Asset Capitalization Procedures
Contact: Ben Wake, firstname.lastname@example.org, C-249 ASB, 2-9766
Expenditures Requiring Capitalization
Expenditures requiring capitalization are recorded at acquisition cost or at estimated fair value at the time of donation if the acquisition meets certain criteria and minimum dollar thresholds. Estimated fair value is determined by appraisals, gift deeds, tax form 8283, or gift notices. Depreciation is computed using the straight-line method.
Capital Asset Categories
Land - Real property or water rights owned by the university not held as investment property. Land is capitalized at cost and is not depreciated.
Buildings - New construction of roofed structures for permanent or temporary shelter of persons, animals, plants or equipment. Costs include feasibility studies, architectural drawings, land preparation, foundations, frames, walls, roofs, elevators, heating and ventilation, air conditioning, fire protection systems, plumbing, wiring, and flooring, etc. Completed building costs exceeding the minimum threshold are capitalized and the asset record is never adjusted except upon the demolition of the building. Subsequent qualifying expenditures related to the building are capitalized as separate building improvement assets.
Improvements - Any variety of material, products or labor that increase the expected useful life or performance capabilities of an existing asset or to the campus as a whole. These costs include additions, expansions, installations, alterations, modifications, redesigns, remodeling, renovations, replacements, retrofits, landscaping, etc. They do not include repairs or maintenance to maintain an asset for its originally planned useful life or performance. Costs exceeding the threshold are capitalized and the life of the improvement is determined through the Capital Needs Analysis department, or the Office of Information Technology. Improvements are usually fixed or permanently attached.
- Building Improvements - Improvements to existing structures include such things as: remodeling, building enlargements, partitioning of a classroom into offices, installation of air conditioning in a building that was not previously air conditioned, installing or updating communication equipment/wiring, floor coverings (tile, carpeting), upgrades to physical operating systems such as plumbing, heating and air conditioning, lighting, etc.
- Other Improvements – Improvements to the campus infrastructure as a whole but unrelated to a specific building. These include such things as: parking lots, sidewalks, landscaping, sprinkler systems, fencing, roads, bridges, tunnels, drainage systems, water and sewer systems, installing or updating communication equipment/wiring that is not related to a building, etc. Costs incurred throughout the year by the Office of Information Technology for the campus network and communication infrastructure are aggregated and capitalized at cost in an annual layer. The annual layers are depreciated in the first year using a half-year convention and disposed of three years after the layer is fully depreciated.
Furnishings - Items to furnish a building. Generally these are separate, tangible, movable items such as office tables, chairs and desks, beds and mattresses, appliances, bed/bath/table linens, etc. Even though the cost of individual items usually do not exceed the threshold, when purchased in bulk, the entire aggregate cost will be capitalized if it exceeds the threshold.
Equipment - Tangible movable equipment where unique items can be considered a separate asset having a useful life of three years or longer (asset lives are determined by category based upon estimated useful life). Each individual piece of equipment must exceed the capitalization threshold. An asset may lose its specific identity when attached to another asset as a component part or when attached as a permanent part of a building. Costs include equipment related to such things as: cleaning and maintenance, construction, laboratories, farming, landscaping, computing, recreation, musical performances, manufacturing, storage, etc. Installation costs and freight charges are included in the cost of the equipment. All equipment is tagged with a university bar-code tag. When equipment items are purchased for use as a group or as a system and collectively exceed the capitalization threshold, they will be capitalized as Miscellaneous Assets after approval from the Director of Financial Accounting and Reporting. Research equipment - a special category of equipment defined in FAR 45 as all property owned or leased by the federal government. Such property acquired under federal awards; i.e. grants, contracts or awards with the university include:
- Contractor Acquired Property: Property purchased by the University with federal funds for the performance of a contract. Although title to the equipment is vested in the federal government, the University retains stewardship responsibility. Research equipment acquired with federal funds must be tagged with an additional research barcode tag. In cases where ownership of research equipment reverts to the university at the end of a research project, it is capitalized on the University’s books at net book value at that time.
