To establish a financial accounting capitalization policy for land, land improvements, buildings and equipment.
This policy applies only to land, land improvements, buildings and equipment used in the operations of the College. Capitalized assets include the following:
· Cost to be capitalized includes all costs connected with acquisition and incurred to prepare the land for its intended purpose. These costs include but are not limited to purchase price, real estate commissions, legal fees, escrow fees, title investigations, title insurance, surveying, clearing, draining and filling land.
· If existing buildings on the land will be utilized, a portion of the cost should be allocated to land and a portion to buildings. The fair market value of the land should be recorded, and the value assigned to the building will be the difference between total cost and the amount capitalized as land.
· If buildings are razed to prepare the land for its intended purpose, the cost of razing the buildings should be capitalized as land.
· Cost to be capitalized includes the cost of landscaping, utility systems, paving of parking lots and outdoor public recreation fields with a cost greater than $10,000. All land improvement costs associated with newly constructed buildings will be capitalized.
· New construction.
o The cost to be capitalized includes but is not limited to the cost of professional services, materials, labor and site preparation.
o Infrastructure costs such as steam lines, utility improvements, sidewalks and parking lots are capitalized.
o If external debt is used to finance the building, net interest expense incurred during the construction period should be capitalized.
o Construction projects are considered construction in progress until they are at least 90% complete or the construction has been certified as substantially complete. The project is then removed from construction in progress and capitalized as buildings or other.
· Building Renovations
o Building improvements should be capitalized if they are significant alterations or structural changes that a) cost greater than $25,000 and b) meet one or more of the following conditions:
§ Extends the useful life of the building beyond what was originally scheduled.
§ Changes the use or purpose of the original space.
§ Expands the total square footage of the building.
o The cost of any work required on the existing building such as removing walls should also be capitalized as part of the renovation cost.
o Building Demolition – The book value of the building will be written off when a building is demolished. If the land is maintained, the cost of razing the building will be added to the value of the land.
o Site Work – Capitalize the cost of roads, walks, curbs and related materials in substantially undeveloped parts of campus. If the work is part of a new building construction, the cost should be capitalized.
o Utilities – Capitalize the cost of utilities if they are being extended to undeveloped parts of campus or new buildings. Alterations to existing utilities to accommodate a new building should also be capitalized.
o Improvements and Replacements – Capitalize the cost of improvements and replacements if they meet at least one of the following criteria:
§ The useful life of the asset is extended.
§ The quantity of services provided by the asset is increased.
§ The quality of services provided by the asset is enhanced.
An improvement is the substitution of an asset currently in use with a better asset. (An old air conditioning system is replaced by a more powerful and sophisticated air conditioning system).
A replacement is the substitution of an existing asset with a similar asset. (An old air conditioning system is replaced by a new air conditioning system with essentially the same characteristics).
o The cost should be capitalized if all the following criteria are met:
§ The item cost is at least $5,000.
§ The useful life of the item is at least ten years.
§ The item(s) were financed with a capital lease
o Vehicles – Capitalize all associated cost incurred in connection with the purchase of the vehicle. If a vehicle is purchased in connection with the trade of one or more vehicles, the book basis of the new vehicle will be adjusted in accordance with GAAP.
o Group Purchases/Like Kind Items - Occasionally the College will capitalize a group purchase of similar items, which individually are less than the capitalization amount. Generally these are in the form of furniture or office work stations costing less than $5,000 per unit. These items are capitalized as a group and accounted for as such in the property records.
Repairs and Maintenance:
· These costs should be expensed if they do not provide future benefits. Examples include lubrication of machinery, cleaning of buildings and machinery, replacement of minor parts and painting.
· Each lease should be reviewed to determine whether it should be expensed or capitalized.
· Land, buildings and equipment received as a gift will be capitalized at the fair market or appraised value at the time of the gift.
· The cost of software, whether purchased from an external source or developed internally, is expensed.
Cost of Issuance:
· The cost of issuance in connection with the encumbrance of debt by the College will include all costs associated with the debt. These costs will be amortized via the straight line method over the life of the loan or bond issue.
Sales of Disposals of Capitalized Assets:
· The book value of land, land improvements, buildings and equipment will be removed from the general ledger when disposed of or sold.
· The following lives and depreciation methods will be used by the College
o Land Improvements – 20 years, straight line depreciation
o Buildings – 40 years, straight line depreciation
o Equipment –10 years, straight line depreciation
§ Vehicles – 5 years, straight line depreciation
§ Capital leased equipment – over the term of the lease
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