34.6 Capitalization and Reconciliation
Effective August 7, 2020, this policy has been revised. For individual changes, see the redlined version.
Building, infrastructure and land improvement projects with estimated budgeted cost of $100,000 or greater ($50,000 actual expenses for UIHC) are considered to be capital projects for accounting and asset valuation purposes. Projects with budgeted cost of less than $100,000 ($50,000 for UIHC) are expensed as the cost is incurred. Projects are ready to be capitalized when they are deemed to be substantially complete by Facilities Management Design and Construction for projects $100,000 and Capital Management for projects between $50,000 and $100,000. Substantial completion indicates that the building and/or system is ready for occupancy and/or use. The Capital Assets Management department will capitalize construction projects two times per year based on information provided by the Business Office Capital Project Accountant, Facilities Management and UIHC Capital Management.
- Buildings. The cost of buildings must include all components and additions that comprise the basic structure or function to service the building. All direct expenses necessary to put a building or structure in its intended state of operations will be capitalized, including:
- purchase or construction cost (materials, labor, direct overhead),
- professional fees (architects, engineers, commissioning, testing services, attorneys, appraisers, etc.),
- building permits,
- interest on indebtedness.
- Renovations and improvements. Building renovations must significantly increase the future economic benefits of the area being renovated and meet the $100,000 threshold ($50,000 for UIHC) in order to be capitalized. Future economic benefits are increased by extending the useful life, improving productivity, or improving the quality of service. Expenditures not meeting these criteria should be expensed. Costs associated with repetitive or ongoing building repairs, maintenance and refurbishment, such as painting, wallpapering, wall repair, floor coverings, or other preventative maintenance should be expensed. The valuation method, or the costs to include in the capitalization of renovations and improvements are the same as for buildings in paragraph a above.
- Fixed equipment. Building components such as lighting, electrical systems, plumbing, air conditioning, and elevators shall be considered fixed equipment rather than movable equipment. The cost of this fixed equipment will be capitalized with the cost of the building project and will include acquisition, transportation and installation charges. Fixed equipment may be componentized and depreciated separately from the original building project. Moveable equipment, artwork or any other type of asset that is not a building component should not be capitalized as a part of the building.
- Leasehold improvements. Improvements made to buildings and other structures on property that is leased to the University are capitalized if they meet standard University capitalization policies. The valuation method, or the costs to include in the capitalization of leasehold improvements are the same as for renovations and improvements to University-owned property — see paragraph b above.
- Purchased land. Land is non-expendable, real property. The capitalization of land cost shall include all of the costs incurred in preparing the land for its intended use. These include but are not limited to purchase price, appraisals fee, municipal assessment fees, environmental studies, broker's commissions, legal and recording fees, title insurance and site preparation costs (including draining, clearing, and grading).
- Construction-in-progress (CIP) review. CIP is the cost of capital projects that are under construction at a balance sheet date. CIP represents a temporary capitalization of labor, materials and equipment of a construction project. Balances shall remain in CIP until a constructed asset is capitalized at the time it is deemed to be substantially complete by Facilities Management as outlined within this section (ready to be utilized or occupied). Review of CIP balances is conducted by Capital Assets Management (CAM) department in conjunction with building capitalizations.
- Reconciliation of capital assets. Projects that have reached substantial completion will be capitalized from CIP to full capital assets by CAM. CAM will lead the effort to componentize building components as appropriate. On a monthly basis, CAM will reconcile the capital asset balances in the PeopleSoft Asset Management system with balances in the General Ledger system. Reconciliations shall be maintained and available for audit purposes.