PCS 102: Equipment Acquisitions
To outline the accounting classifications of equipment acquisitions
All university agency/orgs
When acquiring equipment, correct object/sub-object codes are essential for determining capital vs. noncapital equipment. (For a list of capital equipment codes, see the Financial Services, Financial References Web page.) Correct commodity codes are also important to the timeliness and accuracy of reporting equipment in the Property Control database (see the Financial Services, Financial References Web page for the complete “Expenditure Codes”).
Property Control records the item in the Property Control database at cost (net of any discounts and inclusive of freight, taxes, and installation), tags the item with a unique ASU identification number, and performs a physical inventory of the item once every two years or, in the case of equipment purchased with sponsored funds, as required by the sponsoring agency.
The cost of computers includes the tower, human interface devices, and operating system, and is capitalized if the sum of these components equals $5,000 or more.
Equipment Acquisitions and Fabrications Exempt from Sales Tax
Equipment having a life expectancy of one year or more and a unit cost of $5,000 or more 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 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 do not include manufacturing quality control, routine consumer product testing, market research, sales promotion, sales service, research in social sciences or psychology, computer software research that is not included in basic and applied research in the sciences and engineering, or other nontechnical activities or technical services.
The exemption of sales tax does not apply to equipment with a life expectancy of less than one year or project cost of less than $5,000. Fabricated equipment acquired at less than $5,000 is capitalized as long as the completed fabrication will be at least $5,000.
All software is expensed except for major system purchases ($5,000,000 or more per package). These purchases are capitalized as determined by Property Control. Inventory control of all other software is left to the discretion of the department having custody.
Books acquired for use in official university libraries are capitalized at cost or fair market value (depending on whether purchased or donated). Property Control does not inventory books. Inventory and control are the responsibility of the individual library.
Non-library books, films, and related materials are coded as materials and supplies purchases.
Art Objects, Displays, and Museum Acquisitions
University-owned art objects, displays, and museum acquisitions are capitalized at cost or fair market value (depending on whether they are purchased or donated) and have a life expectancy of one year or more and a unit cost of $5,000 or more.
Sales/Use Tax, Freight, and Installation Costs
Sales/use tax, freight, and installation costs associated with any capital coded purchase are capitalized and considered as part of the value of the equipment when charged on the same purchase order as the equipment. However, these costs do not determine whether an item is coded as capital or noncapital equipment. If sales tax, freight, and/or installation costs are charged on a different purchase order and cannot be identified to a particular asset, they are transferred to a noncapital object code.
Agency Fund Accounts
For agency fund agency/orgs (agency/orgs with 7 as the third digit of the area field), no property purchases may be coded as capital purchases (object/sub-object codes starting with 7810).
Equipment purchases made from agency fund accounts are not considered ASU assets and therefore should not be coded as capital and should not be tagged with ASU Property Control numbers (PCNs).
Expenditures Relating to Capital Equipment
Maintenance and Repairs
Expenditures for maintenance are those required to maintain equipment in good working condition. Repairs are those expenditures required to bring equipment back into good working condition. Neither expenditure extends the intended useful life or changes the intended purpose of the asset. Therefore, costs incurred for maintenance and repairs are not capitalized. Floor and wall covering replacements (e.g., carpet, floor tile, and wallpaper) are considered maintenance and repairs, except when done in conjunction with a remodeling project.
Betterments are capitalized if they meet the minimum requirements for capitalization as defined in PCS 004. Alterations made solely for cosmetic purposes are not capitalized.
Replacement parts generally do not increase the value and/or intended useful life of an asset. Therefore, replacement parts are generally not capitalized. However, if a significant increase in value or useful life is provided through a replacement part, the guidelines for betterments are to be followed.
Sale of Capital Equipment between Departments
If capital equipment is sold between departments, sale price is negotiated between departments. All records of the sale/transfer remain on file, and the custodial responsibility is changed to reflect the new department upon notification.
A financial transaction should be performed on an Expense Transfer (IX) or Journal Voucher (J1) and should debit the receiving department and credit the relinquishing department’s agency/org for the selling price using the appropriate capital object code in both the credit and debit entry. The ASU property control number of the asset should be entered in the description field of the IX or J1, thus assisting Property Control with the custodial change.
For equipment purchased on a lease/purchase basis, separation is made between the cost of equipment and interest. The equipment cost is classified according to the criteria above; interest is charged to an operations object/sub-object code.
Differences between Estimated and Final Costs
Coding criteria for equipment purchases are initially based on estimated cost at time of requisitioning coding. In some cases, final costs differ from estimated costs so that the equipment purchase is not correctly coded. In these situations, Property Control adjusts the coding (e.g., equipment purchase estimated to cost at least $5,000 but having a final cost of less than $5,000, or vice versa).
For information on the use of capital object codes, see the Financial Services, Financial References Web page.
For information on sales tax exemptions, see the Financial Services Policies and Procedures Manual—FIN 120, “Sales Tax Exemption for Certain University Purchases.”
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