Property, Plant, and Equipment Policy

Contents:

1. Introduction
2. Definitions
3. Faculty and staff responsibilities related to fixed assets
4. Principles
5. Basic capitalization requirements
6. Cost capitalization
7. Depreciation
8. Disposition of assets
9. Capital planning examples
10. Inventory of fixed assets
11. Disposals and transfers

Appendix A: Supplemental fixed asset information

Appendix B: Interpretations of fixed asset categories and thresholds

Appendix C: Unique scenarios and solutions

Appendix D: Asset category listing with corresponding general ledger (GL) subcode and default useful life

1. Introduction

Generally Accepted Accounting Principles (GAAP) requires the capitalization of costs associated with the acquisition or construction of property, plant, and equipment (PPE). This document provides the general framework for determining whether such costs should be capitalized as PPE.

2. Definitions

Property, plant, and equipment (PPE), also referred to as capital assets, include all tangible and intangible assets acquired, fabricated, or constructed for use in the operation of the College, whose use or consumption will cover more than one year. This includes the purchase of used property and equipment. It does not include assets acquired as investments or for sale. Ithaca College classifies its capital assets into the following categories for reporting purposes:

• Land
• Land improvements
• Buildings
• Building improvements
• Equipment
• Computer equipment and 5-year equipment
• Leased land/buildings
• Software
• Collections

• Construction in progress

3. Faculty and staff responsibilities related to fixed assets

Fixed assets are critical to the daily operations of the College and represent a significant investment of the Colleges financial resources. To protect these investments, faculty and staff are responsible for stewardship of fixed assets purchased and/or utilized by them or by the departments they oversee. These responsibilities include, where and as appropriate:

1. Maintaining fixed assets
2. Safeguarding fixed assets
3. Inventorying fixed assets
4. Reporting lost, stolen or damaged fixed assets
5. Reporting transfers of fixed assets
6. Reporting fixed assets which are no longer needed

7. Responding to fixed asset confirmations

Fixed assets which are lost, stolen, damaged, transferred, or obsolete should be reported to Financial Services.

4. Principles

Generally Accepted Accounting Principles (GAAP) requires that capital assets be reported at historical cost. The cost of a capital asset should include ancillary charges necessary to place the asset into its intended location and condition for use. Ancillary charges include costs that are directly related to asset acquisition—such as freight and transportation charges, site preparation costs, and professional fees. Donated capital assets should be reported at their estimated fair value at the time of acquisition plus ancillary charges, if any.

The proper and consistent capitalization of expenditures is required to comply with the periodicity and matching principles of GAAP.

5. Basic capitalization requirements

A. Asset acquired for operations

To be considered for capitalization, the asset must be acquired (purchased, fabricated, constructed, or donated) for use by the College, and not for investment or for resale.

B. Estimated useful life

To be considered for capitalization, the asset must also have an estimated useful life greater than one year.

C. Capitalization threshold

Expenditures must also meet the following dollar thresholds for capitalization. Expenditures below the established threshold values should be charged to an operating account rather than a capital account. Refer to Appendix A of this document for further details of each asset category and their respective capital thresholds.

• Computer equipment (including audio video (AV) upgrades): $5,000; AV upgrades are capitalized if the cumulative amount for an individual space (classroom, conference room, etc.) is above the $5,000 threshold
• General equipment, vehicles, furniture and fixtures, and collections: $5,000
• Bulk equipment purchases of the same items with individual values below $5,000, but a total purchase value of $15,000 or more (e.g., desks, appliances, other dormitory furniture, or chairs). The threshold will be based on the Purchase Order amount
• Library books and collections are capitalized regardless of cost
• Building/land/leasehold improvement projects must have cumulative project costs above $10,000
• Internal laboridentified and tracked for specific capital projects: $40,000
• Software, either purchased outright or developed internally, with a cost in excess of $15,000 as determined by the “Software Capitalization Policy”

  1. Checklist verification - Maintaining a listing or database of fixed assets (including serial number, model number, or other useful identifying information) and periodically verifying that listed fixed assets are present. This approach is generally effective for all types of fixed assets.

D. Recorded at cost or fair value

Capital assets are recorded at cost at the date of acquisition, or estimated fair value at the date of

donation in the case of gifts. Capital leases are recorded at the present value of future minimum lease payments, which should be equal to the cash purchase price as of the inception date of the lease.

