|Approved by:||Board of Trustees|
|History:||Issued -- March 14, 2002|
|Last Reviewed --|
|Related Policies:||Procurement, Property Administration:|
Vice President for Finance and Treasurer tel. 202-319-5606
Certain items purchased by the university have a significant cost and a useful life of two or more years. Therefore, these items are recorded as assets (capitalized) and depreciated over their estimated useful lives, in accordance with university guidelines.
This policy applies to all university faculty and staff in the proper recording of items purchased by university, government and Private Sponsor funds.
II. Cost Guidelines
Expenditures for land, buildings and improvements other than buildings of $5,000 or more should be capitalized. Furnishings and equipment purchased for a unit cost of $5,000 or more should be capitalized. All library books should be capitalized regardless of their unit cost.
III. Depreciation Conventions and Guidelines
All depreciation and amortization calculations should use the "straight line" method. For financial statement purposes a half-year depreciation convention will be used. The addition of an asset will be recorded at the date of acquisition. Depreciation for the first year of services will be recorded as if the asset had been in service for one half year. In the event of a disposal of an asset, depreciation on that asset will be recorded for the fiscal year of the asset's disposal as if the asset were in service for the entire fiscal year. The calculation of any gain or loss on disposal will include the effect of the depreciation for the year of disposal.
Land is not depreciated.
IV. Asset Categories
A. Real Property
- Purchase or construction: 40 years
2. General Construction including:
- Foundation walls
- Interior foundations
- Slab on ground
- Framing & external walls
- Structured floor
- Architect fees
- Legal expenses
- Permits and other required fees
3. Site Preparation including:
- Clearing, grading & installing public utilities
4. Roof & Drainage including:
- Roof covering materials & roof drainage
5. Interior Construction including:
- Floor finish
- Ceiling finish
- Wall partition material & finishes
6. Plumbing including:
- General plumbing
- Sinks, toilets, drinking fountains, bathtubs, showers, urinals, etc.
7. Heating, Ventilation & Air Conditioning including:
- Rooftop packaged units
- Central cooling systems
8. Electric including:
- Wiring & lighting
9. Fire Protection, Life Safety and Communications including:
- Sprinkler system
- Fire alarm & fire detection systems
- Emergency generators
- Intrusion alarm systems
- Electric doors
- Fire escapes
- Public address systems
- Communications Cabling (telecommunications and computing)
10. Building Improvements: 20 years
- Replacement Roofs
- Replacement Windows
- Major renovations and leasehold improvements
3. Improvements Other Than Buildings: 20 years
- Roads and Landscaping
- Utility Tunnels and Conduits
- Pipeline Energy System
- Recreation Courts, Athletic Fields and Swimming Pools
- Land Improvements
- 4. Construction In Progress
Depreciation does not begin until asset is placed in service
B. Institutional Personal Property
1. Furniture & Equipment
- Furnishings: 5 years
- Major Equipment, Audio Visual Equipment, Copiers, Microfiche Readers: 5 years
- Medical/Research Electronics for Teaching & Laboratory: 5 years
2. Vehicles: 5 years
- Trucks, Buses and Cargo Vehicles
- Autos, Vans and Passenger Vehicles
- All furnishings and equipment not specifically defined in other classifications: 5 years
1. Standard Computer Software, Hardware & Related Accessories: 5 years
- Desktop operating systems
2. Major Computer Systems: 5 years
- Systems with substantial implementation effort
3. Systems in Progress
- Depreciation does not begin until placed into service
D. Library Books: 5 years
1. Does not include serials and periodicals
All useful life determinations are subject to approval by the Controller's office.
V. Treatment of Land
Land is capitalized at acquisition cost including assessments, legal and recording fees; realtor and appraisal fees, draining, filling, other site preparation costs; judgments levied from damage suits; demolition (razing) costs of structures on land acquired as building sites. Land acquired by gift will be capitalized at Fair Market or Appraised Value at the time of acquisition. The acquisition cost of property, which includes structures not to be razed (torn down), will be allocated between land and buildings based upon appraised values.
VI. Acquisition by Purchase vs. Construction
Acquisition by Purchase: Buildings acquired by purchase will be capitalized at acquisition cost with the purchase price and associated closing costs allocated between land and buildings on the basis of current appraised values. Additional costs incurred for the purpose of renovating or modifying the building's structure in order to place it in service will also be capitalized.
