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Prior to reading the standard on Capital Asset Purchases on Recharge/Service Center Accounts, it is beneficial to review the below IU Accounting Standards sections to gain foundational information:

  1. Rate Submission Requirements for Recharge Centers
  2. Unallowable Expenses for Recharge/Service Centers
  3. Capitalization Rules
  4. OMB Uniform Guidance, “Office of Management and Budget (OMB) Uniform Guidance section §200.403


This standard provides guidance to recharge/service centers regarding allowable purchases of capital assets associated with recharge activity and the process of recovering depreciation in recharge rates.


Capital assets, equipment with a purchase price of $5,000 or more, can be used in recharge/service center activity. Capital assets cannot be purchased from a recharge/service center account, however, depreciation associated with capital assets can be incorporated into the recharge/service center billing rates. Federally owned, federally purchased and contractor owned equipment and the associated depreciation cannot be incorporated in the recharge center billing rates.

Capital Asset Purchases for Recharge/Service Centers

Capital assets associated with a recharge/service center activity need to be purchased out of a renewal and replacement (92*) account within the same organization as the recharge/service center (66*) account. Regulations allow the unit to include the depreciation of these capital assets in rates billed. The purchase or lease of capital assets from a 67* or 69* account is allowed.

The purchase or lease of capital assets is no longer allowed on recharge/service center (66*) accounts. If a recharge/service center (66*) account is used on a capital requisition, Capital Asset Management will issue a correcting document to move the costs to the organization’s renewal and replacement (92*) account. If the organization does not have a renewal and replacement (92*) account, the department will be contacted for a different account number for the purchase.

Capital assets purchased with federal funds may be used in the recharge/service center, but depreciation related to these assets cannot be incorporated into the rate calculation. These assets are identified on the Asset Recovery Report in the “Fed Pass Thru” column, they will have a “Y” in this column.

Cost accounting standards do not permit recharge/service centers to recover the initial cash outlay for capital asset purchases or leases (object code 7XXX) in their annual rates. The cost of capital equipment purchased with non-federal funds may be recovered in recharge/service center rates by including a depreciation component in the billing rate. Recharge/service center equipment is identified by UCO staff in the asset management system to ensure that the related depreciation is not included in the Facilities and Administrative (F&A) rate calculation.

Depreciation Requirements for Recharge/Service Center Capital Asset Purchases

A recharge/service center is allowed to incorporate its annual depreciation expense from the last completed fiscal year into the recoverable rate calculation. In order to recover depreciation, a recharge/service center must only include depreciation on assets related to the recharge activity. Departments may elect to include the entire annual allowed depreciation expense, a portion of the depreciation, or none at all, in the annual recharge rate calculation. Depreciation expense associated with a federally funded asset or cost share account is not allowed inclusion in the recoverable rate.

If the capital asset (or multiple assets) is used for external activity, the depreciation should be allocated between the internal and external accounts. Please review the Allocating Costs to Internal and External Activity Standard for examples of depreciation allocation methods. The University Controller’s Office (UCO) recommends that departments provide documentation to support the allocation of the capital asset’s depreciation. The allocation cannot be made based upon a percentage of revenue. It should be based on usage of the equipment with an appropriate cost driver.

Once a piece of capitalized equipment is fully depreciated, it cannot be included in rate calculations. The actual depreciation expense used in the university's accounting system must be used in the rate calculation.

Future capital asset purchases

To fund future capital purchases, departments can only transfer cash equal to the annual amount of depreciation from the recharge/service center (66*) account to the renewal and replacement (92*) account. Depreciation transferred out of a recharge/service center (66*) account should be equal to or less than the depreciation calculation on the Asset Recovery Report. A department may choose to transfer depreciation quarterly, semi-annually, or at a minimum, annually.

Exceptions for fabrications may apply. Please contact Recharge Accounting with questions.

Requirements and Best Practices

This section outlines general requirements and best practices related to Capital Asset Purchases for recharge/service centers. The best practices outlined below allow users to gain a better picture of the entity’s true financial health and help identify potential issues on a more frequent basis. This allows organizations to identify errors, mistakes, and pitfalls so that they can be remedied quickly and prevent larger issues in the future.


  1. Review and become familiar with the material on this page; as well as the reference material prior to purchasing or leasing capital assets used in recharge/service center activity.
  2. To streamline the depreciation documentation process, units should create a recharge/service center sub-organization that only contains recharge/service center 66* accounts, one or more renewal and replacement 92* accounts, and a plant fund 95* account. (If applicable, related construction 90* and debt service 91* accounts should also be included.)
  3. Complete the depreciation transfer annually, if applicable.

Best Practices

  1. Review depreciation reports and transfer allowable depreciation to a plant fund (92*) account.
  2. Review Asset Recovery Report
  3. Include allowable depreciation as expense on the Rate Calculation tab of the Rate Setting template.