The University of ArizonaThe University of Arizona
Financial Policies & ProceduresFinancial Policies & Procedures
 

2.10 Capitalization of Tangible Assets

PURPOSE:

To provide direction to University departments on the fixed asset capitalization policies of the University.

AUTHORITY:

Powers and duties of the University President,
ABOR Policy 3-801, 3-802 and ABOR Policy Chapter VII

Authority below applies ONLY to Federal Property (acquisition dollars or title):

  • 48 Code of Federal Regulations (CFR) Part 45
  • 2 Code of Federal Regulations (CFR) Part 200 (“Uniform Guidance”)

POLICY:

Acquired and donated capital assets are classified into physical plant acquisitions, equipment acquisitions, library acquisitions, and special collections.

Capital assets acquired with University, government or other sponsor funds shall comply with the University's procurement procedures.

PHYSICAL PLANT ACQUISITIONS:

Physical plant acquisitions are divided into eleven categories:

  1. Land
  2. Land Improvements other than buildings
  3. Buildings
  4. Leasehold Improvements
  5. Utilities
  6. Telecommunications Network System
  7. Sport Facilities
  8. Public Art
  9. Construction in Progress
  10. Library Acquisitions
  11. Equipment Acquisitions

LAND

Land is acquired by the University through the following methods and is valued accordingly:

  1. Acquisition by Purchase - Land purchased by the University is recorded at cost. Cost includes the purchase price paid, legal costs, title costs, broker’s fees and other costs to provide an unencumbered title to the Arizona Board of Regents, for and on behalf of the University of Arizona.
  2. Acquisition by Gift or Bequest - Recorded at the value shown on the gift report. (An appraisal may or may not be attached.) Property valued at over $100,000 will be reviewed by the manager of Financial Management of FSO before recording the asset on the University’s books.
  3. Acquisition through Eminent Domain - Land acquired by the university through court award is recorded at cost. Cost includes court award to the landowner(s), court costs, legal fees, appraisal cost, title cost and other costs to provide an unencumbered title to the Arizona Board of Regents, for and on behalf of the University of Arizona.

LAND IMPROVEMENTS OTHER THAN BUILDINGS:

This category consists of land improvements outside the building, except utility improvements. It includes roads, curbs, walkways, parking lots, streetlights, landscaping, wells, irrigation systems, drainage systems, fences, retaining walls, campus boundary signs, campus directional signage, and similar items.

Improvements to land other than buildings are capitalized as infrastructure assets,  if the total expenditure is $100,000, or more, per project.  Use capital expense object code 7140 - Infrastructure.

UTILITIES:

This consists of the basic utility infrastructure outside of buildings. It includes the lines, tunnels, piping, transformers, relays, pumps, cables, switching stations, and similar items need for electrical, water, telephone, natural gas, television, data services, and central HVAC plants.  Excludes telecommunications network system components purchased and installed by UITS telecommunications and capitalized separately to the University's telecommunications network system or as building improvements.

Improvements to the utility infrastructure are capitalized when the cost is $100,000 or more per project.  Use capital expense object code 7140 - Infrastructure.

TELECOMMUNICATIONS NETWORK SYSTEM:

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), where such equipment and components are purchased and installed by UITS Telecommunications and when such equipment is NOTcapitalized as a sub-component of either:  1) a new building construction project; or 2) a building improvement/renovation project; or 3) a utility improvement/renovation project; or 4) is expensed to operations and maintenance of plant as a sub-component of a building or utility improvements/renovation project when total cost falls below the $100,000 improvements capitalization threshold.

All improvements to the telecommunications network system, as defined above, are capitalized as an aggregate addition by depreciable component to the telecommunications network system.  Capitalized from capital expense object codes 7160, 7161, 7162, and 7163; for use only by UITS-Telecommunications.

BUILDINGS AND SPORTS FACILITIES:

NEW CONSTRUCTION includes the creation of a new permanent structure or the addition, expansion, or extension of an existing building. The cost of the building is the construction cost of the building shell and its components and is capitalized when the construction or acquisition cost per building (assigned a unique building number by Real Estate Administration) is $5,000 or more.  Use capital expense object code 7120 - Buildings.

SPORTS FACILITIES includes additions, expansions, extensions of existing athletic Fields, tennis courts, seating and small facilities structures. (Bathrooms, storage, etc) The cost of sports facilities is the construction and component cost and is capitalized at $100,000 or more.  Use capital expense object code 7150 - Sports Facilities.

