Standard Operating Procedures

SUBJECT: Capitalization Entries to the General Ledger
SOURCE: Capital Asset Management, Office of the Treasurer
ORIGINAL DATE OF ISSUE: February 2010
DATE OF
LAST REVISION
April 2011
CSOP NO: 14.0
RATIONALE: Capitalization of assets occurs in the plant fund account for each Organization, Campus, or Reporting Auxiliary. In general, expenditures for Moveable Equipment will be capitalized within the 95 plant fund by Organization and expenditures for Art & Museum Objects, Buildings, Infrastructure, Land, Leasehold Equities, Library Books and other Non-Moveable items will be capitalized at the Campus Level.

Moveable Equipment purchased by a Reporting Auxiliary will be capitalized within the 95 plant fund account set up for that Reporting Auxiliary.
CSOP:
  1. Determining the Object code used for Capitalization
  2. Determining the 95 Plant Fund Account used for Capitalization
  3. Examples of the Capitalization Process
  4. Entries Initiated in CAMS
  5. Capitalization entries for Asset Retirement
  6. Capitalization entries for Asset Transfers
  7. Capitalization entries for Gift Equipment on Add an Asset
  8. Capitalization entries for Found Equipment on Add an Asset
  9. Capitalization entries for Depreciation Expense
  1. Determining the Object code used for Capitalization
    The proper Balance Sheet Object Code is determined by an attribute of the Financial Object Code. This attribute is called the Financial Object Code Sub Type and links the Capital Expenditure Object Code (7XXX) to the Balance Sheet Object Code. For example, Object Code 7015 has an Object Code Sub Type of CM (Capital Equipment Moveable). All Object Codes with a Sub Type of CM are capitalized on the Balance Sheet as Object Code 8610.

    Below is a full breakdown of the Object Code Sub Types and their associated capitalization and accumulated depreciation Object Codes.

    Table A
    Sub Type Expenditure Object Code Description Capital Object Code Accumulated Depreciation Object Code
    AM
    7600, 7677
    Art and Museum
    8615
     
    BI
    7329
    Bond Issuance
    8629
    8929
    BD
    7300, 7301, 7303, 7377
    Buildings
    8601
    8901
    BF
    7305
    Buildings Federally Funded
    8605
    8905
    CM
    7000, 7015, 7070, 7700, 7701
    Capital Equipment
    8610
    8910
    CL
    7099
    Capital Lease Purchases
    9603
     
    C1
    7019, 7020
    Capital Lease Equipment Above Threshold
    8627
    8927
    C2
    7022, 7023
    Capital Lease Equipment Below Threshold
    8627
    8927
    CF
    7030, 7035, 7730
    Capital Equipment Federally Funded
    8611
    8910
    CO
    7031, 7032, 7036, 7731, 7732
    Capital Equipment Federally Owned
       
    UC
    7500
    Fabrications - University Constructed
    8619
    8933
    UF
    7530, 7535
    Fabrications Federally Funded
    8619
    8933
    UO
    7531, 7532
    Fabrications Federal, or Other Owned
       
    IA
    7261
    Intangibles
    8661
    8961
    IC
    7262
    Intangibles Federally Funded
    8662
    8962
    IO
    7263
    Intangibles Federally Owned
       
    IF
    7400, 7401, 7402, 7403, 7404, 7405, 7406, 7408, 7409, 7410, 7411
    Infrastructure
    8604
    8904
    LA
    7200, 7201, 7277
    Land
    8603
     
    LR
    7465, 7466, 7467, 7468, 7477
    Land Improvements
    8665
    8965
    LE
    7800, 7801, 7805
    Leasehold Improvements
    8608
    8908
    LI
    7100, 7157,7177
    Library Books
    8613
    8965
    LF
    7130, 7158
    Library Books Federally Funded
    8614
    8913

    Assets created within CAMS that are "Federally Owned" will appear on inventory listings, but no "Federally Owned" payments are capitalized or depreciated in the General Ledger.

    If an Object Code Sub Type has a blank accumulated depreciation Object Code it is because that type of asset is not depreciated.

  2. Determining the 95 Plant Fund Account used for Capitalization
    The proper 95 plant fund account number is determined by both the Object Code Sub Type and the Organization. Within the Kuali Financial System, each account number is assigned to an Organization and each Organization is assigned two 95 plant fund account numbers. One 95 plant fund account number, referred to as the Organization plant fund account number, is used by the capitalization process when Moveable Equipment items are purchased. The other 95 plant fund account number, referred to as the Campus plant fund account number, is used by the capitalization process when Non-Moveable capital items are purchased.

