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Section 5: Capital Project Accounting

Financial Management of Capital Assets

Effective Date:

02/08/10

Approved By:

Lenora Chapman, Associate Vice President, Financial Affairs

 

Last Revised On:

05/01/14

For Assistance Contact:

Assistant Vice President, Financial Affairs and Controller

PURPOSE/SCOPE

The purpose of this guideline is to provide guidance for capitalization, depreciation/amortization and construction in progress of capital assets purchased, constructed or developed using Unexpended Plant Fund accounts.  This guideline includes the following classes of assets:

  • Land and land improvements
  • Buildings and building improvements
  • Facilities and other improvements
  • Infrastructure
  • Intangible assets
  • Construction in progress

 

For more information on the approval, accounting, payment and closeout process for capital projects  recorded in Unexpended Plant Fund accounts, see UTSA Financial Management Operational Guidelines (FMOGs):

AUTHORITY

Governmental Accounting Standards Board Statements:

  • No. 34, Basic Financial Statements — and Management’s Discussion and Analysis — for State and Local Governments
  • No. 35, Basic Financial Statements — and Management’s Discussion and Analysis — for Public Colleges and Universities – an amendment of GASB Statement No. 34
  • No. 51, Accounting and Financial Reporting for Intangible Assets

UT System Policies:

  • UTS142.4 - Policy for Construction in Progress
  • UTS168 - Capital Expenditure Policy
  • UTS142.13 - Accounting and Financial Reporting for Intangible Assets

UNIVERSITY GUIDELINES

Table of Contents

A. Capital Assets

Capital assets are real or personal property or intangible assets that have an estimated useful life of greater than one year. Capital assets are capitalized for financial reporting purposes when their monetary value is equal to or greater than the established asset class threshold (see “Asset Classes and Capitalization Thresholds”). 

B. Plant Fund Accounting

The Plant Funds consist of two major subgroups, Unexpended Plant  and Investment in Plant. 
The Unexpended Plant Funds are used for the improvement or expansion of UTSA physical facilities and development of capitalizable intangible assets such as internally-generated software.  Expenditures may include but are not limited to land and building acquisition; construction of new facilities; major rehabilitation, renovation and remodeling; and internally-generated software projects. Allocations of funds for the aforementioned projects and the accounting entries related to bringing the assets to completion are recorded in Unexpended Plant Funds.

Investment in Plant Funds are used to record the value of capital assets and the related accumulated depreciation or amortization.
  
UTSA Accounting Services performs a quarterly capital project analysis to determine: (1) which expenditures should be capitalized and (2) the appropriate asset class for the capitalized expenditures.

    • The expenditures are totaled, tied to the general ledger, and compared to the UTShare/PeopleSoft Project Costing Module  
    • The asset class profile is determined.

Accounting Services records any additions and deductions in asset classes at a general ledger level in the Investment in Plant Funds by asset class (Land, Buildings, Improvements Other Than Buildings, Intangible Assets and Construction in Progress).

Total additions to Construction in Progress and other categories of capitalized assets are recorded in  the UTShare/PeopleSoft Assets Module and in the General Ledger in Fund 7505.

Capital asset acquisitions recorded in other funds (Grants and Contracts, Gift Funds, etc.) are also capitalized to Investment in Plant Fund 7505 as appropriate. Examples of such items include library books, works of art, vehicles, and equipment. For more information see FMOG - Capital Asset Property Accounting.

Accounting Services also updates the following Investment in Plant Fund schedules that are included in the Annual Financial Report (AFR): S-11A Land, S-11B Buildings, S-11C Facilities and Other Improvements, S-11D Equipment (this schedule includes equipment, non-depreciable works of art, library books, and vehicles and aircraft), S-11E Construction in Progress, S-11F Infrastructure, and S-11G Intangible Assets.

 

C. Asset Classes and Capitalization Thresholds

Examples of standard capitalization thresholds include:

 

Asset Class

 

Description

 

Threshold

Land and Land Improvements

  • Land can be used to support structures and may be used to grow crops, grass, shrubs and trees.
  • Land improvements consist of site preparation and site improvements (other than buildings) that ready land for intended use. The costs associated with land improvements are added to the land value.

 

EXAMPLES: Purchase price of land, demolition of existing buildings and improvements, land excavation, fill, grading and drainage.

Capitalize ALL

Buildings and Building Improvements

  • Buildings are permanent structures attached to land that have a roof, are partially or completely enclosed by walls and are not intended to be moveable or transportable.
  • Building improvements materially extend the useful life of a building or increase its value, or both. Improvements should be capitalized and recorded as an addition to the value of the existing building if the expenditure meets the capitalization threshold.

 

EXAMPLES: Purchase price or construction cost of a new building, structures attached to an existing building such as covered patios, and enclosed stairwells.

$100,000

Facilities & Other Improvements

  • Facilities are assets (other than general use buildings) that are built, installed or established to enhance the quality or facilitate the use of land for a particular purpose.
  • Other improvements are enhancements made to a facility or to land.

 

EXAMPLES: Fencing and gates, paths and trails, landscaping, and fountains. 

$100,000

Infrastructure

Infrastructure consists of long-lived capital assets that are normally stationary in nature and can normally be preserved for a significantly greater number of years than most capital assets.

EXAMPLES: Highway and rest areas, roads and streets.

$500,000

Intangible Assets

Intangible assets are defined by GASB 51 as assets that have all of the following characteristics:
a.    Lacking physical substance,
b.    Non-financial in nature, and  
c.    Having a useful life of more than one year (beyond a single reporting period).   
EXAMPLES:  Easements,  land rights (water, mineral and timber rights), and computer software.

