Introduction
Purpose
This Procedure provides guidance on fabricated equipment of the University of North Carolina at Chapel Hill ("University"), when it qualifies for capitalization, and the appropriate preparation of purchase orders when acquiring components of a fabricated piece of equipment that may qualify as capital equipment.
Scope
This Procedure applies to all employees of the University.
Procedure
Assets that are built by combining parts and materials at the department level are considered tangible fabricated items. Fabricated equipment is capitalized as a single asset for a combined total cost in excess of $5,000 and has a useful life at least two years. Typically these components would be purchased with separate transactions and may be from multiple vendors. All components must function as a singular unit and will be collectively disposed of at the end of the useful life of the equipment. Individual components cannot be used independently of the remaining pieces of fabricated equipment and cannot function separately apart from the fabricated unit to which it is attached.
Fabricated equipment requires entry into the Asset Management database if the finished equipment qualifies for capitalization as found in Finance Policy 601 - Policy on Capital Assets. At the beginning of a fabrication project, the department designee should contact Assets Management for a University Assets Management decal number and use this decal number as a purchase reference when purchasing parts and components for the fabricated equipment. The department designee should also complete Finance Form 602.4.1f - Assets Management Fabrication Sheet.
When there have been sufficient purchases to enter the asset into the Assets Management database ($5,000), send invoice copies to Assets Management along with the fund sources and accounts originally charged for each purchase and complete Finance Form 602.4.2f - Assets Management Fabrication Coding Sheet. Asset Management will submit a campus journal entry to credit the expense accounts used for purchase and debit the appropriate capital asset account.
A BuyCarolina or purchase order must be issued to acquire any components over $5,000. Make sure your request for purchase includes the University Assets Management decal number as a reference, and your fund source number includes a capital asset account as found in Finance Policy 601 - Policy on Capital Assets. When the project is complete, notify Assets Management so the University Assets Management decal will be sent to the department to affix to the finished equipment. If an award includes the fabrication of equipment, the department is responsible for requesting a change from the standard equipment code to a code reflecting fabrication. Because of the experimental nature of fabricating equipment, a fabrication must be complete and usable at the time of capitalization.
Exceptions
- Standard items that are altered or customized to make them usable on a sponsored project do not qualify as fabricated equipment.
- Connecting components together in a system (physically or virtually) does not constitute an equipment fabrication (e.g., when individual computers and servers are joined to create a network).
- Components greater than $5,000 which are not physically attached or can function independently should be considered stand-alone capital equipment. These items that are less than $5,000 should be expensed.*
- A sponsored project that is for the purpose of constructing experimental equipment does not characterize fabricated equipment.
If audited, departments must be able to justify the capitalization of fabricated equipment.
*Please note: If a computer is purchased because it is required to run complex scientific equipment and the fabricated equipment cannot function without it, the computer can be capitalized as part of the fabricated equipment. However, the computer MUST be used strictly for that fabricated equipment and cannot be used in any other capacity.
Definitions
Capital Equipment - Equipment with a useful life of two or more years are 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. See Finance Policy 601 - Policy on Capital Assets for more details.
Fabricated Equipment - Assets/equipment that are built in-house at University through purchased materials and are considered tangible fabricated items.
Related Requirements
External Regulations and Consequences
University Policies, Standards, and Procedures
Forms
Contact Information
- Capital Asset & ePro/eCommerce Manager