CONSTRUCTION COST: Examples of construction costs include, but are not limited to, architects and engineering fees, site preparation, including demolition costs, building permit fees, contractor and sub-contractor fees, building materials, construction equipment rental, construction supplies and utilities, construction equipment operating and maintenance cost, and wages and benefits, as compensation for construction work performed.

BUILDING COMPONENTS: Consists of items permanently affixed/installed to the building shell, necessary for the building to be used as intended, which are integral to the building and can not be removed without damaging the building. Examples include, but are not limited to elevators, HVAC, plumbing system, electrical wiring, fixed theater or classroom seating, telecommunication/data wiring, fire alarm and sprinkler systems, and other fixtures and equipment installed with the intent of permanent use in the building.

REMODELING AND BETTERMENTS vs. MAJOR MAINTENANCE AND REPAIRS

REMODELING, BETTERMENTS, AND RENOVATION: The reworking of an existing building or portion of an existing building, including upgrading the major systems, which extends the building’s usable capacity or useful life shall be capitalized. This includes the major replacement, or upgrading of building systems, components, or fixed equipment that is necessitated by facility obsolescence, change in use, code requirements, physical plant wear-out, and/or related interior space modifications and aesthetic improvements. Examples include, but are not limited to: demolition of the interior of a building or portion thereof including the removal and subsequent replacement of electrical, plumbing, ventilating and air conditioning systems, fixed equipment, floor coverings and interior walls and partitions (whether fixed or moveable). If an individual project cost less than $100,000, the expense is to be charged to repair and maintenance operations object code, rather than capital.

Cosmetic remodeling, such as simple replacement of floor and wall coverings as part of a periodic redecorating, is a maintenance and repair activity. These cost shall not be capitalized, except when it is incidental to a remodeling, betterment and renovation project.

MAJOR MAINTENANCE AND REPAIRS: The periodic need to repair and rework building and infrastructure systems or components to maintain the original condition of the asset. The expense should be classified as a repair and maintenance expenditure and charged to operations object code. Examples include, but are not limited to: re-roofing, disassembling and rebuilding air-conditioning systems water chillers, replacement of worn out heating systems, and other major components. This repair work does not usually make the building more useful or add to the estimated useful life of the building as a structure.

Maintenance and repairs large enough to involve outside contractors are undertaken in the Unexpended Plant Funds. As the maintenance is completed, the expense is not added to that asset’s cost basis in the capital assets of the University. (Net Investment in Plant)

LEASEHOLD IMPROVEMENTS:

Improvements to land and buildings leased by the University are capitalized at $100,000 or more. When a land and/or building lease is not renewed, the recorded cost of any leasehold improvements are written off by Property Management-FSO.

PUBLIC ART

This category consists of the works of art (murals, frescoes, sculptures, fountains, mosaics, etc.) funded through the budget of any major building construction or renovation project. Major buildings are those with a total project cost of $1 million or greater. The funded amount for public art shall not exceed one-half of one percent (0.5%) of the construction or renovation budget.

Public art is capitalized at purchase cost. Annually, Facilities Management is responsible to advise Property Management-FSO of the value of stolen, destroyed, and retired through Surplus Property. This value is deducted from the composite capitalized value of public art.

Property Management-FSO records public art by building, but does not tag, or inventory public art. Inventory and control of public art are the responsibility of Facilities Management.

CONSTRUCTION IN PROGRESS:

Construction projects accounted for in the Unexpended Plant Fund are initially capitalized to Construction in Progress. Subsequent treatment of the expenditures depends on the basic nature of the work done. Where a project involves both a capitalized and non -capitalized activity, such as a betterment along with maintenance to systems in the affected space, the accounting treatment shall be that of the predominant activity.

New Building Construction is capitalized to object code 8730, Building, upon project completion.

Building Additions resulting in an expansion, enlargement or extension to the useful life of an asset are capitalized to object code 8730, Building and Improvement when completed.

SPECIAL CONSIDERATIONS:

GROUP PURCHASES: When a group of items is acquired together, the cost shall be allocated, as appropriate, among the individual assets based on a purchase price distribution schedule to be provided by the University acquisition negotiator or agent. An example of this kind is the acquisition including land, buildings, water rights, and farm equipment.

