General Property Accounting Procedures

Effective July 1, 2000

Introduction

All equipment acquired or controlled by the University will be subject to the General Property Accounting Procedures described below. In addition to the General Property Accounting Procedures, the Property Accounting Procedures - Government Property will apply to all Government property controlled by the University.

GENERAL PROPERTY ACCOUNTING PROCEDURES
Responsibilities

Property Accounting Responsibility

Property Accounting within Accounting Services is responsible for the accounting control, records, operations, and reporting for moveable equipment. The Plant, Auxiliary, and Agency Fund Accountant is responsible for the accounting control, records, operations, and reporting for fixed assets. The disposal of equipment acquired through the University by purchase, lease, donation, loan, etc. is controlled by the University and requires the approval of Accounting Services, Purchasing, or Sponsored Program Services (SPS).

AA in SAP

Property Accounting will record the following information in the Asset Module for moveable equipment and capitalized software:

Description	Fill in shopping card order
Model	Fill in shopping cart number
Responsible person	Location (building - room)
Serial number	Inventory number
Date of acquisition	Equipment classification
Cost	Acquisition, Title
Account Number (Fund Center)

Custodial Responsibility

The head of each department is responsible for all assets procured by, or in conjunction with, his/her department to which the University has made assignment. This responsibility includes protection against abuse, theft, movement, disposal, or unauthorized use. An inventory of capitalized moveable equipment is maintained by Property Accounting with departmental cooperation. Accurate inventory records are necessary for insurance purposes, maximum equipment utilization, and planning for replacement through historical data.

GENERAL PROPERTY ACCOUNTING PROCEDURES
Acquisition of Property

Acquisitions

Equipment may be acquired by purchase, gift, transfer from another institution, loan, or Government surplus program.

Definition of Cost

Cost is defined as the total cash amount paid for the equipment plus the trade-in value, if any, of equipment given in exchange. For simplicity purposes, trade-in value is assumed to be the book value (cost less accumulated depreciation) of equipment traded. Included in cost are all charges incurred in readying the equipment for its intended use (e.g., freight and installation charges). Discounts, if any, are excluded from cost. For donated items, cost is defined as the fair market value at the date of donation, plus costs incurred to ready the equipment for its intended use. Fabricated equipment includes the total of all supplies and expense (S&E) costs, including drawings, blueprints, component parts, materials, supplies consumed in fabrication, and installation.

Purchases

Property Accounting reviews all shopping carts related to the purchase of equipment and to ensure that capital equipment purchases are properly recorded. Purdue owned capital equipment are called assets. Non Purdue equipment is still recorded as capital but it is not an asset. Values are posted to the asset record. At that time, an inventory number is assigned and the asset is tagged. Non Purdue capital equipment is also tagged upon receipt.

Gifts

The department head is responsible for accepting gifts-in-kind on behalf of his/her department. To assist in this process, Development Services provides a checklist of questions to ask in the University Development Office Policy Manual.

All equipment obtained by gift is reported by the acquiring department on a Gift and Loan Report (President's Office Form 41B) to the Executive Vice President for Advancement. If the value exceeds $5,000 (individually or in the aggregate), and the donor is an individual, partnership, S corporation, closely held corporation, or personal service corporation, Internal Revenue Service Form 8283 (Non-cash Charitable Contributions) must be completed by the University for the donor. Development Services will arrange for processing of this form and will supply copies to the donor and to the receiving development office. This requirement does not apply if the donor is a publicly traded corporation.

The Development Office will forward the Gift and Loan Report to Property Accounting. All gifts meeting the University's capitalization criteria will be treated as such.

If the item is subsequently disposed of, a Form 9 should be completed by the department and forwarded to Property Accounting. If a tax form was attached to the original paperwork, Property Accounting will also advise Development Services. Gifts in kind held by the university less than 3 years should not be disposed by sale or exchange.

Tagging of Equipment

All tangible capital equipment will be identified as "Property of Purdue University" and will be assigned a unique inventory number. Inventory inspectors will label equipment with a barcode and number to facilitate physical inventory. Certain items will not be tagged due to their nature. Examples include (but are not limited to): certain works of art, livestock, and library books.

