Title
University of North Carolina at Chapel Hill Finance Policy 601 - Policy on Capital Assets
Introduction
Purpose
The University of North Carolina at Chapel Hill ("UNC-Chapel Hill" or "University") Capital Assets Policy is established to provide guidance to the impacted campus community with information necessary to:
- Properly identify the University's Capital Assets.
- Ensure that the University's Capital Assets are identified, properly acquired, recorded, categorized, componentized, depreciated and disposed of.
- Ensure adherence with General Accepted Accounting Principles (GAAP), federal and state laws, University policies and procedures, and private granting agencies regulations.
- Promote accurate and consistent accounting treatment across the University.
Scope of Applicability
This policy applies to all employees of the University.
Policy
Policy Statement
UNC-Chapel Hill, in accordance with the North Carolina Office of State Controller (NC OSC), requires that amounts expended for Capital Assets in excess of certain thresholds be capitalized and depreciated, when applicable. This includes all Capital Assets that fall within the specified thresholds, whether they are purchased, constructed, gifted/donated, or leased. As part of this process, assets should be reviewed for impairment or possible write-off in accordance with Generally Accepted Accounting Principles (GAAP), federal and state laws, University policies and procedures, and private granting agencies regulations.
Capitalization Policy
Capital Assets are capitalized at cost at date of acquisition or acquisition value at the date of donation. Donated Capital Assets acquired prior to July 1, 2015 are stated at fair value at the time of donation.
The University capitalizes assets that have a value or cost in excess of $5,000 at the date of acquisition and an estimated useful life of two or more years except for internally generated software which is capitalized when the value or cost is $1,000,000 or greater and other intangible assets which are capitalized when the value or cost is $100,000 or greater. The costs of normal maintenance and repairs that do not add to the value of the asset or materially extend its life are expensed as incurred.
Capital Assets, with the exception of land, works of arts and historical treasures, construction work in progress, and certain intangible assets, are depreciated or amortized on a straight-line basis over their estimated useful lives, which ranges from 3 to 75 years.
Types of Capital Assets
Historic Property, Artwork and Literary Collections
Historic property, artworks and literary collections are collections or significant individual items that are owned by the University and held for public exhibition, education or research as part of a public service rather than for financial gain. Historic property, artworks and literary collections are capitalized at cost at date of acquisition or acquisition value at the date of donation. These properties and collections are considered inexhaustible and are therefore not depreciated.
Land and Land Improvements
Land and land improvements which consist of betterments, site preparation and site improvements (other than buildings) that ready land for its intended use are Capital Assets. Land and land improvements are an inexhaustible asset and do not depreciate over time.
Building and General Infrastructure
Buildings and general infrastructure are recorded at purchase price or construction price. Donated buildings are capitalized at the acquisition value at the time of donation.
The University tracks building and general infrastructure at a summary level in the general ledger. At year end, completed buildings and general infrastructure are recorded in the PeopleSoft Asset Management module.
In addition, it is common for construction projects to have retainage clauses in their agreements with contractors. In this case, the retainage payable must be recognized as of year-end.
Specific types of building and general infrastructure projects include, but are not limited to:
- Additions. An addition to a building or general infrastructure increases the physical size or operating capabilities of an asset through expansion or extension. An example of an addition is a new wing to a building or the addition of an air-conditioning system to a building.
- General Infrastructure Assets. Long-lived Capital Assets that normally are stationary in nature and can be preserved for a significantly greater number of years than most Capital Assets are considered to be general infrastructure assets. Examples of general infrastructure assets are utility systems and parking decks.
- Renovation/Improvements. Renovation and improvement costs are incurred to restore or improve existing buildings or other capitalized assets. These costs involve the substitution of new parts for old ones and increase the economic benefits to be derived from the asset. In order to capitalize an addition, renovation, or improvement cost, certain criteria must be met:
- The cost must equal or exceed the $5,000 capitalization threshold
- the renovation or improvement must either significantly extend the useful life of the original asset or increase the future service potential of the asset.