Acquisition by Construction: Initial capitalization includes construction costs of the building structure, including all internal piping, wiring, and permanent fixtures associated with the distribution of utilities within the building. Costs should also include architectural and engineering fees, inspection fees and permits, bid advertisement expenses, construction financing / interest expense, utilities, and insurance costs incurred during the construction period.
VII. Donations of Capital Assets
Donations of equipment and capital assets are recorded at fair market value as of the date of receipt. Official university gift receipts are issued by the Office of Institutional Advancement. If the equipment or asset is donated by the manufacturer or builder, the fair market value is the published list price of the equipment or asset. If the donated value is more than $5,000 and there is no published list price, an appraisal will be required. The cost of the appraisal shall be an operating expense of the university, unless paid by the donor. This appraisal is for university accounting valuation only - all donors are to be advised that it is their responsibility to obtain a qualified appraisal for their personal tax use.
VIII. Leased Equipment and Buildings
Leased equipment must be capitalized (recorded as assets) if the leased asset value exceeds $5,000 and the lease meets any of the following four criteria as a capital lease:
- The lease transfers ownership of the property.
- The lease contains a bargain purchase option (bargain being lower than expected fair value)
- The lease term is at least 75% or more of the estimated economic life of the property
- The present value of the minimum payments equals or exceeds 90% of the fair value of the property.
All questions about lease accounting should be directed to the Office of the Controller who shall make the final determination of the proper accounting treatment.
IX. Major Renovations and Leasehold Improvements
Renovations and improvements will be added to the capitalized value of the existing structure being impacted. Such additions would include the following:
- Ramps, truck doors, fire escapes and other appurtenances.
- Improvements requiring modifications of the structure to comply with current fire, health, access and safety codes.
- Improvements undertaken to convert unusable floor space into usable floor space; or upgrade the use of floor space, (i.e., converting storage areas to office/classroom space).
- Modernization of the structure as a whole, and not merely a rearrangement of selective office/classroom areas.
- When the renovation project involves a significant razing of the existing structure, the cost of the portion that was razed should be removed from the asset. If the original cost figures are unavailable, a reasonable estimate of the original cost should be used.
If the modification to the structure is determined by Facilities Planning and Construction personnel to be a complete renewal of the facility, the structural improvement(s) may be depreciated over 40 years.
Renovations which do not meet the criteria above shall be expensed.
X. Improvements Other Than Buildings
This category includes costs of improvements to land owned or used by the university (excluding buildings). The nature of many improvements is such that it is impractical to inventory these items for the purpose of assuring that the value of the improvements, or portions thereof, are removed from the accounts upon abandonment, replacement, or modification. Accordingly, various classes of improvements will be capitalized and depreciated for a period of 20 years. It shall also be the university's policy to capitalize all costs in this category which are incurred in conjunction with a major building project, even if the amount of the improvement is less than the stated Cost Guideline discussed above.
XI. Details on Asset Categories
Roads and Landscaping: Includes construction costs of sidewalks, drives, parking lots, outdoor lighting, shrubs and trees, lawns, and ground watering systems for lawns. Also includes surveying, filling, and draining costs if such costs are incurred solely for the installation of the improvement and are not part of an overall land acquisition and construction project. Additions to existing sidewalks, drives, and parking lots should be capitalized in the year completed. Maintenance, partial replacement and resurfacing projects are to be charged to expense during the period in which the work is completed.
Utility Tunnels and Conduits: Includes the cost of converting the utility tunnels as well as any piping installed in the tunnels for the purpose of carrying equipment related to the distribution of utilities. Costs include sanitary and storm sewers and related construction and materials, as well as installation costs and legal and other fees, licenses, surveying, equipment rental, and any other such costs incurred in the construction of the facilities.
Pipeline Energy Systems: Includes the cost of providing utility generation systems within power plant structures as well as facilities and equipment for the transmission of utilities from one location to another. Utility generation systems within a building such as internal piping and wiring are capitalized as part of the building cost. This category includes the installed cost of equipment used in the generation of heat, power, steam, electricity and cooling, along with the cost of any equipment, switch gear and wiring. Additions or extensions to existing utility generators and distribution capacity will be capitalized in the year such addition is completed.
Recreation Courts, Athletic Fields and Swimming Pools: Includes the initial construction costs of these facilities. Also includes surveying, filling and draining costs if such costs are incurred solely for the installation of the improvement and are not part of an overall land acquisition and construction project.
Furnishings and Equipment: Items in this category will be capitalized at net invoice price or Fair Market value, if acquired by gift, plus freight and installation charges.
