A. SUMMARY ADMINISTRATIVE PROCEDURE
1. Purpose: This document explains how Property & Plant (P&P) acquisitions are tracked by USNH. These procedures are needed to ensure adherence with Generally Accepted Accounting Principles (GAAP), Governmental Accounting Standards Board (GASB) and other regulatory requirements, and to ensure consistent accounting treatment across the campuses.
2. Responsibility: All capital P&P assets acquired with USNH funds, including grant funds, are recorded in the USNH general ledger or related subsystems (carried as an asset), and monitored by USNH Accounting Services staff.
3. Definition: P&P assets, also referred to as capital assets, include all assets acquired or constructed for use by the operations of USNH with an expected period of use of more than one year. USNH classifies its property and plant assets into the following categories for reporting purposes:
a. Land – Vacant parcels acquired by purchase or donation are capitalized at acquisition cost or appraised value.
i. Cost includes the purchase price paid, legal cost, title costs, broker’s fees and other costs incurred to obtain title to the land, or appraised values for donated land.
ii. All land acquisitions will be capitalized in the fiscal year of the purchase or gift.
iii. The value of land assets is not depreciated over time.
iv. The settlement cost for new land purchases should be recorded under the Real Estate Purchases account code (7404A1) and the related closing costs should be recorded under the Real Estate Closing Costs account code (7404A2).
b. Land Improvements – These include items such as landscaping, fencing or sodding for athletic uses that cost $50,000 or more and increase the value of the property. These amounts are capitalized at the original cost.
c. Infrastructure – Land improvements that provide functionality such as roads, walkways, parking lots, streetlights, water drainage systems, and similar items are components of infrastructure. These projects must cost at least $50,000 to qualify for capitalization.
d. Buildings and Building Improvements – Individual buildings are capitalized if they meet one of the following requirements:
i. an existing building is acquired at a cost of $50,000 or more
ii. a new building is constructed with a cost of $50,000 or more
iii. an addition or expansion with a cost of $50,000 or more is completed for an existing building.
iv. improvement of an existing building/infrastructure or a portion of an owned existing building/infrastructure, including upgrade of major systems at a cost of $50,000 or more which extends the building/ infrastructure’s usable capacity or useful life.
- The useful life of an asset is considered extended when the change to the asset is significant enough to cause the expected useful life to increase beyond the original estimation. Some examples are:
- Restoration of a building or building components occurring toward the end of the building estimated useful life
- Reinforcement of floors or walls
- Upgrade of plumbing and electrical wiring
v. Projects that improve multiple buildings will only be capitalized if the cost related to an individual building meets the $50,000 threshold. In these cases, it is necessary to have a breakdown of cost per building so that the assets are capitalized appropriately. If this is not easily done, then a % of the cost may be used. Square footage of each space being worked on can assist in determining this. This may result in portions of a project being expensed.
vi. Furniture and equipment when purchased as part of a major capital project (defined as an approved budget of total capital investment exceeding $2,000,000) may be capitalizable if the individual asset does not qualify as capital equipment (See Policy 11-020 Acquisition of Equipment section A.2) or built-in equipment as described in section 3.f. below, and the value of the related assets is $50,000 or more. These assets have a shorter life than the structure where housed. This necessitates that they must be tracked and depreciated separately in the Banner Fixed Assets module.
e. Leasehold Improvements – These are costs incurred to improve building space, leased by USNH. These costs are capitalizable if the total is $50,000 or greater.
Note: Furniture is never capitalizable as part of a leasehold improvement. However, it may qualify as capital equipment.
f. Built-in equipment – This is equipment attached to a structure (building or infra-structure). The related costs are capitalizable if the cost is $50,000 or more. These assets typically have a shorter life than the structure where housed, are unlikely to be used in another location, and would remain as part of the structure if sold or abandoned by the institution. Typical examples are chillers, water heaters, ranges, hoods, central air units, furnaces, wireless access points, etc.
Note: Any equipment item not attached to a building or infrastructure, or not meeting the built-in equipment criteria above, does not qualify as capital plant. However, it may qualify as capital equipment.
g. Plant project costs that are not capitalizable include:
i. Pollution remediation costs (asbestos, lead, etc.) are not capitalizable per GASB Statement No. 49, Accounting and Financial Reporting for Pollution Remediation Obligations, and should always be coded to a non-capital project account (account code 71NC series).
ii. Demolition/removal of buildings/other structures. Please notify USNH Accounting Services when this occurs so that the related asset inventory records can be adjusted accordingly.
iii. Expenditures that do not add value to the building/structure (i.e. paint, maintenance & repairs, etc.).
iv. Other examples can be found on the Capitalization Grid.