If both of these criteria are met, the cost must be capitalized.
Equipment
Equipment with a useful life of two or more years is capitalized if the acquisition cost is $5,000 or more per item or aggregate component parts, contains or is made of non-expendable material and is not made for consumption. The acquisition cost of equipment includes installation charges and freight.
Intangible Assets
Common types of intangible assets are: computer software, easements, land use rights, patents, copyrights, and trademarks and licenses. Intangible assets with an estimated useful life of two or more years are capitalized when they meet certain thresholds.
- Purchased or licensed computer software, easements, land use rights, patents, copyrights and trademarks are capitalized when the value or cost is $100,000 or greater.
- Internally generated computer software is capitalized when the value or cost is $1,000,000 or greater.
- All other assets not meeting these thresholds are expensed in the year of purchase.
Leases
A lease is defined as a contract that conveys control of the right to use another entity's nonfinancial asset (the underlying asset) as specified in the contract for a period of time in an exchange or exchange-like transaction. Common types of leases are for real estate, equipment, and vehicles. Leases may be capitalized if they are greater than twelve months and meet certain other criteria.
Responsibilities
Financial Reporting and Management Services is a department within the University Controller's office and is responsible for the general oversight, maintenance of financial records and financial accuracy of the University's Capital Assets. The department is responsible for:
- Analyzing University expenditures for potential Capital Asset transactions.
- Ensuring the integrity of all Capital Asset data, including the recording of all transactions relating to the acquisition, disposal, Construction In Progress (CIP), depreciation and capitalization of Capital Assets from all fund sources.
- Preparing the Capital Assets for identification and classification in the University's financial statements in accordance with Generally Accepted Accounting Principles (GAAP), federal and state laws, University policies and procedures, and private granting agencies' regulations.
- Supporting the PeopleSoft Asset Management System (PSAM).
Capital Business Office identifies which funds support capital improvement projects and sets up budget and allotments in tandem with Accounting Services.
Capital Asset Management records capitalized equipment and depreciation in PSAM and maintains the equipment inventory.
Facilities supports the University's units engaged in capital spending and oversees the capital project. As project managers, they are responsible for overseeing internal work orders for repairs and renovations, working with contractors and reviewing and signing payment applications.
Accounting Services provides funding for capital improvement projects and is responsible for setting up funds, sources and project numbers and submitting budgets and allotments to the North Carolina Office of State Budget and Management (NC OSBM).
Purchasing Services sets up the purchase orders for capital improvement projects.
Accounts Payable pays the invoices of capital improvement projects.
Special Situations
Additions. Additions to existing equipment, costing $5,000 or more per item or aggregate component parts, become part of the original equipment. An addition should reference the original UNC-Chapel Hill Asset Management decal number of the equipment on the requisition. An example of an addition (if $5,000 or more) is an additional lens to a microscope.
Exclusions
Examples of items that do not qualify as Capital Assets, are as follows:
- Movable wall/office partitions
- Plumbing fixtures (sinks, etc.)
- Repair of equipment or the replacement of equipment components that maintain or restore value
- Replacement of rotted wood in a building
- Routine maintenance such as the annual elevator inspection
- Equipment maintenance contracts
- Diamond knives
- Quartz, crystals and reagents
- Modular furniture: furniture priced by the piece that can be assembled in various ways, thus continually altering cost and value
- Computer clusters: each independently housed or cased PC, server, or other computing component that contains its own mainboard (central logic board). Each component will be accounted for as a separate item, for fiscal and asset tracking purposes
Depreciation
Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets in the following manner:
Asset Classes and Estimated Useful Life
| Asset Class |
Estimated Useful Life |
| Buildings |
10 - 75 years |
| Machinery and Equipment |
3 - 30 years |
| General Infrastructure |
10 - 75 years |
| Computer Software |
3 - 20 years |
Fully Depreciated Buildings
UNC-Chapel Hill follows the NC OSC policy on fully depreciated buildings: "Because depreciation is intended to allocate the cost of a Capital Asset over its entire useful life, it normally is not appropriate to report assets still in service as fully depreciated. However, because differences may occur between estimated useful lives used for depreciation computations and actual useful lives, agencies may, in limited cases, report Capital Assets that are fully depreciated, but only if such balances are immaterial. If the balances of fully depreciated Capital Assets that remain in use are material, the related estimated useful lives should be changed. Buildings are not considered fully depreciated if renovations and improvements have been capitalized as separate assets and the combined amounts (initial costs plus renovations/ improvements) are not fully depreciated."