Trucks, Buses, Cargo, Autos, Vans and Passenger Vehicles; Major Equipment, Audio Visual Equipment, Copiers, Microfiche Readers, Medical/Research Electronics for Teaching and Laboratory Use, Computer Hardware and Software: Vehicle cost includes net invoice price plus any dealer preparation and local delivery costs. Major equipment cost includes any site preparation costs and shipping, as well as all costs (excluding internal staff and training costs) associated with the installation of the equipment.
Computer Software, Hardware and Related Components: Computer software includes net invoice cost and any related consulting and/or training costs associated with the initial software implementation. Internally developed software costs are expensed during the period incurred. Computer hardware and related components include net invoice cost plus freight and installation charges. Components include internal drives, processors, memory upgrades, key boards, and other items which do not individually meet the capitalization threshold, but when purchased as a component of a larger system are subject to capitalization.
Library Books: Books purchased by the University Libraries (including departmental libraries) for their collections, excluding serials and periodicals.
All Furnishings and Equipment Not Specifically Defined in Other Classifications: This typically includes furniture, apparatus, machinery, implements and tools used in classrooms, laboratories, offices, shops, store rooms, and auxiliary enterprises, provided that such equipment has an economic useful life of at least two years and meets the required minimum Cost Guideline for this category.
XII. Asset Tags
All fixed assets with an original acquisition cost of $5,000 or more and with a useful life of 2 (two) years or more will be identified and tracked in the University's Fixed Asset system. This will be accomplished by attaching a pre-coded tag to each asset identifying it as "Property of The Catholic University." Additional items will be tracked for insurance and property management purposes using pre-coded tags.
The Property Administration Policy shall set the standards for tagging and tracking fixed assets.
XII. Fixed Asset Inventory
To ensure that all capitalized assets have been properly recorded and tracked, The Catholic University will conduct an inventory of all fixed assets and reconcile the results of the inventory with University Accounting and Property Management records. The inventory shall be conducted at least every other fiscal year.
The Property Administration Policy provides additional detail on the inventory process.
XIV. Accounting for Asset Inventory
Since all fixed assets are tagged when they are acquired to help the university track their locations, it is imperative that the Property Administrator's Office and the Controller's Office are advised of their movement or disposal by the department head or his or her designee. Until these offices are properly notified of a fixed asset's disposal or movement the department may be held accountable for the first $1,000 of university funds invested in that asset.
The timely and accurate reporting of asset disposals (along with any salvage proceeds) and moves will help ensure the accuracy of university's accounting records and reduce departmental time in reconciling and reviewing exceptions generated from the physical inventory. Additionally, timely depositing of sale or salvage proceeds is required. Timely deposit of proceeds is defined as within 3 business days of receipt.
Any moves within a building, between buildings or to/from temporary or permanent storage are to be reported to the Property Administrator's office. In addition, if one department transfers an asset to another without the equipment physically moving from one room to another, the transfer must also be reported.
XV. Grant Funded Equipment
In situations where grant funds, whether private or government, are used to purchase equipment, policies of tagging and inventorying the equipment are the same as for assets purchased with university funds. University inventory records will reflect the funding agency so that internally and externally funded equipment can be identified.
In situations in which a faculty member comes to the university from another institution in the middle of one or more grants and brings with him/her equipment purchased by the related grant(s), a summary of the specific equipment must be provided to the Office of Grants and Contracts to allow for proper inventory of the equipment. If a faculty member leaves the university in the middle of one or more grants and takes equipment with him/her to the new institution, a summary must be provided to the Office of Grants and Contracts for the same reasons. This summary is required to be submitted before university property is removed from university premises. The Office of Grants and Contracts will provide the new institution with an official listing of grant funded equipment the faculty member is bringing. If an asset purchased with grant funds is to be transferred or retired, the Office of Grants and Contracts will contact the granting agency, if necessary, to determine the appropriate procedure to dispose of the asset(s). This will be done at the time the fund is closed.
XVI. Group Purchases During Construction of a New Building
Equipment or furniture purchased in conjunction with a building renovation, a new program or clinic, but not having a unit cost of $5,000 or more will be capitalized as a group purchase and depreciated over the relevant asset class life, such as furniture and equipment over 5 years.
XVII. Modular Furniture and Furnishings
Modular furniture and furnishings, by their nature, are designed to be used in different configurations and combinations and relocated with ease. Because each piece can be used or discarded and tracking by piece is not reasonable, modular furniture and furnishings will not be capitalized.