Equipment that cannot be tagged (exceptions noted above) will be reported by the inventory inspectors to the Property Accounting Administrator, along with an explanation. A list of any equipment not tagged within six months from the date of receipt or payment will be sent to the Comptroller for resolution of the problem. If the equipment was purchased on Sponsored Programs (funds 500-699) or other Federal funds, the Associate Director of Sponsored Program Administration will be notified and will take action to resolve the problem.

Property Accounting maintains a supply of tags without barcodes that departments may request for non-capital equipment. The tags are labeled "Property of Purdue University" and are available upon request.

GENERAL PROPERTY ACCOUNTING PROCEDURES
Disposal of Property

Disposal, Relocation, or Transfer of Equipment

All equipment purchased with University-controlled funds or received by gift is owned or controlled by Purdue University. Equipment may be disposed of or transferred only with the prior approval of Accounting Services in conjunction with Purchasing or SPS if the item was purchased with SPS-controlled funds. Development Services must be advised if donated equipment is disposed of within two years of the date of the gift and if an IRS Form 8283 was completed at the time of the gift.

A Property Accounting Form 9 is completed by the department for all University-owned equipment that is obsolete or in excess of need.

For Government-owned equipment in excess of need, an SPS Form 15 is prepared. Government approval is required before the equipment can be deleted from property records.

Availability of equipment surplus, when in good or fair conditions, must be advertised to departments within Purdue for a period no less than 15 days. Departments may dispose of equipment as follows:

Send to the University warehouse for storage, cannibalization, or sale.
Cannibalize directly.
Transfer to another University department.
Sell to an outside entity (provided Warehouse Operations has given prior approval).
Transfer to another institution. Before transferring Government-funded equipment, the University Contracting Group in SPS must be contacted. They will negotiate a transfer agreement. For all other equipment, Materials Management and Distribution must be contacted and they will make the necessary arrangements.

Transfer or Sale of Surplus Equipment

Internal sales should be handled as a transfer of accountability between departments. A Property Accounting Form 9 will be prepared by the department initiating the transfer and sent to Property Accounting for processing. Any exchange of funds should be made on a Journal Voucher using G/L account 539850, Capital Recharge or Recovery, for debit and credit entries.

If an internal customer is not identified within two weeks, the department can send a Form 9 to Property Accounting to have the equipment transferred to the warehouse for sale or scrap. A phone number and a person to contact needs to be provided on the Form 9. A copy of the memo advertising the surplus should also be attached to the form.

Transfer to Another Institution

Refer to SPS Instruction No. 16, summarized as below:

"The University will transfer without charge the ownership of equipment purchased with federal funds to another institution provided certain conditions exist. If these conditions do not exist, the University in unusual situations may still approve the transfer in exchange for special remuneration or other consideration. Single units of equipment joined together to form a system or comparable integrated unit and purchased with multiple sources of funding will require special review.

Departmental personnel should work closely with their business manager in processing the request for the transfer of equipment. If the equipment was purchased from federal contract or grant funds (either at Purdue or another institution) then University Contracting Group in SPS should be contacted. The University Contracting Group will be responsible for negotiating a Transfer Agreement with the institution to which the equipment will be shipped. If the recipient institution will be charged for the equipment, the University Contracting Group will be responsible for negotiating the charge, after reaching agreement with the local department on a reasonable selling or rental price.

The equipment should not be physically transferred until the Transfer Agreement has been finalized. The packing and loading of the equipment shall take place under the direction of the business manager. When the transfer is completed, Property Accounting should be appropriately notified via Form 9, so that the University property records may be adjusted.

Equipment purchased with University funds, other than SPS funds, or items donated to the University cannot be released unless a Transfer Agreement has been negotiated between Materials Management and Distribution and the receiving institution. Copies of all Transfer Agreements are to be sent to Property Accounting. Development Services should be advised when donated items are to be transferred."

Direct Outside Sales

Warehouse Operations is the only University department approved to sell property to the general public. A department may sell directly to an outside entity only after receiving approval by the manager of Warehouse Operations. Approval of the sale must be indicated on the Form 9 sent to Property Accounting.

Stolen Equipment

All stolen equipment should be reported immediately to the Purdue University Police Department upon discovery of the theft. Local police should be contacted for thefts occurring off campus. A Property Accounting Form ECS is then initiated by the department to update inventory records and sent to Property Accounting. The equipment will be identified as having been stolen and will be removed from the inventory file.

