UAMS ADMINISTRATIVE GUIDE

NUMBER: 8.5.01
DATE: 10/01/94
REVISION: 12/16/03

PURPOSE

The purpose of this policy is to notify departments within the University of Arkansas for Medical Sciences (UAMS) of the procedures which the Controller’s Office will follow in classifying capital assets.  The procedures comply with State, Federal and Industry accounting guidelines.

PROCEDURE

1. Equipment and Furniture:  All movable equipment and furniture costing $2,500 or more and having a useful life of two or more years will be capitalized in the year of acquisition.  Costs include taxes (including use tax), freight, and setup costs.  Setup costs include those necessary for the testing, installation, or preparation for operation or use.  Equipment and furniture will be tagged as soon as possible after receipt from the vendor by Property Management.
    
2. Equipment and Furniture Purchased During a Major Construction or Renovation Project.:  Third party, outside equipment and furniture purchases are expected to occur infrequently on construction or renovation projects; however, when they do occur, the end user departments or project managers in Campus Operations will work with the Controller’s Office, Purchasing Department, and Property Services to specifically identify these purchases.
    
3. Equipment and Furniture Manufactured by Physical Plant:  Completed work orders which meet the capitalization criteria, defined in Procedure 1 above, will be forwarded to the Controller’s Office by Physical Plant personnel.  Monthly billings will also be provided to the Controller’s Office by Campus Operations.   The Controller’s Office will coordinate with Property Services to assure internally created assets are properly tagged and recorded
    
4. Computer Equipment/Software:  If personal computer software costs are inclusive with the hardware, the software cost will be included as equipment.  The criteria in Procedure 1 above will be followed for this equipment.  Purchases of major software systems developed or obtained for internal use will be capitalized when the total allowable expenditures are equal to or greater than $1,000,000.   Allowable expenditures include taxes, delivery and other costs directly attributable to the implementation of the system.

5.      Enhancements:  Enhancements are internal and external additions to capital assets that extend their life or increase their productivity, and have a cost of $2,500 or more.  An enhancement is coded as a capital asset on the purchase order in the same manner as original capital asset purchases.

6. Donated Equipment:  All equipment acquired through donation, value-added incentives, or exchanges for rebates will be capitalized at fair market value on the date of the transaction if the fair market value is $2,500 or more.  If the equipment is new and an invoice can be furnished by the donor, the cost will be the fair market value.  If the equipment is used or no information is available as to the cost of new equipment on date of acquisition, an appraisal will be made to establish the amount to capitalize.  Donated equipment includes that brought to the institution by a researcher with an ongoing grant.  Upon establishment of a fair market value, the equipment will be tagged and entered by Property Services to the Equipment Inventory Master File.
    
7. Property Acquired By Trade-In:  Property acquired through a trade in of existing UAMS equipment will be capitalized by using the invoice amount if it meets the definition in Procedure 1 above.
    
8. Federal Surplus Property:  Federal Surplus Property will be capitalized at fair market value, as determined by Property Services, if the fair market value if $2,500 or more.
    
9. Land:  Land will be capitalized at cost.  This includes assessments, taxes, fees, and commissions to obtain the land.  In addition, conveyances, notary fees, costs of demolishing old buildings, grading or otherwise clearing the land will be included.
    
10. Buildings:  The capitalization threshold for buildings is $50,000.  Building costs at or above this amount will be capitalized, to include all payments to contractors, taxes and building permits, architect fees, and interest expense net of investment income on borrowed funds during construction.  Also included will be all permanent fixtures and appliances installed as part of the building.
     
11. Improvements to Buildings:  Expenditures of $50,000 or more that increase the capacity or operating efficiency of a building will be capitalized.  This includes major improvements which add substantially to the value of a building or extends its useful life.
     
12. Work in Progress:  All construction projects will be capitalized as Work in Progress.  At the completion date, the amount for that Work in Progress project will be moved to the appropriate building asset.
     
13. Leasehold Improvements:  Improvements to leased property which adds substantially to its value or extends its useful life may be capitalized.  A determination will be made at the beginning of the project if the improvements should be capitalized.

                     UAMS ADMINISTRATIVE GUIDE                               _

 NUMBER:        8.5.01                                                                          DATE:  10/01/94

14. Capital Leases:  A lease will be capitalized if it meets at least one the four criteria below and meets the state capitalization thresholds ($2,500 FMV for equipment and $1,000,000 FMV for software leases).
    1. Ownership of property is transferred to the lessee by the end of the lease term.
    2. The lease contains a bargain purchase option.
    3. The lease term, at inception, is substantially (75% or more) equal to the estimated economic life of the leased property, including earlier years of use.  This criterion can’t be used for a lease that begins with the last 25% of the original life of the leased property.
    4. The present value of the minimum lease payments at the beginning of the lease term, excluding executor cost, is 90% or more of the fair market value of the property at the inception of the lease.

PURPOSE

The purpose of this policy is to notify departments within the University of Arkansas for Medical Sciences (UAMS) of the procedures which the Controller’s Office will follow in classifying capital assets. The procedures comply with State, Federal and Industry accounting guidelines.

