HomeMy WebLinkAboutAdministrative Order 2025-02 Capital Asset Policy
CITY OF BOZEMAN
CAPITAL ASSET POLICY
Per Administrative Order 2025-02 dated July 1, 2025.
Capital Asset Policy
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Contents
Capital Asset Policy .......................................................................................................................... 3
I. Authority ................................................................................................................................... 3
II. Purpose .................................................................................................................................... 3
III. Applicability and Scope ............................................................................................................. 3
IV. General Information .................................................................................................................. 4
V. Responsibility ........................................................................................................................... 4
A. City-wide Department Responsibilities .................................................................................. 4
B. Finance Department (FD) Responsibilities .............................................................................. 5
VI. Asset Classification and Capitalization Thresholds ................................................................. 5
A. Land – Account Code 80-70 ................................................................................................... 5
B. Buildings – Account Code 80-80 ............................................................................................. 6
C. Facilities & Other Improvements – Account Code 80-50 .......................................................... 6
D. Infrastructure – Account Code 80-90 ...................................................................................... 7
E. Vehicles – Account Code 80-10 .............................................................................................. 7
F. Machinery & Equipment – Account Codes 80-20 (Equipment), 80-30 (Information Technology
Hardware), 80-40 (Furniture & Fixtures) ........................................................................................... 7
G. Intangible Assets – Account Codes 80-35 (Subscription Based IT Arrangements), 80-60 (Right-
of-Use Lease Assets) ...................................................................................................................... 8
H. Construction in Progress (CIP) ............................................................................................... 9
VII. Additional Capitalization Rules .............................................................................................. 9
VIII. Betterments, Improvements, and Repair and Maintenance ..................................................... 9
IX. Depreciation ....................................................................................................................... 10
X. Retirement (Disposals) ............................................................................................................ 11
XI. Transfers ................................................................................................................................. 11
XII. Impairment ......................................................................................................................... 11
XIII. Acquisition of Capital Assets ............................................................................................... 11
XIV. Additional Information ......................................................................................................... 12
APPENDIX A. General Guidelines and Examples in Capital Determinations and Classifications ......... 13
Capital Asset Policy
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Capital Asset Policy
I. Authority
This policy is established by the City Manager by administrative order in accordance with the City
Commission’s authority to adopt financial policies that guide the operations of the City of Bozeman
(“City”). The Finance Director, under the direction of the City Manager, is responsible for administering
this policy and ensuring consistent implementation across all City departments. Department directors
are responsible for complying with this policy and ensuring that capital asset activities within their
department align with established standards and procedures.
II. Purpose
This policy establishes guiding principles for the financial management of the City’s capital assets.
Capital assets, such as buildings, infrastructure, equipment, and major systems, are essential to the
delivery of public services and the long-term sustainability of City operations. This policy ensures that
capital asset practices:
1. Comply with Generally Accepted Accounting Principles (GAAP), Governmental Accounting
Standards Board (GASB) pronouncements, and applicable State and Federal regulations;
2. Align with industry best practices, including recommendations from the Government Finance
Officers Association (GFOA);
3. Safeguard against loss, unauthorized use, or misappropriation of capital assets;
4. Promote transparency, accountability, and consistency across departments;
5. Support strategic, long-term planning and budgeting for capital maintenance and replacement;
6. Maintain public trust by preserving asset functionality and service levels critical to health,
safety, and quality of life.
This policy establishes internal controls and documentation standards to ensure effective capital asset
stewardship across the City’s operations.
III. Applicability and Scope
This policy applies to all City departments and all funds and capital assets under the control of the City.
Any City employee involved in the acquisition, use, maintenance, monitoring, or disposal of capital
assets is expected to be familiar with and comply with this policy and related administrative orders.
Capital assets covered under this policy are defined as tangible or intangible assets used in operations
that have a useful life extending beyond a single reporting period. This includes land, buildings,
improvements, infrastructure, vehicles, machinery, and equipment that meet the City’s capitalization
threshold.
All purchases valued $10,000 and above should be evaluated to determine if this policy applies.
The Finance Department (FD) reserves the right to capitalize an asset that costs less than $10,000
as needed to comply with GAAP or other regulatory agencies.
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Department directors are responsible for ensuring adherence to this policy and related procedures,
including appropriate documentation, record retention, condition assessments, and timely updates to
the City’s capital asset records. Capital asset information must be maintained in coordination with the
Finance Department, including required updates to the City’s capital asset inventory and accounting
systems.
