Fixed-asset Capitalization and Depreciation

Capitalization

  1. Requirements for Capitalization

(1) Acquisition of Equipment. To be considered for capitalization, and thus subject to depreciation, an equipment type asset must fulfill three characteristics: 1) the asset must be acquired (i.e., purchased, gift-in-kind) for use in operations, and not for investment or sale; 2) the asset (per individual unit) must have a useful life of at least three years(two years for laptops) ; and 3) the asset must have a cost value exceeding, at a minimum, $5,000.

(2) Acquisition or Construction of Buildings. These expenditures include the cost for renovations, betterments, or improvements that add to the permanent value of the asset, make the asset better than it was when purchased, or extend its life beyond the original useful life. To capitalize these costs, the improvements must fulfill at least one of the following three criteria: (1) the useful life of the asset is increased; (2) the productive capacity of the asset is improved; (3) the quality of units/services produced from the asset is enhanced. The total project cost must also exceed $5,000.

(3) Software and Computer Systems.  Please see separate capitalization policy.

  1. Definition and Classification of Capitalized Costs

The basis for accounting for property, plant, and equipment is cost. All normal expenditures of readying an asset for its intended use are capitalized. Donated property, plant, or equipment is valued at its fair market value and is also capitalized. The capitalizable costs for each asset class are as follows:

(1) Land and Land Improvements. This category of asset classification is used for all costs connected with the acquisition or improvement of land. This includes purchase price, appraisals, professional services, and title insurance. If land is purchased as a building site, certain expenses may be added to the cost: razing and removal, land or site improvements, utilities to site, and landscaping activity associated with new construction.

(2) Buildings and Building Improvements. This category of asset classification is used for all costs related to the acquisition, or construction of a building if over $5,000, including the purchase price, professional services, appraisals, test borings, site preparation, materials, labor, and overhead as a direct result of the project during construction. Also included are all costs associated with projects involving significant alterations, renovations, or structural changes (i.e., gutting a building and completely rebuilding the interior) that exceed $5,000, and that increase or amend the usefulness of the asset, enhance its efficiency, or prolong its useful life by at least three years. Building improvements may include interior or exterior construction of a building or building systems, such as electrical or plumbing.

(3) Equipment. This category of asset classification is used for all costs associated with the purchase of tangible property that has a useful life of more than three years and cost in excess of $5,000 in total. All bulk purchases of tangible property are included in this category. Charges may also include the cost of installation, transportation, taxes, duty, or in-transit insurance. Tangible property includes furniture, fixtures, computer equipment, and vehicles. In addition to the net invoice price of an asset, all costs associated with modifications, attachments, accessories, or auxiliary apparatus necessary to make the property usable for its intended purpose may also be capitalized, only if incurred at the time of initial equipment purchase. All subsequent costs of this nature, to maintain the equipment, will be expensed.

(4) Construction in Progress. This category of asset classification is used for those costs incurred in connection with the construction of a building prior to the building being put into use.

(5) Feasibility Studies. Costs incurred in connection with preliminary planning and testing of site adequacy or the preparation of site modeling.

(6) Capitalization of Interest. Interest cost shall be capitalized as part of the historical cost of acquiring certain assets. To qualify for interest capitalization, assets must require a period of time to get them ready for their intended use. (For example, assets the University constructs for its own use such as facilities). In situations involving qualifying assets financed with the proceeds of restricted tax-exempt borrowings, the amount of interest cost to be capitalized shall be all interest cost of those borrowings less any interest earned on temporary investment of the proceeds of those borrowings from the date of borrowing until the specified qualifying assets acquired with those borrowings are ready for their intended use. In all other situations, the interest cost eligible for capitalization shall be the interest cost recognized on borrowings and other obligations.

