university of minnesota internal/external sales “equipment purchases and depreciation” plant...

University of Minnesota

Internal/External Sales

“Equipment Purchases and Depreciation”

Plant Funds, Transfers and Record Keeping Requirements

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Rate Development - Depreciation

• Depreciation associated with capital equipment may be included in the rate development.

• Depreciation expense will be calculated in the Asset Management module.

• Separate capital equipment chartfield strings should be established to account for capital related transactions.

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Learning Objectives

As a result of this session, participants will be able to:• Set-up the account structure to record the purchase of a capital

asset and record depreciation• Include equipment expense (depreciation) in the rate

development, budget and record actuals• Validate depreciation with Inventory Services vs. rate

Development and Budget.

• Websites for more information

• What is a Capital Asset

• Key Terms and definitions

• Using an ISO Plant Fund

• Transferring Depreciation to the ISO Plant Fund

• Queries and reports for monitoring assets

• Questions & Answers

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Agenda

Located at :

Internal Sales EFS website:

http://www.finsys.umn.edu/sales/int.html

Administrative Procedure Establishing Internal Sales Capital Equipment Funds and Recording Depreciation:

http://policy.umn.edu/Policies/Finance/Accounting/INTERNALSALES_PROC05.html

Internal Sales Training Module:

http://www.finsys.umn.edu/sales/iso.html5

Internal Sales Rate Development Procedure and Website

Located at :

Inventory Services Website:

http://www.finsys.umn.edu/inventorysvs/inventorysvshome.html

Instructions for Transferring Capital Equipment Assets

http://www.policy.umn.edu/prod/groups/president/@pub/@forms/documents/form/um1556.pdf

Transferring or Selling Capital Equipment Assets to Another University Department:

http://www.policy.umn.edu/Policies/Finance/Inventory/PROPERTY_PROC02.html

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Inventory Services Website

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What is a Capital Asset

Capital assets are items that are used in the operations but are not intended to be sold as part of such operations. Capital assets must have: • Acquisition value of $2,500 or greater per item • A useful life greater than or equal to the capitalization threshold for the asset category to which they belong and greater than one year.• Capital equipment assets are tangible non-expendable personal property items.•A capital equipment asset must maintain its identity over the course of its useful life.

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What is a Non-Capital Asset

Non-capital equipment assets are: • non-expendable personal property items with an acquisition value of less than $2,500 per item OR • an estimated useful life of less than one year.

Non-capital equipment assets are expensed.

Custodial organizations (DeptIDs) are responsible for all of the capital and non-capital equipment assets in their custody. 

• Acquisition cost - Includes the invoice price and the cost of any modifications, construction, installation, in transit, insurance, freight and is reduced by any trade-in. For donated assets the value is the fair market value or appraised value at the date of the gift.

• Depreciation - The allocation of the cost of an asset over its economic life.

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Key Terms Associated with Assets

• Useful Life - The length of time that a depreciable asset is expected to be useable as defined by the Controller's Office following Generally Accepted Accounting Principals.

• Inventory - An asset that a University department holds for sale or use in providing goods and/or services to customers.

• Capital equipment assets are not "inventory."

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Key Terms Associated with Assets

• Internal Sales Organizations can recover the cost of capital equipment in the rates they charge other University departments by including the appropriate depreciation in the rate development.

• Only include amounts for purchases already incurred.

• Not allowed to include amounts in their rates for anticipated future purchases.

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Internal Sales Depreciation Process

• Capital equipment purchases must be made in the Internal Sales Plant Fund specifically designated for this purpose, and costs are recovered by including the applicable depreciation amount in service rates.

• Plant Fund Code for ISO activity is 7201- Internal Sale Capital Purchases

• The equipment acquisition and/or original purchase cost would be recorded in account 168001- Equipment Acquisitions.

• This amount would show up as a negative value on the UMReport “Account Budget Status for Current Non-Sponsored Funds”.

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Internal Sales Depreciation Process

• This depreciation is then transferred from the Internal Sales operating fund into the plant fund account on a monthly, quarter, or annual basis.

• Transfer codes to use for recording equipment depreciation are the 600301 - Non-Mandatory Transfer In - Equipment Replace and 610301- Non-Mandatory Transfer Out - Equipment Replace .

• The amount transferred from the operating account (610301) value will be a negative amount and the amount received in the plant fund account (600301) will be a positive amount.

• The result of the transfer will reduce (replenish over time) the negative value (deficit) of the equipment in the ISO plant fund to $0 after the useful life is complete.

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Internal Sales Depreciation Process

Purchase $100,000 capital asset in plant fund 7201 – ISO Capital Purchases and transfer 12 months of depreciation (1,666.67 per month)

Expenditures• 168001- Equipment Acquisitions Budget: -100,000.00• 168001- Equipment Acquisitions Expenditure: -100,000.00• 760101 - Equipment Depreciation Budget/Exp: 20,000.00• 760101 - Equipment Depreciation Budget/Exp: -20,000.00

Transfer In                                                                        •    600301 NMTI - Equip Replace   Budget:  20,000.00• 600301 NMTI - Equip Replace    Expenditure: 20,000.00  

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Internal Sales Depreciation Process - Example

Transfer 12 months of depreciation (1,666.67 per month) from operating fund 1150 – Recharged Internal Sale :

Transfer Out                                                                       

•     610300 Non-Mand Oth Trsfr Out-FinBdg   Budget: -20,000.00   

•     610301 NMTO - Equip Replace   Expenditures: -20,000.00  

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Internal Sales Depreciation Process - Example

• Policy and procedures for ISO capital purchases are not voluntary.

• Capital Assets should not be depreciated in the ISO operating fund using account 760101 – Depreciation – Equipment.

• Internal Sales equipment must be identified separately from non-Internal Sales equipment in the University's property accounting system.

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Internal Sales Depreciation Process

• Inventory Services Inventory Services is responsible for updating the accounting system for all capital equipment.

• Inventory Services will assist departments to determine depreciable life of capital equipment and appropriate method for disposal of capital equipment.

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Inventory Services

• Inventory Services will assist in the identification of capital equipment

• Inventory Services will identify equipment that is purchased with federal funds so that the department can appropriately account for all equipment related to their internal sales activities.

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Inventory Services

• Include depreciation in the rate development

• Capitalize capital assets

• Expense –Non-capitalized assets

• Only include purchased assets

• Use ISO Plant Fund

• Transfer depreciation from operating fund to plant fund to record expense and replenish equipment purchase value

• Use Inventory Services to support activity

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Summary

Questions & Answers

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Questions & Answers

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