CAPITAL ASSET POLICY

Transcription

1 CAPITAL ASSET POLICY POLICY STATEMENT Morningside College, through each of its operating departments acquires and disposes of capital assets. Each department is responsible for following College procedures to ensure accurate capital asset purchasing, disposal and reporting. REASON FOR POLICY The College must maintain accurate records of physical assets whose value and useful life exceed the capitalization threshold. This policy defines how the community may ensure College compliance with accounting industry standards; and how it may provide accurate reporting of the use of physical assets in the conduct of the College's business. CONTACTS Direct any general questions about this Policy to the Controller x5221 or the Vice President for Business and Finance x5128. DEFINITIONS These definitions apply to these terms as they are used in this policy. Accumulated Depreciation The total depreciation expense for an asset since acquisition. Acquisition Cost/Value Value of an asset at the time it is acquired. May be the invoice price or, if donated, the fair market value. Costs incurred to place the asset into use are also included (e.g., freight, installation). Additions Acquisition of new assets, or modifications to existing assets that increase the useful life or the service potential of these existing assets. Examples include addition of a wing to a building or installation of a central air conditioning system in an office. 1

2 Appraised Value The estimated value of an asset based on the expertise of a qualified independent appraiser. Capital Asset Number The tag that has been affixed to the Information Services asset to assist in the annual physical inventory of equipment. Book Value The difference between the acquisition cost and accumulated depreciation. At the time of acquisition, book value equals acquisition cost; or, for a gift, market value at the time it was donated. Building Roofed facility intended for the permanent or temporary shelter of persons or equipment. Caution: Any renovation or alteration to an existing building that costs less than $100,000 and does not add useful space to the structure will be considered maintenance and repairs rather than a capital asset. Building Component Equipment items designed and installed as an integral part of the structure. Examples of building components are plumbing, electrical systems, elevators, boilers, and heating, ventilation, air conditioning systems. Capital Asset An item that is permanent in nature, having a life of at least two years, is tangible, is held for purposes other than investment or resale, with a value of $3,000 or more. There are nine types of capital assets: Land; Land Improvements; Buildings; Equipment; Furniture & Office Equipment; Vehicles; Capitalized Leased Assets; Leasehold Improvements; and Works of Art. Capitalize To record the cost as an asset subject to depreciation over its estimated useful life rather than as an expense of one period. Depreciation A method for allocating the cost of buildings and equipment over time. Generally accepted accounting principles dictate that the value of capital assets must be written off as an expense over the life of the asset. The college currently uses the Straight Line Method for depreciating assets. Disposition Equipment Expense Final status of an asset when it is removed from the inventory of assets. Equipment used in the general operation of the campus. A charge incurred for the current fiscal period. 2

3 Furniture Gift-in-Kind Furniture used in the general operation of the campus. A donation to the College of a tangible or intangible asset other than cash or securities. The gift can be something consumable such as office equipment or supplies; or something with a longer duration, such as books, artwork, or copyright interests. Land Improvements Modification other than repairs to an outside area, including sidewalks, parking lots, outdoor benches, and fences. Leasehold Improvements Improvements incurred in renovating a facility which is leased. IRS Form 8282 The form used to report to the IRS any disposition of donated property (other than cash or publicly traded securities) if the disposition occurs within two years and the donated property was valued at more than $5,000 at the time of the gift. (See Appendix B) IRS Form 8283 The form donors are required to attach to their tax returns whenever they donate property to the College (other than cash or marketable securities) valued at more than $500. Land The solid part of the earth's surface whether improved or unimproved. Lease, Capital An installment payment agreement to acquire capital assets. Leases are considered capital leases if any one of the following criteria are met: 1) Ownership transfers to lessee at end of lease. 2) Lease contains bargain purchase option. 3) Lease period is at least 75% of its useful life. 4) Present value of lease payment is at least 90% of fair market value. Lease, Operating An installment payment agreement that does not meet the criteria of a capital lease. Library Materials Books, journals, bound periodicals and microfilms purchased for and catalogued in College libraries. Maintenance Activities related to routine repairs (recurring or preventive) to buildings and other structures. 3

