GAP 200.050, Plant & Equipment Capitalization
- Capitalization of Movable Equipment
- Capitalization of Telecommunication Equipment
- Capitalization of Fixed Assets
- Amount to be Capitalized
- Operations and Recording Fixed Assets
It is essential for both financial statement and cost accounting purposes that all units of Duke University and Duke University Health System follow a uniform policy with respect to the types of expenditures capitalized and the values at which expenditures are capitalized. When there is any doubt as to the proper treatment of possible capital expenditures, contact Plant Accounting.
For more information on related Plant & Equipment policies, refer to GAP 200.040, Plant & Equipment Definitions, General Principles, & Controls, and GAP 200.090, Plant & Equipment Depreciation Reserves.
For specific details regarding the capitalization of computer software developed for internal use see GAP 200.075, Computer Software Developed for Internal use.
The next two sections outline in general terms the distinction between expenditures of a capital and non-capital nature.
Expenditures for movable equipment are capitalized at the invoiced cost plus any applicable transportation and installation charges if they meet the following criteria:
- Have individual first cost value of $5,000.00 or more ($1.00 in the case of library books, manuscripts, etc.)
- Are durable (an economic useful life of more than two years).
- Are free-standing, useable free of support from other equipment, or meets the requirements in statement 4 below.
DEFINITIONS FOR CAPITAL EXPENDITURES
- Newly acquired item.
- Replacement of complete unit.
- Rebuilt equipment if the rebuilding project effectively restores to like-new condition and/or significantly extends the item's useful life or markedly increases the item's net book value. Generally rebuilds must be $5,000 or greater and at least 50% of the first cost of the item.
- Accessory equipment should be considered as a portion of the first cost of the capital item if it was invoiced at the time of initial purchase. However, accessory equipment that was purchased with the intent of using it interchangeably with two or more items should be capitalized and recorded as a separate item of equipment.
Accessory equipment that is acquired subsequent to the purchase of the parent item must have the capitalization criteria applied to it separately. This criteria will determine if the item is to be expensed or capitalized.
- Leased equipment is capitalized if it meets the capitalization criteria outlined in the FASB Standard No. 13 dated November, 1976 see GAP 200.070, Plant & Equipment Lease Agreements.
- Government owned or Government supplied equipment is capitalized according to the restrictions and controls imposed by the Federal Government.
DEFINITIONS FOR NON-CAPITAL EXPENDITURES
- Expenditures for repairs, maintenance or replacement of component parts which do not extend the unit's original life or significantly enhance its net value.
- Expenditures incurred in demolishing or dismantling equipment including those expenditures related to the replacement of units or systems.
- Expenditures incurred in connection with the rearrangement, transfer, or moving of plant and equipment from one Duke location to another, including expenditures incurred in dismantling, transporting, reassembling and reinstalling such items in a new location. Use G/L account 689900, Relocation Expense, for moves from one Duke location to another and 696300, Moving and Assembly, for other equipment moves.
One department may wish to transfer a capital item to another department, either with or without revenue realized from the transaction. The Duke University Surplus Store coordinates these types of transactions with the departments and Plant Accounting, using G/L account 750900 on both sides of the transaction. No changes are made to the first cost, accumulated depreciation or the original source of funds; therefore, at year-end all current year depreciation is attributed to the cost object to which the asset has been transferred.
Purchases of multiple similar pieces of equipment (performing the same or similar basic function) that otherwise meet the criteria above for capitalization but whose unit cost is below $5,000 can be capitalized as a fleet purchase if the total extended cost of the purchase exceeds $1,000,000. A reasonable method for subsequent inventory and tracking (acceptable to Plant Accounting) must be put in place by the acquiring department prior to initial capitalization. Results of inventories shall be reported to Plant Accounting at least annually.
Telecommunication equipment acquired and installed by Duke Tel-Video, costing $5,000 or greater, will be recorded in G/L account 668600, Telephone System Station Apparatus or 668700, Telephone System Station Connections depending upon the type of equipment. Plant Accounting will create a corresponding balance sheet asset on the appropriate 17xxxx, Investment in Plant and Equipment G/L account. These capital expenditures are usually charged to a Plant cost object.
Telecommunication equipment purchases under $5,000 will be recorded in G/L account 678600, Telephone Systems/Station Apparatus & Connection. These non-capital acquisitions are usually charged to an operating cost object.
Work order charges for maintenance projects are charged to the department to G/L account 688600, Telephone Maintenance. These expenses will not be capitalized.
Land and buildings are defined as fixed assets. No depreciation is applied to land or to work in progress. Plant Accounting will review all work orders, purchase documents, and other project data to determine at the start of the project if a capital fixed asset will result from the work performed by applying the fixed asset capitalization criteria. Plant Accounting will capitalize the ongoing project to the related work in progress accounts. When a work in progress project is complete Plant Accounting capitalizes the project with the proper dates and distribution of capitalized expenditures to the proper fixed asset accounts.
CRITERIA FOR CAPITALIZING FIXED EQUIPMENT
Fixed equipment includes items usually associated with the mechanical components or systems designed to support the operation of a building or facility. Expenditures for movable equipment are capitalized at the invoiced cost plus any applicable transportation and installation charges if they meet the following criteria:
1. Have individual first cost value of $5,000.00 or more.
2. Are durable (an economic useful life of more than two years).
CRITERIA FOR CAPITALIZING NEW BUILDINGS
- New buildings are capital.
CRITERIA FOR CAPITALIZING RENOVATIONS OR BUILDING ADDITIONS
- A renovation or building addition is capital when it enhances the use of, or extends the life of the building if the capitalizable amount equals or exceeds $100,000.00 or 20% of the building cost, whichever is less.
- Enhance the use of:
The efficiency of a building or portion thereof would be improved
- Extends the life:
The useful life of the building has been extended by two years or more beyond its original estimated useful life
- Capitalizable amount:
The total cost of a renovation project, less movable equipment expense and other expense incidental to the project. Incidental cost to a project is that cost contiguous to the project or unrelated repairs, which do not lend to the enhancement or extension of the building life (e.g., internal moving and storage costs).
- Enhance the use of:
CRITERIA FOR CAPITALIZING LAND (ACQUIRED AFTER 1971)
- Land acquired for speculation is not capitalized. It is recorded as an investment.
- When land is acquired with a building, an allocation for the value of the land is made to G/L account 660100 in the building number.
The cost values to be capitalized as the first cost of an item of Plant and Equipment are outline below:
- The vendor's invoice price for the item less any discounts: in the case of donated items, an appraisal of the item's current value is used in lieu of an actual invoice price.
- Original incoming transportation incurred on shipments from external suppliers. For depreciation purposes, all charges of this nature are recorded as having been incurred at the same time as the related items of plant and equipment were purchased.
- The cost of assembly, installation, etc., relating to the capitalized item. In the event outside contractors perform this work, the actual price billed for such work is capitalized. If Duke personnel perform this work, the capitalized cost includes the actual cost of direct labor, material cost, and an appropriate overhead factor.
For a more detailed description of the operations of the capital asset files and recording of entries in the general ledger system, please contact Plant Accounting.