Standard Operating Procedures

SUBJECT: Capitalization of Moveable Equipment
SOURCE: Capital Asset Management, Office of the Treasurer
ORIGINAL DATE OF ISSUE: November 2003
DATE OF LAST REVISION: April 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

    An item 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.

    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.

    Dispute Resolution - Organizations may be required to submit a System Attestation Form to identify components as system assets. 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 can be capitalized and largely fall into two categories:
    1. The upgrade is for an existing asset purchased in the current fiscal year. Upgrade doesn’t have to be >$5000. Contact the Capital Asset office to inquire if this type of upgrade is eligible to be capitalized with an existing asset also created in same fiscal year.
    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.

    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.

  2. 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.

    The term “equipment” includes delivery equipment, office equipment, machinery, furnishings, factory equipment, and similar fixed assets.1

    1 Intermediate Accounting Ninth Edition Kieso & Weygandt page 502

    Additional capitalized costs on moveable equipment:

    Service costs that can be capitalized with equipment purchases include:

    1. Cost of assembling the asset
    2. Cost of installation
    3. Freight
    4. In-transit Insurance
    5. Preparing the site and asset for its intended use
    6. Training

    When additional equipment is received on a purchase order at no cost, these items are considered gifts to the university. These gifts will be taken into consideration when assigning the unit cost of the line items on the purchase order. The total quantity (including gifts) will be divided by the invoice amount. If the gift takes the unit cost below the capitalization threshold, the costs will be reclassified to supplies and expense.

    Assets are recorded net of cash, and other earned discounts. In addition, a trade-in allowance will result in the reduction of the acquisition value.

    See CSOP 10.0 Trade-in of Similar Capital Equipment

    The following are not considered capital equipment regardless of cost or useful life:

    1. Repair or replacement parts. (Use object code 4700- Repair & Maintenance or 4776 –Service or Support Maintenance Contracts.)
    2. 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.)
    3. Maintenance and Warranty agreements (Use object code 4776 - Service Maintenance Contracts.)
    4. 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

    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, System Detail, and Location.

    System Type

    The CAMS System Type has three selections: Individual Assets, Multiple Systems, and One System. User must select the appropriate category depending on the equipment being purchased. 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. When line items will be added together to create a system asset, each of these line items should also be assigned the New CAMS Tran Type.
    • Modify Existing
      The transaction type 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?’

    Business Rules for Modify Existing:
    When components are added to an existing asset, the asset becomes a system. A system is defined as items that work together to perform one function.
    In order to capitalize a new component as part of the existing asset, the following criteria must be met:

    • 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, it must increase the capacity or operating efficiency or extend the useful life of the asset.
    • A component, with a cost of $5,000 or more, can be added to a prior year asset.  Use CAMS Tran Type of New.
    • If a component with a cost under $5,000 will be added to an existing asset purchased in a prior fiscal year, it should be expensed and use the appropriate object code on the requisition.

    1. 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 CAMS Transaction Type of New.
    2. The existing asset should be reviewed to ensure the asset category (i.e., moveable, fabrication) matches that of the purchased component to be applied.

    When selecting Modify Existing, the specific university asset number will need to be designated. Use the Asset Number field to enter the existing asset number.
    Finding a Capital Asset Number in the KFS
    To find an asset number, use the Asset Lookup function in the Capital Asset Management section of KFS. The Asset Lookup is one of the most basic, frequently used utilities for the university community. It is helpful to know the IU Tag number of the asset that needs to be modified. Multiple tutorial videos exist on the CAMS KFS Support page to help you search.
    System Detail

    Information needed to complete this section includes: Asset Description, Asset Type Code, and Quantity of Assets. Any special notes about the asset can also be given in the designated text box.

    Asset Descriptions – It is important to submit an asset description for CAMS to understand what type of asset we need to create. 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 should respond to your inquiry. A frequent list of Asset Type Codes follows:

    Equipment Type
    Asset Type Code
    Centrifuge 07333
    Computer Server 206
    Copiers (less than 50,000 copies/month) 07000
    Floor Machine 07660
    Freezer (Lab or other) 522
    Incubators 384
    Kitchen/Cafeteria Equip. 501
    Medical Equipment (non-research) 406
    Microscope 07003
    Musical Instruments 07006
    Network Switch 80001
    Spectrometer, Spectrophotometer 454
    Video Conferencing Equipment 10260

    View comprehensive list of Asset Type Codes.

    Location – The asset location (where the asset is going to be in use) is required to be entered on the Capital Asset tab. You will need to enter the building code and room number. 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). The Office of Space Management may be contacted to modify the KFS database. 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

    1. Moveable Equipment

      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.
      • 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 Funded Object Codes:
      Object Description
      7030 Capital Equipment - Federally Funded
      7035 Computer Equipment - Federally Funded

      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.

      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.

      The Office of Research Administration will assign a federally owned or other owned object code when appropriate.

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

      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

    2. Moveable Equipment Fabrications

      The term Fabrication is used in conjunction with moveable equipment and should not be confused with building construction projects. The transaction type of Fabrication identifies payments as construction in progress. A fabrication is a moveable asset created (built) by a university organization. The organization must first submit a Fabrication Request document prior to any purchases. This document is created in KFS. Once the Fabrication Request document is created, an asset number will be automatically generated.

      When a requisition for the Fabrication is being issued in KFS, and a CAMS Tran Type of Fabrication is selected, the Fabrication asset number previously generated from KFS will be required in the “Asset Number 1” field.

      Fabrications can also be university funded, federally funded, and federally owned. Use the same steps listed above in moveable equipment to determine the appropriate object code.

      University Funded Fabrication Object Code:
      Object Description
      7500 Capital Equipment-University Constructed

      Federally Funded Fabrication Object Code:
      Object Description
      7530 Capital Equipment-Univ. Const. Federally Funded
      7535 Capital Equipment Univ. Const. Computer Equip. Fed Fund

      Federally Owned Fabrication Object Code:
      Object Description
      7531 Capital Equipment - Univ. Const-Federally Owned

      Other Owned Fabrication Object Code:
      Object Description
      7532 Capital Equipment-Univ. Const-Other Owned

      (See CSOP 12.0 Fabricated Equipment for more information.)
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 1.0 Capitalization Rules
CSOP 10.0 Trade-in of Similar Capital Equipment
CSOP 12.0 Capitalization Fabricated 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.