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Maricopa Community College District Capitalization (Effective July 1, 2001)
With implementation of requirements under the Governmental Accounting Standards Board (GASB) Statement 35, "Basic Financial Statements - and Management's Discussion and Analysis - for Public Colleges and Universities", issued November 1999, MCCCD and other educational institutions must recognize and report depreciation expense on capital assets beginning with financial statements for fiscal year ended June 30, 2002.
In order to enhance comparability and consistency among Arizona community colleges, the Accounting Standards Committee of the Arizona Community College Business Officials Council (ACCBOC) has developed recommendations regarding capitalization thresholds, capital asset categories and estimated useful lives, a definition of infrastructure, and depreciation methods. MCCCD supported and implemented in Fiscal Year 2001/02 the following recommendations:
Key Points:
Capitalization and Stewardship Thresholds:
ACCBOC recommends that all capital asset categories be capitalized at a unit cost of $5,000 or greater. This recommendation is supported by the Arizona Office of the Auditor General and has been approved by the State Board of Directors for Community Colleges in Arizona. In addition, it is recommended that all districts REPORT on their financial statements capital assets with a unit cost of $5,000 or greater along with accumulated depreciation, and that the districts may RECORD in their accounting records capital assets using a different dollar amount threshold for stewardship and control purposes. It is recommended that MCCCD maintain a stewardship threshold of $2,500 for internal inventory control of capital assets, especially equipment. Certain items, such as firearms, will continue to be tracked and controlled in the fixed asset inventory system regardless of acquisition cost. Donated capital assets will be entered in the fixed asset inventory system and subject to depreciation depending on their value and asset category. The recognition of donated capital assets at fair market value as of date of donation does not impact operational or capital budgets.
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For financial statement purposes of recognizing and reporting capital assets and depreciation, it is recommended that MCCCD establish a capitalization threshold of $5,000 effective July 1, 2001 (FY 2001/02).
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For budgetary purposes , it is also recommended that, effective July 1, 2001 (FY 2001/02), the following guidelines be used to determine the appropriate funding source for capital asset purchases:
Unit Cost Appropriate Funding Source
|
| Less than $1,000 |
Either Operating or Capital Funds |
| $1,000 to less than $5,000 |
Either Operating or Capital Funds |
| $5,000 or more |
Capital Funds:
- Auxiliary
- Restricted
- Unexpended Plant
|
Exceptions:
- Furniture, fixtures & equipment (FF&E) with a unit cost less than $1,000 acquired under a capital development construction project or college B&G (Building and Grounds) construction project
|
Capital Funds only |
More Exceptions:
- Firearms, regardless of cost
- Library books, regardless of cost
- Licensed vehicles, regardless of cost
- Desktop computers, laptops, and servers
|
Either Operating or Capital Funds |
Any purchase or acquisition of furniture, fixtures, or equipment with a unit cost less than $1,000 will not require tagging, inventorying, or depreciation, even if purchased with capital funds (less the exceptions listed above). Any purchase or acquisition of a capital asset (see categories below) with a unit cost of $5,000 or more must be charged to a capital budget only and will become part of the population of capital assets subject to tagging, inventory, and depreciation for financial statement reporting purposes. Costs related to bond-funded projects should be charged to the appropriate sub-fund within the Unexpended Plant Fund.
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Capital Asset Categories and Estimated Useful Lives:
Capital assets are generally defined as tangible property, plant, and equipment used in operations with an estimated useful life greater than one year. Depreciation is the rational and systematic allocation of the cost of a capital asset over its estimated useful life. Capital assets may or may not be subject to depreciation. It is recommended that the following capital asset categories and useful lives be used for calculation of depreciation and financial statement presentation purposes:
| Asset Category |
Depreciable? |
Estimated Useful Life? |
| Land / Site Development |
No |
N/A |
| Land Improvements |
Yes |
20 years |
| Construction in Progress |
No |
N/A |
| Buildings |
Yes |
40 years |
| Equipment |
Yes |
3 to 10 years |
| Library Books |
Yes |
10 years |
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Infrastructure:
Infrastructure is defined by ACCBOC as those improvements that the district controls that extend outside the boundaries of the college campus. Items excluded from this category include parking lots, roadways, streetlights, etc. that are on campus. Such items are considered land improvements that are subject to depreciation. Any items that might be considered infrastructure are recorded as land improvements or improvements other than buildings through normal accounting procedures. Each district will determine, based on materiality, whether or not any such items should be reclassified as infrastructure and depreciated for financial statement purposes. Note: No MCCCD assets are currently considered infrastructure for reporting purposes.
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Depreciation Methods:
It is recommended that the straight line depreciation method with a year convention be used for new equipment assets. This method allocates the acquisition cost of a depreciable capital asset evenly over its estimated useful life. For example, if a capital asset has an estimated useful life of twenty years, one-twentieth of the cost is recognized as depreciation expense each year for twenty years, subject to the full year convention; i.e., in the year of acquisition a full year of depreciation is recognized Straight line depreciation using a full month convention is applied to equipment assets only. One twelfth of the year depreciation expense is recorded each month.
Depreciation expense is recognized for financial statement purposes only. For budgetary purposes, the full acquisition cost of a capital asset is recognized at the time of acquisition.
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