Shenandoah University

Asset Capitalization Policy & Inventory Procedure

Replacement of Policy: Capital Asset & Asset Inventory Procedure approved May 11, 1987

Proposed by: Administrative and Finance Committee

Approved by: President and Vice-President for Administration & Finance

Effective date: April 20, 2000

Purpose:

To establish guidelines for the control of capital assets owned by the University. The purposes of the controls are to protect capital assets, to preserve the life expectancy of capital assets, to avoid unnecessary duplication of assets on campus, to provide a guide for the future replacement of assets, and to establish a basis for the amount of insurance coverage required.

Definition:

A capital asset, for the purposes of this policy, is defined as tangible or intangible property owned by the institution and property leased from others that qualify as a capital lease or leasehold improvement with a useful life that extends beyond the year it is placed in service and meets the definition and minimum dollar amount for capitalization per asset category as follows:

1). Land- Real property that is purchased or acquired by gift or bequest for operating purposes regardless of value.

2). Land improvements- Gifts acquired or costs incurred to prepare land for its intended business use in excess of $5,000.00, such as landscaping shrubbery, roads, sidewalks, fences, bridges, lighting, sewers, and athletic fields, tracks and courts.

3). Buildings and improvements- All structures used for operating purposes including all permanently attached fixtures, machinery, and other components that cannot be removed without damage, such as boilers, furnaces, air conditioners, elevators, wiring, and lighting fixtures. All alterations, renovations, and repairs to existing structures in excess of $10,000.00 that increase the value of the property, make it more useful, or lengthen its life.

4). Leasehold improvements- All alterations, renovations, and repairs to leased facilities in excess of $10,000.00 that increase the value of the property, make it more useful, or lengthen its life.

5). Furniture and equipment- Tangible personal property purchased or acquired by gift to be used for operating purposes in excess of $1,000.00, such as desks, filing cabinets, computer hardware, automobiles, musical instruments, and laboratory equipment.

6). Property leased from others under capital leases- A capital lease is a lease that is treated in a manner similar to an asset purchase with a minimum capitalization cost of $1,000.00 per item. If the lease is noncancelable and has at least one of the following characteristics, the leased asset is recorded on the books as a capital asset of the institution:

1. It passes title to the lessee
2. It contains a bargain purchase option
3. Its lease term is at least 75% of the asset's estimated economic life
4. The present value of the minimum lease payments (discounted at the lower of the implicit interest rate or the incremental borrowing rate) equals or exceeds 90% of the asset's fair value.

7). Computer software- Intangible property either purchased or acquired by gift that is designed to cause a computer to perform a desired function in excess of $1,000.00.

8). Library holdings- All library holdings purchased or acquired by gifts during the fiscal year is capitalized in ggregate at the end of the fiscal year using the cost-based method. The cost-based approach entails the following:

• Acquisition costs reflect actual expenses for purchased library materials

• Donations are capitalized at fair market value

• A value is placed on items withdrawn from the inventory and that value is reflected in capitalization

9). Collections- Collection items may be acquired by either donation or purchase. Collections include works of art, rare books and documents, botanical specimens, and other items held for display or study. All collection items are capitalized, but are not depreciated. Collections are items that meet all of the following criteria:

• The collection is held for exhibition to the public for educational purposes or research, and not for financial gain.

• The collection is protected, cared for, and preserved

• Proceeds from the sale of the collection items are reinvested in other collection items.

10). Other assets- Works of art, historical treasures, and similar assets that do not meet the definition of a collection in excess of $1,000.00.

Exception to the above definition of capital assets: If assets are purchased with federal funds, the institution will need to follow the applicable cost circular from the Office of Management and Budget for the capitalization threshold.

Depreciation Guidelines:

Depreciation is a system of accounting which aims to distribute the cost or gift value of a capital asset, less salvage value, over the estimated useful life of the asset in a systematic and rational manner. All depreciable assets will be depreciated using the straight-line method of allocation. The straight-line method allocates an equal amount of the net cost of an asset to each accounting period in its useful life. Most assets retain some recovery at the end of their useful lives, which is known as salvage value. All depreciable property will have a 0% salvage value.