LIBRARY ACQUISITIONS:

Library acquisitions are divided into three categories:

  1. Main Library regular volumes
  2. Medical Library regular volumes
  3. Law Library regular volumes

Library books (regular volumes) are considered a composite asset. Book acquisitions for use in the university libraries are capitalized at purchase cost or the fair market value for donated books. Annually, the responsible librarian advises Property Management-FSO of the value of books lost, stolen, destroyed, and retired through Surplus Property. This value is deducted from the composite capitalized value of library books.

Government-owned books are identified, cataloged, shelved and stored in accordance with the terms of the government contract with the university. Records of government owned books are maintained by the responsible library.

Property Management-FSO does not tag, record or inventory books. Inventory and control of book are the responsibility of each separate library.

EQUIPMENT ACQUISITIONS:

Capital equipment means an item of non-expendable, tangible, personal property which has an aggregate acquisition cost or fair market value of $5,000.00 or more, is free standing, movable, is complete in itself, does not lose its identity when affixed to or installed in other property and has a useful life greater than one year.

Capital equipment acquired with University, government and other sponsor funds shall comply with the University's procurement procedures in the Purchasing Policies Manual

METHODS OF ACQUISITION: Capitalized equipment can be acquired through purchase order, interdepartmental billing form, assembly of standard components, fabrication of unique property, purchase by construction contract, lease purchase, gift or bequest, government furnished property, secured from State surplus property, found, excess to the government, abandoned by the government, and government donations through the Stevenson-Wydler Act, President Executive Order 12999, or other statutory authority.

Equipment acquired by other than purchase with a stated value greater than $100,000 is subject to review by the Financial Management-FSO manager.

CAPITALIZED COSTS: The initial capitalized costs included in the value of capital equipment are the acquisition cost of the item or, if donated, its fair market value, freight, sales tax, use tax, installation charge, fair market value of university assets given in exchange, present value of liabilities incurred or assumed, and other expended resources to bring the item up to its intended and useful condition.

Equipment otherwise capital in nature with an aggregate acquisition cost of less than $5,000.00 is to be classified as an expense item and charged to an operating object code.

FABRICATION: See 5-EQUIPMENT FABRICATION.

BETTERMENTS AND UPGRADES: Betterments and upgrades to capitalized equipment that cost less than $5,000.00 should be classified as an expense item and charged to an operations object code. The fabrication object codes 5750 and 5751 cannot be used for a betterment. The cost of repair and maintenance of capital equipment is always expensed, regardless of amount.

A betterment must be a capital expense and can only be added to an existing asset if that asset's depreciated value exceeds the value of the planned betterment.

GOVERNMENT FURNISHED EQUIPMENT: The unit price of government furnished equipment is determined by the government and normally provided to the university in the government shipping documents. The transportation and installation costs are considered additions to the unit price. In the event that price information is not included in the government’s shipping document, it must be obtained from the government sponsor or contractor by the principal investigator.

Government furnished equipment is titled to a federal sponsor. Upon receipt of government furnished property by a department and/or Principal Investigator, a copy of the governments shipping document is to be provided to Property Management-FSO with a tag request, and a second copy to SPS Property Administrator for inclusion in account’s property and report files.

EXCESS GOVERNMENT PROPERTY: Property which is no longer required by the holding Federal agency and is transferred to the University. Excess government property furnished to the university is recorded at the value indicated by the Federal agency. The transportation and installation costs are considered additions to the unit price. Excess government property is titled to the University.

SURPLUS PROPERTY: Equipment acquired from the State Agency for Surplus Property is recorded at the purchase price. The transportation and installation costs are considered additions to the unit price.

LEASE-PURCHASE EQUIPMENT: This is equipment being acquired through installment payments with the intent of university ownership. Its capitalized value is the purchase price of the item. The interest cost is recorded as an operating expense.

FOUND EQUIPMENT: The value of found equipment is recorded at the value estimated by the using or custodial department.

CONSTRUCTION PROVIDED EQUIPMENT: When federally funded personal property equipment is provided through a facilities construction contract, this equipment shall be separately identified, entered into the University property records system and tagged. Equipment provided through construction contracts is recorded at the values provided by the contractor and approved by the office administering the contract.

SPECIAL CONSIDERATIONS:

COMPONENTS AND ACCESSORY PURCHASES: When equipment is being built from purchased components (also see FABRICATION SECTION 5.10), the total value of the purchases is considered in determining the value of the asset in the Property Record System.  If the anticipated cost of the whole asset is $5,000 or more, obtain an A or D tag from the FSO-Property Management Office.  This tag number must be included on a text line of all purchase documents.

