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Managing Capital Assets For example, repairing a crack in the concrete involves costs

Continued from page 12 that merely avoid shortening an assets expected life.
Lengthening a capital asset’s estimated useful life may involve
utilizing better materials, thereby increasing a capital asset’s ability
She joked: “I’m not talking about putting a capital letter in front to provide service with greater effectiveness or efficiency.
of it.” Painting is typically considered cosmetic and only brings back
Kirk explained that an item is capitalized when it is recorded an asset to its original condition.
as an asset in the financial statements, rather than expensed. The “Did it add value to a district?” Godley asked. “No.”
item must be in excess of the district’s capitalization threshold. For The same reasoning goes for replacing damaged tile. It needs to
most districts, that threshold is $5,000 for it to be recorded as an be coded as a repair, Godley said.
asset on financial statements. There are various factors to be considered when determining
“If you buy a building and show it as an expense, auditors will the useful life of an asset.
work their magic and record it as an asset in your GAAP-based One such factor is how an asset will be used. Estimating the
financial statements – and report the expense via depreciation over useful life of a school bus can be dependent on the conditions it
the next 60 years,” Kirk said. will experience. If it travels 50 miles a day on mostly dirt roads, it
There is a difference between a capital expenditure and a repair likely won’t last nearly as long as a bus that is driven on city streets.
expenditure. “Capital expenditures provide additional value by Physical environment, such as outside temperatures, are also
lengthening a capital asset’s estimated useful life, and increasing a factor.
a capital asset’s ability to provide service through greater Another question to consider: How effective is your maintenance
effectiveness or efficiency,” Kirk said. policy? “If it’s not effective, your assets may not last as long as
On the other hand, repair and maintenance expenditures retain expected,” Kirk cautioned. “It’s a big task to keep up with everything.”
value rather than provide additional value. “They return an asset
to its normal operating condition, and correct an operational or Sara Kirk can be reached at: sara.kirk@heinfeldmeech.com
cosmetic defect, rather than providing additional value,” Kirk said. Deb Godley can be reached at: deb.godley@west-mec.org

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14 THE EDGE | SPRING 2019