Capital assets are comprised of land, land improvements, building, building improvements, infrastructure, moveable equipment, library books, and collections (i.e., works of art and historical treasures). (Note that the information below has been adopted from the Financial Accounting and Reporting Manual (FARM), FARM Release 01-3, Section 307.3 and sub-sections contained therein.)
Definition: Land includes all real property that is purchased or acquired by gift or bequest. CMU must have title to the land before it is capitalized. The purchase of easements should also be recorded as land.
Capitalization Threshold: All land purchases, gifts, or bequests are capitalized, regardless of amount. The capitalized cost of land purchased would include the amount paid for the land, plus all ancillary costs, such as broker fees, legal fees, and real estate taxes incurred prior to being registered as owned by a tax-exempt entity. If acquired by gift or bequest, the capitalized cost would be recorded at fair market value at the date of the gift or bequest.
Depreciable Life: Land is not depreciated.
Definition: Land improvements include assets such as parking lots, fencing, gates, athletic fields, and parking lot lighting.
Capitalization Threshold: The cost of land improvements in excess of $50,000 should be capitalized. All direct costs of construction or alteration should be included in calculating the cost of the land improvement. Work to maintain land improvements in their existing condition, for example, re-asphalting a parking lot, should be expensed.
Depreciable Life: Land improvements in excess of $50,000 are depreciated straight-line over 8 years.
Buildings & Building Improvements
Definition: Includes all structures used for operating purposes, as well as significant improvements made to an existing structure that meet appropriate capitalization criteria. Included with this category are all permanently attached fixtures, machinery, and other components that cannot be removed without damage resulting to the building. If a component can be removed without damage, then it should be considered equipment and not included in the cost of the building or improvement.
Capitalization Threshold: All direct costs of construction should be included in calculating the capitalized cost of the asset. Significant structural alterations that increase the building's usefulness, efficiency or asset life should also be capitalized. For example, the complete replacement of a roof would be capitalized if the cost exceeds the capitalization threshold. Building improvements in excess of $50,000 are capitalized.
The cost of a building should not be adjusted for
repairs, maintenance, or replacement of component parts that do not extend the building's original useful life or significantly enhance its net value. For example, work to maintain buildings in their existing condition, such as painting, repairs, or roof repairs should be expensed in the period in which the work is completed.
Material remodeling or renovation that exceeds in cost should be capitalized as a building improvement.
Remodeling is defined as the changing of existing facilities by rearrangement of spaces and their use and includes, but is not limited to, the conversion of two classrooms to a laboratory or the conversion of a closed plan arrangement to an open plan configuration.
Renovation is defined as rejuvenating or upgrading existing facilities by installation or replacement of materials and equipment and includes, but is not limited to, interior or exterior reconditioning of facilities and spaces, air conditioning, heating, or ventilating equipment.
Depreciable Life: Buildings and building improvements in excess of $100,000 are depreciated straight-line over 40 years. Buildings and building improvements of $50,000 to $100,000 are depreciated over 10 years.
Definition: Infrastructure includes all items such as streets, street lighting, roads, sidewalks, curbs, utility distribution systems, and storm sewers. These assets usually have a longer useful life and are more permanent in nature than land improvement related assets.
Capitalization Threshold: Work to improve infrastructure assets, for example creation or replacement of a storm sewer, in excess of $50,000 should be capitalized. All direct costs of construction or alteration should be included in calculating the cost of the asset. If the asset is constructed / altered by CMU's own personnel, then these costs should also include any indirect costs, such as allocated overhead. Work to maintain infrastructure assets in their existing condition should be expensed.
Depreciable Life: Infrastructure in excess of $50,000 is depreciated straight-line over 20 years.
Definition: Equipment generally includes all items that are perceived as moveable personal property. Equipment may be purchased, fabricated, or received by donation. Examples of equipment include furniture, lab equipment, and classroom equipment.
Capitalization Threshold: Equipment in excess of $5,000 is capitalized. Purchased equipment should be recorded at cost, which is calculated at the amount invoiced, plus freight and installation costs, less any discounts. The cost of fabricated equipment should include the direct cost of the fabrication and installation. Donated equipment should be recorded at fair market value as of the date of the gift.