IV. General Information
The Governmental Accounting Standards Board (GASB) provides the following authoritative definition
of capital assets for state and local governments:
The term capital assets include land, improvements to land, easements, buildings, building
improvements, vehicles, machinery, equipment, works of art and historical treasures,
infrastructure, and all other tangible or intangible assets that are used in operations and that
have initial useful lives extending beyond a single reporting period.
Capital assets should be recorded at original/historical cost, or, if the cost is not readily determinable,
at an estimated original cost. Costs typically include applicable ancillary costs necessary to place the
asset in its intended location and condition for use. Departments are responsible for documenting all
cost, including the methods and sources used to establish any estimates, if applicable. See part VI for
additional information related to ancillary costs.
Capital assets may enter the City’s ownership through several different methods. The valuation of each
asset will depend on how it is acquired, as outlined below:
• Purchased Assets – Assets acquired through purchase will be recorded on the basis of actual
costs supported by vendor invoice or other supporting documentation. Some ancillary costs
may be excluded from the purchase amount. See Section VI for additional Asset Classification
detail.
• Constructed Assets – Assets constructed by the City shall include all direct costs (including
labor if applicable) associated with the construction project.
• Contributed or Donated Assets - Contributed or donated assets must be recorded at
acquisition value, defined as the price that would be paid to acquire an asset with equivalent
service potential in an orderly market transaction at the acquisition date, or the amount at
which a liability could be liquidated with the counterparty at the acquisition date. For donated
land, an appraisal must be dated within the past five (5) years. If no valid appraisal exists, a
reasonable effort must be made to determine an estimated per acre value of the land in
question.
V. Responsibility
A. City-wide Department Responsibilities
Each department plays a key role in managing and safeguarding the City’s capital assets.
Department responsibilities include:
1. Serving as custodians of capital assets that are assigned to their departments.
2. Ensuring full compliance with the established capital asset policy to maintain adequate
records.
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3. Assisting the Finance Department (FD) with an internal review of the Physical Inventory
of Capital Assets.
4. Assisting in identifying capital assets during the budget and/or capital improvement
program (CIP) process. Each capital asset should have a unique project code and
should be budgeted in the proper capital asset classification (see Asset Classification in
part VI). Capital projects that have multiple asset classifications, such as the
construction of a new building and purchase of the furniture and fixtures for the
building, should, when possible, have separate budgets established for each asset
classification.
B. Finance Department (FD) Responsibilities
The Finance Department through the Capital Asset Team, including the Finance Director,
Controller, and Senior Accountant, are responsible for centralized oversight and financial
reporting of the City’s capital assets. Responsibilities include:
1. Reviewing all transactions relating to capital assets, asset number assignment,
preparation and distribution of appropriate asset forms, and monthly updates to the
capital asset system.
2. Ensuring all capital assets belonging to the City are properly identified and recorded in
the General Ledger and Capital Asset module, and that the capital asset module is
reconciled, at least monthly, to general ledger balances.
3. Ensuring journal entries and depreciation expense are properly recorded in the general
ledger and any financial changes are recorded in the capital asset system.
4. Providing departments with the necessary support in capital asset management to
effectively fulfill their duties and responsibilities under this policy.
VI. Asset Classification and Capitalization Thresholds
The City classifies its capital assets into standardized categories for the purposes of accounting,
inventory, depreciation, and financial reporting, as outlined below. This section covers the
capitalization of new assets. For information about betterments, improvements, and repair &
maintenance on existing assets please see section VIII.
A. Land – Account Code 80-70
Land includes all land parcels purchased or otherwise acquired by the City for building sites,
streets, right of way, permanent easement, recreation, future use, etc. This does not include
land held for resale, which is accounted for as an investment.
Land is frequently associated with some other asset (e.g., land under a building or road). Land
should always be treated and accounted for separately. The cost of the land should include not
only the acquisition price, but also the cost of initially preparing land for its intended purpose,
provided these preparations have an indefinite useful life, like the land itself.
If the land is purchased for the purpose of constructing a building, all costs incurred up to the
excavation for the new building should be considered land costs. Removal of an old building,
clearing, grading and filling are considered land costs because they are necessary to get the
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land in condition for its intended purpose. Any proceeds obtained in the process of getting the
land ready for its intended use, such as salvage receipts on the demolition of the old building or
the sale of cleared timber, are treated as reductions in the price of the land.
Capitalization of land costs may include, but may not be limited to, the following:
• Original contract price.
