June 19, 2012
June 19, 2012
Costing and Analysis
Only annual depreciation for nonfederal capital equipment purchases can be included in the calculation of the service center rates. Capturing equipment replacement and maintenance costs in the rates allows the department or unit to build an amount for equipment replacement and maintenance. For complete policies regarding the treatment of equipment see the Handbook of Business Procedures, part 16. Inventory Control and Property Management.
Service centers must transfer equipment replacement and maintenance amounts to the service center’s 96-subaccount.
B. Capitalization Threshold
Effective Sept. 1, 2001, the equipment capitalization threshold was raised from $1,500 to $5,000. Any equipment received on or after Sept. 1, 2001, costing less than $5,000 must be expensed in the year of acquisition. Service center assets received prior to Sept. 1, 2001, with an acquisition cost between $1,500 and $5,000, may continue to be included in service center rates as depreciation until the asset has been fully depreciated.
C. Donated Equipment
Donated equipment is considered to be the financial equivalent of a cash donation that is subsequently used to purchase equipment. When a service center receives an equipment donation, the equipment may be depreciated as a direct cost of the service center. The inventory value of the donated equipment is an appraised or fair market value as provided by the donor.
D. Fabricated Equipment
Equipment fabricated specifically for use in the service center costing $5,000 or more is added to the university inventory system and can be depreciated.
- The service center provides Inventory Services with the description and documentation of costs when a capital equipment item has been fabricated.
- The costs to fabricate the equipment must be $5,000 or more and only include material costs and exclude university labor and fringe benefit costs.
E. Equipment Leases
When equipment used in service operations is leased:
- Operating lease costs may be included in the rates.
- For capital leases depreciation may be included in the rates.
- Interest associated with purchase of such assets (e.g., interest component of a capital lease) is allowable if interest is paid to an outside third party.
F. Equipment Depreciation
Depreciation for equipment can be included in service rates.
- Applicable to equipment purchased with nonfederal funds.
- If equipment is purchased with federal funds or used for cost sharing on federal awards, its depreciation cannot be included in the rate calculations.
- Only straight-line depreciation may be used (acquisition cost of the equipment
divided by its useful life).
To calculate straight-line depreciation:
acquisition cost of the equipment = straight-line depreciation useful life
- Acquisition cost includes equipment cost plus applicable taxes, freight, and installation costs to place the asset into intended use.
- Include the depreciation expense as a direct cost in the rate development. Depreciation must be charged in the fiscal year (and month) of acquisition.
- The depreciation schedule must include the equipment name, inventory number, element number, classification code, account used to purchase equipment, purchase date, and useful life.
- The depreciation schedule is validated using the NV1 command in *DEFINE.
- When billing users, split the income earned between the 95- and 96- subaccounts, based on the approved depreciation amount for equipment replacement and maintenance.
G. Equipment Purchased with General or Departmental Operating Funds
Equipment used by the service center, which is purchased with general or departmental operating (nonfederal) funds, can be depreciated in service rates. The department can be reimbursed for the cost of this equipment if:
- Prior approval is received by C&A.
- Adequate documentation is developed, maintained, and retained by the service center to verify the equipment's original purchase cost, depreciation amounts recovered, etc.
- Under no circumstances can the nonservice accounts that gave money to or invested in the service center be reimbursed for more than the dollar amount given to the service center.
H. Sale of Equipment
When equipment originally purchased with service center funds is sold, all the proceeds from the sale and any gain or loss is recorded in the service center’s equipment reserve account. Refer to the policies regarding the sale of equipment for equipment utilized in a service center and purchased with nonservice center funds.