4 Market Value The cost to acquire an item in its current condition through an arm's-length transaction. Also referred to as fair market value. Obsolescence A factor to consider when determining the disposition of assets. Assets are obsolete when they are no longer useful to the College. On-Campus Renovation Software A location that is College-owned, operated, or affiliated. Construction activity that changes and/or improves the function of all or part of a facility. Renovations may be capitalized if their actual cost is at least $100,000 or if they add useful space. Renovation costs that total less than $100,000 and that do not add useful space will be written off as an expense in the current period as repairs and maintenance. The entire set of programs, procedures, and related documentation associated with a computer system. Works of Art / Special Collections Works of art, rare books, historical treasures, or scientific specimens that are held for public exhibition, education, or research rather than for financial gain. They are protected and preserved and are subject to an organizational policy that recommends the proceeds of items that are sold be used to acquire other items for collections. Useful Life Vehicle The period of time over which an asset is useful to the College in performing the function for which it was purchased. (see appendix A) Motorized vehicle used in the operation of the campus. PROCEDURES Policy for Acquisition, Management and Disposal of Capital Assets SCOPE: This policy applies to any and all capital assets acquired by Morningside College as defined above with a value of $3,000 or more. The value stated in the previous sentence refers to the Acquisition Cost/Value at the time of acquisition. This policy is intended to assist management in capital asset financial reporting. Acquisition: Morningside College will acquire capital assets as required to support its institutional mission and programs. Capital assets will be acquired according to the terms set forth in the Morningside College Purchasing Policies by requesting bids from at least three (3) vendors whenever possible. The primary objective is to obtain goods and services at the lowest overall cost commensurate with quality and service. Upon securing bids/proposals from qualified 4

5 vendors, the College will identify the best value and aid in evaluating proposals, issuing appropriate documentation, negotiating and executing any agreements where applicable. Upon delivery of equipment to the College, the receiving department will be responsible to submit the asset s manufacturer s Serial Bar Code when possible, to the IS department. The IS department will help receiving department record acquisition of the asset in its capital asset database and adjust its property insurance policy where necessary. Upon delivery of all other assets to the College, the College will update the Plant Fund schedule throughout the year and at year end for depreciation calculation. CAPITAL ASSET CLASSES There are nine types of capital assets: Land; Land Improvements; Buildings; Equipment; Furniture & Office Equipment; Vehicles; Capitalized Leased Assets; Leasehold Improvements; and Works of Art. Land is the solid part of the earth's surface whether improved or unimproved. Improvements Other Than Buildings are modifications to outside areas. Examples include sidewalks, parking lots, outdoor benches, fences, yard lighting and signs. Works of Art are assets that are: a) Held for public exhibition & education. b) Protected, kept unencumbered, cared for, and preserved. The College s policy is to capitalize all Works of Art Collection Items (Works of Art) acquired on or after July 1, 1997 are capitalized at cost, if the items were purchased or at their appraised or fair market value on the attainment date, if the items were contributed. Gains or losses from the disposal of these items will be reflected in the Statement of Activities in the appropriate net asset class, depending on the existence and type of donor-imposed restriction. CAPITAL ASSET VALUATION For purposes of valuing capital assets, the College separates them into four categories, based upon how they were acquired. Purchased Assets 1. To determine the value of the asset, you must include the purchase price, transportation costs, installation costs, value received from a trade-in, and any other direct expenses incurred by the College in obtaining the asset. 2. If you subsequently purchase additional or replacement components valued at less than $3,000, you must treat them as expenses. 3. If you later purchase additional components valued under the College capital threshold for an existing piece of capital equipment funded by a sponsored agreement, they may be capitalized if the additional components are specifically 5

