Following are procedures for the purchase of property, plant & equipment (PPE) as a capital project. The cost of the capital project is equal to or greater than $25,000.  The procedure requires accounting for capital projects by a project stage or timeline framework and PPE assets are accounted for at a component level. Costs incurred for capital projects are classified into four stages: preliminary, pre-acquisition, acquisition-or-construction, and in-service. It is important to note that only costs directly identified with the project may be capitalized. The following table defines project stages and the capitalization requirements associated with each stage:

(1) In assessing probability, the division/program should consider whether all three of the following considerations exist.  (a) The Board has formally authorized and committed to funding the acquisition or construction of a specific capital asset (b) the financial resources are available, consistent with such authorization and (c) the ability exists to meet the requisite local and other governmental regulations.

(2)  Construction projects for identifiable assets should be charged to a specific account key, set up exclusively for receiving costs pertaining to this asset.  The property designation should be pre-fixed with ‘CIP’.

(3)  Asset is in the active construction stage and is not yet completed or ready to be placed in service.

(4) Guidelines for the acquisition of purchased equipment meeting the definition of a Fixed Asset may be found here.

(5) Normal, recurring, or periodic repairs and maintenance related to the PPE in this stage are to be expensed as incurred, unless incurred for acquisition of additional components.  Add-on components, when meeting the pre-designated guidelines, are capitalized.  See the add-on decision tree.

(6)  In this context, an upgrade refers to the replacement of a major building component that is at the end of its useful life.  Many times improvements and replacements result from the modernization or rehabilitation of an older building.  The challenge is in differentiating these types of expenditures from normal repairs.  Does the expenditure increase the future service potential of the asset, or does it merely maintain the existing level of service?  If it is determined that the expenditure increases the future service potential of the asset, it should be capitalized. When an upgrade (e.g., roof replacement) needs to be performed, additional steps must be taken to ensure the validity of capitalization. To determine legitimacy, the requesting party should refer to the Capitalization Decision Tree.

When a project requires demolition, additional steps may be required to ‘write-off’ all or a portion of the existing book value of the asset, therefore the requester should contact the Property Office for further discussion.

PPE Component Accounting

Capitalization of the project must be made on a component basis. Components are a tangible part or portion of a PPE that can be separately identified and meet the capitalization requirements described above. For example, components such as electrical, HVAC, fire systems, etc.  The useful life of each component will be determined by Physical Plant Services personnel.