  1. Non-capitalizable Expenses

Costs that are below the $5,000 threshold for capitalization that neither significantly add to the permanent value of a property nor prolong its intended useful life are expensed. The following types of plant costs should be expensed:

(1) Maintenance. The recurring work required to preserve or immediately restore a facility to such condition that it can be effectively used for its designed purpose. It includes work done to prevent damage to a facility. Examples: Custodial services; repainting a room; recarpeting; fixing a leaky faucet.

(2) Preservation/Restoration Costs. Expenditures associated with maintaining special assets in, or returning them to, a level of quality as close to the original as possible. Example: Returning a stained glass window to its former level of beauty or acting to prevent any further deterioration.

D. Fixed Asset Module and Tagging

Beginning in July of 2010 Bryant University began using the fixed asset module in Banner to track all capital expenditures.  A separate balance sheet was developed to track capitalized assets and liabilities.

As mentioned above, if a project exceeds 5,000 dollars in total cost then the University will capitalize the costs of this project.  At this point in time, components of this project are entered into and assigned a tag in the fixed asset module.  By tagging each item we are able to track depreciation, cost, and various other attributes for each individual item that is associated with a particular project.

Construction expenses are moved into a capitalization account every month.  Each CIP item is booked to its respective expense account.  During this process a tag is generated. We do not assign depreciation information to the tag until the project is complete and the asset is placed in service. Any expenditure on an asset that is not in service as of June 30th is moved to the appropriate CIP asset account for year end.

Equipment Leases . Please notify the Controller’s Office regarding all equipment leasing to determine the proper accounting treatment.

Depreciation

A. Purpose

A provision for depreciation is recorded to reflect the net asset value of land improvements, buildings, and equipment throughout the useful life. Depreciation is not recorded on land, artwork, and books.

B. Depreciation Method

Land improvements, buildings, and equipment will be depreciated using the straight line method over the following useful lives:

Asset Category Years Useful Yearly Rate
Land Improvements
– General Land Improvement (prior to Jul 2010) 5 Yrs 20.00%
– Construction of Quadrangle (prior to Jul 2010) 33 Yrs 3.33%
– New Parking Lot Construction (prior to Jul 2010) 15 Yrs 6.66%
– Synthetic Turf Field (prior to Jul 2010) 10 Yrs 10.00%
– Campus & Infrastructure Improvements 15 Yrs 6.67%
Buildings
– New Buildings 40 Yrs 2.50%
– Building Improvements (prior to Jul 2010) 10 Yrs 10.00%
– Roofs & Mechanical Equipment 20 Yrs 5.00%
– Building Modernization 20 Yrs 5.00%
– Building Renovations 10 Yrs 10.00%
Furniture & Equipment
– Plant F&E (prior to Jul 2010) 5 Yrs 20.00%
– Furniture & Equipment 7 Yrs 14.29%
– Athletic/fitness Equipment 5 Yrs 20.00%
– Automobiles (prior to Jul 2018) 3 Yrs 33.33%
– Automobiles 5 Yrs 20.00%
– AV Equipment 4 Yrs 25.00%
– Admin Enterprise System 5 Yrs 20.00%
-Computer Equipment and Software 4 Yrs 25.00%
– Student Laptop Computers 2 Yrs 50.00%

C. Basis of depreciation

Depreciation will be calculated based on the historical cost of acquiring the asset. Salvage value will generally not be utilized in calculating depreciation, unless the salvage value is specifically known.

D. Depreciation Timing

A half year’s depreciation will be recorded in the first fiscal year during which the capital asset is placed into service, with subsequent depreciation recorded over the rest of the useful life of the capital asset on a monthly basis. Construction in Progress will not be depreciated until the subsequent full year after the project’s completion.

