(Last Modified on May 1, 2017)

A Capital Asset is a tangible or intangible item with the following characteristics:

• Expected useful life of more than one year
• Acquisition cost(s) equals or exceeds capitalization limit/threshold
• Not expected to be sold as part of normal business operation, i.e. Inventory.

Capital Assets may be acquired via purchase, donation, construction or transfer.

The University System of Georgia (USG) has invested in a broad range of capital assets that are used in system operations, which include:

1. Land and land improvements
2. Building and building improvements
3. Facilities and other improvements
4. Equipment ( machinery, furniture, vehicles)
5. Infrastructure
6. Construction in progress
7. Capitalized Collections (works of art and historical treasures)
8. Library Collections
9. Intangible Assets

• Software
• Other Intangible Assets

7.1.1 Capital Asset Classification

(Last Modified on May 1, 2017)

Assets purchased, constructed or donated that meet or exceed the University System’s established capitalization thresholds or minimum reporting requirements must be uniformly classified. *

Institutions will follow USG accounting standards for establishing the historical acquisition cost for each asset. Institutions will be allowed to substitute information for residual value and/or estimated life based on individual experience. Any substitutions must be substantiated and auditable. Residual values for equipment will be zero. Equipment is normally disposed of through the state where the value to the system and state is nominal.

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7.1.2 Capitalization Thresholds

(Last Modified on June 21, 2019)

Standard capitalization thresholds for capitalizing assets have been established for each asset category. All University System of Georgia entities are required to use these thresholds.

Class of Asset	Threshold
Land/land improvements	Capitalize All
Buildings/building improvements (including leased buildings)	$100,000
Facilities & other improvements (including leasehold improvements)	$100,000
Infrastructure (Major Systems, including leased infrastructure, if any) Infrastructure (Additions, including leases if any)	$1,000,000 $100,000
Equipment / Leased Equipment	$5,000
Library books/materials (collections)	Capitalize All
Works of art/historical treasures	Capitalize All
Intangible Assets   Software developed (or obtained for internal use)   Other Intangible Assets     Water Rights     Timber Rights     Easements     Patents     Trademarks         Copyrights	$1,000,000 $100,000

Note: Capital assets purchased with federal funds may be subject to different capitalization thresholds. Please refer to the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards to determine if different capital thresholds should be applied to assets in question.

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7.1.3 Capital Asset Acquisition Cost

(Last Modified on May 1, 2017)

Capital assets must be recorded and reported at their historical costs, which include the vendor’s invoice (plus the value of any trade-in), plus sales tax, initial installation cost (excluding in-house labor), modifications, attachments, accessories or apparatus necessary to make the asset usable and render it into service. Historical costs also include ancillary charges such as freight and transportation charges, site preparation costs and professional fees.

Capitalized interest, which is interest accrued during the construction period of a capital asset that has been financed, must be added to the cost value of the asset. This is most prominent with our Public Private Venture (PPV) program assets. Assets acquired with gifts and grants that are restricted by the donor or grantor for acquisition of those assets do not qualify for capitalization of interest.

Estimating historical cost– In some instances, the acquisition cost of property may not be available and some alternative basis must be used to record the capital asset. For instance, documentation may not have been available to determine the original cost of acquired or constructed property; also, it may be impossible or very time-consuming to reconstruct the actual cost of the property. In situations such as this, the original cost of the property may be estimated and used as the basis for capitalization. When estimates are used, documentation must be maintained to describe and support the estimation methods employed and the extent to which estimates were used. Insured values and current value estimates cannot be used for capital asset reporting purposes. Allowable estimation methods include using historical sources to determine the cost of similar assets at the time of acquisition and indexing where the historical cost of an asset is estimated by taking the current cost of a similar asset and dividing it by an index figure which adjusts for inflation.

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7.1.4 Capital Asset Donations

(Last Modified on May 1, 2017)

GASB Statement No. 33, Accounting and Financial Reporting for Non-Exchange Transactions, defines a donation as a voluntary non-exchange transaction entered into willingly by two or more parties. Both parties may be governments or one party may be a non-governmental entity, including an individual. Assets donated by parties outside the financial reporting institution should be reported at their fair market value plus ancillary charges, if any, as of the date of the donation.

See Section 7.1.9 for assets transferred from component units/cooperative organizations.

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7.1.5 Depreciating Capital Assets

(Last Modified on May 1, 2017)

Capital assets should be depreciated over their estimated useful lives unless they are inexhaustible. Please refer to Section 7.9, Works of Art and Historical Treasures for a definition of an inexhaustible asset.