CMU's capitalization threshold for equipment is $5,000, which is also in accordance with OMB Circular A-21, which requires all institutions recovering costs from the federal government to capitalize all equipment costing more than $5,000. Equipment assets, other than those that are considered low theft items, are also tagged and then capitalized within the fixed asset system. If tagged equipment items are not found during annual inventories, the asset should be retired and removed from the University's records.
Depreciable Life: Equipment is depreciated straight-line over 8 years.
Digital TV Equipment
Definition: Constructed digital television equipment, as defined by the Public Broadcasting department, may be purchased, fabricated, or received by donation.
Capitalization Threshold: Constructed digital television equipment is capitalized. Purchased equipment should be recorded at cost, which is calculated at the amount invoiced, plus freight and installation costs, less any discounts. The cost of fabricated equipment should include the direct cost of the fabrication and installation. Donated equipment should be recorded at fair market value as of the date of the gift.
Depreciable Life: Constructed digital television equipment is depreciated straight-line over 20 years.
Definition: Vehicles typically includes passenger vehicles, such as automobiles and vans, and facility related vehicles such as pickup trucks, dump trucks, and cargo vans. Vehicles may be purchased, fabricated, or received by donation.
Capitalization Threshold: Vehicles in excess of $5,000 are capitalized. Purchased equipment should be recorded at cost, which is calculated at the amount invoiced, plus freight and installation costs, less any discounts. Donated equipment should be recorded at fair market value as of the date of the gift.
Depreciable Life: Vehicles are depreciated straight-line over 4 years.
Definition: Library books include hard and soft cover books, periodicals and subscriptions. Rare books that are considered "collections," similar to works of art or historical treasures, should be classified as Collections.
Electronic library subscriptions with a subscription period 12 months or less are not capitalized and are to e recorded and expensed in GL 812600-Electronic Subscriptions, 812700-Electronic Journals, or 812800-Electronic Journal Package.
Capitalization Threshold: Library books should be capitalized at their purchase price plus transportation and any incidental costs. Donated books should be recorded at fair value as of the date of the gift.
Depreciable Life: Library books are capitalized at the end of each fiscal year and are depreciated straight-line over 8 years, taking one-half year depreciation in the first year.
Definition: Collections are defined as works of art, historical treasures, or similar assets that are (a) held for public exhibition, education, or research in furtherance of public service instead of financial gain, (b) protected, kept unencumbered, cared for, and preserved, and (c) subject to organizational policy that requires the proceeds of items that re sold to be used to acquire other items for collection. Items that do not meet these criteria are not considered collections and must be capitalized accordingly.
Capitalization Threshold: Collections acquired through purchase should be recorded at cost. Collections received through gift or bequest should be recorded at fair value. Fair value is best determined by quoted market prices or appraisals.
Depreciable Life: Collections are not depreciated.
Definition: Software represents various kinds of programs used to operate computers in order to execute a specific set of commands.
Capitalization Threshold: Initial purchases of software in excess of $250,000 should be capitalized. Annual renewals and licenses should be expensed. If a purchased software is modified using more than minimal incremental effort before being put into operation, the costs of these modifications should be capitalized as outlined in GASB 51:
- Preliminary project costs, including conceptual development of requirements, evaluation of alternatives, and final selection of alternatives are not to be included in the depreciable cost.
- Application development costs, including the design, software configuration and interface development, coding, installation, and testing should be included in the depreciable cost of the asset. These costs would include the payroll and related costs association with employees involved in the installation and testing of the software. The initial licensing fee is also included in the depreciable cost.
- Post-implementation costs, including training and software maintenance (including renewal licensing fees) are not included in the depreciable cost. Note that licensing fees for subsequent years are typically not capitalized unless new functionality is provided and it exceeds the $250,000 threshold.
Purchased software should be recorded at cost, as outlined above. Donated software that has been modified using more than minimal incremental effort before being put into operation should be recorded at fair market value as of the date of the gift.
Depreciable Life: Software is amortized over the lesser of five years or the actual known life of the software.