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SOUTHEASTERN COLORADO WATER CONSERVANCY DISTRICT NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2005 NOTE 1 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.) J. CAPITAL ASSETS Capital assets, which include perpetual water rights, land, buildings and improvements, along with furniture and equipment are reported in the governmental activity column in the government-wide financial statements. The capitalization levels were established at $100 for furniture and equipment, $1,000 for buildings and improvements and no capitalization threshold was established for perpetual water rights and land. These levels were set so as to maintain a balance between accountability and managing the costs of recording and tracking these assets. Capital assets are defined as assets with an initial individual cost or estimated cost that equals or exceeds the limits identified above and have a useful life greater than one year. Capital assets are recorded at cost or estimated historical cost if purchased or constructed. Contributed capital assets are recorded at estimated fair value at the time received. Normal maintenance and repairs that do not add to the value of the asset or materially extend the useful life of the asset are not capitalized. Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase of capital assets for business-type activities is included as part of the capitalized value of assets constructed when material. No interest was capitalized during the year ended December 31, 2005. Capital assets of the District, except for land and perpetual water rights, are depreciated using the straight-line method over the following estimated useful lives: Buildings and improvements Furniture and equipment Governmental Activities 5-30 3-10 Perpetual water rights represent the District's share of the original costs of construction and are not depreciated or amortized. The original contract between the United States Bureau of Reclamation and the District grants the District perpetual rights to use water made available by the project. Project property and all related facilities remain in the exclusive control, possession and ownership of the United States. K. COMPENSATED ABSENCES It is the District's policy to permit employees to accumulate earned but unused vacation and sick pay benefits. Employees are allowed to accumulate vacation and sick pay benefits up to predetermined maximums and are compensated for these accumulated vacation and sick pay benefits either through paid time off or at termination or retirement. Accumulated vacation and sick leave is accrued when earned in the government-wide financial statements. A liability for these amounts is reported in the governmental fund only if they have matured; for example, as a result of employee resignations and retirements. -21-