Procedure Number: 5.3.10-P
Current Effective Date: 07/01/2021
Original Effective Date: 07/01/2013
Revision Dates: 07/01/2016, 09/15/2017, 06/01/2018, 07/01/2021
Revision Number: 4
Revision Summary: revision to meet new accounting standards
Responsible Official: System Director of Treasury Management
To provide guidance on accounting for capital assets.
This procedure applies to all colleges and the System Office.
Capital assets are real or personal property with an estimated useful life of more than three years and a value greater than the capitalization threshold (section 5) for the related asset class (section 4).
Numerous types of costs may be capitalized as part of a capital asset.
- The decision to capitalize a cost must be consistent and the item must benefit future periods.
For specific capital outlay codes please see Business Services Chart of Accounts.
Please contact KCTCS General Accounting Services with questions related to the application of this procedure.
4. Asset Classes
KCTCS utilizes the following classes for capital assets:
- Land - Land is the surface of the earth which can be used to support structures.
- If buildings are purchased primarily to gain ownership of land, such buildings should be classified as land.
- Costs for appraisals and demolitions are capitalized.
- If KCTCS plans to use a structure on acquired land for more than one year, an allocation of cost should be made to the structure and should be capitalized separately.
- Costs capitalized to the structure should include any renovation costs that make the building suitable for use.
- Land has an unlimited useful life and is not depreciated.
- Land Improvements - Land improvements consist of site preparation and improvements,
other than buildings, that ready the land for its intended use.
- Land improvements include excavation, non-infrastructure utility installation, driveways, sidewalks, parking lots, flagpoles, retaining walls, fencing and outdoor lighting.
- Land improvements have a useful life of 40 years.
- Buildings, including Fixed Equipment - A building is a structure permanently attached
to land that is not intended to be movable.
- Building costs include foundations, walls, frames, roof, etc.
- Fixed equipment, including elevators, HVAC units, fume hoods, sprinklers and casework, are to be capitalized as a building cost.
- The cost of a major building project generally includes several components, i.e., land, land improvements, building construction, and equipment.
- The total cost of each building project should be allocated to each separately identified component of the project and accounted for in the appropriate capital asset class.
- Buildings, including fixed equipment, have a useful life of 40 years.
- Building Improvements (Renovations) - Building improvements are capital costs that
materially extend the useful life of a building and/or increase the value of the building.
- If a building improvement meets the $200,000 capitalization threshold, the improvement should be capitalized and recorded as an addition to the value of the existing building.
- Building improvements include additions, major energy conservation projects, installation of fixed equipment such as elevators, communication switches, sprinklers or fume hoods in a building that previously did not contain that equipment, and major renovation of space to change or improve the building’s functionality.
- Building improvements have a useful life of 40 years.
- Energy savings assets have a useful life of 10 years.
- Campus Improvements - Campus improvements are capital costs that materially increase
the use or value of the campus.
- For KCTCS’ purpose only West Kentucky Community and Technical College falls into this classification and only because several of the college’s buildings and a large part of the college’s campus is owned by Paducah Junior College Foundation, Inc.
- Infrastructure - Infrastructure assets are long-lived capital assets that can be preserved
for a significantly greater number of years than most capital assets and that are
normally stationary in nature.
- Examples include utility installation, roads, bridges, tunnels, drainage systems, water and sewer systems, and dams.
- Infrastructure assets do not include buildings, driveways, parking lots or any other items that are incidental to the property or provide access to the property, even though they may be separately capitalized.
- For purposes of accounting, KCTCS capitalizes the initial site work and utilities of a project.
- Infrastructure assets have a useful life of 25 years.
- Communications and Network Equipment - Communications and network equipment are a
special category of fixed equipment normally capitalized with the building as a sub-component
- A new building construction project.
- A building improvement/renovation project.
- A utility improvement/renovation project.
- Isexpensed to operations and maintenance of plant as a sub-component of a building
or utility improvements/renovation project when total cost falls below the $200,000
improvements capitalization threshold.
- Telecommunications, communications, and network equipment are capitalized as part of the building.