PROCEDURE

1. Equipment and Furniture: All movable equipment and furniture costing $500 or more and having a useful life of two or more years will be capitalized in the year of acquisition. Costs include: taxes (including use tax), freight, and setup costs. Setup includes those costs necessary for the testing, installation, or preparation for operation or use. Equipment and furniture will be tagged as soon as possible after receipt from the vendor by Property Management.
2. Equipment and Furniture Acquired As Part of a Construction Project or Manufactured By Physical Plant Operations:

The same cost basis and useful life as Procedure 1 above will be in effect:

1. Equipment and Furniture Purchased During a Major Construction or Renovation Project: Third party, outside equipment and furniture purchases are expected to occur infrequently on construction or renovation projects; however when they do occur, the end user departments working with the Controller’s Office and the Purchasing Department of Material Management will specifically identify purchases expected to be acquired from third party vendors and subcontractors.

The project managers in Campus Operations will assist in coordinating identification, as well as on subsequent change orders. The Controller’s Office will inform the Property Management Department of Material Management.

2. Equipment and Furniture Manufactured By Physical Plant: Completed work orders which meet the capitalization criteria, defined in Procedure 1 above, will be forwarded to the Controller’s Office by appropriate Physical Plant personnel. Monthly billings will also be provided to the Controller’s Office by Campus Operations. The Controller’s Office will inform the Property Management Department of Materiel Management.

3. Computer Equipment/Software: If personal computer software costs are inclusive with the hardware, the software cost will be included as equipment. The criteria in Procedure 1 above will be followed for equipment. Purchases of major software systems costing $10,000 or more will be capitalized in total provided the license does not specify that the software be returned or destroyed at the end of the contract. Otherwise, computer software will not be capitalized.

The computer equipment and/or software systems meeting the capitalization criteria above, in Procedure 1 and Procedure 3, will include computer hardware, software, taxes and other costs directly attributable to the implementation of the system(s).

Enhancements are internal and external additions to capital assets equipment that extend the life or increase its productivity and have a cost of $250 or more. Enhancements will be coded capital on the purchase order in the same manner as capital assets.

4. Donated Equipment: All equipment acquired through donation, value-added incentives, or exchanges for rebates will be capitalized at fair market on the date of the transaction. If the equipment is new and an invoice can be furnished by the donor, the cost would be the fair market value. If the equipment is used or no information is available as to the cost of new equipment on date of acquisition, an appraisal will be needed to establish the amount to capitalize. Donated equipment includes that brought to the institution by a researcher with an ongoing grant. Upon establishment of a fair market value, the equipment will be tagged and entered by Property Management to the Equipment Inventory Master File.

According to Medicare regulations, depreciation will be allowed on donated assets, if a fair market value is established by appraisal.

5. Property Acquired By Trade-In: Property acquired through a trade in of existing UAMS equipment will be capitalized by using the invoice amount and the residual amount of the traded equipment.
6. Federal Surplus Property: Federal Surplus Property will be capitalized at fair market value. The Property Management department will be responsible for determining the fair market value of this property.
7. Land: Land will be capitalized at cost. These include assessments, taxes, fees, and commissions to be obtain the land. In addition, conveyances, notary fees, costs of demolishing old buildings, grading or otherwise clearing the land will be included.
8. Buildings: Buildings will be capitalized at cost. This will include all payments to contractors, taxes and building permits, architect fees, and interest expense net of investment income on borrowed funds during construction. Also included will be all permanent fixtures and appliances installed as part of the building.
9. Improvements to Buildings, Including Modular Furniture: Expenditures that increase the capacity or operating efficiency of an asset will be capitalized. These can be major improvements which add substantially to the value of a building or extend its useful life.

A replacement is the substitution of an asset with a similar asset which does not increase the service potential of the asset. Replacements are expensed.

Improvements to buildings, defined above, costing $2,000 or more will be added to carrying amount of the building on the inventory records.

Building Improvements Which Are to Be Removed During Remodeling, Renovation and Rehabilitation: The old cost should be removed from the asset records if the original costs can be specifically identified.

Improvements To Building Constructed By the Physical Plant’s Carpentry Shop: It will be the responsibility of the Physical Plant to notify the Controller’s Office. Total completed work orders which meet the capitalization criteria defined above, will be forwarded to Controller’s Office by appropriate Physical plant personnel. Monthly billings will also be provided to the Controller’s Office by Campus Operations.

10. Work in Progress: All construction projects not complete at the end of the fiscal year will be capitalized as Work in Progress. At the end of the fiscal year of completion, the amount for that Work in Progress project will be moved to the appropriate building asset.
11. Leasehold Improvements: Improvements to leased property which had substantially to its value or extend it useful life may be capitalized. A determination will be made at the beginning of the project if the improvements should be capitalized.
12. Capital Leases: Property acquired through a capital lease will be capitalized at the time of the inception of the lease.
13. Indirect costs associated with the project may be capitalized when full costs can be determined inclusive of overhead.
14. Library Books: Library books should be valued at cost or some other reasonable basis. UAMS adopts this policy.
15. Disposal of Equipment: When equipment is no longer usable or needed by UAMS, it should be disposed of in accordance with established campus and state guidelines. Disposal of equipment includes sale as surplus property, return to a vendor, cannibalization, trade-in, theft or transfer.
16. Equipment Purchased With Federal Funds: Title to equipment which is purchased with Restricted Funds (2XX Funds) is with the State. Equipment which was purchased with grant funds from other than a state grant may be transferred, with administrative approval, if the researcher leaves UAMS while the equipment is in use for an active grant for research purposes. Grant purchased equipment brought to UAMS from another institution will be capitalized at original cost.
17. Equipment To Be Located Off Campus: No equipment may be stored or used off campus without proper administrative approval. Equipment may not be at an employee’s residence unless it provides an extension of the employee’s work-related responsibilities.