Equipment - Leases, Pre-owned, R&M, Trade-in, Transfers | KCTCS

Administrative Procedures

Administrative Procedures

Equipment - Leases, Pre-owned, R&M, Trade-in, Transfers

Procedure Number: 5.4.5-P

Current Effective Date: 09/01/2023

Original Effective Date: 10/01/2007

Revision Dates: 01/01/2015, 06/30/2017, 07/23/2021, 09/01/2023

Revision Number: 5

Revision Summary:

Responsible Official: Vice President, Administrative Services

References:

1. Purpose

To address the procurement processes for equipment regarding leases, pre-owned purchases, repairs and maintenance, trade-ins, and transfers.

2. Scope

This procedure applies to all KCTCS employees.

3. Lease Types

3.1

Equipment Lease Types:

  1. Rental agreement (operating lease).
  2. Purchase/sale accompanied by debt financing.

3.2

The accounting method for recording the equipment purchase (capital lease or operating lease) hinges on the nature of the leasing arrangement.

  1. Capital, including computer software, are agreements identified as being leases, but in reality are installment purchases.

  2. Equipment will be capitalized if the lease arrangements meet any one of the following requirements:
    1. The lease transfers ownership of the equipment to the lessee (KCTCS) by the end of the lease term.
    2. The lease contains a bargain purchase option.
    3. The lease term is equal to 75% or more of the estimated economic life of the leased equipment.
    4. The present value of the minimum lease payments at the inception of the lease, excluding executory costs, equals to at least 90% of the fair value of the leased equipment.

  3. Equipment leases that do not meet any of the above requirements will be recorded as an operating lease (an operating expense, not a capital asset expense).

  4. Support and maintenance related to the purchase of equipment is to be expensed. 
    1. Caution should be used in reviewing the terms of the service agreement to properly classify the expense to the year for which the support and maintenance will be used. 
    2. If the support and maintenance extends into future fiscal years, the expense is considered “prepaid” and will need to be accounted for as such.
    3. Please contact KCTCS General Accounting Services if there are questions on the classification of a lease as capital versus operating.

4. Lease, Lease/Purchase or Rental of Equipment

4.1

Lease, Lease/Purchase or Rental of Equipment:

  1. A request to lease office equipment, computers, or any other type of equipment should be submitted to the KCTCS Office of Procurement to Payment Services using a zero dollar requisition accompanied with the proposed lease agreement specifying the following:
    1. Equipment to be leased. 
    2. Desired terms of the lease.
    3. Total purchase price of the equipment to be leased.
    4. Authorized signature of the College President/CEO or KCTCS Cabinet member.

  2. Authority for rental of equipment for temporary periods is delegated to the business units.

  3. Submitted requisitions will serve as the commitment by the business unit to provide funding to service the payments due over the life of the lease.
    1. KCTCS Office of Procurement to Payment Services will work to approve the lease agreement provided by the business unit for KCTCS.
    2. Business unit is responsible for final signature on the approved lease agreement to be attached to the Purchase Order.

  4. Payments on the following lease agreements will be processed by KCTCS Office of Asset Management:
    1. Base rent for copier leases.
    2. Computer, laptop, and server leases.
      1. Payments through the PeopleSoft Asset Management Module towards the acquisition of equipment via lease-purchase agreements shall be chargeable to a capital account if the value of the equipment meets the cost level for capitalization (currently $5000).
      2. This procedure applies to all KCTCS fund groups.
    3. Building leases with strictly janitorial, utility (if included). 

  5. Payments on the following lease agreements will be processed by the business unit: 
    1. Copier meter/click charges. 
    2. Postage meter charges.
    3. Business units may use procard to pay copier meter/click and postage meter charges.

  6. Service agreements for equipment are to be broken out from the lease price of the equipment and charged to account 50830 – Service and Maintenance Equipment.

  7. Rental of equipment for a temporary period of time does not require a capital outlay account. However, rentals or leases may not be converted to lease/purchase agreements without following outlined procedures.

4.2

Equipment acquired under lease-purchase agreements will be recorded and capitalized at the time the agreement is finalized and delivery is made to KCTCS.

  1. Please see Section 3.2, B for criteria used in classifying leases as capital or operating. If further clarification is needed, contact the KCTCS Director of Accounting Services for a final decision.

5. Purchase of Pre-Owned Equipment

5.1

The purchase of pre-owned equipment is not encouraged. However, if the purchase of pre-owned, or demonstrator-type equipment is in the best interest of KCTCS, a justification shall be submitted to KCTCS Office of Procurement to Payment Services referencing the requisition and should address the following points:

  1. The purchase is fully justified.
    1. Example: Provide cost comparisons between pre-owned and new equipment.

  2. The purchase is of proven value to the business unit.
    1. College must benefit from equipment to be purchased.

  3. Bona fide written statements of the condition of the equipment.

  4. Pre-owned equipment $40,000.00 and over requires a sole source justification form to be submitted with the requisition.

5.2

KCTCS Office of Procurement to Payment Services will review requests for purchase of pre-owned equipment and, if determined to be in the best interest of the business unit, will approve the purchase or offer an alternative.

6. Repairs and Maintenance of Equipment

6.1

All purchasing and payment documents related to the procurement of parts and labor should identify the equipment being repaired by (including but not limited to) make, model, tag number, serial and/or motor number, or the title number.

6.2

Proprietary Service is the repair or service to equipment by the original manufacturer or the authorized distributor or agent, which may be classified by KCTCS Office of Procurement to Payment Services as the single source for the service to be rendered.

7. Trade-In of Equipment

7.1

The disposal of all surplus property and equipment shall be done in accordance with KCTCS business procedures Business Procedure 5.2.2-P. This requirement prohibits the direct arrangement or sale of any item of supplies or equipment.

7.2

Trade-in of equipment is to be processed via requisition/purchase order by KCTCS Office of Procurement to Payment Services in accordance with approved business procedures by indicating the trade-in of existing equipment towards the purchase of new equipment.

  1. The total amount of the purchase order for the new equipment should reflect a reduction in accordance with the value of the equipment to be traded in offered by the supplier.
    1. A requisition shall be entered with one line for procuring the new equipment and a second line for the value of the trade-in of the old equipment. 
    2. Both invoice and credit invoice should be forwarded together for processing. 

7.3

Full identification, including the KCTCS Inventory/Tag Number, of any trade-in equipment shall be shown on the requisition for the purchase of the new equipment.

8. Transfer of Equipment

8.1

Equipment purchased by or transferred from one KCTCS business unit to another shall be administered by the KCTCS Office of Facilities Support Services.