6 budgeted in the grant or contract. 4. Assets that are accounted for under a grant or contract must comply with all contractual obligations set forth in the agreement. Donated Assets The value recorded by the College for a donated asset is the market value of the asset when it is given. To determine the market value of the asset, you may use the appraisal price, the selling price to educational institutions of an equivalent item, and/or information on IRS form 8283 (see the "Definitions" Section of this document). Caution: You should also include transportation and installation costs when valuing the donated asset. In some cases, the College receives title to an asset that was purchased with government or corporate funds and whose title was held by the funding agency. When title is transferred, the College receives a gift-in-kind for the market value of the item on the date it was transferred, not for the original acquisition amount. Caution: In all cases, to facilitate proper stewardship and to meet IRS requirements, gifts of capital assets must be added to the capital assets inventory system. Leased Assets These are assets purchased under a capital lease (see the "Definitions" Section of this document). 1. You must record assets purchased under a capital lease when the asset is placed in use. 2. You must value all capital leases at the current market value and should not include any interest. 3. If you do not know the current market value, use a present value calculation based on the monthly payments to determine the cost minus imputed interest. The Business Office can be contacted to assist you in the calculation. Caution: Items acquired with an operating lease (see the "Definitions" Section of this document) are not considered capital assets. The expense is considered rent. Constructed Buildings and Improvements/Renovations The value of the asset includes the total amount paid for acquiring or improving the asset, such as labor, materials, architectural and design fees, charges by brokers, agents, notaries, building permits, inspections, and filing costs. Also included are the costs of utilities during construction and landscaping related to the building. 1. You must record all College-owned facilities that are permanent structures as capital assets. 6

7 2. You must record any alteration or renovation of an existing facility that: adds usable square footage of facility space as a capital asset, regardless of cost; or extends the facility's useful life and costs at least $100,000 as a capital asset. MAJOR PROJECTS Any maintenance, alteration, or proposed project, whose total cost, including design phase, is estimated to exceed $5,000 requires a PAR (Project Approval Request) Projects must be properly formulated, prioritized, managed, and executed to ensure appropriate use of fiscal resources. In addition, these projects frequently involve arrangements and commitments to outside entities which legally and ethically bind the College. Consequently, a formal review process must be used to ensure compliance with College standards. RECORDING A CAPITAL ASSET (See Appendix C) Following is a list of general information items required for all assets: 1. Department code of the department with responsibility for the asset. It may or may not be the code in the account numbers used for the acquisition. 2. Official building code of the location of the asset. If you don't know the code, use the official name of the facility. 3. Description of the asset. 4. Manufacturer. 5. Model number. Please use the manufacturer's designations. 6. Serial number. 7. Acquisition month and year. 8. Estimated Market Value DEPRECIATION METHOD Capital assets will be depreciated using the straight-line method. Under this method, the depreciable cost of the capital asset is written off evenly over the useful life of the asset. For assets placed in service or disposed of during the year, the College uses a mid-month convention. Under this convention, the capital asset is treated as though it were placed in service or disposed of in the middle of the month. This means that if the asset is placed in service before the 15 th of the month, a full month s depreciation is allowed. Similarly, if the asset is disposed of on or before the 15 th of the month, no depreciation is taken for the month. If the asset is disposed of after the 15 th of the month, a full month s depreciation is allowed. 7

8 Recording Assets As of 2007 all new computer equipment inventory ordered by the Information Service Department is entered into the Information Services database using the Manufacturer s Serial Bar Code. This database tracks the individual user s name, ID number, a picture of the items (for insurance purposes), description, make, model, serial numbers, the size of the hard drive (when applicable), purchase price, purchase date, shipped date, delivered date, budget head and GL account number, etc. Transferring Equipment to Another College Department When you transfer capital equipment from your department to another department within the College, please complete a Capital Asset Physical Transfer Form and forward to the Controller so that Capital Assets records and the Information Services database can be updated if needed. (For form see Appendix E.) Conducting Physical Inventories Physical inventory counts are performed on student notebook computers in inventory and those in temp storage 3 times throughout the year. The purpose of a physical inventory is to verify the existence and condition of equipment and ensure the accuracy of College accounting records. The inventory count is taken during January, June & September. In addition Budget or Department Heads may be asked to perform physical counts at least once during the year for all other computer equipment listed in the Information System database. The Business Office with the help of IS will generate an inventory checklist that will be distributed to Budget heads to be used as a guide in performing physical counts of equipment in their area. Instructions for conducting the physical inventory. During the inspection of equipment, note the following: 1. Items appearing on the inventory list that have since been disposed of must be identified on the list. Please complete Capital Asset Disposal Form that includes value received, disposition date, and method of disposal. (For form see Appendix D). Caution: Disposal noted on inventory must be approved by the Department Head. 2. Please indicate any corrections regarding location, description, status, condition, etc. Provide supporting documentation required for changes such as disposals, cost, transfers, etc. 3. Upon completion of the inventory, the inventory list must be signed by the Department's Budget Head and returned to the Business Office. Note: For information on equipment used at home, see the "Special Situations" Section of this 8

