Capitalization and Depreciation Policy
Policy Number: 600.006.03
Approved by: BOT Executive Committee
Effective Date: February 1997
Revised: November 1999
Revised: April 2010
Plant asset purchases, with a useful life of five years or more and a cost equal to or greater than the following thresholds, will be capitalized:
|Land improvements||$25,000||25 years|
|Large campus buildings (10,000 square feet)||$50,000||60 years|
|Other buildings||$25,000||60 years|
|Equipment (regular)||$15,000||7 years|
|Equipment (computer)||$15,000||4 years|
Expenditures of less than the above thresholds will be expensed. All capitalized assets other than land, works of fine art, and rare books will be depreciated over a determined useful life, based on asset type.
- Depreciation Method: Buildings will be depreciated by specific asset, using the straight line method and a monthly convention over a period not to exceed 60 years.
- Additions to Existing Buildings and New Construction: Generally, capitalized additions to existing buildings will be depreciated over the remaining life of the building unless the renovation is of a magnitude to extend the remaining useful life of the building. Additions determined to extend the useful life will be depreciated over a period not to exceed 60 years.
Projects expected to extend over a period of time must be carefully evaluated at the planning stage to determine if the criteria for capitalization will be met (i.e., costs expensed in one fiscal year cannot be capitalized during the next fiscal year). All costs indirect and direct, associated with significant capital projects meeting the capitalization criteria for both additions to existing buildings and new construction extending over a period of time, should be capitalized as “Construction in Progress”. Indirect costs include design fees, permits, inspections, logistical expenses, furniture, fixtures and equipment. Direct costs include payment to general and sub contractors. When the asset is placed in service, the entire accumulated cost of the project should be reclassified to Buildings, at which time depreciation will begin.
Asset additions not part of a larger project, which meet the capitalization criteria, will be capitalized during the month of acquisition, at which time depreciation will begin.
- Depreciation Method: Land improvements will be amortized by specific project, using the straight line method and no salvage value. Each project will be amortized over a 25–year period.
- Additions: Costs of design fees, permits, inspections, physical structures, land preparation (i.e., grading, etc.), and/or landscaping should be capitalized. Projects expected to extend over a period of time must be carefully evaluated at the planning stage to determine if the criteria for capitalization will be met (i.e., costs expensed in one fiscal year cannot be capitalized during the next fiscal year). All costs associated with significant capital projects meeting the capitalization criteria and extending over a period of time should be capitalized as “Construction In Progress”. At the time of completion when the asset is placed in service, the entire accumulated cost of the project should be reclassified as Land Improvements, at which time amortization will begin as noted above.
- Depreciation Method: None. Collections are non-depreciable assets. It is expected that the value of the collections will appreciate over time. However, no write-ups of the carrying values are allowed under current accounting practice.
- Accessions and De-accessions: Accessions to the collections will be made through gift or purchase. Gifts require an appraisal of the estimated fair market value at date of gift at donor expense for tax deduction purposes. All other gifts are valued at a nominal $1 as a gift in kind. This will be the amount capitalized into the collection. In rare instances, the College may wish to fund an appraisal for insurance purposes. Purchases will be capitalized at cost. De-accessioned items in collections will reduce the collection assets by the recorded capitalized value.
Disposal of Assets
As capitalized buildings, land improvements or equipment are disposed of or replaced, the original cost of the asset and corresponding accumulated depreciation will be written off. For major renovations that renew and extend the use life of the building, the new costs will be added to the remaining net book value and the total cost will be depreciated over 60 years.
Asset Retirement Obligation
In accordance with generally accepted accounting principles associated with the disposal of regulated materials upon eventual retirement of assets is accounted for on the accretion basis. Accretion will be recorded each year until settlement date, at which point the liability will equal the projected cost to address the asset retirement obligation.
The net asset retirement cost initially added to assets is depreciated over the estimated remaining life of the building on a straight line basis.