The useful life of depreciable assets is based on their usefulness to the institution. The following table displays the estimated useful life that will be used to allocate depreciation:

Depreciation will be recorded in the investment in plant fund for all depreciable assets.

Authorization for Purchasing Capital Assets:

Departments annually submit requests for capital assets in accordance with the institutional Operating Budget Policy. Once a request is approved, purchases may be made in accordance with the institutional Requisition and Purchasing Policy. A department on behalf of faculty, staff and students may make no personal purchases of property. An employee may purchase personal computer related items in accordance with the Computer Purchasing Policy and Procedure but he/she will need to pay the appropriate taxes as required by law for the personal purchase. All assets of the University will be identified as property of the University when received as outlined in the Property Identification Policy.

Disposition of Capital Assets:

Capital assets which are obsolete, worn out, or no longer meet the requirements of a department may be sold as surplus, transferred to another department, traded-in or discarded. A Fixed Asset Disposal Form must be completed in all cases for the disposition of assets including damage or theft and a Fixed Asset Relocation Form must be completed when assets are transferred from one location to another location. The fixed asset disposal form must be signed by the department head, faculty Dean (if applicable), Director of Institutional Computing (computer related items only), Director of Physical Plant and the Vice-President for Administration and Finance. The fixed asset relocation form must by signed by he department head, faculty Dean (if applicable), Director of Institutional Computing (computer related items only), and Director of Physical Plant. The Fixed Asset Manager will retain the approved forms to preserve the accuracy of the capital asset records.

Inventory Procedure:

The Business Office will maintain an inventory of assets including, but not limited to, capital assets. The inventory will be comprised of capital assets as defined above and other assets in excess of $200.00, which include:

1. Office furniture including desks, chairs, bookcases, filing cabinets, credenzas, and tables
2. Office equipment including facsimiles, typewriters, copiers
3. Computer hardware including central processing units, monitors, printers, laptops, palm pilots, scanners, and hubs
4. Audio-visual equipment including radio, television, recorders, projectors, video and monitor equipment, cameras
5. Laboratory equipment
6. Musical instruments
7. Maintenance and grounds equipment including
8. Dining hall equipment
9. Athletic equipment

Assets not subject to inventory if not classified as capital assets include:

1. Residence hall furniture
2. Classroom furniture

The general ledger asset classification accounts are supported by an asset database that includes information for each inventory item such as acquisition date, vendor, purchase order number, invoice number, description of the item, check number, cost, budget code, tag number, location, disposal date, and accumulated depreciation. The asset database is reconciled to the general ledger monthly. The Fixed Asset Manager is responsible for physically tagging the assets when they are received. The Fixed Asset Manager will send a list of all inventoried assets, by location, to each department annually. The department representative will sign the inventory list confirming its accuracy, or detailing any discrepancies and submit it to the Fixed Asset Manager to update the inventory records. The Fixed Asset Manager will conduct random test counts of inventoried assets periodically. Any problems that the Fixed Asset Manager encounters will be reported to the Comptroller.

Implementation:

This policy supersedes the Capital Asset & Asset Inventory Procedure dated May 11, 1987. This policy will be effective as of July 1, 1999 and the change in asset lives, salvage value, and the minimum dollar amounts for capitalization will be implemented prospectively. The University will incorporate a three year write off process for the fully depreciated assets in the furniture, equipment and computer software categories if the cost falls below the new capitalization amount of $1,000.00.

References:

• 1. Accounting for Fixed Assets. Washington, DC: Coopers and Lybrand, 1981.
  2. AICPA Audit and Accounting Guide: Not-for -Profit Organizations. New York, New York: American Institute of Certified Public Accountants, Inc., 1999, Chapters 7 &9.
  3. Financial Accounting and Reporting Manual for Higher Education. Washington, DC: National Association of College and University Business Officers, 1990, pp. 415-417.
  4. Internal Revenue Service Publication 946: How to Depreciate Property. Washington, DC: Government Printing Office, 1999.
  5. Recognition of Depreciation by Not-For-Profit Institutions. Washington, DC: National Association of College and University Business Officers, 1988.

Appendix:

• 1. Sample letter to departments
  2. Sample inventory form to departments
  3. Fixed Asset Relocation Form
  4. Fixed Asset Disposal Form

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