If the anticipated cost of the whole asset is greater than or equal to $1,000 and less than $5,000 and the equipment being built is required to be tagged (or it is desired to include the item in the Property Records System), obtain an N tag from the FSO-Property Management Office.  This tag number must be included on a text line of all purchase documents

For University-built capital equipment, use object codes 5750 and 5751 for all components purchased with a unit cost less than $5,000.  If a component cost is $5,000 or more, use an appropriate capital object code.

When ordering components, add a text line (type T in the UPO field on screen 29L for dPRs) to the purchase requisitions, stores requisitions, interdepartmental billing forms, etc. that reads "These items are components or part of tag # (the pre-assigned A or D-Tag number). "

COMPUTER SOFTWARE: Capitalize operating systems software routinely installed by the manufacturer with a computer as part of the computer. Capitalize major systems applications as determined by the Financial Services Office. Charge all personal computer application software (for example Word, Excel, PowerPoint, etc.) to operations object code 4620, Software Licenses/Royalties.

ELECTRONIC IMAGES AND DATA PURCHASES:  The purchase of satellite or other electronic media generated pictures, images, or data in any format including direct feed/link, disk, tape, or print, and regardless of its cost, is a non-capital expense.  Use an operating object code.

SALES TAX EXEMPTION: As provided in Arizona statute ARS 42-5061(B) (14) and ARS 42-5159 (b)(14), equipment  that is purchased for BASIC AND APPLIED RESEARCH IN THE SCIENCES AND ENGINEERING is, to the extent permitted by law, exempt from sales tax. Also exempt are designing, developing, or testing prototypes, processes, or new products. This exemption includes research and development of computer software that is embedded in or that is an integral part of the prototype or new product or that is required for exempt machinery or equipment to function effectively.

For purposes of this exemption, research and development does not include manufacturing quality control, routine consumer product testing, market research, sales promotions, sales service, research in social sciences or psychology, computer research that is not included in basic and applied research in the sciences and engineering, or other non-technical activities or technical services.

The exemption of sales tax does not apply to items including (1) expendable materials; (2) janitorial equipment and hand tools; (3) office equipment, furniture, and supplies; (4) tangible personal used in selling and distributing activities; (5) licensed motor vehicles, without regard to use; (6) shops, buildings, docks, depots; and (7) motors and pumps used in drip irrigation systems.

ARCHIVES, HISTORICAL MATERIALS, ART, AND OTHER SPECIAL COLLECTIONS

INTRODUCTION: - The University acquires works of art, historical materials, and similar assets that become part of the institution's Archives and Special Collections.  The Archives and Special Collections are protected, unencumbered, cared for, and preserved.  Such items reside in the Arizona State Museum, the Museum of Art, the Center for Creative Photography, the University Libraries, the Laboratory of Tree-Ring Research, and other selected campus locations. The University's Archives and Special Collections are held for public exhibition in furtherance of public service, utilized for education and/or research, and are not sold for financial gain.

DISPOSITION OF MATERIALS:

Archive and Special Collection material to be disposed, which after reasonable effort cannot be exchanged with or transferred to other scholarly institutions, may be turned over to the University of Arizona Surplus Property Office.  In certain circumstances (where title has not been conveyed to the Board of Regents), material may be returned to the donor.  Any disposition of materials with significant research or financial value will be governed by the below considerations and will adhere to professional codes of ethics and best practices unique to and shared by the library, archives, and museum professions (i.e. American Association of Museums Code of Ethics).

  1. Materials must be free of all legal impediments.  No such materials will be disposed when this action is contrary to any written agreement between the College and the donor.  Reasonable attempts will be made to contact the donor when materials are considered for disposal.
  2. Reasonable attempts will be made to determine if other College collecting units have an interest in the materials.
  3. No private sale or gifts of Special Collection materials will be permitted.
  4. All proceeds from the sale of materials will be used solely to acquire other materials for the Archives and Special Collections.
  5. The method of disposition will be decided by the authorized institutional staff according to the policies and procedures of the unit in conjunction with the appropriate administrative unit of the University.

OTHER: - Property Management-FSO does not inventory museum and special collections. The inventory and control of museum and special collections are the responsibility of the museum, library, or department where the items are housed.  Museum and Special Collection purchases are charged to operating expenses in the year in which they are acquired and are not recorded on the University's Statement of Net Assets (aka the balance sheet).