ERMUSR FINIANCIALS 04-17-2008 - Laserfiche WebLink

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ELK RIVER MUNICIPAL UTILITIES ELK RIVER, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2007 AND 2006 Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -CONTINUED 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. Capital 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: Description Lives in Years Electric Water Production Transmission Distribution General Long-term Obligations 4 - 20 25 - 50 35 - 10-33 25 -50 10-50 10-50 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. Compensated Absences 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 960 hours from year to year. Upon termination or retirement, employees will have 50% of unused sick leave, up to a maximum of 800 hours, converted to cash and deposited into their Post Health Care Savings account. The liability for vacation and sick pay is reported as a liability in the respective funds at year end. -16-