Capital Equipment Policy

EFFECTIVE DATE: July 1, 1991 |LAST UPDATED: November 19, 2013 | Policy Section: buying-paying

Responsible Executive

Carolyn Ainslie, vice president for finance and treasurer

Responsible Office

Purchasing

Contact

Jason Knoch, executive director of financial services and strategic initiatives, (609) 258-9181

I. Policy StatementBACK TO TOP

This policy defines capital equipment and outlines related purchasing and reporting requirements. The Capital Equipment Program tags, tracks, and reports capital equipment on campus to ensure that federal acquisition, funding, and disposal regulations are met. Each department is accountable for its own capital equipment, including maintaining appropriate financial records and tracking the location and status of individual items of equipment. Accurate maintenance of property records is essential to safeguard assets, ensure financial accountability, support adequate insurance coverage, and promote efficient use of property already on hand.

II. Who is Affected by this PolicyBACK TO TOP

Faculty, staff, researchers, and students.

III. Definitions

Amortize

To extinguish the balance of a fee, loan, or other financial obligation by periodic payments to the creditor.

Betterment and improvement

A modification or addition to capital equipment that costs more than $5,000, increases the equipment’s capabilities or productivity, and extends its useful life by more than one year.

Capital Equipment

An article of nonexpendable, tangible property having a useful life of more than one year, and an acquisition cost of $5,000 or more per unit.

Capital cost

The net invoice price of the equipment plus expenditures necessary to place it into operation, including taxes, duty, transit insurance, freight, and installation.

Capitalize

To record an expenditure as the cost of an asset, where the expenditure (such as refurbishing a machine to extend its useful life) yields benefits over a period longer than one year.

Facilities and Administrative (F&A) Rate

The rate negotiated with the federal government that is charged to sponsored research awards in order to recover the allowable F&A (overhead) costs associated with conducting organized research; often referred to as (and synonymous with) the indirect cost rate.

Initial Complement of Equipment

Accounting convention that allows the capitalization of a large number of smaller items of tangible personal property that has a useful life of more than one year.

Maintenance

The regular activity needed to keep equipment in normal or expected operating condition; maintenance is not a capital cost

Repair

The reactive measure to restore normal production capacity and operation for expected service life of equipment; a repair does not extend the expected useful life or change the function of the equipment and so is not a capital cost.

IV. PolicyBACK TO TOP

CAPITAL EQUIPMENT
The University follows the Office of Management and Budget Circular A-21 definition of capital equipment as “an article of nonexpendable, tangible personal property having a useful life of more than one year and an acquisition cost of $5,000 or more per unit”.

INVENTORY
Government and generally accepted accounting principles require the University to maintain detailed inventory records. The Office of Finance and Treasury manages the capital equipment program in the Purchasing Department, which uses an asset management program to track the capital asset inventory. Departments are responsible for tagging all government- and department-owned capital equipment with bar coded tags provided by the Purchasing Department. Departments are also responsible for notifying the Purchasing Department of lost, stolen, or missing items, and of items that have been transferred to other institutions.

Every two years a physical inventory of capital equipment will be performed by the Purchasing Department to verify the accuracy of inventory records. A physical inventory is also conducted in connection with preparation of the University’s F&A rate proposal to the federal government. In advance of the physical inventory, each department should make best efforts to verify and locate all capital equipment, including that used by employees at home or off premises. Inventory records should be updated periodically to minimize errors during the physical inventory. Any variation between physical inventory and inventory records will be investigated.

ACQUISITION
All capital equipment is purchased by the Purchasing Department in compliance with standard purchasing policies and procedures. For equipment purchased from sponsored research funds, the Department Administrator and Principal Investigator (PI) are responsible for ensuring compliance with sponsor agreements. Departments are encouraged to address any questions regarding compliance to the department’s ORPA representative.

Equipment Purchases on a Sponsored Research Project within 90 days of award expiration are normally not allowable unless a justification is given by the PI, such as the following exceptional instances:

  • The purchase is necessary to complete the research.
  • The PI is expecting the project to be extended. If an extension is possible, the department must specify in writing a fund 20 P/G that would be used for the cost in the event the funding does not materialize. The department manager and chair must approve this “willingness to assume the financial risk”.