• Brokers’ commission fees.
• Legal fees for examining and recording title.
• Cost of title guarantee insurance policies.
• Cost of excavation, grading or filling of land and razing of an old building.
• Payment of noncurrent taxes accrued on the land at date of purchase, if payable by
purchaser.
Excluded costs may include payroll charges, advertising, process services (includes on-call
Right-of-Way), appraisal fees, and surveys, as they typically are not able to be accurately and
timely associated with the land purchase at closing.
Capital Threshold: Land must be capitalized regardless of the value or cost.
B. Buildings – Account Code 80-80
All permanent structures are included in the classification of buildings. Improvements or
Betterments (see Section VII for additional information) are typically added to the cost of the
related structure, rather than being recorded as a separate asset. This includes restoration
costs following a capital asset impairment, provided they increase the service capacity or
extend the useful life of the building.
Capitalization of costs related to buildings include, but may not be limited to, the following:
• Original purchase price or cost of design and construction.
• Expenses incurred in remodeling, reconditioning, or altering a purchased building to
make it available for the purpose for which it was acquired.
• Expenses incurred for the preparation of plans, specifications, blueprints, and other
required design documentation.
• Cost of building permits.
• Architects’ and engineers’ fees for design and supervision.
• Costs of temporary facilities used during the construction period.
Capital Threshold: Buildings must be capitalized regardless of the value or cost.
C. Facilities & Other Improvements – Account Code 80-50
Facilities are assets (other than general use buildings) that are built, installed or established to
enhance the quality or facilitate the use of land for a particular purpose.
Other improvements are enhancements made to a facility or to the land that increase service
capacity, efficiency, or extend useful life.
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Examples of expenditures to be capitalized as facilities and other improvements include, but
may not be limited to:
• Fencing and gates
• New or enhanced landscaping
• Parking lots/driveways/parking barriers
• Outside sprinkler systems
• Recreation areas and athletic fields (including bleachers)
• Paths and trails
• Swimming pools, playgrounds, tennis courts, pickleball courts, basketball courts, and
bike tracks
• Fountains
• Retaining walls
• Solar Panel Arrays
• Cemetery columbarium
Capital Threshold: Facilities & Other Improvements must be capitalized when the useful life is
2 years or greater and the cost is $25,000 or more.
D. Infrastructure – Account Code 80-90
Infrastructure assets are long-lived capital assets that, normally, are stationary in nature and,
normally, can be preserved for a significantly greater number of years than most capital assets.
Infrastructure assets may include, but may not be limited to: roads, bridges, tunnels, drainage
systems, water and sewer systems, and dams and lighting systems.
Capital Threshold: Infrastructure must be capitalized when the useful life is 3 years or greater
and the cost is $50,000 or more.
E. Vehicles – Account Code 80-10
A motor vehicle is a self-propelled road vehicle that is used for the transportation of
passengers, or passengers and property. The capitalization amount includes the total purchase
price less any discounts and any ancillary costs required to place the asset in its intended state
of operation, dependent upon capitalization thresholds or as deemed appropriate by the
Capital Assets Team.
Examples include, but may not be limited to, cars, motorcycles, mini-vans, sedans, SUVs, and
light-duty and full-size pickup trucks.
Capital Threshold: Vehicles must be capitalized when the useful life is 2 years or greater and
the cost is $10,000 or greater.
F. Machinery & Equipment – Account Codes 80-20 (Equipment), 80-30 (Information Technology
Hardware), 80-40 (Furniture & Fixtures)
This classification includes mobile equipment like construction and maintenance equipment,
and immobile equipment, including information technology hardware.
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Capitalization of equipment costs may include, but may not be limited to, the following:
• Original contract or invoice cost.
• Freight, acquisition fees, import duties, handling and storage costs.
• Specific in-transit insurance charges.
• Installation charges.
Examples include:
• Mobile: ATVs; buses; mowers; trailers; utility and delivery vans; backhoes, graders,
loaders, plows, rollers, stand-on blowers, sweepers, tool-cats, and tractors; chipper,
fire, flusher, garbage and roll-off trucks.
• Immobile: bulk furniture, IT servers, copiers, fuel tanks, HVAC systems, industrial
freezers, washers and dryers, K9s, message boards, mobile equipment attachments
(brooms, buckets, cutters, stripers), playground equipment, vending machines, and
welders.
