Provides consistent and accurate capitalization of all assets held by the University.
The University has established a capitalization policy in order to distinguish between expenditures incurred which should be capitalized as property, plant, and equipment and depreciated over a useful life from those expenditures incurred which should be treated as an expense in the University’s financial statements.
Reason for Policy
The purpose of the capitalization policy is to provide consistent and accurate capitalization of all assets held by the University.
Who Is Governed by this Policy
All offices responsible for purchasing, safeguarding, maintaining, disposing and reporting on capital assets.
The amount or basis for capitalizing property, plant and equipment is the cost on the date of acquisition or the fair market or appraised value on the date of a donation of property. All expenditures incurred for the asset to be ready for its intended use should be included in the amount capitalized.
Capital Equipment and Vehicles
Furnishings, equipment, and vehicles purchased or donated with a unit cost of $5,000 or more and a useful life greater than one year is considered capital equipment. Expenditures incurred for these items should be capitalized and treated as equipment in the University’s financial statements. Capital equipment is generally movable and may include such items as scientific, athletic, audio-visual, educational, and maintenance equipment, office furnishings, computers, laptops, printers and vehicles.
A purchase of equipment which consists of many items, each with a unit cost less than $5,000, may not meet the definition of capital equipment even if the aggregate amount of the purchase order exceeds $5,000. For example, none of the items would be considered capital in a purchase of office furniture that consists of six desk chairs with unit cost of $500 each, and a conference table at a cost of $3,000. Even though the aggregate cost of the furniture is $6,000 the individual cost of each item is less than the $5,000 threshold.
The acquisition cost, freight, installation fees and in-transit insurance as well as any necessary attachments, accessories, and apparatus should be included in the total cost or basis when making the determination of whether an item exceeds the $5,000 unit value threshold for capitalization. For example, the purchase of a printer with a unit acquisition cost of $3,000, a printer attachment with a cost of $2,000 and freight charges of $250 would be capitalized at a cost of $5,250 even though the unit cost of each of the parts is less than $5,000. Each component part is necessary for the printer to be placed in use therefore, the amounts are totaled to determine whether the item should be capitalized.
Building and Campus Improvements
Building improvements are significant alterations, renovations, betterments, renewals, replacements or structural changes that increase the usefulness of the asset, enhance its efficiency or prolong its useful life by greater than one year. Costs relating to projects that meet this criteria and have a total project cost of $5,000 or more are capitalized. Costs that neither, significantly add to the permanent value of an asset or prolong its useful life are expensed. Recurring custodial services or maintenance and repairs such as painting and repairs are costs that would not meet capitalization criteria. Capital projects below the $5,000 would also be expensed and not capitalized. Campus improvements include assets such as parking lots, fencing, cabling and networking between buildings, sidewalks, roads, drainage and sewer systems. Campus improvement project costs of $5,000 or more related to the construction or significant alteration, betterment, renewal or replacement of these assets should be capitalized. Costs incurred to maintain campus improvements in their existing condition would not be capitalized.
Buildings and Construction in Progress
All direct costs are included in the capitalized cost of the construction of a building. Direct costs include architectural, engineering and legal fees, permits and construction costs including costs of all structural components, interior and exterior finishing and permanently attached fixtures or equipment. Interest, net of corresponding income, incurred during the construction of debt-financed property is capitalized during the period of time to construct the asset to the time when the asset is ready for its intended use. Construction in progress is an asset category that is used when the asset under construction meets the capitalization threshold and the construction time crosses over two or more fiscal years. The construction in progress account is closed out to the capitalized asset when the project is substantially complete, occupied, or placed into service.
Costs to construct or renovate leased spaces are capitalized to leasehold improvements if they meet the same criteria as that specified for buildings or building improvements are capitalized. Moveable furniture with a cost of $5,000 or more, that is not attached to the leased property is not considered a leasehold improvement and is capitalized with equipment.
Purchases of library books are recorded at cost on an annual, composite basis.
- Purchased Software Applications: Purchased software is capitalized when individual licenses equal $5,000 or more and the software is expected to have a useful life of more than one year. Expenses related to maintenance, support and training are expensed.
- Internally-Developed Software or Website Development: Costs related to internally-developed software or website development are capitalized or expensed depending on the nature of the costs and the stage of development. Generally, all costs incurred during the preliminary or planning stages are expensed. These costs may include developing a project plan; determining the functional requirements and technical requirements; identifying the internal and external resources needed; and exploring alternative means of achieving functional and technical requirements. Costs incurred during the application development stage or graphics development stages, such as the purchase of software or design and layout expenses may be capitalized. Post-implementation maintenance or costs of operating a website are expensed.
This policy does not have definitions associated with it at this time. Upon periodic policy review this area will be evaluated to determine if additional information is needed to supplement the policy.
This policy does not have forms associated with it at this time. Upon periodic policy review this area will be evaluated to determine if additional information is needed to supplement the policy.
This policy does not have related information at this time. Upon periodic policy review this area will be evaluated to determine if additional information is needed to supplement the policy.
- Last Reviewed Date: March 28, 2023
- Last Revised Date: March 28, 2023
- Policy Origination Date: Not known
Who Approved This Policy
Michael Rhattigan, Chief Financial Officer