1004.1 Capitalization Policy: Land, Buildings, Equipment, and Books
Subject Area: Accounting
Responsible Office: Financial Services
Sponsor: Associate Vice President for Finance
Originally Issued: July 1988
Revised: October 13, 2005, October 2006, April 2010, January 18, 2013
Refer Questions To: Maru Mendoza, 773-702-3690
Purpose: To establish a capitalization policy for financial accounting purposes for land, buildings, equipment, and books.
This policy applies only to land, buildings, equipment, and books which are owned or controlled, and used in the operations of the University. Land, buildings, equipment, and books not used in the operations should be treated as an investment rather than a capitalized asset. Capitalized assets include the following:
1. Land – Cost to be capitalized includes all costs connected with acquisition and costs incurred in preparing the land for its ultimate use. These include but are not limited to the cost of: purchase, appraisals, professional services, and title insurance.
2. Land Improvements – Improvements to be capitalized include the cost of landscape, surface parking lots, and outdoor public recreational fields having a cost in excess of $100,000. All costs of land improvements associated with newly constructed buildings will be capitalized.
3. Building – Cost to be capitalized includes all costs related to acquisition or construction. Acquisition cost includes but is not limited to the cost of: purchase, professional services, appraisals and title insurance. Construction cost includes but is not limited to the cost of: professional services, materials, labor, and site preparation.
4. Infrastructure – Costs to be capitalized include underground utility and steam tunnels or any other external, stationary asset that is not part of a building’s construction costs or the costs of land improvements. The costs should be in excess of $100,000 and have an expected life of 20 or more years. Examples of Infrastructure are – steam tunnels, electrical vaults, campus lighting, etc.
5. Building Renovations – Building improvements to be capitalized are significant alterations or structural changes that a) cost in excess of $100,000 and b) meet one or more of the following conditions:
1. The project extends the useful life of the building beyond what was originally scheduled.
2. The project substantially changes the use or purpose of the original space.
3. The project expands the total square footage of the building.
The book value of a renovated building will be reduced by the cost of the components being replaced if such costs can be easily ascertained. If the book value of the asset being renovated is unknown, there will be no cost reduction of the fixed asset.
6. Planning Costs – Capital project planning costs associated with the planned construction, renovation, or purchase of a specific building will be capitalized in advance of the capital project being approved (see Financial Policy No. 1301) to the extent such costs exceed $100,000. Planning costs include but are not limited to feasibility studies, preliminary drawings, and initial cost estimates. Previously capitalized planning costs will be written off to expense in the period it is clear the specific project will not move forward in the approval process.
7. Demolition of Buildings – The book value of the building will be written off when a building is demolished. If the land is maintained and the original value cannot be determined, the land will be recorded at a nominal value of $1.
8. Purchased Equipment – Purchased equipment to be capitalized is an article of nonexpendable tangible personal property with a useful life of more than one year and a cost of $5000 or more per unit.
9. Constructed Equipment – For equipment constructed at the University, the acquisition cost includes costs similar to those for purchased equipment as well as the costs incurred for materials and recharge center services used in the course of construction. University labor expense, other than that embodied in a recharge center charge, is not included in the acquisition cost.
10. Library Books – Capitalized library books include bound volumes, periodicals, serial titles, and microform. All such costs will be capitalized.
11. Software – Operating software included in the price of the hardware will be capitalized. When purchased separately, software will be capitalized if the cost exceeds $100,000. Internally developed software with material and labor costs in excess of $100,000 will also be capitalized.
12. Donated Assets – Land, buildings, and books received as a gift will be capitalized at the fair market or appraised value at the date of the gift. If market value or appraised value is not available, the gifts will be recorded at $1 nominal value. Equipment received as a gift having a fair market or appraised value of $5000 or more will be capitalized.
13. Sales or Disposals of Capitalized Assets – The book value of land, buildings, equipment, and books will be removed from the accounting system when sold or disposed of. See Financial Policy No. 1004.3 for more information regarding Disposal of University Owned Property.