Administrative Procedures

Capital Assets

1. Purpose

To provide guidance on accounting for capital assets.

2. Scope

This procedure applies to all business units.

3. Procedure

3.1 General

1. A capital asset is property which has a useful life greater than one year.
   
   
2. Capitalization thresholds vary by asset category (See Section 4).
   1. Leased assets are addressed in Administrative Procedures 5.3.17-P and 5.3.18-P.
      
      
3. Contact KCTCS General Accounting with questions about this business procedure.

3.2 Procedure

1. Business Units record capital assets using capital expense accounts (See Section 4).
   1. Entries include a debit to a capital expense account and a credit to accounts payable/cash.
      
      
2. System Office records capital assets using capital asset accounts (See Section 4). System Office Asset Management department is responsible for maintaining the capital asset subsidiary ledger which is the PeopleSoft Asset Management module.
   1. Entries include a debit to a capital asset account and a credit to account 80500, capital clearing. 

3.3 Reporting

1. Capital assets are reported net of accumulated depreciation on the Statement of Net Position.
   
   
2. Capital expenses are combined with the capital clearing activity and included in Operations and Maintenance on the Statement of Revenues, Expenses, and Changes in Net Position.

3.4 Measurement

1. Purchased capital assets are recorded at historical cost, the amount paid.
   
   
2. Donated capital assets are recorded at acquisition value, the appraised or estimated value.

3.5 Depreciation

1. Depreciation is recorded on capital assets, expensing the cost of the asset over its estimated useful life, rather than in the year of acquisition.
   1. Land, construction-in-progress, and works of art are not depreciated.
      
      
2. Depreciation is calculated using the straight-line method.

3.6 Non-Capital Expenses

Certain types of expenditures are not capital assets and are expensed.

1. Items with a useful life of less than one year are expensed.
   
   
2. Expenditures that do not meet the stated capitalization threshold (See Section 4).
   1. Equipment that does not meet the capitalization threshold is expensed and inventoried (See Administrative Procedure 5.2.2-P).
      
      
3. Moveable furniture is expensed and inventoried (See Administrative Procedure 5.2.2-P).
   
   
4. Software support services, maintenance contracts, and other service agreements are expensed.
   
   
5. Repair costs to maintain land, buildings, equipment, infrastructure, including painting and routine repairs, are expensed.

4. Asset Classes, Capitalization Thresholds, and Account Numbers

 

 

Asset Class	Capitalization Threshold	Unit of Measure for Applying Threshold	Capital Expense Account	Capital AssetAccount
Land	All land is capitalized.	Project/Contract	66100	14000
Land Improvements	$200,000	Project/Contract	67000 - 75000	14100
Infrastructure	$200,00	Project/Contract	67000 - 75000	14250
Buildings	All buildings are capitalized.	Project/Contract	67000 - 75000	14200
Building Improvements	$200,000	Project/Contract	67000-75000	14200, 14510, 14551
Cabinetry/Fixed Furniture	$50,000	Project/Contract	67000 - 75000	14200, 14300
Communications and Network Equipment	$50,000	Project/Contract	50735	14200, 14300
Construction-in-Progess	$200,000	Project/Contract	67000 - 75000	14400
Equipment and Computers	$5,000 $25,000	Per Item Group Purchase	50732, 50735, 56000, 64000	14300
Vehicles	$5,000	Per Item	65000	14275
Software	$500,000	Project/Contract	59000	14430
Works of Art	$5,000	Per Item	Received from Donors	14575

Assets with a cost less than the threshold amounts, shown above, should be recorded in an operating expense account: 51040 Furniture & Equipment, 51050 Equip, High Risk, 51060 Non-Capital Software, as applicable.

Land: Includes the cost of land and legal fees, appraisal fees, and broker fees. Includes the cost of demolition of buildings when purchased primarily to gain ownership of land. Land is not depreciated.

Land Improvements: Includes preparation and improvements that prepare the land for intended use, such as excavation, driveways, parking lots, parking lot lighting, retaining walls, fencing, gates, athletic fields. Depreciated over an estimated useful life of 40 years.

Infrastructure: Includes the cost of streets/roads, sidewalks, curbs, utility distribution systems, storm sewers. Depreciated over an estimated useful life of 25 years.

Buildings: Includes all direct costs of construction; significant structural changes that increase the building’s usefulness, efficiency, or asset life; foundations, walls, frames, roofs; and permanently attached fixtures, machinery, elevators, HVAC systems and units, fume hoods, sprinklers, and other components that cannot be removed without damaging the building. Depreciated over an estimated useful life of 40 years.

Building Improvements: Includes renovations to buildings and costs that extend the useful life of a building or increase the value of a building. Building improvements are recorded as an addition to the value of the existing building. Examples include additions; major energy conservation projects; installation of fixed equipment that did not previously contain that equipment, such as elevators, communication switches, sprinklers, fume hoods. Building Improvements are depreciated over an estimated useful life of 40 years. Energy Savings Assets are depreciated over an estimated useful life of 10 years.

Cabinetry/Fixed Furniture: Included as an addition to the cost of the building if added as part of a capital project or major renovation. Includes cabinetry, lab benches. Depreciated over an estimated useful life of 10 years.

Communication and Network Equipment: Capitalized as part of the cost of new buildings or as part of the renovation cost for renovation projects, utility improvement/renovation projects. Includes telecommunication, communication, and network equipment, including power conduit, cabling/wiring, electronics, telephone switching equipment and components. Depreciated over an estimated useful life of 5 years.

Construction-in-Progress: Includes construction costs related to buildings, additions and other structures, infrastructure, and land improvements that are substantially incomplete and will be capitalized upon completion. Construction-in-Progress is not depreciated.

Equipment and Computers: Equipment or computers having an individual item amount of $5,000 and greater are capitalized. Equipment or computers having a group purchase totaling $25,000 and greater, including shipping, transportation and installation costs, are capitalized and depreciated as a group. Includes equipment, teaching equipment, laboratory equipment, machinery, and computers. Computers are depreciated over an estimated useful life of 3 years. Equipment is depreciated over an estimated useful life of 5 – 10 years.

Vehicles: Depreciated over an estimated useful life of 5 years.

Software: Includes software that is purchased or developed internally. Purchased software provides the right of ownership. Perpetual licenses are classified as purchased software. Purchased or internally developed software with a cost that is less than $500,000 is expensed. Additional procedures related to software are described in Administrative Procedure 5.3.18-P.

Works of Art: Works of art are received as donations and include collections of rare books, manuscripts, maps, documents, recordings, paintings, sculptures, artifacts, memorabilia, unique structures. Held for public exhibition, education or research; protected and preserved. Works of art are not depreciated.