9 document. Before Disposing of Capital Assets You must communicate plans for disposing of a capital asset to the Business Office before its final disposition. You may do so via or by using the Capital Asset Disposal form (Appendix D). The notice of disposal must include: the capital asset item number; the serial number; the asset description; the estimated current market value; how the market value was determined; reason for disposal; the recommended method for removal from the College (i. e., sale, transfer or donation to another organization, trash, or use for parts) Caution: You are responsible for applying the level of transaction authority used to purchase the asset when you dispose of it. The disposal form requires a signature of approval. Transfer of an asset to a third party is considered a disposal of a Morningside asset. Contact the Business Office to begin the required procedures for any such disposal. Gifts-in-Kind Caution: Owing to the potential sensitivity of these transactions, you must contact both the Institutional Advancement Office and the Business Office before making arrangements for disposing of any gift-in-kind. The Internal Revenue Service has specific reporting requirements for the disposal of capital assets received as gifts. Specifically, gifts valued at $5,000 or more which are disposed of within two years of the date of the gift are subject to reporting to the Internal Revenue Service on form 8282 (see the "Definitions" Section of this document). (See APPENDIX B for copy of form 8282) The Institutional Advancement Office and the Business Office are responsible for meeting these reporting requirements based on information received from departments. Disposing of Capital Assets After all required notices have been completed (see the "Before Disposing of Capital Assets" segment of this document) items recommended for sale may be offered to the College community on a first come first serve basis. In the event of laptop and other computer sales the College reserves the right to limit the number of purchases of any one individual in order to benefit as many employees as possible. When disposing of capital assets, follow these steps: 1. Remove all tags and official College seals or indicia before disposal. 2. Physically remove items that are approved for disposal. When necessary, you may move 9

10 them to a temporary storage location within your department's buildings. 3. Include only items that have been formally approved for disposal. Note: The Office of Public Relations coordinates equipment requests from the off-campus community. Contact this office if you wish to donate equipment to local human services agencies or schools; or you may discard the item. 4. In all circumstances, notify the Business Office of the disposition of the asset and the amount of any proceeds you collected. All proceeds must be deposited when collected with the Business Office. SPECIAL SITUATIONS Equipment Used at Off-campus Locations Occasionally, it is necessary to take moveable equipment off campus (for use at home, on business travel, and at off-site laboratories) to facilitate work-related projects. When you remove the equipment for more than seven consecutive days, you must notify the department administrative manager or whoever is charged with the responsibility for tracking the equipment. At a minimum, this information must include: an item description and bar code #; a specific description of the off-campus location; the date the equipment will be removed from College facilities; and the expected date of return. Caution: At any time, you may be required to verify the existence of capital assets for internal or external audit purposes. This requirement applies regardless of the source of funds used for the acquisition. Personal Use of Capital Assets Personal use of College assets is prohibited when that use can shorten the life of the asset or accelerate its maintenance schedule, e.g., personal use of machine tools, grounds equipment, and fleet vehicles. Caution: This does not apply to community use of service facilities where user fees have been established and approved by the Business Office, or to permanently assigned fleet vehicles. Personal use of College assets is also prohibited when that use obstructs other College personnel who need the asset to perform their job duties, e.g., personal use of a copier, significant use of a shared telephone or fax machine. Occasional, immaterial, or insignificant use of certain College assets is allowed, as long as that use falls outside of the above two prohibitions. 10

11 Library Materials Library materials (see the "Definitions" Section of this document) are generally expensed as purchased unless a specific item purchased meets the definition of a capital asset. This category consists of books, journals, bound periodicals, and microfilms purchased for and catalogued in College libraries. Special Collections Special collections (see the "Definitions" Section of this document) is a subset of capital assets including items that meet the criteria of capital assets but are managed differently and have a very long (or infinite) useful life. The College records its collections as long-lived assets and depreciates them over a useful life of 100 years. APPENDIX A Table 1: Capital Asset Type and Useful Life APPENDX B Form 8282 Donee Information Return and instructions APPENDIX C Capital Asset Purchase Request form APPENDIX D Capital Asset Disposal form APPENDIX E Capital Asset Physical Transfer Form Capital Asset Policy doc 11