1.9.3: Capital Assets Policy
The purpose of the Capital Asset Policy of the University is:
1) To define what constitutes a Capital Purchase
2) To ensure that all Capital Expenditures are accounted for in a consistent manner
3) To safeguard the Capital Assets of the University
4) To educate those who will need to be involved in the accounting for Capital Assets.
Expenditure- Disbursement of funds from the University to pay for items or benefits received, or advance payments for items or benefits to be received.
Capital Asset- An item that is over a specific dollar amount (based upon Capital Asset type) that has a useful life of over one year.
Capital Expenditure- An expenditure for a capital item or an expenditure for repairs or improvements to a capital item over a specific dollar amount that prolongs the life of the capital item for a minimum of one year, and adds value to the capital asset.
Capital Additions- Capital additions are represented by the capital expenditures for the year. Thus they may be either expenditures for capital items or expenditures for repairs or improvements to capital items that prolong the life of the capital items a minimum of one year, and add to the value of the asset.
Capital Deletions- The retirement of assets from active service. They may be scrapped, sold, donated, etc. It reduces that capital asset base at the time of retirement.
Donated Capital Items- Items given freely and without obligation to the University by another entity or individual.
Depreciation- The method of distribution the cost of the capital assets over the estimated useful life of the asset. Depreciation is reflected as an expense on the statement of activities and also as a separate one line item on the statement of cash flows.
Accumulated Depreciation- This is the total of all depreciation expense taken to date on a capital asset.
Book Value- The book value of a capital assets or group of capital assets is the cost of the asset plus any capital additions, less accumulated depreciation.
Fixed Assets- Fixed Assets consists of land and improvements, buildings and improvements, equipment, automobiles, computer hardware and software, furniture and fixtures, and library books.
Capital Lease- A capital lease is a lease that is a contractual obligation between a lessor and lessee that conveys title to a capital asset to the lessee and give the lessee the right to use the asset during the time of the lease, in return for specified remuneration at certain time intervals during the period of the lease.
Periodicals- Periodicals are subscriptions or magazines that would be typically be prepaid in advance, and received on a regular basis over a period of time within one year from the receipt of the first issue. Periodicals are not capital assets and would not be amortized over a period of time.
Volume Purchases- The purchase of many of the same type of items treated as one capital asset for accounting purposes. For example a purchase of 100 library books for $4000 may be treated as a single capital asset valued at $4000 rather than having one hundred individual assets whose combined cost is valued at $4000.
Repairs and Maintenance- Repairs and maintenance would be expenditures for either maintaining an item in operable condition, or expenditures that not only maintain the item in an operable condition, but also prolong the life of the item due to the repair and maintenance work performed. When repairs and maintenance are done on a capital asset and the amount of the work is over $1,000 and the life of the capital asset is extended for a minimum of one year, then the repair or maintenance is considered a capital addition. If the life of the capital asset is not extended for a minimum of one year or the amount of the repair is not at least $1,000 then the items is considered an expense item and not a capital addition.
Land- Land should always be capitalized regardless of the cost of the land. The cost of land should include virtually any costs associated with obtaining the land including legal costs, closing costs of the actual purchase, costs incurred as a result of getting the land to its state of intended use including excavation, fill, etc.
Land Improvements- The improvements to land with limited lives in excess of one year should be accounted for as land improvements. The cost of land improvements should exceed $1,000. Examples of land improvements would include fences, pavements such as parking lots and sidewalks, landscaping etc. If land improvements have an unlimited life they should not be depreciated. If the life of the improvement is more than one year but limited in nature it should be depreciated over the life of the improvement.
Buildings- If a building is purchased, the cost of the building should include the purchase price and any other incidental costs incurred at the time of the purchase. Any additions over $1,000 that are added to the building should be capitalized and added to the cost of the building.
Building Improvements- Building Improvements would be those items costing over
$1,000, which enhances the structure over and above what it was in its original form. Examples of building improvements would include modifications to the building such as the addition of ramps, truck doors, renovation of the building to utilize previously unusable space, etc.
Equipment- Equipment is defined as a tangible, expendable personal property costing over $1,000 and a projected useful life in excess of one year.