Donations to Nonprofit Organizations

Periodically equipment may be identified which is sufficiently old or obsolete that it has virtually no value to the University. Such items, though possibly operable, may be essentially unsellable. When the priority options of transferring the equipment to other campus locations and the possibility of sale to an outside entity have been exhausted, department heads may be authorized by the Comptroller to donate the equipment to nonprofit organizations. The University does not provide warranties to the recipient organization for the donated equipment nor pay for shipping or installation costs. Requests should be made in writing and should include:

a statement that the equipment is in excess of the University needs and the basis for that determination
a statement that there is no possibility of sale to an outside entity and the basis for that determination
the name and nature (if not obvious) of the proposed receiving organization
an indication of how or why that organization was selected
confirmation of unrestricted ownership by the department or by Sponsored Program Services if the original source of funds was a grant or contract
a completed Property Accounting Form 9

The Comptroller is authorized to approve requests for equipment donations that meet the above criteria.

GENERAL PROPERTY ACCOUNTING PROCEDURES
Miscellaneous Property Procedures

Insurance

All equipment taken off campus for University business is insured within the continental United States (including Canada and Puerto Rico). A $1,000.00 deductible per occurrence applies for theft and vandalism. Equipment taken outside the continental U.S. is not covered by University insurance and should be insured through the Risk Management Office. The Request for Use of University Property Off Campus (Form 12) must be completed and on file in Property Accounting for coverage to be effective.

Use of Equipment for Non-University Business

Under circumstances described in Business Office Memorandum No. 88 dated 20 April 1964, University equipment may be temporarily removed from campus or used on campus for non-university purposes. The following procedure must be used.

A memo from the department head requesting the preparation of a rental agreement should be forwarded to the University Contracting Group. The request should include the following information:

who is requesting use of equipment;
itemized description of the equipment, including manufacturer, inventory number and cost;
date the use will take place;
duration of use;
location of use (on or off campus);
labor cost if University employees operate the equipment;
utility requirements; and
suggested rental fee.

The University Contracting Group will review each request, make necessary revisions, establish a rental rate (in conjunction with the University Costing Office), and prepare a rental agreement. The agreement will then be forwarded to the prospective user for signature. Usage may begin only after the rental agreement has been fully executed.

The appropriate business manager will maintain all necessary use and location records. He/she will submit a billing through Centralized Accounts Receivable for collection of the rental fee. The credit for equipment rental fees will accrue to the University general funds. The Unrestricted and Restricted Funds Accountant in Accounting Services should be contacted regarding this transaction, if departments have questions.

GENERAL PROPERTY ACCOUNTING PROCEDURES
Physical Inventory

Physical Inventory of Equipment

The Property Accounting team will complete a physical inventory of all campuses, farms, agricultural centers, and statewide technology sites every two years. Exceptions to this include libraries and livestock. This two-year period is called an inventory cycle. Any individual department will be inventoried only once during a cycle. The inventory will consist of the following chronological steps:

The department will be notified via letter of the following information:
- building to be inventoried;
- date inventory will begin; and
- person in charge of inventory.
The department will respond to Property Accounting by providing the name of a person within the department who can provide access/keys to all areas.
Property Accounting personnel will then conduct a physical inventory.
Property Accounting personnel will return to the department and try to locate items missed during the inventory.
Property Accounting will send the department a computerized listing attached to a Form 9 of equipment not located during the inventory. The department is responsible for locating the missing equipment and notifying Property Accounting of its location using the computerized listing.
Equipment not located will be removed from the Property Accounting listing upon receipt of a valid explanation. The department will send the listing with all the necessary changes, attached to the signed Form 9, to Property Accounting so the inventory can be completed.

Miscellaneous Inventories

The inventory of books in the libraries is maintained by the library staff. An annual report of the inventory. Livestock inventories are maintained by the School of Agriculture. Livestock inventories are reported annually as of June 30 to Accounting Services for inclusion in the annual financial report.

