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City of Redwood City 6.1.F. - Page 67 Notes to the Basic Financial Statements For the year ended June 30, 2012 NOTE 1—$UMMARY OF$IGNIFICANT ACCOUNTING POLICIES�CONTINUED� 1. Unbilled Service Receivables In the water and sewer utilities, residential customers are billed bi-monthly and all commercial and industrial customers monthly. Revenue is recorded as billed to customers on a cyclical basis. No accrual is made for unbilled services. There were no unbilled services in Port, parking, or internal service funds as of June 30, 2012. There is no accrual for unbilled water services as of June 30, 2012; revenues cannot be recognized since water meters are not read at such date. Management believes that the revenue from unbilled services does not have a material effect on total revenue. J. Capital Assets All capital assets are valued at historical cost or estimated historical cost if actual historical cost is not available. Contributed capital assets are valued at their estimated fair value on the date contributed. The City's policy is to capitalize all assets with costs exceeding certain minimum thresholds, $5,000 for machinery and equipment, $100,000 for buildings, improvements, and infrastructure, and with useful lives exceeding two years. With the implementation of GASB Statement No. 34, the City recorded all of its public domain (infrastructure) capital assets placed in service after June 30, 1980, which include roads, bridges, curbs and gutters, streets and sidewalks, drainage systems, and lighting systems using the basic approach. The purpose of depreciation is to spread the cost of capital assets equitably among all users over the life of these assets. The amount charged to depreciation expense each year represents that year's pro rata share of the cost of capital assets. GASB Statement No. 34 requires that all capital assets with limited useful lives be depreciated over their estimated useful lives. Depreciation is provided using the straight line method which means the cost of the asset is divided by its expected useful life in years and the result is charged to expense each year until the asset is fully depreciated. The City has assigned the useful lives listed as follows to capital assets: Buildings 20-50 Years Storm Drains 40 Years Traffic Signals 20 Years Improvements 33-60 Years Bridges 30 Years Streets 20 Years Equipment 2-15 Years Parks 25 Years K. Interfund Transactions Interfund transactions are reflected as loans, services provided or used, reimbursements, or transfers. Loans reported as receivables and payables are referred to as either "due to/from other funds" (the current portion of interfund loans) or "advances to/from other funds" (the noncurrent portion of interfund loans) as appropriate and are subject to elimination upon consolidation. Any residual balances outstanding between the governmental activities and the business-type activities are reported in the government-wide financial statements as "internal balances." Advances between funds, as reported in the fund financial statements, are offset by nonspendable fund balance in the applicable governmental funds to indicate that they are not in spendable form. 39