Standard Operating Procedures

SUBJECT: Capitalization of Moveable Equipment
SOURCE: Capital Asset Management
ORIGINAL DATE OF ISSUE: November 2003
DATE OF LAST REVISION: December 2014
CSOP NO: 8.0
RATIONALE: To provide guidelines for the use of capital equipment object codes on procurement transactions and other financial documents. Procurement transactions that use a capital object code are a primary source used to create moveable capital assets in the University asset database. For this reason, it is critical that organizations correctly capitalize equipment to ensure assets are correctly recorded in the university asset database.
CSOP:
  1. Capitalization of Moveable Equipment
  2. Preparation of Requisition for Capital Equipment
  3. Object Codes
  1. Capitalization of Moveable Equipment

    Equipment must meet two specific criteria in order to qualify as a capital purchase. It must have (1) an acquisition value of at least $5,000 (referred to as Capitalization Threshold) and (2) a useful life expectancy of one year or greater. The term “equipment” includes delivery equipment, office equipment, machinery, furnishings, factory equipment, and similar fixed assets. Generally equipment that is attached to a building will be capitalized as moveable equipment when removing the equipment does not cause structural damage to the building and will not destroy the equipment.

    Additional capitalized costs on moveable equipment:

    Service costs that can be capitalized with equipment purchases include:
    • Cost of assembling the asset
    • Cost of installation
    • Freight
    • In-transit Insurance
    • Preparing the site and asset for its intended use
    • Training

    The following are not considered capital equipment regardless of cost or useful life:
    • Repair or replacement parts. (Use object code 4700- Repair & Maintenance or 4776 –Service or Support Maintenance Contracts.)
    • An item or substance that has no shape or identity, or loses that shape or identity upon detachment or removal from its original location. (Use object code 5200- Expendable Equipment.)
    • Maintenance and Warranty agreements (Use object code 4776 - Service Maintenance Contracts.)
    • Purchased software and software license agreements are not capitalized unless ownership is indicated within the license agreement and the acquisition cost is $500,000 or more. Software and software license agreements not indicating ownership or having a value of less than $500,000 should be expensed to 4616-Computer Software Purchases. (See CSOP 39.0 Computer Software)

    When additional equipment is received on a purchase order at no cost, these items are considered gifts to the university. Please contact capasset@iu.edu if this situation should arise.

    The acquisition cost of an asset is decreased by any full order discount on the purchase order. A trade-in allowance reduces the acquisition value of the asset as well. (See CSOP 11.0 Trade-In of Similar Capital Equipment)

  2. Spare Equipment Sometimes equipment is purchased with the intent to be used as a spare, or backup, in case of a failure of an in-service asset. Spare equipment should be capitalized if over the capitalization threshold. The asset status code for spares should be “S” for storage until such time the equipment is used.

    System Assets In some instances, purchases of components can be capitalized together as one asset under moveable equipment, referred to hereafter as system assets. System assets are defined as components that work together to perform one function. Each component is necessary for the system to function as a whole. Removal of any one component would result in the system not operating at the required capacity or for its intended purpose.

    Systems should meet the following conditions:
    1. Physical attachment - the components are connected in a manner of dependency greater than a cable or wired connection. The term “piggy-back” may be applicable to describe the situation. Ultimately, if the only means of attachment is a cable, we recommend the components be created as individual assets.
    2. Lack of Interchangeability - the components cannot be disconnected from the system asset and used in a similar manner with another system.

    The physical inventory should be a consideration when combining components to create system assets. For components over the capitalization threshold, Capital Asset Management recommends these items be created as individual assets. We feel this is more efficient and effective for physical inventory inspection.

    Organizations may be required to submit a System Attestation Form to identify components as system assets especially for those system assets purchased on multiple purchase orders. The form will require the organization to attest by signature that the items will work together to perform one function and that each item is necessary for the system to function as a whole.

    Upgrades Upgrades can be capitalized and largely fall into two categories:
    1. The upgrade is for an existing asset purchased in the current fiscal year. Upgrades to current year assets do not have to be over $5,000.
    2. The upgrade is for an existing asset purchased in a prior fiscal year, AND the cost of the upgrade is 5,000 or more. Contact the Capital Asset office to inquire if this type of upgrade is eligible to be capitalized with an existing asset created in a prior fiscal year.

    What is an Upgrade?
    1. A substantial increase in the functionality of the equipment which allows it to function or perform tasks it was previously incapable of performing.
    2. A substantial increase in the efficiency of the equipment, that is, an increase in the level of service provided by the equipment without the ability to perform additional tasks.
    3. An extension of the estimated useful life of the equipment.

