Equipment - Leases, Pre-owned, R&M, Trade-in, Transfers
Policy Number: 5.4.5-P
Current Effective Date: 08/01/2017
Original Effective Date: 10/01/2007
Revision Dates: 10/01/2007, 01/01/2015, 06/30/2017
Revision Number: 3
Responsible Official: Director of Procurement to Payment
To address the procurement processes for equipment in regards to leases, pre-owned purchases, repairs and maintenance, trade-ins, and transfers.
This procedure applies to all KCTCS employees.
3. Lease Types
Equipment Lease Types:
- Rental agreement (operating lease).
- Purchase/sale accompanied by debt financing.
The accounting method for recording the equipment purchase (capital lease or operating lease) hinges on the nature of the leasing arrangement.
- Capital, including computer software, are agreements identified as being leases, but in reality are installment purchases.
- Equipment will be capitalized if the lease arrangements meet any one of the following
- The lease transfers ownership of the equipment to the lessee (KCTCS) by the end of the lease term.
- The lease contains a bargain purchase option.
- The lease term is equal to 75% or more of the estimated economic life of the leased equipment.
- 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.
- 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).
- Support and maintenance related to the purchase of equipment is to beexpensed.
- 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.
- If the support and maintenance extends into future fiscal years, the expense is considered “prepaid” and will need to be accounted for as such.
- Please contact KCTCS System Office of Financial Services if there are questions on the classification of a lease as capital versus operating.
4. Lease, Lease/Purchase or Rental of Equipment
Lease, Lease/Purchase or Rental of Equipment:
- 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 BA8 Form specifying the following:
- Equipment to be leased.
- Desired terms of the lease.
- Total price of the equipment to be leased.
- Authorized signature of the College President/CEO or KCTCS System Office Cabinet member.
- Authority for rental of equipment for temporary periods is delegated to the business units.
- Submitted requests will serve as the commitment by the business unit to provide funding
to service the payments due over the life of the lease.
- KCTCS System Office of Procurement to Payment Services will work to approve and sign the lease agreement provided by the business unit for KCTCS.
- Payments on the following lease agreements will be processed byKCTCS Office of Asset
- Base rent for building and copier leases.
- Computer, laptop, and server leases.
- Payments through the PeopleSoft Asset Management Module towards the acquisition of equipment via lease-purchase agreements must be chargeable to a capital account if the value of the equipment meets the cost level for capitalization (currently $5000).
- This procedure applies to all KCTCS fund groups.
- Payments on the following lease agreements will be processed by the business unit:
- Copier meter charges.
- Postage meter charges.
- Business units may use procard to pay copier and postage meter charges.
- Payments on the following lease agreements will be processed as recurring voucher
contracts byKCTCS System Office:
- Building leases with strictly janitorial, utility (if included), or phone/internet charges.
- Information will be provided from KCTCS Director of Asset Management to KCTCS Office of Procurement to Payment Services.
- KCTCS Office of Procurement to Payment Services will process monthly payments.
- 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.
- 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.
Equipment acquired under lease-purchase agreements will be recorded and capitalized at the time the agreement is finalized and delivery is made to KCTCS.
- 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 Financial Services for a final decision.
5. Purchase of Pre-Owned Equipment
The purchase of pre-owned equipment is not encouraged. However, if the purchase of pre-owned, reconditioned, demonstrator-type equipment is in the best interest of KCTCS, a justification must be submitted to KCTCS System Office of Procurement to Payment Services referencing the requisition and should address the following points:
- The purchase is fully justified.
- The purchase is of proven value to the business unit.
- Bona fide statements of the condition of the equipment.
- Independent appraisals of the equipment attesting to current market value. Complete data and descriptions, manufacturer, model numbers, serial numbers and accessories must be included.
- The purchase is reasonable as compared to the purchase of new first quality equipment.
KCTCS System 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
All purchasing and payment documents related to the procurement of parts and labor must identify the equipment being repaired by make, model, serial and/or motor number, and the property number.
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 System Office of Procurement to Payment Services as the single source for the service to be rendered.
7. Trade-In of Equipment
The disposal of all surplus property and equipment shall be done in accordance with KCTCS business procedures. This requirement prohibits the direct arrangement or sale of any item of supplies or equipment.
Trade-in of equipment is to be processed by KCTCS System 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 on a requisition.
- 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.
Full identification, including the KCTCS Property Number, of any trade-in equipment must be shown on the requisition for the purchase of the new equipment.
8. Transfer of Equipment
Equipment purchased by or transferred from one KCTCS business unit to another shall be administered by the KCTCS System Office of Facilities Support Services.