E. Included costs for capitalization

The College shall capitalize the initial direct costs and incremental indirect costs related to the

acquisition and placement of the capital asset in its intended location for use. Capitalized costs must meet both conditions described below:

1. Initial acquisition and placement costs: Costs associated with the initial acquisition, preparation, and placement of the asset for use should be capitalized. Subsequent expenditures related to capital asset (additions, replacements, major repairs, and renovations) should be expensed unless the expenditure increases the asset’s useful life, improves its productivity or capacity, or enhances the quality of output of the asset. Minor renovations are charged to operations.
2. Direct costs and incremental indirect costs: To be included as a capital cost, expenditures must be:

a. Directly related to the initial acquisition of the capital asset, or

b. Indirectly related and incrementally identifiable to the initial acquisition of the capital asset. A cost is incrementally identifiable if it can be adequately documented that the cost was incurred related to the acquisition of the assets and resulted in an increase in overall costs incurred by the College. An attributable fixed cost, allocable to the acquisition of a capital asset, should not be capitalized.

For example, the purchase price of the equipment, freight, or delivery charges, and the cost of their initial installation should be capitalized. The associated cost of the acquisition by the purchasing and accounts payable departments should be expensed unless they have been identified and documented as incremental costs associated with the acquisition of specific items or projects. Subsequent maintenance cost attributable to the capital asset should be expensed. For construction projects, all direct construction costs should be capitalized. Internal labor costs incrementally identified to specific projects that are appropriately tracked, documented, and that meet the threshold identified in this policy, may also be capitalized.

6. Cost capitalization

This section includes examples of the costs to include and exclude from capitalization.

A. Included costs

Listed below are examples of the type of costs that can be included in the capitalized value of the asset. All capitalized costs must meet the capitalization requirements defined in Section 4 above, regardless of whether they are listed below.

1. Purchase price
2. Appraisals
3. Professional services
4. Title insurance
5. Broker’s fees
6. Closing costs
7. Razing and removal
8. Land improvements
9. Site improvements
10. Landscaping associated with new construction
11. Construction costs, including materials, and overhead
12. Transportation and shipping
13. Installation
14. Duty, excise, or other taxes
15. In-transit insurance
16. Architect and consultant fees
17. Building permit fees
18. Payment for rented equipment to complete the construction
19. Labor & benefits directly attributable and appropriately tracked and documented to the specific capital project (certain large facilities projects/certain software implementation/development costs)

Fixed assets will be transferred from construction in progress to the appropriate category and depreciation will begin to be recognized once the construction project is complete and the asset has been put into service for the intended use and/or is occupied.

B. Excluded costs

Listed below are examples of costs that should not be capitalized. These costs must be expensed to the appropriate general operating account.

1. Cost of project opening/completion ceremonies.

2. Internal labor and associated employee benefits that are:

a. Not germane to the acquisition, construction, or development of capital assets; and

b. Not specifically tracked by time and relationship to the acquisition or construction of capital assets.

3. Expenditures for repairs, maintenance or replacement of parts which do not extend the original asset’s useful life. Examples include paint and patching of walls, pothole repairs, and other repairs not related to an improvement project.

7. Depreciation

Depreciation is calculated using the straight-line method over the useful lives of the item or structure ranging from five to sixty years. Land and collections are not subject to depreciation. Depreciation begins once the item is placed into service for the intended use and/or is occupied. One full month’s depreciation is charged in the first month of service if the unit is placed into service prior to the 15th day of the month. One half of a month’s depreciation is charged if the unit is placed into service on the 15th day, or thereafter, of the month.

Useful lives are assigned to each asset based on the ranges below:

The assigned useful lives of new individual assets are reviewed by Ithaca College’s Information Technology, Facilities, and Business and Finance management for accuracy and appropriateness on an annual basis. Business and Finance will have final determination of the useful life.

Assets acquired under capital lease obligations are depreciated over the shorter of their economic useful life or the lease term.

8. Disposition of assets

Upon sale or other disposition of assets, the cost and related accumulated depreciation are removed from the accounts of the College and the resulting gain or loss, if any, is recognized in the statement of activities. As referenced in section3 above, please be sure to report the information on the sale or other disposition of assetstoFinancial Services.