All University System of Georgia institutions will use the straight-line depreciation method (historical cost less residual value, divided by useful life). Institutions will use the following-month convention for depreciation for indicating when the asset is placed into service.

Depreciation data should be calculated and recorded in the entity’s Capital ledger for each eligible asset. Depreciation expense and accumulated depreciation is calculated monthly through the Asset Management module and posted to the Capital ledger.

Depreciation for auxiliary services, including athletics, must be funded by a Renewals and Replacements (R&R) Reserve. The amount of R&R reserve recognized each year should be recorded in each auxiliary unit in an amount equal to depreciation expense charged on the auxiliary unit’s capital assets that are owned by the institution. For PPV leased assets, an R&R reserve will be maintained by a third party trustee.

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7.1.6 Residual Value

(Last Modified on May 1, 2017)

In order to calculate depreciation for an asset, the estimated residual value must be declared and deducted before depreciation can be calculated. The use of historical sales information becomes invaluable for determining the estimated residual value. Since the residual value of machinery and equipment is normally nominal for USG institutions, there will be no residual value considerations.

Residual value will be considered in depreciation for buildings, building improvements, facilities and other structures, and infrastructure. Residual value for buildings, building improvements, facilities and other structures, and infrastructure will be 10% of historical cost, unless the institution can justify another value. For leased assets, generally no residual value will be applied if a ground lease is in effect. See Section 7.11.2 (example 2).

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7.1.7 Sale of Capital Assets

(Last Modified on May 1, 2017)

A sale of a capital asset is a type of disposition whereby cash is involved. When as asset is sold to an entity outside of the State of Georgia reporting entity, a gain or loss must be recognized in the accounting records for the difference between the proceeds received from the sale of the capital asset and its net book value. If the asset that is sold has been fully depreciated, the net book value equals the salvage value, if any. No gain or loss would be recognized if cash exchanged equals the net book value of asset.

Example

An asset, which had a net book value of $ 3,000 (historical cost of $ 10,000 less $ 7,000 accumulated depreciation), was sold for $ 2,000, resulting in a loss on sale of asset of $ 1,000 ($ 2,000 minus $ 3,000).

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7.1.8 Disposal Other Disposition of Capital Assets

(Last Modified on May 1, 2017)

Disposals/other dispositions related to theft, loss or destruction of capital assets normally would not involve cash, but would result in recognition of a gain or loss. When the capital asset is removed from the accounting records for disposal or other disposition, a loss would be recognized equal to the net book value of the asset to removed. No loss is recognized if the asset is fully depreciated or has no residual value. If the asset in question has a residual value, the residual value is recognized as the loss if the asset is fully depreciated.

Refer to the Department of Administrative Services Georgia Surplus Property Manual for tracking and disposal instructions for State owned assets.

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7.1.9 Exchange of Capital Assets

(Last Modified on May 1, 2017)

An exchange is a reciprocal transfer between a government and another organization that results in the government acquiring capital assets by surrendering other capital assets. The transaction usually involves little or no monetary consideration as opposed to a trade-in.

Exchanges between organizations included in the State reporting entity should be recorded at the book value of the assets received whether the assets are similar or not.

Note: Both State organizations participating in the transfer must report the same book value and these amounts should be reported as Special Item Transfers on the Statement of Revenues, Expenses and Changes in Net Position. Therefore, when institutions participate in capital asset exchanges, they should contact USO-Fiscal Affairs to ensure symmetry in reporting between units within the USG and other State organizations.

Assets acquired by the exchange of assets between the USG system office/USG institution and an organization outside of the State reporting entity should be recorded based on the value of the asset surrendered, if available. Whether the assets are similar or dissimilar will determine if the book value or the fair value of the assets surrendered will be used to record the asset acquired.

Similar assets are assets that are of the same general type, that perform the same function, or that are employed in the same line of operation.

When recording an exchange of similar assets with an entity not included in the State reporting entity, State organizations must use a book value basis for the assets surrendered.

• When assets are exchanged and no monetary consideration is paid or received, the asset acquired is recorded at the book value of the asset surrendered.
• When monetary consideration is given as part of the exchange, the asset acquired is recorded at the sum of the cash paid plus the book value of the asset surrendered.

Dissimilar assets – When recording an exchange of dissimilar assets with an entity not included in the State’s reporting entity, State organizations must use a fair value basis for the assets surrendered.

