Equipment Capitalization

Introduction 

The University has established an equipment capitalization policy in order to identify those items goods which will be treated as an expense in the University’s financial statements, and those items treated as an asset and depreciated over their useful lives.  This policy exists to satisfy generally accepted accounting principles (GAAP), and the Federal Cost Principles for Educational Institutions (OMB Circular A-21), used  in the management of federal grants and costs awarded to the University.

Policy Statement 

This policy is used to define the accounting treatment for capital equipment in the University’s financial statements.  It also serves as the threshold for equipment and equipment inventory requirements of OMB Circulars A-21 and A-110, as well as for the application of the University’s Facilities & Administrative (F&A) rate on federal grants and contracts.

Definitions 

Capital equipment: furnishings and equipment purchased or donated with a unit cost of $5,000 or more, and a useful life of greater than one year.  

Equipment fabrication or the aggregate of component parts are also subject to this threshold for purpose of equipment capitalization.

Responsibilities 

This policy applies to all university faculty and staff in the proper recording of items purchased or received by University, Government and Private Sponsor funds.  Originating departments are responsible for the proper coding of equipment purchases.  The Office of Sponsored Projects maintains an inventory of all items identified as capital equipment.  The Controller’s Office is responsible for managing compliance with the definition above.

Procedures 

Acquisition:

The proper equipment designation must be made at the procurement requisition stage, by the originating department.  The use of the proper spend category in the Workday system will capture this information.  Upon receipt of the item(s), capitalized equipment needs to be identified in the University’s equipment inventory, and must include the physical location (building, room) in which the equipment is located.

Depreciation:

For Financial Statement purposes, all depreciation and amortization calculations will use the "straight line" method unless specific approval for alternate method is granted by the Controller’s Office.  Depreciation for an item purchased during the fiscal year, will be recorded as if the asset had been in service for an entire year (full-year convention). In the event of a disposal of an asset, depreciation on that asset will be recorded for the fiscal year of the asset's disposal as if the asset were in service for the entire fiscal year. The calculation of any gain or loss on disposal will include the effect of the depreciation for the year of disposal.

Frequently Asked Questions

A faculty member in my department is constructing a piece of equipment that will ultimately have a cost of greater than $5,000.  While the individual pieces are less than that amount, should this be considered capital equipment?

Yes, if an individual item is a component of a larger item, which is not functional until completed, the item is considered capital equipment if total exceeds $5,000.

We are purchasing office furniture which consists of 6 desk chairs at a unit cost of $500/each, and a conference table at a cost of $3,000.  The total cost is $6,000.  Is this capital equipment under the policy?

No, since the individual units are less than $5,000, and can be used independently (not a component of a larger item), this purchase would all be classified as supplies.

Policy Owner
Approved by 
Assistant Vice President and University Controller
Contact(s) 

Donald Schanck
Assistant Vice Presidence and Univeristy Controller
Donald_Schanck@brown.edu

Charlene Sweeney
Associate Controller & Director of Accounting
Charlene_Sweeney@brown.edu 

Revision Date:  Thu, 2014-04-03 14:00