported as an expense in the period <br /> incurred. <br /> Performance Metrics and Incentive Compensation <br /> Through Utilities Performance Metric-based Incentive Compensation system (UPMIC)the Utilities employees will have an <br /> 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 net position and fund financial statements will sometimes report a separate <br /> section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, <br /> represents an acquisition of net position that applies to a future period(s) and so will not be recognized as an inflow of <br /> resources (revenue) until that time. The Utility has only one type of item which qualifies for reporting in this category. The <br /> item, deferred pension resources, is reported only in the statement of net position and results from actuarial calculations. <br /> Net Position <br /> Net position represents the difference between assets and deferred outflows of resources and liabilities and deferred <br /> inflows of resources. Net position is displayed in 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 investment in <br /> 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 /> 33 <br /> A7 <br />