b'LOS ANGELES FIRE AND POLICE PENSION SYSTEM NOTES TO FINANCIAL STATEMENTS JUNE 30, 2024 AND 2023NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)Investments and Method Used to Value Investments (Continued)Real estate investments are recorded in the financial statements under the equity method and are carried at fair value as determined by a periodic external appraisal.The fair values of real estate investment funds are provided by the individual real estate fund managers with periodic external valuations.CashCash consists primarily of an undivided interest in the cash held by the City Treasurer.These monies are pooled with the monies of other City agencies and invested by the City Treasurers office. Capital AssetsCapital assets include land, building, improvements, computer/software, furniture and fixtures that are used in operation. Assets with an individual cost of at least $5,000 and an estimated useful life of more than one yeararecapitalized.Capitalassetsarevaluedatacquisitioncostplusthecostofimprovements. Depreciation is computed using the straight-line method over the estimated useful lives of the building and improvements (20-year), computer/software (10-year) and furniture and fixtures (5-year). The System acquired the Neptune Building in fiscal year 2013 and occupied it as the headquarters in fiscal year 2016. Recorded values of land and building were assigned based on a ratio obtained from the November 2016 independent appraisal report. TheSystemimplementedGASBStatementNo.96,Subscription-BasedInformationTechnology Arrangements(SBITAs),asofJuly1,2022.Underthisguidance,theSBITAsareaccountedforas intangible right-to-use subscription assets, and the associated subscription expenses are recognized over the subscription term.Mortgage PayableMortgage payable is stated at fair value.The fair value of mortgage loans payable is presented at the amount at which the liability could be transferred to a market participant, exclusive of direct transaction costs such asprepaymentpenalties.Thefairvalueofmortgageloanspayablehavebeendeterminedbygiving consideration to one or more of the following criteria as appropriate: (i) interest rates and/or interest rate spreads for loans of comparable quality and maturity, (ii) the value of the underlying collateral, (iii) the credit risk of the borrower based on key elements of the real estate investments valuation, (iv) market based loan-to-value and debt-service-coverage ratios relative to each mortgage loan payable valuation, and (v) key terms such as assumability, recourse provisions and guaranties. These inputs are considered within a discounted cash flow model used to determine the estimated fair value of mortgage loans payable. Use of EstimatesThe preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting years.Actual results could differ from those estimates.23 40 LAFPP ANNUAL REPORT 2024'