The building list is reviewed for fully depreciated buildings annually. While some buildings are in fact fully depreciated, the dollar values of these are immaterially for financial reporting and thus, the useful life of the asset is not adjusted.
Reclaim for Refund of County Sales and Use Taxes
State agencies are allowed quarterly refunds of local sales and use taxes paid indirectly by the State agency on building materials, supplies, fixtures, and equipment that becomes a part of, or annexed to, a building or structure that is owned or leased by the State agency.
UNC-Chapel Hill files the return quarterly using Form E-585E, State Agency Claim for Refund County and Transit Sales and Use Taxes, for a refund of local sales and uses taxes which were paid during the previous quarter. The report is due on the 15th day after each calendar quarter. Facilities Services collects sales and use tax reports from the contractors and sends this information to Accounting Services for processing. The cash management unit in Accounting Services prepares Form E-585E for the entire University and files it with the North Carolina Department of Revenue.
Additional Information
Frequently Asked Questions
Q: We are setting up a lab for our new PI and the total cost of everything is over $5,000. Should this be purchased on an equipment account?
A: Movable equipment must cost $5,000 or greater per item to be considered capitalized equipment. If not a supply account would be used.
Q: Our department is renovating a lab and will be replacing the counters and sinks. Is this considered equipment?
A: No, this is not considered equipment. If it is affixed to the building and has electrical or plumbing connections that would require extensive repairs if removed it should be charged as a repair or maintenance for the building.
Q: Our department is ordering a 14-node PC cluster which we consider one unit. Is this considered equipment?
A: Each independently housed or cased PC, server or other computing component that contains its own mainboard (central logic board) and CPU(s) is accounted for as a separate unit (whether or not it is directly attached to a monitor, keyboard, mouse or network connection) for asset tracking purposes.
Q: The item the doctor wishes to order is called a "shearing set up". It consists of the following: A package of 6x stir bars at $100, six viscometers at $3,000 ($500 each), a base plate at $550, and a stir plate at $1,500, for a total cost of $5,150. Is this equipment?
A: No, these items are supply items. Even though they may be used together to produce a result, the items could be used individually for other purposes.
Q: How can I avoid paying unexpected Facilities & Administrative (F&A) charges?
A: At the time of proposal submission, ensure that everything being identified as equipment meets the "Definition of Controlled Equipment" for the University. Classifying an item as equipment in the proposal that does not meet the University's definition results in charges being moved to supplies and the F&A charges assessed to the account. Classifying the items correctly in the proposal ensures that the F&A will be covered by the granting agency.
Q: Our department is replacing an old carpet with a new one. Is this a capitalizable expense?
A: Replacing a carpet is maintenance cost and should not be capitalized.
Q: Our department is receiving a new HVAC unit. Is this a capitalizable expense?
A: Energy conservation projects that guarantee energy savings to exceed costs should generally be capitalized since these projects increase the efficiency and future service potential of the asset and are not routine maintenance.
Q: Our department bought five software licenses for a cost of $80,000 each. Is this a capitalizable expense?
A: Each software license is accounted for individually. The capitalization threshold for software licenses is $100,000. Therefore, the software licenses should not be capitalized.