- This classification typically consists of the power conduit, cabling/wiring, electronics, and the telephone switching equipment and components necessary for the campus-wide delivery (both between buildings and within buildings from floor to floor) of electronically transmitted communications, principally voice (telephones) and data (computers).
- Communications and network equipment have a useful life of 5 years.
- Equipment and Machinery, including Vehicles - Personal property assets include fixed
furniture, machinery, equipment and vehicles.
- Fixed equipment is included in Buildings and Fixed Equipment and/or Communications and Network Equipment, above.
- Fixed furniture includes cabinets and partitions and is only capitalized in conjunction with the new or renovated buildings.
- Equipment and machinery, including vehicles, have a useful life of 5 – 10 years.
- Computers have a useful life of 3 years.
- Construction in Progress - Construction in progress reflects the ongoing construction
activity of buildings and other structures, infrastructure, additions, and land improvements
which are substantially incomplete, but are anticipated to be capitalized upon completion.
- Construction in progress should be capitalized to the appropriate capital asset class upon completion.
- Construction in progress is not depreciated.
- Works of Art and Historical Treasures - Works of art and historical treasures are
classified as either inexhaustible or exhaustible.
- Inexhaustible collections and individual items of significance are those items which are held for public exhibition, education or research in furtherance of public service.
- Collections and individual items are protected and cared for or preserved and subject to an institutional policy that requires the proceeds from sales to be used to acquire other items for the collection.
- Examples of works of art and historical treasures include:
- Collections of rare books and manuscripts
- Maps, documents and recordings
- Works of art such as paintings, sculptures and design
- Artifacts, memorabilia and exhibits
- Unique and significant structures
- The period of economic benefit or service potential for inexhaustible works of art and historical treasures is extraordinarily long due to efforts of the institution to protect and preserve the asset in a manner greater than that for similar assets without such cultural, aesthetic or historical value, therefore, such assets are not depreciated.
- Exhaustible collections (of which KCTCS has none as of this issued update) and individual items of significance are items whose useful lives diminish by display or educational or research applications.
5. Capitalization Thresholds
All capital items must have an estimated useful life of greater than three years.
Assets that are consumed, used-up, or worn-out in three years or less are not capitalized. KCTCS capitalizes a project if the aggregate of the project is greater than $5,000, even though the individual pieces making up the project are less than $5,000.
Capital expenditures are recorded as a capital asset if, in addition to having an estimated useful life of greater than three years, they meet the asset cost thresholds listed in the table that follows:
|Capital Asset Category||Capitalization Levels||Capital Asset Account||Capital Expense Account|
|Land||Capitalize all||14000||66100 – Property Purchase|
|Land Improvements||$200,000 >||14100||67000 – 75000 See Chart of Accounts|
|Buildings and Fixed Equipment||$200,000 >||14200||67000 - 75000 See Chart of Accounts|
|Building Improvements (Renovations)||$200,000 >||14200||67000 – 75000 See Chart of Accounts|
|Infrastructure||$200,000 >||14250||67000 – 75000 See Chart of Accounts|
|Communications and Network Equipment||$50,000 >||14300||50735 – Equipment|
|Movable Equipment and Machinery||$5,000 >||14300||50735 - $5,000 to $99,999
50732 - $5,000 to $99,999 High Risk 64000- $100,000 or greater
56000- Computing Hardware
|Fixed Furniture||$50,000||14300||57000 - Furniture|
|Licensed Vehicles||$5,000 >||14275||65000- Vehicles|
|Computer Software||$400,000 >||14430||59000 – Capitalized Software > $400,000|
|Works of Art and Historical Treasures –Inexhaustible||$5,000 >||14575||Donation|
|Construction in Progress||$200,000 >||14400||67000 – 75000 See Chart of Accounts|
6. Amounts to be Capitalized
Capital assets should be recorded at historical cost. Amounts to be capitalized include the following:
- Donated assets - Gifts-in-Kind are recorded at the acquisition value of the item on
the date of donation.
- A capital asset donated by the college Foundation to the college is not recorded as a Gift in Kind because the Foundation has already recorded the gift. Instead, KCTCS Office of Accounting Services records it under the proper capital asset category and the proper asset and credit accounts used.
