GAP 200.090, Plant & Equipment Depreciation

Contents

1. General
2. Depreciation Calculation
3. Depreciation Recorded on General Ledger
4. General Guidelines for Depreciable Life

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I. General

Depreciation is an allocation of the cost of tangible property over its estimated useful life in a systematic and rational manner. Duke calculates and reports depreciation in accordance with Generally Accepted Accounting Principals.

II. Depreciation Calculation

Depreciation is calculated using the Fixed Assets module within the SAP system. Duke uses the straight-line method, calculated on a monthly basis. For newly acquired items, depreciation is calculated beginning the month following the acquisition. For custom built or constructed equipment or facilities, depreciation calculation begins one month after the item is put into service. When an item is disposed of, depreciation is taken through the month of disposal.

The depreciable life for an item is based on its "useful life." Plant Accounting uses many resources to help assist in the determination of "useful life". Two main resources for this are the American Hospital Association guidelines, and recommendations from American Appraisal. In addition to the recommendations from these resources, Plant Accounting takes into account technological obsolescence and utilization. The guidelines in section IV are a result of these general determinations. Due to the unique nature of many assets purchased, individually significant items are reviewed for depreciable life as needed. In these situations, Plant Accounting looks at comparable guidelines as well as consulting with the vendor the item was purchased from and the department that will be using the piece of equipment.

When the accumulated depreciation equals the original cost, no further depreciation is accrued; however, both the balance of first cost and the reserve remain on the books until the item is disposed. When the item is dismantled, demolished, sold, or otherwise disposed, the cost of the item and accumulated depreciation are removed from the ledger.

(Please note that DUHS management has the authority to estimate useful lives for building assets in DUHS major facilities. These lives are sometimes estimated to be longer than the general guidelines listed below based on industry knowledge and research compiled by DUHS.)

III. Depreciation Recorded on General Ledger

Within the University, depreciation expense is posted at the company level in SAP. Within DUHS, depreciation expense is posted to either a departmental cost center or a building cost center.

Within the Fixed Assets module of SAP, each building in its entirety must belong to only one company. However some buildings are actually shared. This sharing of space is recorded in the institutional space system often referred to as Web Central. Within SAP, all of the depreciation for a building is charged to the "owning" company. Plant Accounting then uses an SAP allocation process to move the monthly depreciation expense to the appropriate company. Equipment also can only belong to one company in SAP, in the rare situations where a major piece of equipment must be allocated between companies; Plant Accounting uses the above reference process to allocate the depreciation expense each month.

If upon review of the financial records, it appears that depreciation is being charged to the wrong cost center the department should bring this to the attention of Plant Accounting. Journal Entries are not to be made to the depreciation G/L accounts, corrections are made by Plant Accounting through the Fixed Assets module; this will fix previous mispostings and will post the future charges correctly.

IV. General Guidelines for Depreciable Life

A. Fixed Assets

Land & Land Improvements

171000 Buildings

Utilities & Building Appurtenances

Unifinshed Plant & Equipment

Duke Communication System (Tel-Com)

B. Movable Assets

Ships And Vessels

Machinery and Equipment

Vehicles

LIbrary

Furniture, Furnishings, Office machines & Equipment

Computers And Software

Non-Depreciable