Disposal of Assets

The University implemented a fixed asset module in Banner in July 2010 to track each individual asset capitalized in a project and its eventual disposal. A separate balance sheet was also created to keep track of the total amount capitalized annual to each fixed asset account. When an asset is disposed of, its tag in the fixed asset system is marked as disposed and based on the information on the tag pertaining to depreciation; an entry is posted in Banner to reflect the appropriate accounting. The University normally does not sell its used assets (except for laptops and automobiles – see accompanying explanations for such sales). In a case where an asset is sold, the fixed asset system in banner is again utilized to process the transaction; whereby the tag is updated to reflect the sale of the asset and the appropriate accounting in Banner is posted.

For those assets which were acquired before July 2010, the determination is based on the conservative assumption that these assets would be disposed of after they have reached 1 to 3 times of their useful lives (depending on the type of asset). The following descriptions provide further detail for each asset category of historical assets and how they are disposed.

Buildings

Buildings are estimated to have a useful life of 40 years. Replacement of building systems and renovations to structure are undertaken through the building improvement accounts once a structure is erected.

Building disposals are to be undertaken only when the structure of the building is razed to the ground.

Building Improvements

Denote replacement of building systems and renovations to structure which are undertaken to elongate/enhance the life or usefulness of a structure. Useful life of building improvements is estimated to be 10 years. Building improvements will be written off from the general ledger after 3 times the useful life of the asset, i.e., 30 years. No calculation has been made to date.

Land Improvements Account Range (16611-16614):

The University has multiple rates of depreciation for land improvement as identified below.

Acct # Asset Type

Depreciable Life

Disposal Multiple

Disposal After:

16611

General Land Improvements – Trees, Shrubs, Walkways, Parking Lot Improvements 5 Years

3

15 Years

16613

Construction of Quadrangle, Land Clearance and Earth Fill 33 Years Blended Rate

1

33 Years

16614

New Parking Lot Construction 15 Years Blended Rate

1

15 Years

Calculation of Disposal

The University has estimated the disposal of general land improvements to be written off after 3 times the useful life of the asset. These assets are considered to require replacement and renovation on a continual basis and, therefore are considered to have a shorter useful life.

Furniture and Equipment ( Account Range 164xx-165xx)

Calculation of Disposal

Average life of different categories of Furniture and Equipment and their disposal period is as follows:

Acct # Asset Type

Depreciable Life

Disposal Multiple

Disposal After:

16651

Historical F&E 5 Years

3

15 Years

16673

Historical Computer Equipment 4 Years

3

12 Years

16694

Books 0 Years

0

0 Years

16693

Artwork 0 Years

0

0 Years

Student Laptops are handled differently because they are on the books for two years, laptops in the possession of seniors will be gifted to them when they graduate and the laptops in the possession of sophomores will be sold at a market/reduced rate. Therefore, student laptops will not be written off. Any gain or loss on sale of laptops will be recorded in the non-operating section of the statement of activities.

Books and Artwork is not considered depreciable and is only written off only when sold or discarded.

Automobiles

The University estimates useful life of its automobiles to be five years.

Calculation of Disposal

The University maintains a list of vehicles for insurance valuations, added to this list were any vehicles used on campus as service vehicles. This composite list is summed up and any variation from it is removed from the vehicle assets through the contra account. Older automobiles are normally traded in for newer autos. The trade-in value of such autos are netted against the purchase price of a brand new auto. The new auto is depreciated at the net purchase price.

Capitalization of Asset remediation obligation

Financial Interpretation Number (FIN) 47 which was adopted by the University, effective July 1, 2005, requires the University to record a liability on the future value of all facilities which are legally required to be remediated when being renovated or replaced. The Present Value cost of the future liability must be capitalized and depreciated from construction date through estimated settlement date of remediation. Any changes in such estimates which were originally developed in Fiscal 2006, must be updated periodically. Once such assets are remediated, the capitalized present value originally booked/subsequently updated must be taken off from gross asset and accumulated depreciation totals.

Journal Entry to remove/dispose asset

New contra accounts within a range of the actual asset account have been set up so the University can maintain a clean history on our Banner system of gross capital expenditures. The journal entry will be to credit these new contra accounts and debit accumulated depreciation.