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6.G. - Pa <br />§f <br />Reay Of $i� <br />City <br />Notes to the Basic Financial Statements <br />For the fiscal year ended June 30, 2018 <br />NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) <br />F. Cash and Cash Equivalents, Continued <br />In accordance with GASB Statement No. 31, Accounting and Financial Reporting for Certain Investments <br />and for External Investment Pools, highly liquid market investments with maturities of one year or less at <br />time of purchase are stated at amortized cost. All other investments are stated at fair value. The City <br />categorizes the fair value measurements of its investments based on the hierarchy established by <br />generally accepted accounting principles. The fair value hierarchy, which has three levels, is based on <br />the valuation inputs used to measure an asset's fair value: Level 1 inputs are quoted prices in active <br />markets for identical assets; Level 2 inputs are significant other observable inputs; Level 3 inputs are <br />significant unobservable inputs. The City does not have any investments that are measured using Level 3 <br />inputs. <br />The City participates in an investment pool managed by the State of California titled Local Agency <br />Investment Fund (LAIF) which has invested a portion of the pooled funds in Structured Notes and Asset - <br />Backed Securities. LAIF's investments are subject to credit risk with the full faith and credit of the State <br />of California collateralizing these investments. In addition, these Structured Notes and Asset -Backed <br />Securities are subject to market risk as to the change in interest rates. <br />Cash equivalents are considered amounts in demand deposits and short-term investments with a <br />maturity date within three months of the date acquired by the City and are presented as "Cash and <br />Investments" in the accompanying Basic Financial Statements. <br />For purposes of the statement of cash flows, cash equivalents are defined as investments with original <br />maturities of 90 days or less, which are readily convertible to known amounts of cash. The City considers <br />all pooled cash and investments (consisting of cash and investments and restricted cash and <br />investments) held by the City as cash and cash equivalents because the pool is used essentially as a <br />demand deposit account from the standpoint of the funds. The City also considers all non -pooled cash <br />and investments (consisting of cash with fiscal agent and restricted cash and investments held by fiscal <br />agent) as cash and cash equivalents because investments meet the criteria for cash equivalents defined <br />above. <br />Inventories are stated at moving average cost. The cost is recorded as expenditure at the time an <br />individual inventory item is consumed. As inventories must be maintained at a certain level, an amount <br />for inventories is recorded as non -spendable in the general fund balances. Consequently, these non - <br />spendable fund balance amounts are not available for appropriation. <br />General fund inventories consist of stationery. Equipment services fund inventory consists of tires, <br />batteries, testing equipment, automotive parts, and small tools. <br />G. Inventories and Prepaid Items <br />Under the consumption method, certain payments to vendors reflect costs applicable to future <br />accounting periods and are recorded as prepaid items in both government -wide and fund financial <br />statements. The cost of prepaid items is recorded as expenditures/expenses when consumed rather <br />than when purchased. <br />42 248 <br />