- Purchased assets - Includes the vendor’s invoice price for the item, less any discounts; original incoming transportation (freight) charges incurred on shipments from external suppliers; the cost of assembly and installation of the capitalized item, including training costs to make the equipment or software operational; architect and engineering fees; and site preparation, including demolition of existing buildings.
7. Non-Capital Expenses
Expenditures which 1) do not meet the capitalization thresholds denoted above and/or 2) which do not extend the original life or significantly enhance the net value of the asset are not considered to be capital items.
- The following items are not capitalized:
- Expenditures for repairs, maintenance or replacement of component parts for supporting,
software and fixed equipment, that does not extend the original life or significantly
enhance the net value of the asset.
- Costs associated with allowing an asset to continue to be used during its originally established useful life.
- Expenditures incurred in demolishing or dismantling equipment, including those related to the replacement of units or systems.
- Expenditures incurred in connection with the rearrangement, transfer or moving of capital items from one location to another, including expenditures in dismantling, transporting, reassembling and reinstalling such items in the new location.
- Expenditures to add, remove and/or move walls relating to a renovation project that are not considered to be a major renovation project.
- Interior decorations, such as draperies, blinds, and wallpaper.
- Maintenance type interior renovations such as repainting touch up, plastering, replacement of carpet, tile or panel sections.
- Expenditures for repairs, maintenance or replacement of component parts for supporting, software and fixed equipment, that does not extend the original life or significantly enhance the net value of the asset.
Depreciation is the process of allocating the cost of a capital asset over the period of time benefited by the use of that asset, rather than deducting the cost of the asset as an expense in the year of acquisition.
A capital asset is depreciated over its estimated useful life, which is the number of years that an asset will be used for the purpose for which it was purchased.
Capital assets that are inexhaustible (land, works of art, Library Special Collections) are not depreciated.
KCTCS utilizes the straight-line method of depreciation for all assets that are depreciated.
Individual equipment items (not part of a system) costing less than $5,000, while not capitalized, are required to be inventoried.
Equipment inventory will be recorded in the Physical Facilities Inventory System as follows and inventoried on a periodic basis as defined in KCTCS Business Procedures 5.2.2-P and 5.2.9-P.
- Category I: Equipment costing $1,000 or more will be inventoried.
- Category II: High Risk Equipment – Computer equipment that is of greater exposure
to being breached, stolen, resold, or abused on a personal level.
- High risk equipment can contain sensitive information and could pose a security breach if not handled correctly, lost, or stolen.
- High risk equipment has greater inherent opportunity for personal use/abuse versus a bona fide KCTCS business use.
- To provide for greater accountability and due diligence, high risk equipment will be inventoried within PeopleSoft when the equipment costs at least $500.
- Computer related equipment such as desk-top computers, laptops,iPads and other high
risk electronic equipment costing more than $200 but less than $500 should be added
to theKCTCS Inventory under $500 screen inPeopleSoft for tracking purposes.
- This equipment will not be insured, but should be assigned to a permanent fixed location or an employee.
- Permanent assignment will aide in tracking and accountability, provide a mechanism to help ensure the cleaning of its memory, removal of any licensed software, etc., where and when applicable when the item is no longer in service.
- Questions on whether to tag a piece of equipment for inventory should be directed to KCTCS Facilities Management – Office of Asset Management Services.
- For additional information on information technology equipment and related policies please see KCTCS Administrative Policies 4.2.5 (Information and Information Technology Responsible Use).
10. Capitalization Accounts
Items costing $5,000 or more are to use the appropriate expense account under the Capital Outlay section (0511 budget pool) of the accounts in the Chart of Accounts.
Services in support of capital outlay such as computer software support, M & O maintenance contracts, service and support agreements, etc. are not to be charged to the 0511 budget pool listing of account codes.
- Said items are consumables and are to be expensed.
- Caution should be used to account for the payment where the service crosses fiscal years so as to capture the prepaid portion of the expense in the proper fiscal year.
Equipment with a cost of $4,999 or less and defined as “high risk” must use account 51050 – Equipment, High Risk < $5,000.
Equipment with a cost of $4,999 or less and not defined as “high risk” must use account 51040 - Equipment < $5,000.