    Below is a table illustrating how Object Code Sub Types dictate which of the two 95 plant fund account numbers will be used:

    Table B
    Sub Type Description 95 Plant Fund Account
    AM Art and Museum Campus Plant Fund
    BI Bond Issuance Campus Plant Fund
    BD, BF Buildings Campus Plant Fund
    CM, CF Capital Equipment Org Plant Fund
    UC, UF Fabricated Equipment Org Plant Fund
    IA, IC Intangibles Campus Plant Fund
    IF Infrastructure Campus Plant Fund
    LA Land Campus Plant Fund
    LR Land Improvements Campus Plant Fund
    LE Leasehold Improvements Campus Plant Fund
    LI, LF Library Books Campus Plant Fund

  3. Examples of the Capitalization Process
    Account 1020000 purchases a computer under Object Code 7015 for $5,000.00. Object Code 7015 has a Financial Object Code Sub Type of CM, so the asset will be capitalized using Object Code 8610. Account 1020000 belongs to the Vice President/Chancellor/General Administration Organization and has been assigned an Organization plant fund account number of 9520074 and a Campus plant fund account number of 9520000. Because a Moveable capital item is being purchased, the capitalization process will post entries to the Organization plant fund account number, 9520074. The following entries will be generated:

    Actual Purchase:
    Account Number
    Object Code
    Object Code Description
    Debit
    Credit
    1020000
    7015
    Computer Equipment
    $5.000.00
     
    1020000
    8000
    Cash in Bank
     
    $5.000.00

    Capitalization Process:
    Account Number
    Object Code
    Object Code Description
    Debit
    Credit
    9520074
    8610
    Capital Equipmentt
    $5.000.00
     
    9520074
    9899
    Fund Balance
     
    $5.000.00

    As a result of the above entries, Account 9520074 shows $5,000.00 of capital equipment on its Balance Sheet and account 1020000 shows a capital expenditure on its Operating Statement.

    Within the 9520074 account, an offset of $5,000.00 was posted to Object Code 9899 to balance the entry.

  4. Entries Initiated in CAMS
    The Capital Asset Management System (CAMS) can generate four types of financial transactions that get posted to the General Ledger. They are Asset Retirements (AR), Asset Transfers (AT), Add an Asset (AA), and Depreciation Expense (DEPR). With one exception, all entries generated by these four processes will be posted to a 95 plant fund account. Only when Gift or Found Equipment is entered on the Add an Asset document will entries be posted to an individual operating account. In this case, offsetting entries will get posted to Income (Object Code 1175) and Expense (7XXX). This has no affect on cash or fund balance.

  5. Capitalization entries for Asset Retirement
    Retirement entries will, as a rule of thumb, only affect the 95 plant fund.

    Example: Account 2321375 purchased a desk under Object Code 7000 for $5,000.00. Object Code 7000 has a Financial Object Code Sub Type of CM, so the asset was capitalized using Object Code 8610 in the Organization plant fund, 9520080.

    If the asset is retired and there has been no Depreciation, the entries would be:

    Retirement Entries:
    Account Number
    Object Code
    Object Code Description
    Debit
    Credit
    9520080
    4998
    Gain/Loss Disposition of assets
    $5,000.00
     
    9520080
    8610
    Capital Equipment
     
    $5.000.00

    If the Asset were partially depreciated, the entry might be:

    Retirement Entries:
    Account Number
    Object Code
    Object Code Description
    Debit
    Credit
    9520080
    4998
    Gain/Loss Disposition of assets
    $2500.00
     
    9520080
    8910
    Capital Equipment
    $2500.00
     
    9520080
    8610
    Capital Equipment
     
    $5,000.00

  6. Capitalization entries for Asset Transfers
    Transferring an asset to another Organization will only affect the 95 plant fund. The capitalized cost, accumulated depreciation and the residual fund balance will be removed from the current owner's account and placed on the new owner's account.

    Example: Account 6048400 purchased an X-ray machine under object code 7000 for $5,000.00. Object Code 7000 has a Financial Object Code Sub Type of CM, so the asset was capitalized using Object Code 8610 in the Organization's plant fund, 9548400.

    If the asset is transferred to account 1035600 with an Organization plant fund of 9520024, and assuming no depreciation, the entries would be:

    Remove the asset from the current account's plant fund:
    Account Number
    Object Code
    Object Code Description
    Debit
    Credit
    9548400
    9899
    Fund Balance
    $5,000.00
     
    9548400
    8610
    Capital Equipment
     
    $5.000.00

    Place the asset on the new owner account's plant fund:
    Account Number
    Object Code
    Object Code Description
    Debit
    Credit
    9520024
    8610
    Capital Equipment
    $5,000.00
     
    9520024
    9899
    Fund Balance
     
    $5,000.00

    Note that the same Object Codes used to capitalize the asset are used to transfer the asset. If depreciation had been recorded for this asset, the accumulated depreciation would have transferred as well.