    Capitalizing Modular Furniture:

    Modular Furniture is normally purchased in individual pieces on separate line items and then configured to make furniture. The normal practice will be to capitalize only those individual pieces that meet the capitalization threshold.

    An exception can be made for organizations that want to capitalize modular furniture where the individual components are under the $5,000 threshold. The individual components must create a furniture configuration (system) for a given room location, and in total meet at least the capitalization threshold. If the organization wants to capitalize modular furniture, each line item must be assigned a capital object code. The organization must also indicate how many system assets (furniture) they expect to be created, and the location of each. This information can be communicated to the Capital Asset Management Office using the Capital Asset Tab on the requisition.

    If no details are provided, a General Error Correction will be processed to move the payments to a supplies and expense object code.

    The organization will be responsible for regular inventory of the modular furniture assets. If the modular furniture asset is at some point reconfigured, or the components are physically taken to Surplus, please contact Campus Capital Asset Office personnel to determine the correct asset maintenance action. If the purchase order has been archived and is not accessible or the organization is unable to determine the line item cost of the components, the organization may provide the Campus Capital Asset Office with a percentage of the cost to separate and retire. The modular furniture asset will remain as an active asset as long as the remaining cost meets the capitalization threshold.

    Any furniture items that are not modular and do not meet the capitalization threshold will be expensed as supplies and expense. For example, a conference table with a cost of $4,000.00 would not be capitalized.

    Mass purchases of furniture are not capitalized. For example, on a purchase of 100 beds with a unit cost of $700.00, the $7,000 total cost will be expensed.

  3. Preparation of Requisition for Capital Equipment

    When entering a requisition of moveable equipment in KFS, enter the moveable equipment in the Items tab using the appropriate object code(s) designated for acquisition of capital assets. You must proceed to the Capital Asset tab to submit required information. Knowledge of the following will be needed to complete this section: System Type, System State, and System Detail.

    System Type

    The CAMS System Type has three selections:
    1. Individual- Capital line items will create individual assets, based on quantity.
    2. One system- All capital line items combined together to make identical asset(s) with identical cost(s).
    3. Multiple Systems- Capital line items will be combined in different ways to create multiple assets with different costs.

    A tutorial on how to determine this can be found on the CAMS KFS Support page, here: What Capital Asset system type do I choose?

    System State

    New
    Select the CAMS System State of New when the organization is purchasing a new capital asset. The system type of New will indicate to the Capital Asset Management Office that invoices should create new asset(s) in the university asset database.

    Modify Existing
    The system state of Modify Existing is used to communicate to the Capital Asset Management Office that the line item purchased is a component of an existing asset. An existing asset is an asset that has been previously created from another invoice or purchase order and currently exists in the university asset database. The best test to determine if the organization will need to select Modify Existing is to ask, ‘Will this line item be added to another PO or invoice that has been posted to the general ledger?’

    If Modify Existing is selected, the existing asset number will need to be designated in the Asset Number field.  The existing asset should be reviewed to ensure the asset category (i.e., moveable, fabrication) and asset type code matches that of the purchased component to be applied. To find an asset number, use the Asset Lookup function in the Capital Asset Management section of KFS.  Multiple tutorial videos exist on the CAMS KFS Support page to help you search.

    Business Rules for Choosing System State:
    A component can be added to an existing asset that was purchased in the current fiscal year IF the cost of the new component is at least $1,000 and; the component increase the capacity, increases operating efficiency, or extends the useful life of the existing asset. Use System State of Modify Existing.

    When a component of a system is $5,000 or more and the component is purchased for an asset that was placed in service during a prior fiscal year the component should be created as its own asset.  Use System State of New

    When a component of a system is $5,000 or more and the life of the component differs from that of the existing asset the component should be created as its own asset.  Use System State of New.

    When a component of a system is less than $5,000 and the component is purchased for an asset that was placed in service during a prior fiscal year, the component should be expensed

    Capital Asset Items/System Detail

    Information needed to complete this section includes: asset description, asset type code, quantity of assets, and location.  Any special notes about the asset can also be given in the designated text box.

    Asset Description – It is important to submit an asset description that uniquely identifies the asset for inventory purposes.  Sometimes it can be as simple as copying the line item description.  With scientific equipment, however, sometimes this is not appropriate.  “Biological Safety Cabinet” works better than “1300 type II A2 KV Rfp” for example.

    Asset Type Code – You can use the search icon in KFS to help search for Asset Type Codes.  You may also send an inquiry to capasset@iu.edu and one of our team members will respond to your inquiry. 

