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SUBJECT: |
Capitalization Entries to the General Ledger
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SOURCE: |
Capital Asset Management | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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ORIGINAL DATE OF ISSUE: |
February 2010
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DATE OF LAST REVISION: |
September 2021
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CSOP NO: |
14.0 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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RATIONALE: |
Capitalization of assets occurs in the plant fund account for each Organization, Campus, or Reporting Auxiliary. In general, expenditures for moveable equipment will be capitalized within the organization plant fund account and expenditures for art & museum objects, buildings, infrastructure, land, land improvements, leasehold improvements, library books and intangibles will be capitalized in the campus plant fund account.
Moveable equipment purchased by a Reporting Auxiliary will be capitalized within the 95 plant fund account set up for that Reporting Auxiliary. |
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CSOP: |
Object code for Capitalization Plant Fund Account for Capitalization Capitalization entries for Asset Retirement Capitalization entries for Asset Transfers
Capitalization entries for Add Asset of Gift Equipment
Capitalization entries for Add Asset of Found Equipment
Capitalization entries for Depreciation Expense
Object code for CapitalizationThe proper Balance Sheet Object Code is determined by an attribute of the Financial Object Code. This attribute is called the Financial Object Code Sub Type and links the Capital Expenditure Object Code (7XXX) to the Balance Sheet Object Code. For example, Object Code 7000 has an Object Code Sub Type of CM (Capital Equipment Moveable). All Object Codes with a Sub Type of CM are capitalized on the Balance Sheet as Object Code 8610. Below is a listing of the Object Code Sub Types and their associated capitalization and accumulated depreciation Object Codes.
Plant Fund Account for CapitalizationThe plant fund accounts (95*) are used to hold the asset balances. The fiscal officer of the plant fund accounts should always be the Capital Asset Director. The proper plant fund account number is determined by both the Object Code Sub Type and the Organization. Within the Kuali Financial System, each account number is assigned to an Organization and each Organization is assigned two plant fund account numbers. The first is referred to as the Organization plant fund account, which is used by the capitalization process when moveable equipment items are purchased. The second is referred to as the Campus plant fund account, which is used by the capitalization process when non-moveable capital items are purchased. Below is a table illustrating how Object Code Sub Types dictate which of the two 95 plant fund account numbers will be used:
Capitalization ProcessAccount 1020000 purchases a computer under Object Code 7000 for $5,000.00. Object Code 7000 has a Financial Object Code Sub Type of CM, so the asset will be capitalized using Object Code 8610. Account 1020000 belongs to the Vice President/Chancellor/General Administration Organization and has been assigned an Organization plant fund account number of 9520074 and a Campus plant fund account number of 9520000. Because a moveable capital item is being purchased, the capitalization process will post entries to the Organization plant fund account number, 9520074. The following entries will be generated:Actual Purchase:
The Capital Asset Management System (CAMS) can generate four types of financial transactions that get posted to the General Ledger. They are Asset Retirements (AR), Asset Transfers (AT), Add Asset Global (AA), and Depreciation Expense (DEPR). With one exception, all entries generated by these four processes will be posted to a 95 plant fund account only. When Gift or Found Equipment is entered on the Add Asset Global document, entries will be posted to an individual operating account. In this case, offsetting entries will get posted to Income (Object Code 1175) and Expense (7XXX). This has no effect on cash. Capitalization Entries for Asset RetirementRetirement entries only post to the plant fund account. Example: Account 2321375 purchased a desk under Object Code 7000 for $5,000.00. Object Code 7000 has a Financial Object Code Sub Type of CM, so the asset was capitalized using Object Code 8610 in the Organization plant fund, 9520070. If the asset is retired and there has been no Depreciation , the entries would be:
If the asset were partially depreciated , the entry might be:
