Chapter 2. Accounting Services
Section 2.2. Fund Principles

2.2.6.2. Capitalization Guidelines

Capitalization: The purchase of goods or services recorded as an asset, instead of being immediately expensed. This asset may then be depreciated (taken into expense) over some period of time, or kept as an asset, at it’s original cost, indefinitely.

Capitalized Interest: Capitalize loan origination costs and the net interest expense incurred during the construction period if debt is used for financing.

Final determination of capitalization will be made by the controller, using the following guidelines:

1. New Construction




Buildings

1. Capitalize all cost of new buildings including architect fees.
   
   
2. Capitalize all original furnishing, fixtures and equipment that are not capitalized through the equipment inventory system maintained by the Property Office.



3. Capitalize all site (including any demolition costs) and utility costs as part of the building cost.





Other construction. Capitalize items such as flag poles, basketball courts, water wells, etc.

Buildings and other construction are first accounted for as construction in progress. When the construction is at least 90% complete or the construction has been certified as substantially complete, the construction is removed from construction in progress and accounted for as buildings or other.

2. Purchase of Existing Buildings




Capitalize the purchase price plus acquisition costs. The fair market value of the land should be recorded as such and the value of the building should be the difference between the total cost less the amount capitalized as land.

3. Renovation




Entire building. If the entire building is substantially renovated for another use, the entire cost should be added to the plant investment. Old costs are not taken off the books unless the new value (original cost plus cost of the renovation) would be overstated for fair market value or insurance purposes.

Major maintenance. For special projects such as the replacement of a building's roof, the entire cost should be added to the plant investment. Old cost for the original roof should be taken off the books.

Classroom or laboratory. Whenever a small area of a building such as a classroom is being converted to a laboratory, or a large classroom to offices, or a laboratory remodeled for new research, the cost should not be capitalized.

Additions. If a renovation or addition expands the square footage of the building, the costs of the addition should be added to the original cost of the building.

4. Site Work




Roads, walks, curbs, plant material, etc. Capitalize only site work in substantially new areas (undeveloped parts of campus) unless the work is part of a new building.

5. Utilities




Steam, electricity, and water. Generally, only utilities being extended to new areas (undeveloped parts of campus) or to new buildings should be capitalized. Major alterations to existing utilities to accommodate a new building should also be capitalized.

6. Land




All purchased property should be capitalized at purchase price plus acquisition costs. If existing buildings on the property will be utilized, the fair market value should be capitalized as buildings and the amount recorded as land would then be the difference between the total cost less the amount capitalized as buildings. If buildings need to be razed for the land to be used for the purpose for which it was purchased, the cost of razing should also be capitalized as land.

7. Equipment




Equipment items to which the University obtains title will be capitalized into the "Equipment" account if the items have a unit cost (or fair market value, for gifts) of $2,500 or more and a life expectancy of three or more years. Included in the cost of an equipment item are any freight charges paid, insurance charges and duty charges, when assessed.

Equipment items which are permanently attached (fixed equipment) to and are an integral part of any building, such as exhaust fans, transformers, cranes, ventilation systems, etc., are not capitalized in the "Equipment" account, but rather in the "Buildings" account.

Equipment items purchased from restricted grants, and title to which is vested in organizations other than the University, are not capitalized in the University records, however, such acquisitions must be reported to the Property Office of the University for accountability purposes. Equipment items purchased from restricted grants where title is vested to the University are to be capitalized in the University records.

Equipment items purchased by the current funds (General, Designated, Auxiliary Activities and Expendable Restricted) of the University are considered to be expenditures of the funds from which purchased. Such items are capitalized in the Plant Fund.

Equipment items which are constructed from components in any department of the University must be reported to the Property Office so the items can be identified in the property records.

8. Property Trade-In
   
   

   When a previously capitalized asset is used as a trade-in on the purchase of a new asset, the new asset is recorded in the appropriate physical properties account of the Plant Fund at the list price without trade-in and the old asset is removed from the books at its original cost or valuation. Charge to the cost center paying for the new item will be at net price paid to vendor.

   Losses and/or gains on the disposition of assets traded in on other assets are not recognized nor is accumulated depreciation figured on assets traded in when determining the cost of a new asset acquired.

   Discounts taken on cost of capital asset purchases are recognized as a reduction of the cost of the assets acquired.

   If a property asset is sold for cash, with no trade-in being received, the asset sold is removed from the books and property records with no recognition of gain or loss on the sale. Cash proceeds revert to the fund which supported the original purchase.

9. Gifts




Gifts of land, buildings, and/or equipment - gifts of items that would normally be capitalized if purchased or constructed by the University should be capitalized at the fair market value at the time of the gift.

10. Library Books



Books acquired by the University Library, regardless of source or cost, are capitalized in the physical properties section of the Plant Fund. All dispositions must be reported on a periodic basis so the costs thereof can be removed from the records.

11. Mineral Specimens




Mineral specimens acquired by the A.E. Seaman Museum, regardless of source or cost, are capitalized in the physical properties section of the Plant Fund. All dispositions must be reported on a periodic basis so the costs thereof can be removed from the records.

To have equipment items constructed in University departments identified in the Property records, do the following:

1. Prepare a written memo, include the following information:
   
   
   1. Name of the item assembled.
   
   
   
   2. Listing of items included in the assembled piece of equipment, with number of units, unit costs, and total costs.
   
   
   
   3. A breakdown of salaries/wages paid to persons involved in the development and/or assembling of the units.
   
   
   
   
   
2. Forward the memo to the Property Office.