    Location – The asset location (where the asset is going to be in use) is required to be entered on the Capital Asset tab.  For those assets located on campus, a building code and room number must be entered.  KFS will only accept room numbers from the approved database.  Using the search feature, if you do not see the desired room number, please select the closest entry available or the delivery location (if different).  Make a note of the different location in the asset description section.  If an asset is to be shared and will be moving frequently between two locations, make a note of this in the asset description as well.  This will allow the capital asset creator to add text to the asset in KFS giving the exact location of the asset.  The Office of Space Management may be contacted to modify the KFS database, if needed. 

    For assets located off-campus, use the chart code of OC and enter the street address, city, state, postal code, and country of the asset’s location.   Remember to hit the “Add” button to save your location information. 

    A PDF of building codes and addresses can be found here: http://www.indiana.edu/~spaceinf/docs/IU-buildings.pdf

  4. Object Codes

    The account number that is used to purchase a capital asset dictates the object code that should be chosen on the requisition. To ensure the correct object code is used, answer the following questions concerning the account number that purchased the asset.

    1. Is asset being purchased on a grant account?
      NO – Use university funded object code.
      YES – Go to question #2.
    2. Is the sub-fund group code of the account begin with FED*?
      NO – Go to question #3.
      YES – Go to question #4.
    3. Is the account’s federal pass thru indicator “Y”?
      NO – Use university funded object code.
      YES – Go to question #4.
    4. Does the granting agency hold title to the asset?
      NO – Use federally funded object code.
      YES – Use federally owned object code.
    University Funded Object Code:
    A university funded object code should be used for assets purchased by university accounts.

    University Funded Object Codes:
    Object Description
    7000 Capital Equipment
    7015 Computer Equipment

    Federally Funded Object Code:
    To determine if a federally funded object code should be used on a purchasing requisition or financial document check for either of the following attributes on the account.
    Federally Funded Object Codes:
    Object Description
    7030 Capital Equipment - Federally Funded
    7035 Computer Equipment - Federally Funded
    • Account sub-fund group code. If the sub-fund is like (FEDER*) then a federally funded object code should be used. To determine the sub-fund group code, go to Account Lookup in KFS and enter the account number and search. The sub-fund group code is presented in the search results. If the sub-fund is like “Feder*” then use a federally funded object code. If not, then go to second bullet.
    • Federal Pass thru Flag. For assets purchased on federal pass thru funds, the federal pass thru flag on the account/award should be checked. When the “federal pass thru flag” is set to “Y”, a federally funded object code should be used. To view the subfund group code and the federal pass thru flag go to IUIE and run the “Find Federal Pass Thru Indicator” report for the chart and account. The report can be found in Kuali Financial/Chart of Accounts file folder. An example of the report output is below.


    Federally Owned Object Code:
    A federally owned object code should be used when the granting agency holds title to the asset. This can be determined by a review of the Award Summary report sent to the organization. The Award Summary report is created upon setting up the award and is normally sent to the fiscal officer, or delegate, and the PI.

    Federally Owned Object Codes:
    Object Description
    7031 Capital Equipment - Federally Owned
    7036 Computer Equipment - Federally Owned

    Kuali Coeus Award Screen



    On the Details & Dates panel, there is a subpanel called “Sponsor” which shows the sponsor ID and name, as well as the pass-thru or “ Prime Sponsor”. The presence of a CFDA number is also an indicator of a federal project.

    Ownership information may also be obtained from the KC Award in Kuali Coeus (KC) Grants. The award number can be found in KFS in the awards tab of the account lookup. Use this number to find the Award in Kuali Coeus (KC) Grants. After opening the award go to the “Comments Notes, and Attachments” tab. If the grant or agency holds title, it should be noted here. If no information is available, please contact the Office of Research Administration.

    Other Owned Object Code:
    Other Owned should be used when the title to the equipment is not vested with IU. An example would be a purchase funded by the State of Indiana, with the equipment returned to the State agency once the project has closed. To determine if an Other Owned object code should be used, follow the same steps in the Federally Owned object code above.

    Other Owned Object Code:
    Object Description
    7032 Capital Equipment - Other Owned


    The Office of Research Administration will assign a federally owned or other owned object code when appropriate.
DEFINITIONS: Capital Assets must have an acquisition value of at least $5,000 and a useful life expectancy of one year or greater.

Equipment - The term “equipment” includes delivery equipment, office equipment, machinery, furniture and fixtures, factory equipment and similar fixed assets.

Systems are defined as components that work together to perform one function. These components must be necessary for the system to function as a whole. Removal of any one component would result in the system not operating at the required capacity or for the intended purpose.
CROSS REFERENCE: CSOP 11.0 Trade-in of Similar Capital Equipment
CSOP 39.0 Computer Software
Accounting Administration Policy FIN-ACC-I-150 Capitalization of Moveable Equipment
RESPONSIBLE ORGANIZATION: Organizations that purchase and maintain capital equipment.