Amtrak 2014 Annual Report Download - page 23

National Railroad Passenger Corporation and Subsidiaries (Amtrak)
Notes to Consolidated Financial Statements (continued)
1509-1694994 15
3. Basis of Presentation and Summary of Significant Accounting Policies (continued)
depreciation studies yield results indicating that assets have shorter lives because of
obsolescence, physical condition, changes in technology, or changes in net salvage values, the
group method calculation of depreciation expense could increase. Likewise, if future studies
indicate that assets have longer lives, the group method calculation of depreciation expense could
decrease.
Construction-in-progress is stated at cost and includes direct costs of construction as well as
interest expense capitalized during the period of construction. Amtrak capitalizes interest costs in
connection with the construction of major facilities, locomotives, and passenger cars.
Construction-in-progress is transferred to fixed assets when substantially all the activities
necessary to prepare the assets for their intended use are completed, at which time depreciation
commences. Capitalized interest is recorded as part of the asset to which it relates and is
depreciated over the asset’ s useful life. Interest costs capitalized on construction projects were
$11.7 million and $8.6 million for FY2014 and FY2013, respectively.
The useful lives of locomotives, passenger cars, and other rolling stock assets for depreciation
purposes range up to 42 years. Right-of-way and other properties (excluding land) are
depreciated using useful lives ranging up to 105 years. Other equipment including computers,
office equipment, and maintenance equipment is depreciated using useful lives ranging from five
to 20 years. Expenditures that significantly increase asset values or extend useful lives are
capitalized, including major overhauls. Repair and maintenance expenditures, including
preventive maintenance, are charged to operating expense when the work is performed. The cost
of internally developed software is capitalized and amortized over its estimated useful life, which
is generally five to ten years.
The Company accounts for asset retirement obligations (AROs) in accordance with Financial
Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 410,
Asset Retirement and Environmental Obligations. The standard applies to legal obligations
associated with the retirement of long-lived assets that result from the acquisition, construction,
development and/or normal use of the asset. In accordance with FASB ASC Topic 410, the
Company recognizes the fair value of any liability for conditional AROs, including
environmental remediation liabilities, in the period in which it is incurred, which is generally
upon acquisition, construction, or development and/or through the normal operation of the asset,
if sufficient information exists with which Amtrak can reasonably estimate the fair value of the
obligation. Amtrak capitalizes the cost by increasing the carrying amount of the related long-
lived asset. The capitalized cost is depreciated over the useful life of the related asset and upon