• When assets are exchanged and no monetary consideration is paid or received, the asset acquired is recorded at the fair value of the asset surrendered.
• When monetary consideration is given as part of the exchange, the asset acquired is recorded at the sum of the cash paid plus the fair value of the asset surrendered.

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7.1.10 Capital Asset Impairments

(Last Modified on May 2, 2017)

GASB Statement No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries addresses capital asset impairments. An asset impairment is a significant, unexpected decline in the service utility of a capital asset. The provisions of GASB Statement No. 42 should also be applied when determining impairments of intangible assets. Institutions must evaluate Capital Assets annually for impairment.

Impairments are indicated when events or changes in circumstances suggest that the service utility of a capital asset may have significantly or unexpectedly declined. The determination of an impairment is a two-step process. First potential impairments must be identified and then testing for the impairment must be conducted.

1) Indicators of impairment include:

• Evidence of physical damage
• Enactment or approval of laws or regulations or other changes in environmental factors
• Technological changes or evidence of obsolescence
• Changes in the manner or duration of use of a Capital Asset
• Construction stoppage

When one or more of the above circumstances exist, the institution must test for impairment. Testing for the impairment must be conducted to determine if both of the following factors exist.

• The decline in service utility of the capital asset is so significant that the cost of restoring or maintaining the asset outweighs the benefits provided; and,
• The decline of service utility is unexpected and not part of the normal life cycle for the asset.

Note: A common indicator of impairment for internally generated intangible assets is development stoppage, such as stoppage of development of computer software due to a change in the priorities of management. Internally generated intangible assets impaired from development stoppage should be reported at the lower of carrying value or fair value. GASB Statement No. 51 adds “development stoppage” to the impairment indicators of GASB Statement No. 42.

After testing, if it is determined that a capital asset has been permanently impaired, the carrying value of the asset (value prior to impairment restoration costs) must be written down by the amount of the asset impairment loss if the impairment loss or insurance proceeds (if any) exceed $ 100,000.

Example: A building had a net book value of $ 750,000 at date of impairment event. The impairment loss calculation yields a restoration cost ratio (actual restoration/rebuilding costs divided by estimated current replacement costs) of 12% which equates to an asset impairment loss of $ 90,000 ($ 750,000 X .12). Insurance proceeds of $ 400,000 were received on this property. Even with an impairment loss of less than $ 100,000, this property would still meet the threshold for reporting the impairment loss because the insurance recovery exceeded $ 100,000.

Note: When insurance recoveries are involved it is quite possible that a gain could be realized when calculating the impairment.

For impaired capital assets that will remain in service, the method used to calculate the impairment loss should be based on the indicator of impairment as follows:

Indicator of Impairment	Method Used to Calculate Impairment Loss (*)
Physical Damage	Restoration Cost Approach
Change in Legal or Environmental Factors	Service Units Approach
Technological Changes or Obsolescence	Service Units Approach
Change in Manner or Duration of Use	Service Units Approach or Depreciated Replacement Cost Approach

(*) The methods used to calculate impairment losses are discussed in more detail in SAO’s Statewide Accounting Policy and Procedure Manual’s Section: Capital Assets, Subsection Impairments.

SAO requires each agency to report impairments; therefore, institutions must report any potential impairments to the system office within 20 days of discovery of impairment. Institution must also report results of impairment testing and inform as to any impairment loss/gain.

If capital assets are affected by one or more of the impairment indicators but do not meet both of the impairment tests, the capital asset’s useful life, salvage value and depreciation should be re-evaluated to determine if any changes should be made. Any changes made in these circumstances should be made prospectively.
An Impairment loss/gain must be reported as follows in the institution’s Annual Financial Report:

1. If the impairment event was unusual and infrequent, report the loss/gain as an Extraordinary Item, which is separately reported at the bottom of the Statement of Revenues, Expenses and Changes in Net Position (SRECNP).
2. If the impairment event was unusual or infrequent and within Management’s control, report the loss/gain as a Special Item, which is separately reported at the bottom of the SRECNP.
3. If the impairment event was neither unusual nor infrequent, report the loss/gain as an Operating Expense on the SRECNP.

As evidence that a Capital Asset impairment has been evaluated, institutions should complete the Capital Asset Impairment Questionnaire annually.

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7.1.11 Assets Held in Trust

(Last Modified on May 1, 2017)

Capital assets held by an institution on behalf of a non-state entity (such as art collections owned by families, estates and others) and that are under the temporary control of the agency should be accounted for in the institution’s accounting records. This includes assets owned by the federal government that have been loaned to an institution. Assets held in trust must be recorded using the appropriate acquisition and disposal methodology for such assets. Since the institution does not own these assets, the assets should be recorded at $ 0.00 cost.