Capital Threshold: Machinery & Equipment as a capital asset is defined as a single item with
an acquisition cost of $10,000 or more and has a useful life of 2 years or greater.
Similar items purchased that do not exceed the capital threshold individually will be evaluated
by the Finance Department. Similar purchases that are determined to be significant in total
must be capitalized. Evaluation of significance includes total cost, fund and fund type, and
capital asset tracking requirements.
G. Intangible Assets – Account Codes 80-35 (Subscription Based IT Arrangements), 80-60 (Right-
of-Use Lease Assets)
Intangible assets are those that lack physical substance, are non-financial in nature and have
an initial useful life extending beyond a single reporting period. Intangible assets must be
identifiable, meaning they are either capable of being separated by means of sale, transfer,
license or rent, or that they arise from contractual or other legal rights.
Intangible assets acquired or developed by the City could include right to use lease assets, right
to use information technology software subscriptions, customized software, internally
generated software, works of art and historical treasures. Other examples of intangible assets
the City may own include water rights, timber rights, patents and trademarks.
The capitalization of intangible assets shall include, but may not be limited to, the following:
• Original purchase or development costs of the intangible asset
• Licensing, legal fees, and other directly attributable acquisition costs
• Costs related to the creation or development of internally generated intangible assets,
such as software or patents
• Capital assets as defined by GASB pronouncements 87 & 96
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Capital Threshold: Intangible assets must be capitalized when the useful life is 3 years or
greater and the cost is $25,000 or more.
H. Construction in Progress (CIP)
Construction in progress represents capitalized costs related to a capital asset that is not yet
substantially complete, or ready to be placed in service. For construction work in progress
assets, no depreciation is recorded until the asset is placed in service. When the asset is
placed in service, the asset is reclassified to the correct category for reporting purposes and
depreciation begins. The FD will be responsible for evaluating and tracking assets that are
classified in CIP prior to being placed in service.
VII. Additional Capitalization Rules
The FD reserves the right to capitalize an asset that costs less than $10,000 as needed to comply with
GAAP or other regulatory agencies.
VIII. Betterments, Improvements, and Repair and Maintenance
Costs related to an existing asset should be evaluated using the Betterment or Improvement criteria
below. Cost that do not qualify as a betterment or improvement should be considered operating costs
and expensed in the period incurred.
A. Betterments
A betterment materially renovates or enhances a previously capitalized asset without
introduction of a completely new unit. Alterations that change the physical structure of assets
(e.g., cutting new entry and exit openings or closing old ones; erecting new walls, windows and
partitions or removing old ones) but neither materially add value to the asset nor prolong its
expected useful life should be charged to maintenance expense.
Capital Threshold: Betterments must be capitalized when the useful life is 3 years or greater
and the cost is $25,000 or more.
Examples of betterments include, but may not be limited to:
• Enhancement of an old shingle roof through the addition of modern, fireproof tiles.
• “Major catch-up” repair to or rehabilitation of an existing neglected asset that extends
the useful life or substantially increases the value of the asset.
B. Improvements
Improvements include additions of new components to previously capitalized assets that either
increase the assets’ value, extend the useful life, increase the normal rate of output, lower the
operating cost, or increase the efficiency of the existing asset. Replacements of components of
existing capitalized assets with improved or superior units, such that the value of the assets is
materially increased, are also classified as improvements. An improvement that meets the
capitalization threshold in Section VIII should be capitalized.
Capital Threshold: Improvements must be capitalized when the useful life is 3 years or greater
and the cost is $25,000 or more.
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Examples of improvements include, but may not be limited to:
• Installation of an air condition system where there previously was none.
• Installation of a crane on a truck that did not previously have one.
• Removal of a major part or component of equipment and the substitution of a new part
or component that increases either the value or useful life.
• Addition of a new wing on a building.
C. Repair and Maintenance
Maintenance and repairs can be distinguished from betterments and improvements in that
maintenance and repairs are not intended to alter or change the asset or to increase the useful
life of the asset, but rather to sustain the asset in its present condition. Expenditures
attributable to repair and maintenance after the asset has been placed in service will not be
capitalized and will instead be charged to maintenance expense.
A cost will qualify as maintenance if any of the following are true:
• Recurs on an ongoing basis (scheduled maintenance) and keeps the asset in a useable
condition.
• Does not add substantially to the value of the asset (i.e., it does not meet the
requirements in Section VIII to be capitalized).
• Simply restores a capital asset to its former condition, addressing normal wear and tear
associated with the use of an asset.
