Fixed Asset Capitalization Policy
This accounting policy establishes the minimum cost that shall be used to determine the capital assets that are to be recorded in Union College’s annual financial statements, which could also have implications for budgeting purposes.
A “capital asset” is defined as a unit of property that: (1) has an economic useful life that extends beyond 12 months, and (2) was acquired or produced for a cost of $5,000 or more. Capital assets must be capitalized and depreciated for financial statement and budgeting purposes.
Any items costing below this amount should be expensed.
Requirements for Capitalization
To be considered for capitalization, and thus subject to depreciation, an asset must fulfill three characteristics:
- The asset must be acquired (purchased, gift-in-kind) for use in operations, and not for investment or sale.
- The asset (per individual unit) must have a useful life of at least one year.
- The asset (per individual unit) must have a cost value of $5,000 or more.
A group or lot of moveable equipment that in total costs $5,000 or more, but each unit costs less than $5,000, will not be capitalized. Examples of this type of group purchase include, but are not limited to, one lot of furniture or computer workstations where the total cost is $5,000 or more, but the unit cost is less than $5,000.
Expenditures subsequent to initial acquisition may be capitalized. These 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 it was purchased, or extend its life beyond the original useful life. To capitalize these costs, the total subsequent project cost must exceed $5,000 and must fulfill at least one of the following criteria:
- The useful life of the asset is increased.
- The productive capacity of the asset is improved.
- The quality of units/services produced from the asset is enhanced.
The basis for accounting for property, plant, and equipment is cost, which should include the purchase price and all normal expenditures of readying an asset for its intended use.
Examples of costs that should be capitalized are as follows:
- Shipping charges
- Installation costs
Examples of costs that should NOT be capitalized are as follows:
- Repair costs
- Separate warranty costs or maintenance contracts
- Replacement parts or spares
- Technical service costs
Costs that are below the $5,000 threshold for capitalization are expensed immediately. In addition, expenditures for repairs, maintenance or replacement of component parts or accessories, which do not extend the asset’s original estimated useful life or significantly enhance its value, are expensed as incurred.
Examples of plant costs that should be expensed are as follows: Custodial services; re-painting; re-carpeting; repairing or replacing damaged building or equipment components.
Leased Equipment and Facilities
Please notify the Controller’s Office regarding all lease arrangements (including vehicles, equipment, and facilities) to determine proper accounting treatment.
Donated property, plant, or equipment that meet the requirements for capitalization and that will be used in operations, will be capitalized at the fair market or appraised value on the date of donation. Please notify the Controller’s Office regarding any donated assets.
Many sponsors permit the acquisition of non-expendable, special purpose equipment with project funds, provided the equipment is required in order to perform the project and prior written approval of the awarding agency or pass-through entity is obtained. Acquisition of general purpose equipment is prohibited except with prior written approval of the awarding agency or pass-through entity. All capital equipment purchased from federal funds is the property of the College unless otherwise stipulated in writing by the grant or contract sponsor. The College is bound by the sponsor’s agreement whether or not the ownership is vested in the College.
It is the responsibility of the Principal Investigator (PI) to ascertain the specific requirements of the award and to adhere to Union College's procurement procedures prior to ordering equipment. The PI is also responsible for proper use, maintenance and security of all assigned property, and for notification to the Grants Office or Financial Services, as applicable, of any shortage, damage, loss or theft of property. See the Administering Grant Funds: Financial Management Policy at
https://www.union.edu/grants/policies-and-guides for further information.
Except for land, all capitalized assets will be depreciated using a straight-line method over the useful life of the asset category. An asset’s useful life is the period over which services are expected to be rendered by the asset. The calculation of depreciation will be based on historical cost. The following summarizes useful life by category:
|Asset Category||Useful Life (in years)|
|Buildings & building improvements||40|
|Furniture & other improvements||10|
Disposal of Fixed Assets
All purchased and acquired assets have a useful life and value. When the asset’s usefulness warrants disposal from a department or office, the asset may have value to other departments, individuals, or members within the community. Departments should notify the Finance Department (email@example.com) of any assets no longer of use to the department to determine proper disposal procedures.
Object Codes Available for Capitalizable Costs
|Object Code||New Object Code Name||New Object Code Description||Examples|
|8600||Land||Costs associated with the purchase of land.|
|8601||Buildings/Building Improvements > $5,000||Cost of building additions and improvements that extend the useful life of a building and are greater than $5,000. Used to track ongoing building deferred maintenance projects.||Addition of new buildings, roof replacement, replacement or installation of air conditioning or heating units.|
|8602||Computer Equipment > $5,000||Computer equipment, hardware, etc. purchased for use by departments that has an individual unit price of $5,000 or greater.|
|8603||Equipment, Non Computer > $5,000||Equipment purchases with a useful life greater than 1 year and a unit cost of $5,000 or greater.||Lab equipment, construction equipment, appliances, boiler, etc.|
|8604||Non-Bldg. Improvement > $5,000||Cost of enhancements made to a plot land that have a useful life greater than 1 year and $5,000.||Drainage and irrigation systems, fencing, landscaping, parking lots and walkways.|
|8605||Vehicle - Purchases||Purchases of vehicles, including but not limited to automobiles, vans, trucks, tractors.|
|8606||Furniture & Fixtures > $5,000||Movable furniture that is not a structural component of a building and has a unit cost greater than $5,000.|