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7.1.12 Controlled Assets

(Last Modified on May 1, 2017)

Controlled assets are assets of the university system that must be secured and tracked as inventory. Moveable personal property with an acquisition cost of $3,000 or more must be inventoried and tracked by units of the university system. All weapons (including firearms), regardless of value, must be maintained and tracked in the asset management system. In addition to controlled assets, an institution may inventory other assets it considers high risk or for management purposes. Controlled assets with an acquisition cost of less than $5,000 will not be capitalized or depreciated for general-purpose or external financial reporting purposes.

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7.1.13 Jointly Funded Capital Assets

(Last Modified on May 1, 2017)

Capital Assets paid for jointly by the state and other governmental entities should be capitalized by the entity responsible for future maintenance.

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7.1.14 Fully Depreciated Capital Assets

(Last Modified on May 1, 2017)

Fully depreciated capital assets that are still in service should remain on the capital asset records until the asset is retired in accordance with guidance provided by GASB Comprehensive Implementation Guide question 7.13.5. The original cost of a capital asset cannot change; therefore, the only way to extend the service life is to change the depreciation period.

Institutions should review capital assets periodically and extend useful lives where appropriate. It is recommended that this be done when capital assets reach the 50% depreciation threshold. It is required for capital assets that have been depreciated 75% or more of their useful lives.

Salvage values, like depreciable periods, are accounting estimates and as such, they may change later in an assets life, therefore, any change to salvage value is a change that would be accounted for prospectively affecting only current and future periods.

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7.1.15 Component Depreciation for Certain Capital Assets

(Last Modified on May 1, 2017)

Generally it is preferable to depreciate capital assets, such as buildings, as one unit, however, it is sometimes more appropriate to capitalize assets on a component basis. This is often true for research building and equipment that are included in organized research and affect indirect cost rate calculations.

When depreciating capital assets using a component basis approach, the depreciation is based on the useful life of each component. This will generally provide a more accurately measure of annual depreciation for multi-functional buildings with fixed equipment.

For Buildings that have multiple components, institutions that wish to use component depreciation approach should group the building components into (4) general categories.

• Building Shell – basic building structure that includes site preparation, foundation, frame, construction exterior, floor structure, exterior walls, and roof structure.
• Building Finishes – not part of basic building structure, but includes components such as roof covering, construction interior, and floor covering which enhance service and aesthetic quality.
• Building Services System – includes components which enhance buildings functionality, such as electrical service and distribution lines, HVAC systems, plumbing, fire protection systems, and elevators
• Fixed Equipment – generally includes built in components, such as built in lab equipment, cabinetry, fixtures, etc.

Useful lives should be applied separately by category as follows:

• Building Shell – Since this is the basic structure, depreciation would be based on building useful lives found in the Appendix, Section 7.15.2.
• Building Finishes – Useful lives of 20 years are recommended for this category.
• Building Services System – Useful lives of 10 to 20 years are recommended based on type of component. Since many of these components are viewed as equipment type items when not capitalized as part of an overall building projects, Appendix, Section 7.15.3 will provide guidance to help determine their useful lives.
• Fixed Equipment – Useful lives of 10 to 15 years are recommended depending on type of component. Appendix, Section 7.15.3 should also be referenced when determining the useful lives of these components.

While most component depreciation is related to a building and its components, there may be instances where it is appropriate to apply component depreciation methodology to assets other than buildings, such as complex machinery and IT network infrastructure.

Individual components may not have a longer asset life that the primary capital asset. For example, components of a building may not have asset lives longer than that of the primary structure (Building Shell).

Capital Assets to be componentized should be recorded at actual component cost if possible; however, if not practical, total costs may be allocated to individual components. If allocation methodology is used, the institution must maintain documentation of such methodology and apply consistently to all capital assets affected.

Any additions or future improvements to these assets that meet capitalization thresholds must also be componentized. If an existing capital asset is moved to component depreciation status, componentized depreciation should be applied prospectively on the undepreciated portion of the capital asset.

Note: If any institutions were using an internally developed component depreciation approach for certain capital assets prior to July 1, 2016, they may continue to use that approach on those particular assets until they are fully depreciated. Going forward, those institutions should adopt the requirements of this section for all new capital assets where the component approach is to be applied.

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