• Facilitates asset utilization for its original useful life.
Examples include:
• Painting and similar activities.
• Engine overhaul in a vehicle.
• Resurfacing a roof with similar materials.
• Remodeling and rearrangement costs.
• Annual permits, testing fees or license/registration fees.
IX. Depreciation
Depreciation is the systematic allocation of the cost of a capital asset over its useful life. It is
meant to account for the reduction in the value of an asset with the passage of time, due in
particular to wear and tear. Depreciation will be calculated and recorded annually for the City’s
depreciable assets in accordance with GAAP. The City uses the straight-line method of
depreciation with the half-year convention for the first and last year of the assets useful life.
Assets are depreciated according to the useful life guidelines below:
• Buildings: 20 – 50 years
• Infrastructure: 20 – 60 years
• Facilities & Other Improvements: 5 – 20 years
• Vehicles: 5 –10 years
• Machinery and Equipment: 2 – 20 years
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• Intangible Assets: 2 – 50 years
Assets that are not depreciated include:
• Land
• Intangible assets with indefinite useful lives
• Artwork
• Construction in Progress
X. Retirement (Disposals)
All capital assets that are sold, exchanged, traded in, donated, stolen, damaged beyond repair
or in any way removed from service and disposed of during the current fiscal period should be
recorded as retirements in the capital asset module.
When retiring an asset, the Department that had custody of the asset must request a disposal
form from the Finance Department prior to the disposal. This electronic form will be routed for
proper approval and signatures.
XI. Transfers
When an asset is exchanged between departments, the Capital Asset Team will transfer the
asset in the capital asset module. The Capital Asset Transfer Form shall be used to identify an
asset transfer between City departments. The transfer must be approved by both the transferor
and transferee departments before an asset is transferred.
XII. Impairment
A capital asset generally should be considered impaired if both (a) the decline in service utility
of the capital asset is large in magnitude and (b) the event or change in circumstance is outside
the normal life cycle of the capital asset.
In order to determine impairment, one or more of the following conditions must apply:
• Evidence of physical damage (building damaged by fire or flood, restoration efforts are
needed to restore service utility).
• Enactment or approval of laws or regulations or other changes in environmental factors.
• Technological development resulting in a change of the expected duration of use of a
Capital Asset.
• A change in the manner or expected duration of use of a Capital Asset.
• Construction stoppage (stoppage of construction of a building due to lack of funding).
All impairment should be analyzed and estimated by the Finance Department.
XIII. Acquisition of Capital Assets
Capital assets shall be acquired by the City, following all required federal, state, and local
purchasing requirements.
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Procurement Requirements & Signatory Authority
General bidding requirements and thresholds are defined in the City of Bozeman Policies and
Procedures for: General Procurement, Training & Travel, and Accounts Payable & Credit Card
Use. All administrative orders and internal policies are available on Laserfische in the City
Commission>Administrative Orders/Internal Policies page.
XIV. Additional Information
For additional information or questions concerning this policy, please contact the FD Capital Asset
Team at (406) 582-2335.
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APPENDIX A. General Guidelines and Examples in Capital
Determinations and Classifications
Construction of a new building or major remodel:
• Design and construction costs should be capitalized. Budget and actual costs coded to 80-80.
• Initial purchase of furniture and fixtures should be capitalized. Budget and actual costs coded
to 80-40.
• Landscaping or other external improvements should be capitalized. Budget and actual costs
coded to 80-50.
• Because the initial purchase of furniture and fixtures and landscaping are capitalized,
replacements or improvements to these items should not be capitalized until the initial capital
is fully depreciated. Identifying the costs and accumulated depreciation to record the loss on
disposal of portions of the initial capital assets creates an unjustifiable burdening of
maintaining capital assets. Expensing replacements or improvements, even if the total exceeds
the capitalization threshold, rather than disposing of a portion of a previously capitalized asset
is an industry best practice.
Annual curb, sidewalk repair/improvements:
• Repair, improvement, or replacement of existing curbs and sidewalks should NOT be
capitalized. This process is restoring a capital asset to its original condition (regardless of the
annual costs budgeted or expended) and does not change the utility of the asset or extend the
useful life of the entire original curb or sidewalk. These costs should be budgeted and
expensed in 30-95.
Minimal expenses incurred AFTER the project is substantially complete and placed in service should
NOT be capitalized. Examples include:
• Material testing – include in operating budget and expense
• Legal or registration fees – include in operating budget and expense