GENERAL PROPERTY ACCOUNTING PROCEDURES
Property Classes

A summary of property classes follows:

Property Class Threshold Useful Life Comments

Moveable Equipment (including equipment) $2,500 More than one year Useful life will be assigned based on class

Library Books None N/A Kept track of by Library

Art and Artifacts $2,500 N/A Not inventoried by Property Accounting. Kept track of by University Galleries

Livestock See below See below See below

Software $100,000 5 years See below

Administrative Systems $500,000 7 years See below

Equipment Upgrades $2,500 Varies Must prolong useful life or extend functionality

Buildings $100,000 Varies

Building Components $100,000 Varies

Building Additions $100,000 Varies

Building Renovations/Improvements $100,000 Varies

Land N/A N/A Land is not depreciated

Land Improvements $10,000 Varies

Infrastructure $10,000 Varies

Leases See specific guidelines

Moveable Equipment is defined as a tangible personal property item with a unit cost of at least $2,500, which has an expected useful life of more than one year, and which is not altered materially through use.

Upgrades/Additions to Capital Equipment purchased on the same requisition as the equipment being upgraded, will be capitalized regardless of cost if meeting all the other requirements. An upgrade for equipment already on inventory will be capitalized only when the cost is $2,500 or more and it meets all other capitalization requirements.

Library Books are capitalized at cost, if purchased, and at fair market value (FMV), if donated. Inventories are kept by the various libraries.

Firearms, regardless of cost, will be recorded in the Property Accounting System for tracking purposes. Firearms that meet the capitalization criteria for moveable equipment will also be capitalized.

Livestock: The University's livestock inventory is capitalized at fair market value as of June 30 for financial reporting purposes only.

Items Excluded: The following will not be capitalized, regardless of cost: repairs, replacement parts, liquids, gases, glass, rubber, cloth, and maintenance charges.

Software acquired for internal use will be capitalized under the following circumstances:

Software greater than or equal to $100,000 per Individual license. Software purchases greater than or equal to $100,000 will be capitalized using a unique G/L account (537200 Capital Software) and recorded in the Property Management System as unique assets. The straight-line method of depreciation will be used with a useful life of five years.
Administrative Systems Projects greater than or equal to $500,000. The University periodically undertakes improvements and replacements to administrative systems. An administrative system generally performs or supports a business process. Projects budgeted at $500,000 or more will be capitalized. Capital costs associated with AICPA Statement of Position (SOP) 98-1 Stage II include software, consultants, employee salaries and benefits, travel, etc. Interest costs, if applicable, will also be capitalized. Hardware costs included in these projects will be capitalized using guidelines for moveable equipment. The Plant Fund Accountant will work with the responsible business officer to identify, capture, and segregate appropriate costs. Assets created under this category will be accounted for in the Fixed Asset System as a year-end, financial report process, but will require costs to be segregated into separate accounts by SOP 98-1 stage. Object code 5-6244 Administrative Systems will be used for year end reporting purposes. A useful life of seven years will be assigned to these assets.

Software purchases that do not meet the above criteria will be expensed as incurred using G/L account 536035 Software. SOP 98-1 will be used as guidance by Accounting Services in determining which costs should be capitalized. Software licenses will be evaluated using the guidance for capital versus operating leases (see Leases) to determine if capitalization is appropriate.

Buildings: The estimated useful life of buildings and their related components is based primarily on experience with similar building types. Guidelines from publications issued by the National Association of College and University Business Officers (NACUBO), the American Hospital Association, and others may also be used, especially for the initial establishment of estimated lives. The following useful lives have been established for buildings:

Component	Useful Life (years)
Structure	50
Electrical system	20
HVAC system	20
Plumbing system	20
Original complement equipment	10
Fixed equipment	20
Lab renovations	20

Constructed Buildings: Costs should include all costs necessary to get the building ready for its intended use. These include materials, labor, attorneys and architects fees, and interest costs incurred during the construction period in accordance with Financial Accounting Standards Board (FASB) Statement No. 62.

Purchased Buildings: Costs should include the purchase price, fees, and any other costs incurred to get the building ready for its intended use.

Donated Buildings: Recorded at fair market value (appraisal) at date of gift, plus any costs incurred to get the building ready for its intended use.

Building Components and Fixed Equipment: Major integral components of new buildings will be capitalized and depreciated separately from the main structure. Non-moveable equipment and certain components not considered to be major in relation to the total building cost will be capitalized as fixed equipment. Examples include: plumbing, electrical, HVAC and fire protection systems, roof, original complement equipment, elevators, and interior finishes.

Building Additions: These are creations of new assets and will be capitalized following the same policies as described above.

