The following policy provides for the consistent accounting of capital assets and serves as a reference for answering questions relating to capital assets. Capital assets comprise tangible property (also known as fixed assets, personal property and real property) and intangible property that are recorded as assets in the PSU accounting records. The capital assets may be depreciated or amortized in the PSU accounting records. This policy pertains to the accounting for tangible capital assets. A separate, related policy exists for the accounting of intangible assets.
APPLICATION OF FIXED ASSET ACCOUNTING POLICIES: Although the accounting theory of capitalizing and depreciating fixed assets is conceptually straightforward, applying the theory in practice gives rise to several complications that must be addressed:
NUMBER OF FIXED ASSETS: Capitalizing and depreciating every one of PSU’s thousands of fixed assets is impractical. To make the accounting theory practical, PSU has "capitalization thresholds," relating to specific dollar values, above which a fixed asset is capitalized (recorded as an asset) and depreciated over multiple years, and below which a fixed asset is fully expensed in the year of purchase. The use of the capitalization threshold divides fixed assets into "non-expendable" (capitalized and depreciated over multiple years) and "expendable" (expensed in the year of purchase).
USE OF ESTIMATES: The accounting and depreciation of capital assets involves estimates and is knowingly inexact. To illustrate, each capital asset's service life, salvage value, and trade-in value can only be estimated. However, in accordance with generally accepted accounting principles, our capital asset accounting policies involve estimates. The accounting policies must correspond to generally accepted accounting principles, State of Oregon financial reporting policies and OMB Circular A-21. Once established, the accounting policies must be consistently applied.
MULTIPLE SPECIAL CASE ISSUES: The acquisition, depreciation, and disposal of capital assets creates many special cases, which have the tendency to make the accounting for each capital asset seem somewhat unique. To illustrate:
- Capital assets are acquired by many means - such as purchase, trade-in, donation, construction, installment purchase, rental, operating lease, and capital lease.
- Capital assets can have differing depreciation start dates, service lives, and components that are separately depreciated. Theoretically, depreciation methods and salvage values can also differ. However, for practicality and consistency purposes, PSU uses straight-line depreciation and zero salvage value for all capital assets.
- Capital assets are disposed of in varying methods - such as sold, scrapped, traded-in, and returned at the end of a capital lease.
Additional complications arise depending on purchases of single or groups of capital assets, ancillary costs, if the capital asset is somehow related to another capital asset, if the capital asset purchased comprises multiple capital asset types, if a capital asset is acquired through multiple funding sources, and if additional expenditures are incurred related to an existing capital asset.
SOFTWARE DESIGN: The Banner Fixed Assets software is very flexible but should not be expected to take into consideration every special case that is unique to a particular capital asset. As a result, the procedures to accomplish the accounting policies must fit within the general design of our accounting software.
VARYING INFORMATION NEEDS: The accounting for capital assets must provide sufficient information for managing PSU's investment in capital assets. Capital assets' information becomes especially critical for (1) safeguarding of capital assets, (2) financial and managerial reporting, (3) insurance coverage, (4) facilities and administration rate proposals, and (5) distribution of insurance assessments.