The University owns the property title to all equipment, unless specifically stated otherwise in the applicable sponsored award terms and conditions. Departments cannot authorize equipment to be transferred or sold without prior approval from both the Purchasing Department and the Property Management Officer in the Office of Research and Project Administration.

Capital equipment is “an article of nonexpendable, tangible personal property having a useful life of more than one year and an acquisition cost of $5,000 or more per unit”. The cost of additional components should be capitalized under the concept of betterment and improvements if it costs more than $5,000, increases productivity, and extends the useful life of the original equipment by more than one year. Examples include modifications, accessories, or auxiliary apparatus. Components that do not meet the individual $5,000 threshold are typically not capitalized unless they are purchased within six months of the original equipment purchase.

Capitalize the following components of acquiring capital equipment:

  • Freight - If a freight charge or similar expense for a piece of new capital equipment comes in after the initial purchase and gets coded as an operating expense, you can use an interdepartmental invoice to recode it as equipment. If it is necessary to transfer the charge from a fund 10 project grant to the project grant where the equipment was purchased, process an interdepartmental invoice to make the change.
  • Software - Operating and communication software will be capitalized when purchased with a computer. Subsequent purchases of operating and communication software will be capitalized if each item is over the $5,000 threshold, as described under the policy for betterment and improvements. Application software is only capitalized when it is included in the initial purchase price of the computer itself and not readily identifiable as a separate component of that price. In general, the cost of either purchasing or developing computer software cannot be capitalized unless it is for administrative use. Reference the software capitalization and accounting definition dated 06/03.
  • Aggregated items - The accounting convention called “initial complement of equipment” allows the capitalization of a large number of smaller items of tangible personal property which would have a useful life of more than one year. This might be applied when a portion of a building is being refurbished and some of the new furnishing items cost less than $5,000 each, but more than $5,000 in the aggregate. Do not capitalize the following:
  • Supplies, fees, and maintenance - Computer supplies, other consumable supplies, license fees, maintenance, and repairs (regardless of whether on an as-needed or contract basis) should be ordered and coded separately as operating expenses. Even when ordered as part of the original purchase order for the equipment, these may not be capitalized.
  • Furniture - Furniture items costing less than $5,000 are treated the same as any other operating expense. Items costing more than $5,000 might require a transfer between 1XXX and 8XXX project grants, if the source is to be general funds. However, when a department is buying a large quantity of furnishings all at one time, they may request authorization from the Office of Finance and Treasury to amortize the entire purchase over a number of years.
  • Fabrication Requests - ORPA must approve any fabrication requests for sponsored research awards in advance of the assembly and capitalization of the item. If approved, component parts can be purchased without incurring the Facilities and Administrative (F&A) charge, but shop labor bears the University’s F&A rate.

LOST, STOLEN, OR DAMAGED PROPERTY AND EQUIPMENT
When a determination has been made that University property or equipment has been lost or stolen, the department manager should inform Public Safety and the capital coordinator in the purchasing department as soon as possible, but no later than 48 hours after the occurrence and request an investigation.

In the event the property is related to sponsored research, the department manager and Principal Investigator (PI) should observe the following guidance when conducting an inquiry into the loss of property:

  • An inquiry shall be initiated immediately after discovery of the lost or stolen property. The inquiry shall be an informal proceeding designed to determine the facts and circumstances leading to the occurrence.
  • The department is responsible for establishing procedures and designating a person to initiate and conduct an inquiry.
  • This inquiry should identify, at minimum, background information, such as what happened, how it happened, where it happened, who was involved, and when it happened.

The PI or designee should forward a written report and a copy of the security investigation report to the capital coordinator, purchasing department, within 30 days if the property is not located within that time. Reports should contain the following information:

  • Asset tag number
  • Contract or grant number (if applicable)
  • Description of item(s) lost, damaged, destroyed
  • Indicate whether the asset needs to be replaced or repaired and cost to repair or replace the property
  • Date and time of incident, cause or origin of the loss, and damage or destruction
  • Insurance on the asset(s) if applicable
  • Actions taken to preclude future incidents
  • Pertinent facts relevant to determine liability and responsibility for replacement of the asset.
     