B. PROPERTY AND PLANT DETAILED OPERATING PROCEDURES
1. Work in Progress (WIP)
a. WIP tracks capitalizable projects costs before projects are completed and ready for use.
b. Capitalizable projects in progress should have a dedicated Chart of Accounts element, preferably a plant fund code. Campuses using Chart of Accounts elements other than a fund code to individually track capitalizable facilities projects should ensure that all capitalizable charges are tracked per project using an alternate FOAPAL element. Plant fund types X and N are dedicated to construction projects and are not to be used for any other type of projects. Only funds for construction, renovation, and acquisition of capital assets as defined in Section A.3 above may reside in Plant funds. Non-capitalizable expenditures, which may not be charged to Plant Funds, would include the following:
i. Expenditures related to maintaining an asset or returning the asset to its original condition.
ii. Restoration of a facility so that it can be effectively used for its current purpose.
iii. Work to restore infrastructure to its original condition.
iv. Other repair and maintenance items.
v. Amounts budgeted annually for future renovation, deferred maintenance or purchases of assets.
c. USNH labor costs must be identified with a specific capital project and appropriately tracked and documented to be eligible for capitalization. The work of our employees must be directly and exclusively related to the specific capital project and directly managed by the campus facilities department which must track hours by person and by project.
d. When an invoice related to a capital improvement project involves both capitalizable and non-capitalizable activity and those costs are not easily separable, the accounting treatment should be that of the predominant activity.
i. For example, re-painting is typically not capitalized. However, if a capital project does not break out the individual costs and repainting is included, USNH does not require splitting of the costs to determine how much of the project is related to repainting. Instead, we will capitalize the full project costs in these cases.
e. Construction expenditures posted to plant funds (other than equipment account codes) are compiled annually by USNH Accounting Services and reviewed with the campuses to determine what is capitalizable. USNH Accounting Services records entries each yearend to move plant expenditures to WIP account codes until the projects are completed. Then a final determination is made related to the capitalization or expense status of the project.
f. Real estate account codes are reviewed throughout the year to record any new land and building purchases in the year they are purchased. During the annual WIP review, all other plant expenditures are reviewed to determine what is capitalizable as described below.
g. Projects are capitalized at the end of each calendar year if the space is in use or a Certificate of Occupancy has been issued. Some projects may have an open punch list at this point. The total remaining costs for the project will be expensed unless they meet the $50,000 threshold. Note that these costs may be accrued in advance of payment to facilitate the capitalization process.
2. Useful Lives – Each asset is given an associated useful life based on what is being capitalized. USNH uses a half year convention to record related depreciation. In other words, one half year of depreciation expense is recorded in the first year any plant expenditures are capitalized, regardless of the date the costs were incurred.
Useful Lives for Plant Capital Project Assets:
a. New Acquired or Constructed Buildings1 – 30 or 40 years
b. Leasehold Improvements – related lease term
c. Infrastructure/Building Improvements – 25 years
d. Built-in Equipment/Furniture/Fixtures – 10 years
e. Network Wiring/Wireless Access Points – 4 years2
f. Componentized Buildings (specific UNH research facilities only) – 10 to 50 years
i. Shell (Foundation and major vertical, floor and roof structures and exterior cladding) – 50 years
ii. Building systems (HVAC, plumbing, electrical, elevator, fire protection) – 20 years
iii. Roofing and building outfitting, interior partitions, finishings – 15 years
3. Funding sources for capital projects.
a. Certain projects require funding from multiple sources. Unrestricted and restricted funds may be used for a single project. In these cases, funding should be applied in the order below. For restricted funds, time-limited restrictions should be taken into consideration when determining which source to use first.
i. Gift/grant funding
ii. State capital appropriations (available for educational and administrative facilities only)3
iii. NH-HEFA bond funding (available for self-supporting auxiliary facilities only)3
iv. Unrestricted campus transfers
b. Allowable costs for the select types of funding
i. State capital appropriations - Capital appropriations made to the University System are available for all costs incidental to the completion of related projects including the costs of the services of architects, engineers, and other consultants of such kind and capacity as the University System Board of Trustees may, in its discretion, wish to employ on such terms and conditions as the Board determines. These monies shall be spent under the direction of the University System Board of Trustees in accordance with BOT Policy VI.A.2.1.
ii. NH-HEFA funding is limited for spending on assets that will be incurred and capitalized in accordance with the USNH bond indenture agreement which states that “obligations in the stated amounts have been incurred by the Authority or USNH and are presently due and payable or are properly reimbursable to USNH, and each item thereof is a necessary cost of the Project or of issuing the Bonds and is a proper charge against the Construction Fund.”
iii. Beginning with new construction approved on or after July 1, 2019, campuses should make every effort to have any capitalizable furnishings and equipment related to a HEFA bond project paid with available campus funds. The related costs may be charged to the existing project fund using account codes in the 7404F series. The campus must then transfer an equivalent amount from a non-HEFA fund to cover the costs. The related purchases may be capitalized by USNH Financial Services as equipment assets if an individual item costs is $5,000 or more.
1 depending on the type of construction
2 per discussion with Campus IT offices
3 in certain instances, a project may involve both State capital appropriation and NH-HEFA funding. Please contact USNH Accounting Services at 862-3127 for assistance with rules associated with these types of projects.