- Contractor Furnished Property: On very rare occasions, a contractor may loan equipment to the university for use under specified contracts or grants. This equipment is NOT purchased under a contract but merely loaned to BYU by the contractor. Accordingly, no record is maintained of loaned equipment on BYU’s Asset Management System, financial books, or tagging system.
Library Content - Books, journals, periodicals, microfilms, audio/visual media, computer-based information, manuscripts, maps, documents, subscriptions to on-line databases and similar items. All library content with a useful life of more than one year and purchased throughout the year is capitalized at cost in an annual layer and depreciated for the first year using a half-year convention.
Livestock - Domestic animals, primarily cattle, raised for profit or the establishment of herds. Individual cows or bulls are capitalized and tagged as a separate asset. The cost for purchased livestock is the price paid either at auction or on the open market. The cost of new calves is determined by an allocation of direct costs combined with administrative and overhead costs to a work-in-process account from the time of pregnancy check. After the calf cycle is completed (31 months), the apportioned costs are either a) moved from work-in-process to cost of goods sold for the animals that are sold, or b) capitalized from work-in-process as cows or bulls are retained for breading.
Media - Media content, e.g., films, series, online courses and other productions produced internally, to be aired over television and other digital platforms, e.g., websites, apps, etc. Capitalized costs associated with BYUB media shall not exceed an amount equal to the amount of revenue contracted for that episode. Capitalization exists if two conditions are met, e.g., 1) a revenue stream is associated with the production, and 2) a contract for the revenue stream is in place prior to airing, OR there is sufficient historical data to reasonably project a future revenue stream. The asset life will not exceed the life of the revenue stream. Accounting Standards Codification (ASC) 926 is the industry-specific guidance for “Entertainment- Films.
Software - Computer software purchased from a commercial vendor, (PeopleSoft, Kronos, Blackboard) or developed internally by the university, is capitalized if it exceeds the threshold. The university uses the guidance provided in ASC 350-40 for determining capitalization of internally developed software. The cost of software maintenance, regardless of the amount, is always expensed.
Vehicles - Motorized vehicles normally licensed to be driven on highways and freeways - Passenger cars, vans and trucks. Cranes, earth movers, tractors, trailers, fork-lifts, golf carts, sweepers, ATVs, snowmobiles, and boats are included in the Equipment category. Vehicles are capitalized and assigned to a motor pool (General University, Athletics, Jerusalem Center, BYU Broadcasting, etc.). Academic units (fund 11) do not own vehicles.
Miscellaneous Assets - Any capital asset that does not fit one of the previously defined asset categories. All assets in this category will be approved by the Director of Financial Accounting and Reporting.
Capital Asset Thresholds and Useful Lives
|Description||Account||Method||$ Threshold||Useful Life|
|Library Content||1632||Straight Line||All||25|
|Misc Assets||1635||Straight Line||$5,000||2-50|
|Films||1638||Individual Film Forecast Computation||$100,000||Life of Revenue Stream|
|Works of Art||9100||Not Depreciated||N/A||N/A|
Expenditures Not Requiring Capitalization
Expenditures under the dollar thresholds - Expenditures for buildings, improvements, furnishings/fixtures, equipment, vehicles, software, and films that do not meet the dollar thresholds.
Works of art and historical treasures - Collections and individual items of significance, which are not held for financial gain, but rather are held for public exhibition, education or research in furtherance of public service. Proceeds from the sale of collection items are held and used to acquire other collection items that are expensed at the time of purchase. Examples of works of art and historical treasures includes collections of rare books, manuscripts, maps, documents, recordings, paintings, sculptures, designs, artifacts, memorabilia, exhibits, and other unique and significant structures.
Repairs & Maintenance - The recurrent day-to-day work required to preserve a capital asset in its original condition (excluding normal deterioration) without materially increasing its usefulness or life. Costs include cleaning, lubrication, painting, parts, material and labor. Such costs are recorded as current expense.
Media - Internally developed BYUB media content that do not meet the criteria for capitalization are expensed when the program airs or when determined it will not air. Costs incurred for programs not yet broadcast are recorded as Construction in Process on the balance sheet. When the program airs or when determined it will not air, the CIP costs are converted to an operating expense.