Definitions
- Accumulated Depreciation
- Total reduction in value over time of an asset since its acquisition, which is recorded for financial statement purposes.
- Allotment
- The Capital Business Office determines the amount which it needs to pay for the construction project. The allotment request is submitted to OSBM through the North Carolina Integrated Budget Information System (IBIS; see below).
- Buildings
- Includes buildings, building components, additions, improvements, renovations, rehabilitations, restorations, capital repairs or replacements, and equipment affixed to a building.
- Capital Budget
- Budget for a Capital Improvement Project.
- Capital Asset
- Property, such as buildings, land, land improvements, easements, equipment, works of art and infrastructure, with a cost equal to or greater than $5,000 and a useful life of two or more years. Capital Assets are acquired for use in normal operations and are not for resale.
- Capitalization
- The process for recognizing a Capital Asset in the financial statements. In order to capitalize property, the cost must equal or exceed $5,000 and have a useful life of two or more years.
- Capitalization of Repairs/Renovations
- The process for recognizing repair or renovation changes to a Capital Asset in the financial statements. Repairs or renovations must equal or exceed $5,000 and have a useful life of two or more years and either a) significantly extend the useful life of the original asset, or b) increase the future service potential of the asset.
- Certificate of Occupancy
- A term used to indicate a building has been approved to be occupied. For state construction projects, this is provided by a project approval from the State Construction Office to permit the owner to occupy or partially occupy the building (See Chapter 500 of the State Construction Manual).
- Component Parts
- Parts of a building that can be recorded separately in the PeopleSoft Asset Management System. These parts can have different useful lives and be depreciated on different schedules (e.g. HVAC, Electric, Roof, Elevator).
- Construction in Progress (CIP)
- Construction in Progress (CIP) reflects the cost of construction work undertaken but not yet completed.
- Depreciation
- Method for allocating the cost of buildings over time. Generally accepted accounting principles and federal regulations dictate that the value of Capital Assets must be written off as an expense over the life of the asset.
- Estimated Useful Life
- An accounting estimate determining how long an asset will be used or in usable condition.
- Expense
- Charge incurred for the current fiscal period.
- Integrated Budget Information System (IBIS)
- North Carolina Integrated Budget Information System (IBIS) is maintained by OSBM for state budget and allotment tracking.
- Increase in the Future Service Potential of an Asset
- Occurs when an extraordinary repair or replacement, renovation, or rehabilitation activity is significant and increases the building's value, adds to or increases the quality of the original building or building component, or increases the useful life of a building.
- Maintenance
- Activities related to the repair and upkeep of an asset, with the intent of preserving the original useful life and function.
- Payment Application
- An application for payment (pay app) is a construction document that outlines how a vendor will be paid and includes services or materials used under a contract agreement.
- PeopleSoft Asset Management System
- Enterprise software system that tracks the University's Capital Assets. It allows detailed record keeping of the University's assets, depreciation, and disposals for financial statement reporting.
- Repairs/Renovations
- A service that is intended to maintain or restore a tangible asset and is either ordinary or extraordinary, as follows:
- An ordinary repair and/or replacement is a service to a Capital Asset that is considered routine and expected that restores or keeps the asset in good condition, was anticipated when the original estimated life was determined, and does not extend the useful life of the existing asset.
- An extraordinary repair and/or replacement is a service to a Capital Asset that is not considered ordinary, was not anticipated when the original estimated life was determined, increases the future service potential of the asset, and/or significantly extends the asset's useful life.
Related Requirements
External Regulations and Policies
University Policies
Contact Information
Policy Contacts
Beth McAndrew
Title: Director of Financial Reporting and Management Services
Unit: Financial Reporting and Management Services
Email: beth.mcandrew@email.unc.edu
Phone: (919) 843-2694
Karin Pecaut - Historic property, land, buildings, intangibles
Title: Financial Accountant
Unit: Financial Reporting and Management Services
Email: pecaut@email.unc.edu
Phone: (919) 962-6923