GAP 200.050, Plant & Equipment Capitalization

Contents

1. General
2. Capitalization of Movable Equipment
3. Capitalization of Telecommunication Equipment
4. Capitalization of Fixed Assets
5. Amount to be Capitalized
6. Operations and Recording Fixed Assets

*Effective Date: July 1, 2025

I. General

It is essential for both financial statement and cost accounting purposes that all units of Duke University(University) and Duke University Health System(DUHS) follow a consistent policy with respect to the types of expenditures capitalized and the values at which expenditures are capitalized. While the University and DUHS may have differing thresholds for capitalization, the application of the general capitalization policy applies to all acquisitions that meet the respective policies. 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.

II. Capitalization of Movable Equipment

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:
   • $10,000.00 or more for University acquisitions
   • $5,000.00 or more for DUHS
2. Are durable (an economic useful life of more than two years).
3. Are free-standing, useable free of support from other equipment, or meets the requirements in statement 4 below.

Definitions for Capital Expenditures

1. Newly acquired item.
2. Replacement of complete unit.
3. 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 meet or exceed the relevant capitalization threshold for the unit in which the equipment resides at and be at least 50% of the initial cost of the item.
4. Accessory equipment should be considered as a portion of the initial 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.
5. Leased equipment is capitalized if it meets the capitalization criteria outlined in Accounting Standards Updata(ASU) 2016-02, Leases(topic 842) see GAP 200.070, Real Estate, Plant & Equipment Lease Agreements.
6. Government owned or Government supplied equipment is capitalized according to the restrictions and controls imposed by the Federal Government.

Definitions for Non-Capital Expenditures

1. Expenditures for repairs, maintenance or replacement of component parts which do not extend the unit's original life or significantly enhance its net value.
2. Expenditures incurred in demolishing or dismantling equipment including those expenditures related to the replacement of units or systems.
3. 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.

Interdepartmental Transfers

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 initial cost, accumulated depreciation or the original source of funds. As of the transfer date, depreciation will be attributed to the cost object to which the asset has been transferred.

intercompany transfers

Transferring assets between companies requires the creation of a new asset in the receiving company's books. As such, all inter-company transfers must be performed by Plant Accounting. Transfers will remove the related 17xxxx amount from the sending company's balance sheet account as well as remove the related accumulated depreciation from 180100 - Accumulated Depreciation. The receiving company will get an increase in the 17xxxx G/L account as well as a posting to 180100 - Accumulated Depreciation. Balancing entries for each company code are posted to 831000 - Intercompany Transfers of Assets. 

Fleet Purchases

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 the respective capitalization thresholds 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.

III. Capitalization of Telecommunication Equipment

Telecommunication equipment acquired and installed by Duke Office of Information Technology, costing $10,000 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 $10,000 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.

IV. Capitalization of Fixed Assets

Land and buildings are defined as fixed assets. No depreciation is applied to land or to assets under construction. 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 asset under construction accounts. When an asset under construction 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 initial cost value that meets or exceeds the applicable capitalization threshold.
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.

Definitions

1. Enhance the use of:
   The efficiency of a building or portion thereof would be improved
2. Extends the life:
   The useful life of the building has been extended by two years or more beyond its original estimated useful life
3. 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).

Criteria for Capitalizing Land

• 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.
• Land acquired for speculation is not capitalized. It is recorded as an investment.

V. Amount to be Capitalized

The cost values to be capitalized as the initial cost of an item of Plant and Equipment are outline below:

1. 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.
2. 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.
3. 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.
4. No other costs beyond the above can be capitalized with the equipment, even when incurred at the same time and/or billed on the same invoice from the vendor.

VI. Operations and Recording of Fixed Assets

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.