See CSOP 2.0 Asset Retirement Capitalization Entries for Asset TransfersTransferring an asset to another Organization will only affect the plant fund accounts. The capitalized cost, accumulated depreciation and the residual fund balance will be removed from the current owner's account and placed on the new owner's account. Example: Account 6048400 purchased an X-ray machine under object code 7000 for $5,000.00. Object Code 7000 has a Financial Object Code Sub Type of CM, so the asset was capitalized using Object Code 8610 in the Organization's plant fund, 9548400. The asset was purchased 9/4/20, so it has $1,166.67 of depreciation. If the asset is transferred to account 1035600 with an Organization plant fund of 9520010, the entries would be: Remove the asset from the current account's plant fund:
Capitalization Entries for Add Asset of Gift EquipmentWhen entering information on the Add Asset Global document for a gift, the initiator will supply the account number, Object Code and the appraised value of the item. Accounting entries are then created based on this information. The account will see offsetting entries to the expense Object Code (7XXX) and the income Object Code (1175), for the value of the item. To better isolate gift equipment from actual purchases, an Object Code of 7700 is used. The entries offset, having no effect on cash or fund balance. Example: Account 1270000 received a gift. The appraised value of the asset is determined to be $5,500.00. Object Code 7700 has a Financial Object Code Sub Type of CM, so the asset will be Capitalized using Object Code 8610 on the Organization’s plant fund, 9570074. The following entries are then created: Transaction entered on Add Asset document:
See CSOP 7.0 Gifts
Capitalization Entries for Add Asset of Found EquipmentWhen entering information on the Add Asset Global document for found equipment, the initiator will supply the account number, Object Code and the book value of the item. Accounting entries are then created based on this information. The account will see offsetting entries to the expense Object Code (7XXX) and the adjustment Object Code (4997), for the value of the item. To better isolate found equipment from actual purchases, an Object Code of 7701 is used. The entries offset, having no effect on cash or fund balance. Example: Account 1270000 finds an asset. The book value of the asset is determined to be $5,500.00. Object Code 7701 has a Financial Object Code Sub Type of CM, so the asset will be Capitalized using Object Code 8610 on the Organization’s plant fund, 9570074. The following entries are then created: Transaction entered on Add Asset document:
See CSOP 33.0 Capitalization of Found Equipment
Capitalization Entries for Depreciation ExpenseThe Capital Asset Management System (CAMS) will calculate and post depreciation expense monthly. The straight-line method is used for the calculation. Each asset will be depreciated from the depreciation date (assigned when the Capital Asset Office officially recognizes the asset) and depreciated over the asset's useful life. Every asset in CAMS is assigned an Asset Type that has an associated useful life. The depreciation entry will debit Object Code 51XX, Depreciation Expense, and credit the appropriate accumulated depreciation Object Code based on the Object Code Sub Type. Depreciation expense has no affect on cash and will be posted to the plant fund account. KFS 7.0 software upgrade on February 11, 2018 changed how depreciation is calculated for additions to existing assets. The formula for calculating depreciation uses a looking-forward approach and determines depreciation based on the remaining useful life. This spreads depreciation out evenly over an asset’s life taking into consideration changes in value, life or the in-service date. New example: Account 6617000 purchased a scanner for $9,000.00 using object code 7000. Object Code 7000 has a Financial Object Code Sub Type of CM, so the asset will be capitalized using Object Code 8610 to the Organization's plant fund, 9517000. Scanners have a depreciable life of 8 years so the first month's depreciation would be calculated as follows: Depreciation Expense = (Depreciable Base X (Number of Months to Depreciate / (Useful Life in Years X 12 Months per Year))) $93.75 = ($9,000.00 X (1/(8 X 12))) Depreciation expense entry:
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DEFINITIONS: |
Depreciation-
The periodic charge to income that results from a systematic and rational allocation of cost over the life of a tangible asset.
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CROSS REFERENCES: |
CSOP 1.0 Capitalization Rules
CSOP 2.0 Asset Retirement CSOP 3.0 Asset Transfer CSOP 7.0 Gifts CSOP 33.0 Capitalization of Found Equipment |
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RESPONSIBLE ORGANIZATION: |
Organizations that purchase capital assets. |