Building Improvements and Replacements: These are substitutions of one asset for another. Improvements are the substitutions of a better asset for an existing one. Improvements or renovations made to laboratories, classrooms, etc., which do not extend the useful life of the building, will be depreciated over the useful life of the renovation or the remaining life of the building, whichever is shorter. Improvements or renovations to fully depreciated buildings will be depreciated over their own estimated useful lives.

Replacements are the substitutions of similar assets. These should be capitalized based upon the following:

If the cost of the old asset is known, that cost will be removed from the books and the cost of the new asset will be recorded.
If the cost of the old asset is not known, there are two ways to record it:
1. Estimate the cost by using a construction price index applied to estimated replacement value, or
2. Capitalize the new cost, leaving the old cost on the books. This may be justified if the old asset is nearly fully depreciated because the differences in book value would not be significant. This method should only be used when estimated cost of the old asset is difficult or impossible to obtain.

Capitalization Levels: The minimum capitalization level for buildings, additions, improvements, etc., as defined above, is established at $100,000 to eliminate unnecessary record keeping for items not considered to be material in relation to total building costs. Identifiable fixed equipment greater than $10,000 will be capitalized as such. Amounts below these minimum levels will be charged to expense when incurred.

Original Complement of Equipment: Equipment not considered part of the building cost will be tagged and accounted for within the Property Management System if it meets the capitalization requirements established for equipment. Original equipment which is required to ready a building for its intended use, but does not meet the minimum capitalization requirements for capital equipment, will be capitalized as original complement equipment and included as part of the building cost. These costs will be accounted for and depreciated separately from the building cost, but individual items will not be separately identified. As the original complement equipment is replaced, it will be charged to expense if it does not meet the requirements for capitalization under the equipment capitalization policy.

Landscaping Costs: These will not be capitalized as part of buildings, but will be capitalized separately as Land Improvements. Refer to Land and Land Improvements policy.

Repairs and Rehabilitation: Expenditures incurred for buildings which do not either extend the useful life of the building or enhance its efficiency, but merely serve to maintain the building at the current level of service, will be charged to expense as incurred.

Land: Purchase costs include all expenditures incurred in obtaining land and making it ready for its intended use. This includes the initial purchase price, closing costs such as attorney fees, recording fees, etc., grading, filling, draining and clearing, and the assumption of any debt, such as mortgages or liens. Gifts of land are recorded at the fair market value at the date of the gift. Any costs incurred to prepare the land for its intended use are also included in acquisition cost.

Land Improvements: Included in this category are expenditures incurred to prepare land for its intended use. Examples include: parking lots, yard lighting, fencing, paths, septic systems, fountains, fencing and gates, bleachers, parking borders, swimming pools, tennis courts, retaining walls, athletic fields, and golf courses. The minimum capitalization level for land improvements is $10,000. The useful life is assigned based on guidelines published by the American Hospital Association and ranges from 5-25 years.

Infrastructure: Infrastructure includes long-lived capital assets that are a part of a network of assets that can have service potential for an extended period and that are normally stationary. Examples include: streets, roads, and highways; alleys; sidewalks; curbs; culverts; traffic lights/signals; street signage; street lighting; bridges; guard rails; trestles; sanitary and storm sewer collection piping; water distribution piping; drainage ditches/systems; irrigation systems; tunnels; dams; fire hydrants; gas and electric distribution systems; and fiber optic cabling systems. The minimum capitalization level for infrastructure is $10,000. The useful life is assigned based on guidelines published by the American Hospital Association and ranges from 5-25 years.

Leases: A capital lease is one that transfers substantially all the benefits and risks of ownership. Such lease is accounted for as an acquisition of an asset. Other leases should be accounted for as operating leases (Rentals). Leases must meet at least one of the following criteria for capitalization:

The lease transfers ownership of the property to the lessee at the end of the lease.
The lease includes an option to buy the leased property at a bargain price.
The lease term is equal to or greater than 75 percent of the estimated useful life of the leased equipment.
The present value of rental and other minimum lease payments equals or exceeds 90 percent of the fair value of the leased property less any investment tax credit retained by the lessor.
The criteria in items 3 and 4 above are not applicable when the lease term falls during the last 25 percent of the total estimated life of the leased property.

Leases that do not meet any of the criteria are classified as operating and are expensed as incurred.

continued - Government Property Management Procedures

Printable view