$  100,000 - 
$1,000,000*

 

The threshold for internally-developed software projects is $1,000,000; however, purchased/licensed software with a cost of $100,000 or more is capitalized regardless of whether it will be modified as part of a development project - see FMOG - Accounting Treatment of Intangible Assets.

For information on capitalization of equipment, see FMOG - Capital Asset Property Accounting.

 

D. Depreciation/Amortization of Capitalized Assets

Capitalized assets are depreciated (real and personal property) or amortized (intangible assets) over their estimated useful lives using the straight-line method (historical cost less residual value, if any, divided by useful life).

NOTE: Depreciation/amortization is not calculated for inexhaustible items such as works of art, historical treasures, and perpetual easements. 

UTSA adheres to the capitalization and depreciation/amortization standards for capitalized assets as required by Governmental Accounting Standards Board (GASB) Statements No. 34, 35 and 51.
Depreciation/amortization is calculated quarterly and is based on the State Property Accounting (SPA) system’s Class Codes for useful life.

Following are examples of SPA Class Codes and default useful lives (see SPA Class Codes and Annual Financial Report (AFR) Categories for the complete list).

SPA
Class Code

 

Description

Default Useful Life
for Depreciation/Amortization

002

Perpetual Easements

Not amortized

006

Parking Lots

240 months

031

Componentized Buildings

360 months*

057

Roads and Streets

240 months

308

Internally Developed Software

60 months  (see FMOG - Accounting Treatment of Intangible Assets)

311

Enterprise Software

72 months (see FMOG - Accounting Treatment of Intangible Assets)

*  UTSA has elected to assign a  useful life of 600 months for componentized buildings unless the Associate Vice President for Facilities determines that a specific building will have a useful life of 360 months in accordance with the SPA default amount.

Accumulated depreciation/amortization is summarized  and recorded at the general ledger level by Accounting Services in the Investment in Plant Fund as a total for buildings, equipment, library books, vehicles/aircraft, facilities and other improvements, infrastructure and intangible assets.

Total accumulated depreciation on buildings is recorded in the Asset Module and the General Ledger in Fund 7505.

E. Construction in Progress

Construction in Progress is the economic construction/development status of buildings and other structures, infrastructure, intangible assets, additions, alterations, reconstruction, installation, and major repairs.
All construction costs associated with a project are accumulated and capitalized as Construction in Progress if the project meets the capitalization threshold for the applicable asset class. Construction in Progress is closed out and transferred to the appropriate asset class by Accounting Services when the project is:

  • Substantially complete,
  • Occupied, or
  • Placed in service.

Replacements or renovations for institutionally managed capital projects are capitalized if they  increase the value of a building or other facility by $100,000 or more.  The total cost of a project includes items such as: preparation of plans, cost for permits, and professional fees such as architect and contractor fees.

1. Office of Facilities Planning and Construction (OFPC) managed capital projects

Accounting Services requests the Construction in Progress Transfer Request form quarterly from the UTSA Office of Facilities (Facilities) to determine if any OFPC managed capital projects should be transferred to the Investment in Plant Fund.  Before transferring a project to the Investment in Plant Fund, Accounting Services requests a componentization breakout for buildings (a listing of core elements by cost such as roof, exterior shell, HVAC system) from OFPC.  Accounting Services then transfers the project(s) to the Investment in Plant Fund, including componentization information by SPA Class Code if applicable to ensure that depreciation/amortization is recorded correctly.    

2. Institutionally managed capital projects

Accounting Services sends a list of current Construction in Progress projects each month to Facilities for review and updating of project status.  When a project is complete, Accounting Services requests a completed Construction in Progress Transfer Request form from Facilities. This form determines which projects should be transferred to the Investment in Plant Fund.   Accounting Services then transfers the project(s) to the Investment in Plant Fund, including componentization information by SPA Class Code if applicable to ensure that depreciation/amortization is recorded correctly.


DEFINITIONS

Term

Definition

Institutionally Managed Capital Projects

A project that is managed by UTSA rather than OFPC. See FMOG - Institutionally Managed Capital Projects for more information.

Office of Facilities, Planning & Construction (OFPC)

The UT System Administration office that maintains the CIP, manages projects, and records project accounting transactions.  For more information on the OFPC and CIP, see FMOG - Capital Projects Managed by the UT System Office of Facilities Planning and Construction

Unexpended Plant Funds

Establishes a record of expenditures for UTSA capital improvements,  major maintenance of physical facilities, and capitalizable internally-generated software projects.    For more information on Unexpended Plant Funds see FMOG - Chart of Accounts.

REFERENCES/LINKS

RELATED FORMS/WORKSHEETS

  1. Construction in Progress Transfer Request Form
  1. Form 4/5 (sample)
  2. Form 2 (sample)
  3. Form 9 (sample)

 


REVISION HISTORY

Date Description
05/01/14

Updated DEFINE information for transition to PeopleSoft.

10/10/12

Added intangible asset material throughout. Added UTSA election to use 600 month building useful life. Expanded Authority section. Added material on equipment capitalization and capital acquisitions in other fund groups. Updated list of AFR schedules. Converted depreciation information into table. Updated definitions. Deleted definitions and forms that are no longer applicable. Added/updated/corrected links and references.

03/30/10

Added new subsection — institutionally managed capital projects — within the Construction in Progress section.

02/08/10

Published guideline.


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