Automobiles- The cost of automobiles would include any invoice cost paid plus delivery and dealer preparation costs.
Computer Hardware- Computer hardware would include but not be limited to personal computers, printers, palm pilots, etc. costing over $1,000 and having an estimated useful life in excess of one year.
Computer Software- Computer software would include but not be limited to operating software, application software, and custom developed software, etc. each having a cost over $1,000 and each having an estimated useful life in excess of one year.
Furniture and Fixtures- Those items would include items that individually exceed $1,000 in value or when collectively purchased such as lamps, chairs, desks, etc. have a cost, which collectively exceeds $1,000.
Library Books- Library books purchased collectively having a purchase price of $1,000 or more would be capitalized and reflected in the capital asset records as books in the year of purchase. These would be written off over a period of years. Collective purchases of library books that cost under $1,000 would be totally expensed at the time of purchase.
Donated Capital Assets- Donated capital assets would be considered those assets falling under the guidelines listed above. They would be valued at the fair market value of the asset at the time that the asset was unconditionally donated to the University.
Capital Assets are depreciated over the reasonably useful lives of the assets for financial statement purposes, principally on the straight-line method. The estimated useful lives are as follows:
Land Improvements 10-40 years
Buildings and Improvements 40-60 years
Furniture and Equipment 4-30 years
Automobiles 5-7 years
Computer Hardware & Software 3-5 years
Library Books 10 years
Retirement of Capital Assets
The retirement of capital assets takes place when it is determined that the asset is obsolete, no longer operable, has been traded in, etc. For the policies and procedures to be used when an asset is disposed of, see section headed “Capital Asset Transfer Policy” at the end of this Capital Asset policy section.
Transfer of Capital Assets
Whenever a capital asset is transferred from one location to another a Capital Asset Transfer Form must be filled out and submitted to the Accounting Manager detailing the transfer information. See section headed “Capital Asset Transfer Policy” at the end of this Capital Asset policy section.
Tagging of Capital Assets
Once the capital asset has been purchased it will be the responsibility of the Controller to notify the Accounting Manager that the asset has been received. It is the responsibility of the Accounting Manager to issue and determine that a tag has been placed on the capital asset. Thus the location of the capital asset and the department, which purchased the capital asset, will go into the files. This department will be responsible for the safekeeping of the capital assets, using all reasonable measures available for this purpose.
It should be noted that all capital assets that have a value of $200 or more, must be tagged and accounted for in the inventory system, even if they were expensed at the time of acquisition.
Capital Asset Records
The Finance Office will be responsible for the maintenance of two sets of capital asset records:
1) Records reflecting capital assets (with the exception of computers and technology equipment) recorded on the books having a cost of over $1,000. These records would be used for the computation of cost, depreciation expense, accumulated depreciation, and book value of the capital asset(s).
2) Records used in the perpetual inventory system (with the exception of computers and technology equipment) that track the location of all capital assets with a cost of over $200.
Computer and Technology Equipment
It is the responsibility of the Manager of the Technology Department to tag all computer and technology equipment over $200 in cost or donated value. Thus the Manager is responsible for tracking these items in a separate perpetual inventory system.
When the computer or technology equipment is ordered, it is the responsibility of the Controller to notify the Accounting Manager that the item(s)have been received. It will be the responsibility of the Accounting Manager to determine that the item(s) have been properly entered into the perpetual inventory records kept by the Manager of the Technology Department.
When a computer or technology equipment item is to be disposed of, the policy that would cover the disposal of this equipment would be covered under the “Capital Asset Transfer Policy” at the end of this Capital Asset policy section. It should be noted that when a computer or piece of technology equipment is transferred, this policy need not be applied. It would be the responsibility of the Manager of the Technology Department to track the location of the computer and technology equipment.
On no less than a semi-annual basis, the Manager of the Technology Department must provide two inventory lists to the Accounting Manager. One list would detail the computers and technology equipment by type, and the second list would detail the same items by location.
On-going physical inventories of selected items and areas of the University will be conducted on an annual basis. Complete inventories of capital assets will be conducted once every five years.
Revised February 24, 2023