9. Inventory of Fixed Assets

Faculty and staff should use reasonable judgment to determine whether department-specific fixed asset inventorying procedures are necessary, and if necessary, design, implement, and document the procedures. In all cases, inventorying procedures are only necessary when the benefit of designing, implementing, performing, and documenting the procedures exceeds the associate costs. If unable to make a reasonable determination as to whether inventorying procedures are necessary, faculty and staff should contact the Financial Services office, and the Financial Services office will work with the department to conduct a review and aid in making a determination.

Fixed assets which are more essential, valuable, and/or easy to move are more likely to necessitate inventorying procedures. Inventory procedures, when deemed necessary and value adding, should be designed considering the dollar value, type, and use of the fixed assets.

Fixed assets purchased with federal funds are subject to the inventory requirements of Uniform Guidance 2 CFR 200.313.

Frequency: The performance of inventorying procedures can range from as little as once per year to a greater frequency. Faculty and staff responsible for fixed assets should determine the inventory frequency based on the department-specific cost (time spent) versus benefit of inventorying fixed assets.

Methodology: Inventorying provides a method of verifying that fixed assets are present. Possible verification methods include:

1. In-place verification - At the beginning and/or end of each month or fiscal year, verify that the place a fixed asset is stored is occupied by the fixed asset. This approach is usually effective for fixed assets such as furniture, tools, weights and workout equipment, as long as the fixed asset is stored in the same place prior to and after being used.
2. Visual inspections - Regular visual inspections for existence, wear and tear, vandalism, or other damage. This process may include a signoff indicating the inspection was completed. This approach is generally effective for all types of fixed assets.

Faculty and staff should choose one or a combination of the above methodologies based on the types of fixed assets involved, the risk of loss or theft, and the cost/benefit of implementing procedures.

Documentation and Reporting: The results of any fixed asset inventories should be documented and maintained for reference for a period of time useful to the department. Generally, maintaining the results until the next inventory is conducted is effective provided that there are no exceptions.

10. Disposals and Transfers

Reporting Lost, Stolen, or Damaged Fixed Assets: If theft or damage by vandalism occurs to fixed assets, faculty and staff should notify the Public Safety Department and an Incident Report should be completed. As stated in section 3, Financial Services should be notified of the lost, stolen, or damaged fixed assets. Additional procedures may be applicable.

Reporting Transfers of Fixed Assets: Fixed assets that are being transferred due to an organizational change, office relocation, or any other exchange should be reported to Financial Services.

Reporting Fixed Assets Which Are No Longer Needed: Faculty and staff responsible for fixed assets that are no longer needed by their department should notify Financial Services. Procurement will dispose of the fixed asset in accordance with the Excess Property Disposition policy. Departments are not at liberty to sell, donate, or discard equipment.

Appendix A: Fixed Asset Categories and Thresholds

Below are examples of the types of capital items that would belong in each fixed asset category along with the threshold amount that would be required for capitalization:

• Land: land purchased for future use; land portion of property purchases. Purchase must be $10,000 or greater.
• Land improvements: paving; light posts; athletic field upgrades; sidewalk upgrades; storm water improvements; campus stair improvements. Project must be $10,000 or greater in total.
• Buildings: the construction costs of a new structure; building portion of property purchases. Project must be $10,000 or greater in total.
• Building improvements: improvements to existing structures that are permanently fixed to the structures. Examples include boiler upgrades, electrical upgrades, painting, carpeting, roofing. Project must be $10,000 or greater in total.
• Equipment and Furniture and Fixtures: Audio/visual technology, musical instruments, library books and collections, research laboratory equipment, athletic equipment, facilities equipment, theatre equipment, vehicles, and all furniture and fixtures. Each individual piece must be $5,000 or greater to be capitalized.
  • Bulk equipment purchases of the same type of item with individual costs below $5,000 are eligible to be capitalized if the total cost of the purchase is $15,000 or greater. Examples include classroom desks and chairs, dormitory appliances, and other dormitory furniture. The $15,000 threshold is based on the Purchase Order amount for the purchase.
  • Audio/visual equipment upgrades are eligible for capitalization if each individual piece of equipment is below $5,000 but the cumulative amount of upgrades for the individual space (i.e., classroom, conference room, office, etc.) is $5,000 or above.
• Computer equipment and 5-year equipment: Computer hardware and peripheral equipment; general equipment with a useful life of 5 years. Each piece of equipment must cost $5,000 or greater.
• Leased land/buildings improvements: Improvements made to land or buildings that are currently leased, rather than owned, by the College. Project must be $10,000 or greater in total.
• Software: Software, either purchased outright or developed internally, with a cost in excess of $15,000 as determined by the “Software Capitalization Policy”.
• Collections: Artwork and statues that are not depreciated.
• Construction in progress: Projects that are in progress on campus that will take more than one month to complete. All costs are accumulated in construction in progress (CIP) assets by category type and are placed in service and begin depreciating when the project is completed. Project must be $10,000 or greater in total.

