University Equipment and Fixed Asset Capitalization

INITIATED: FEBRUARTY 1, 2006                                                     

To provide adequate internal control and accountability for all university-owned fixed assets the Controller, Risk Management, and Purchasing will work together to ensure: 

1. University-owned fixed assets are assigned to a specific department;
2. Fixed assets are optimally utilized, shared, transferred and ultimately disposed of in a process that properly accounts for the asset;
3. The accounting/fixed asset system provides sufficient information and reports for all University owned fixed assets such as NMU tag number, description, manufacturer’s serial number, age, cost, and purchase order number for administrative, budgetary, accounting, and security and financial reporting purposes. 

Ownership of Fixed Assets

Ownership of all fixed assets rests with the University rather than with a department or office regardless of whether purchased from departmental budget allocations, from special appropriations or allocations, or donated to the University.

Accountability for Fixed Assets

Department heads are accountable and responsible for the proper use and protection of all University owned fixed assets purchased for, or assigned to, their area.

DEFINITIONS

Government accounting priciples require that all government entities capitalize their fixed assets over a certain value and depreciate them according to their estimated useful life. GASB defines capital assets as fixed assets of a material cost and having a useful life beyond a single reporting period.  They include land, land improvements, easements, buildings, vehicles, machinery, equipment, works of art and historical treasures, and infrastructure, such as roads, bridges, sewer systems and lighting systems in the definition.  Generally, NMU uses the term fixed assets to mean those that have been capitalized.  

Fixed Assets to be Capitalized: NMU capitalizes fixed assets which satisfy the GASB definition for capital asset, have an acquisition cost of $5,000 or more, and have a useful or remaining life span at the date of acquisition of two or more years. These assets are included in the inventory system for financial reporting purposes. Fixed Assets will be kept on the inventory system and tracked for control and accountability purposes until they are disposed of in accordance with University procedures.

Computer Software: Computer software owned by the Universityand not leased with the right to use will be included as a capital asset if it has an acquisition cost of $10,000 or more. Likewise, computer software will be kept on the inventory system until it is no longer useful or disposed of in accordance with University procedures, if sooner.

Tracked Assets: Assets may be tracked when their value is less than $5,000. These assets are included in the inventory system for control and accountability purposes. Tracked assets may include assets valued less than $5000 that have shown a propensity for being stolen. Examples include audio-visual equipment and computers.

Valuing Fixed Assets:

1. Assets are capitalized when per unit acquisition cost or appraised value is of at least $5,000 adjusted for the following:

• Freight-In costs will be added, prorated by the number of fixed assets units shipped.
• Cost of assembly will be included.
• The value of property traded-in be included.
• All discounts will be subtracted.
• The cost of maintenance or warranty contracts will be excluded if it can be separated from the purchase price.

2. Fixed assets that are permanently acquired by gift, grant, or donation will be valued at the appraised value (as determined by the Department and the Fixed Asset Manager, or, if needed, by an independent appraiser). Its use must not alter its identity or consume it.

3. Fixed assets are not tracked separately when they are to become a permanent component part of another fixed asset which has already been assigned an NMU tag number. Component parts and accessories acquired for fixed assets previously purchased and assigned an NMU tag number will increase the carrying value of the original fixed asset unit by the acquisition cost, but only if the component is an addition to the original fixed asset rather than a replacement of a worn, damaged, or obsolete part.

4. Exception to the above conditions, as determined by the Department, will be made for fixed assets which do not otherwise satisfy the definition of fixed assets but should be included in the inventory for control or security reasons. Examples may include computers and audio-visual equipment, etc

Tagging and Record Keeping for Fixed Asset Acquisition

The Risk Management Department will maintain an inventory of all university-owned fixed assets. Machinery, equipment, and art meeting the criteria of a capitalized fixed asset will also be assigned an NMU identification tag.

The tags will be assigned and affixed as soon as possible after receipt and payment for the asset; special care will be made to include the fixed asset in the inventory system in the proper accounting year.  The tags will be issued in consecutive order and attached to the fixed asset in a readily accessible position for easy identification.  

If it is not possible to tag a fixed asset because of physical characteristics, (e.g. shape, size, material make up, or use, such as camera lenses, musical instruments, etc.), it will be included in the inventory under a letter prefix number, e.g. A0001, A0002, etc., consecutively assigned, beginning with A0001. Manufacture’s serial number, size, model, and other information will be recorded to further identify these items.

Fixed Asset Purchases

All property purchased for the University that meets the definition of fixed asset will be assigned a commodity code that enables the purchase to be flagged as a fixed asset when it is received and invoiced. This code will be assigned by the Department when the purchase order is placed.

Fixed Asset Donations

Departments offered donations of fixed assets must complete a Property Donation Form (see donation policy) Fixed assets of donated items will be tagged and included in the inventory if value exceeds $5000.   

Fixed Asset Transfers to Other Departments

The Purchasing Department will arrange, direct, and control fixed asset transfers to other departments upon receipt of a properly completed Fixed Asset Transfer Form. It will be necessary to complete this form when the department is transferring fixed assets to another department.

Fixed Asset Dispositions

The Purchasing Department will arrange, direct, and control fixed asset dispositions upon receipt of a properly completed Fixed Asset Disposition Form. It will be necessary to complete this form in the following situations

1. The department has fixed assets which are no longer useful to that department and would like to declare them surplus, salvage, scrap, or waste.
2. The department has fixed assets which have been lost, stolen, or damaged beyond repair. The department will notify Public Safety and Police Services by phone in the event of theft or mysterious disappearance of fixed assets. Public Safety will complete the required incident report and forward a copy of this to the Risk Manager and the Purchasing Department.

Any surplus, salvage, scrap or waste fixed which are no longer usable by the University will be disposed of under the direction of the Director of Business Services. Periodically, and as conditions warrant, the Purchasing Department, will hold a public sale of all saleable fixed assets that are no longer usable by the University. Appropriate items, as determined by the Director of Business Services, will be sold on bid. All proceeds (less expenses and Michigan sales tax) will be deposited in the General Fund unless otherwise directed by the Vice-President for Business and Finance.

The disposition of any fixed assets of a machinery nature, (drill presses, metal cutters, band saws, etc.) or which may otherwise pose a potential liability to the University, must be approved by the Risk Manager.

Donations of Fixed assets to Outside Agencies

The University may, if in its best interest, donate fixed assets to deserving charitable, governmental, or civic organizations who have requested them. The director of Business Services may donate fixed assets, if the estimated current market value of the donation does not exceed $1,000. Fixed assets valued $1,000, but not $5,000, must be approved by the Vice-President Finance and Administration. The Board of Trustees must approve donations exceeding $5,000 value.

Fixed Asset Trade-In Against a Purchase

Upon the approval of the Department, some fixed assets may be traded in against another purchase. In this event, the purchase requisition for the new fixed assets will indicate the NMU tag number, description, and manufacture’s serial number for all items to be traded.

Physical Inventory of Fixed Assets

On a periodic-basis, department heads will be furnished with a computer listing of fixed assets for which they are responsible. The department will verify the accuracy of this list and notify the Purchasing Department of any discrepancies. In addition, the Risk Management may conduct spot checks or complete physical inventories as it deems appropriate.