  7. Capitalization entries for Gift Equipment on Add an Asset
    When entering information on the Add an Asset document for a gift, the initiator will supply the account number, Object Code and the market value of the item. Accounting entries are then created based on this information. The account will see offsetting entries to the expense Object Code (7XXX) and the income Object Code (1175), for the value of the item. To better isolate gift equipment from actual purchases, an Object Code of 7700 is used. The entries offset, having no effect on cash or fund balance.

    Example:
    Account 1270000 received a gift. The fair market value of the asset is determined to be $5,500.00. Object Code 7700 has a Financial Object Code Sub Type of CM, so the asset will be Capitalized using Object Code 8610 on the Organization’s plant fund, 9570074. The following entries are then created:

    Transaction entered on the Add an Asset document:
    Account
    Object Code
    Object Code Description
    Debit
    Credit
    1270000
    7700
    Gifts of Capital Equipment
    $5,500.00
     

    Transaction Generated by the Add an Asset Document:
    Account
    Object Code
    Object Code Description
    Debit
    Credit
    1270000
    1175
    Capital Equipment Gift
     
    $5,500.00

    Capitalization Process:
    Account
    Object Code
    Object Code Description
    Debit
    Credit
    9570074
    8610
    Capital Equipment
    $5,500.00
     
    9570074
    9899
    Fund Balance
     
    $5,500.00

  8. Capitalization entries for Found Equipment on Add an Asset
    When entering information on the Add an Asset document for found equipment, the initiator will supply the account number, Object Code and the market value of the item. Accounting entries are then created based on this information. The account will see offsetting entries to the expense Object Code (7XXX) and the adjustment Object Code (4997), for the value of the item. To better isolate found equipment from actual purchases, an Object Code of 7701 is used. The entries offset, having no effect on cash or fund balance.

    Example:
    Account 1270000 finds an asset. The fair market value of the asset is determined to be $5,500.00. Object Code 7701 has a Financial Object Code Sub Type of CM, so the asset will be Capitalized using Object Code 8610 on the Organization’s plant fund, 9570074. The following entries are then created:

    Transaction entered on the Add an Asset document:
    Account
    Object Code
    Object Code Description
    Debit
    Credit
    1270000
    7701
    Found Cap Equipment
    $5,500.00
     

    Transaction Generated by the Add an Asset Document:
    Account
    Object Code
    Object Code Description
    Debit
    Credit
    1270000
    4997
    Capital Asset Adjustment
     
    $5,500.00

    Capitalization Process:
    Account
    Object Code
    Object Code Description
    Debit
    Credit
    9570074
    8610
    Capital Equipment
    $5,500.00
     
    9570074
    9899
    Fund Balance
     
    $5,500.00

  9. Capitalization entries for Depreciation Expense
    The Capital Asset Management System (CAMS) will calculate and post depreciation expense monthly. The straight-line method is used for the calculation. Each asset will be depreciated from the capitalization date (assigned when the Capital Asset Office officially recognizes the asset) and depreciated over the asset's useful life. Every asset in CAMS is assigned an Asset Type that has an associated useful life. The depreciation entry will debit Object Code 51XX, Depreciation Expense, and credit the appropriate accumulated depreciation Object Code based on the Object Code Sub Type. Depreciation expense has no affect on cash and will be posted to the 95 plant fund account.

    Example: Account 6617000 purchased a printer for $9,000.00 using object code 7000. Object Code 7000 has a Financial Object Code Sub Type of CM, so the asset will be capitalized using Object Code 8610 to the Organization's plant fund, 9517000. Printers have a depreciable life of 8 years so the first month's depreciation would be calculated as follows:

    Depreciation Expense = (Depreciable Base X (Number of Months to Depreciate / (Useful Life in Years X 12 Months per Year)))

    $93.75 = ($9,000.00 X (1/(8 X 12)))

    Depreciation expense entry:
    Account Number
    Object Code
    Object Code Description
    Debit
    Credit
    9517000
    5115
    Depreciation Expense
    $93.75
     
    9517000
    8910
    Accumulated Depreciation Expense
     
    $93.75

DEFINITIONS: Depreciation is recognizing the diminishing service capacity of utility; the lost usefulness; the wasting away of a tangible asset during the periods of service life. Asset lives are linked to the asset type code, and are estimates of the useful life of the asset.
RESPONSIBLE ORGANIZATION: Office of the Treasurer, Capital Asset Management