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I work for an Irrigation District in Nevada County, California. A question has recently been asked that I would like some feedback on. How does one "account" for the value of easements for the District's pipelines, canals, and access routes? Put another way, how should we represent or capitalize the easements on the District's balance sheet?

I am not sure I have a clear understanding of the question or a reasonable approach to characterize and compute a value.

Any assistance would be appreciated.

Thank you,
Matthew

While this is an "aged" question, I read it for the first time today ... and it made me wonder if it was prompted by the adoption of the accounting rules that required public agencies to document depreciation of public facilities/assets?

I would assume these are perpetual easements that do not have a termination date. In such a case, I believe the easements themselves would not be depreciated since they are an interest in land (land is not depreciable). Land is valued at its cost plus commissions, title fees, legal fees, and any accrued property taxes paid by the purchaser. Payments for surveying, clearing, grading and draining are included in the cost of land. Also cost of government assessments, cost of removing structures if applicable.

However, the pipelines within the easement are plant assets, since they are used in operations and do need maintenance (will wear out). Plant Assets are valued at the original cost in place. On a balance sheet, the cost of plant asset are allocated to periods benefiting from their use (income statement) over the estimated life of the asset.

If the easements have termination dates, as in a leasehold interest, then they would be considered intangible assets. Intangible assets are also recorded at cost when purchased. Its cost is systematically allocated to expense over its estimated useful life through amortization. If the asset has an indefinite useful life (no factors limit its useful life) it should not be amortized. The gross acquisition cost of intangible assets is shown in the balance sheet along with any amortization.

Please let me know if this helps. I obtained most of the info. from my managerial accounting book published in 2005.

I would assume these are perpetual easements that do not have a termination date. In such a case, I believe the easements themselves would not be depreciated since they are an interest in land (land is not depreciable). Land is valued at its cost plus commissions, title fees, legal fees, and any accrued property taxes paid by the purchaser. Payments for surveying, clearing, grading and draining are included in the cost of land. Also cost of government assessments, cost of removing structures if applicable.

However, the pipelines within the easement are plant assets, since they are used in operations and do need maintenance (will wear out). Plant Assets are valued at the original cost in place. On a balance sheet, the cost of plant asset are allocated to periods benefiting from their use (income statement) over the estimated life of the asset.

If the easements have termination dates, as in a leasehold interest, then they would be considered intangible assets. Intangible assets are also recorded at cost when purchased. Its cost is systematically allocated to expense over its estimated useful life through amortization. If the asset has an indefinite useful life (no factors limit its useful life) it should not be amortized. The gross acquisition cost of intangible assets is shown in the balance sheet along with any amortization.

Please let me know if this helps. I obtained most of the info. from my managerial accounting book published in 2005.