** Internal labor related to fixed asset projects is eligible to be capitalized if the costs are identified and tracked for specific projects and are $40,000 or greater in total cost per project.

Appendix B: Interpretations of Fixed Asset Categories and Thresholds

Below are a few examples of situations that arise during capital planning and whether they should be handled as capital or operating expenses:

1. Audio/visual equipment:Various cameras, cables, adapters, etc. that are needed to make a classroom a streaming classroom. All individual items cost under the $5,000 equipment capitalization threshold, but in total cost more than $5,000. Since all items work together to allow streaming capabilities for the classroom, the project would be capitalized.
2. Drapes/shades in dormitories: Drapes/shades that are purchased according to replacement cycles every 10 years that are individually below the $5,000 furniture and fixtures capitalization threshold but cumulatively, per dormitory, are above the $15,000 bulk purchase capitalization threshold, should be capitalized.
3. Painting dormitories: The painting of the interior of a dormitory that meets the building improvement capitalization threshold of $10,000 should be capitalized. Small paint repair jobs should be expensed as repair and maintenance expenses.
4. Furnishings for classrooms and dormitories: The purchase of desks, chairs, beds, dressers, and kitchen appliances for classrooms or dormitories that are individually below the furniture and fixtures capitalization threshold of $5,000 should be expensed as small equipment unless they cumulatively reach the total bulk purchase capitalization threshold of $15,000 established under the bulk purchase line item in section 5.C. above.
5. Replacing rugs in dormitories: The replacement of installed carpets/rugs that meet the building improvement capitalization threshold of $10,000 should be capitalized. The purchase of area rugs that are under the $10,000 capital threshold should be expensed.

Appendix C: Unique Scenarios and Solutions

1. Scenario: A capital purchase is budgeted for as capital, but the total cost of the purchase is below the capitalization threshold.

Solution: These will be reviewed on a case by case basis at the discretion of the Business and Finance team. Depending on the circumstances Business and Finance may be able to reduce the capital funding and increase the operating fund. In this case, Financial Services will process an adjustment to transfer funding from the capital fund to the operating fund. The budget department will process a budget adjustment to increase the budget in the respective department’s operating funds to cover the purchase. If it is clear that a department or individual is consistently budgeting operating items in the capital budget, the department will need to fund the purchase from their existing operating budget and no additional operating funding will be provided.

2. Scenario: A purchase is budgeted for as an operating expense, but the total cost of the purchase is above the capitalization threshold.

Solution: The capital funding would increase to cover the cost of the purchase and the operating fund budget would decrease. Financial Services will process an adjustment to transfer funding from the operating fund to the capital fund. The budget department will process a budget adjustment to remove the budget from the account in the operating fund that it was originally budgeted for within.

3. Scenario: A faculty member applies for an external grant which includes the purchase of a piece of equipment for their research lab. The depreciation expense for the equipment will be booked to the operating fund.

Solution: Financial Services will notify the budget department upon receipt of the Notice of Award for the grant if the budget includes funds to purchase equipment. Financial Services will work with the faculty member to identify which accounting period the equipment will be purchased in so that the additional depreciation expense can be factored into the depreciation expense forecast.

4. Scenario: A department purchases a capital asset using donor funding (i.e., private gift, endowment spending funds).

Solution: Any material capital item or project purchased with donor funds (i.e., gifts, donor-restricted endowment spending) will have funds transferred from the restricted fund to the operating fund each year to offset the asset’s depreciation expense in the operating fund. Financial Services will transfer the funds each year. The budget department will include the additional depreciation expense into the depreciation expense forecast.

Appendix D: Asset Category Listing with Corresponding General Ledger (GL) Subcode and Default Useful Life