DISPOSAL, SALE, OR TRANSFER
Equipment purchased on funds 40 or 60 cannot be sold, discarded, or transferred without consent of ORPA. If a Principal Investigator transfers from the University to a new institution and wishes to transfer capital equipment items that were purchased with funds from a sponsored project or program, the Department must contact ORPA to initiate the Procedure for Transferring Capital Equipment from Princeton . The Purchasing Department will assist in establishing the fair market value of any items for which charges will be imposed by the new institution.

For capital equipment items purchased on fund 20 or 80 accounts, the Department must contact the Purchasing Department to coordinate the disposal, sale, or transfer of those items. All sales of equipment must be coordinated through the Purchasing Department's Surplus Program.

ACCOUNTING
Capital equipment may be purchased directly against appropriate project grants in funds 20, 40, 60, and 80. Capital equipment purchases against funds 40 and 60 project grants require ORPA approval. Equipment may not be purchased against fund 10 project grants; see section below under Fund 80 for further guidance.

Government sponsored accounts -  Sponsors have various requirements for equipment purchases. All purchase requisitions or IIs on 4XXX or 6XXX project grants must be checked by the Department Administrator against the sponsored awards terms and conditions for allowability and restrictions. It is also the Department’s responsibility to make sure that acquisitions of general purpose equipment (such as a desktop or laptop computer) be documented as to its specific project purpose. Departments are encouraged to address questions regarding compliance with terms and conditions to the department’s ORPA representative. For details, please see the Direct and Indirect Costs on Federally Funded Sponsored Projects & Programs Policy.

Fund 80 project grants - The Capital Finance Office enters these budgets at the beginning of the year, roughly at the same time the operating budget is set. Research equipment cannot be charged to 8XXX accounts. It must be purchased with departmentally restricted or sponsored funds, or allocations made from the Science Fund.

There are circumstances when a department can convert funds from fund 10 to fund 80. For example, if a department had been intending to buy an item from its operating account but the unit price ended up above the $5,000 threshold, such a conversion would be appropriate. Similarly, if a request for funds from the equipment reserve were denied, a department might wish to request the Budget Office to convert operating funds. Contact the Budget Office for more information.

Amortizing equipment over $5,000 - Equipment that is generally amortized, charged to 81XX accounts, and subsequently recovered over time from departmental operating budgets includes the following:

  • Servers or other specialized computing equipment Computing and similar electronic office equipment
  • Vehicles required for departmental operations
  • Equipment used by central University service departments that recover their costs through rates charged to other departments
  • Major equipment purchases designated to reduce staff needs or expenses in the department’s regular budget, such as labor saving equipment or items currently being obtained under a lease

Such items should not be proposed as candidates for funding from the Equipment Reserve (8XXX accounts).

SURPLUS EQUIPMENT PURCHASED WITH GRANT FUNDS
Before equipment that was purchased with government or private sponsored funds can be submitted to the Surplus Program, the Office of Research and Project Administration (ORPA) will confirm if the University has title and if any special conditions apply to the disposal or sale of the equipment.

Federally Funded Grants: ORPA will submit a final property report to the federal sponsor. If they do not respond within three months, the University has title to the items.

Privately Funded Grants: The sponsor is required to notify the University that they want to maintain or acquire title to the equipment. If no response is received within 12 months of a written request, the equipment becomes property of the University.

V. Procedures BACK TO TOP

VI. Forms BACK TO TOP

VII. Contact Roles and Responsibilities BACK TO TOP

VIII. Update Log BACK TO TOP

10/28/13

Added clarification regarding notifications in the event of lost, stolen, or damaged property.

3/22/13

Changed required physical inventory to once every two years (formerly once every three years).

11/28/12

Targeted updates to sections “Acquisition” and “Accounting: Government Sponsored Research” to clarify PI and Department responsibility for compliance with sponsored research terms. Vouchers are no longer circulated to ORPA, but ORPA is available for consultation.

3/7/12

New procedure "Transferring Equipment from the University" replaces old procedure "Procedures when Professors/Researchers leave the University and want to take equipment with them"; deleted VALUATION OF EQUIPMENT FOR DEPARTING FACULTY section and incorporated into new procedure.

2/25/11

No change to policy or substance; revised organization and language for web-based policy library.

7/1/91

Approved


 

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