7.4 Buildings and Building Improvements
7.4.1 Building Definition
(Last Modified on May 1, 2017)
A building is a structure that is permanently attached to the land, has a roof, is partially or completely enclosed by walls, and is not intended to be transportable or moveable.
7.4.2 Building Improvement Definition
(Last Modified on May 1, 2017)
Building improvements are capital events that materially extend the useful life of a building or increase the value of a building, or both. A building improvement should be capitalized as a betterment and recorded as an addition of value to the existing building if the expenditure for the improvement meets or exceeds the capitalization threshold, or increases the life or value of the building by 25 percent of the original life or cost.
Building improvements meeting the capitalization threshold or increasing the building value by at least 25 percent of the original cost should be recorded as an addition of value to the existing asset using a parent/child asset management relationship. The useful life of the improvement (the “child”) should generally not exceed that of the original asset (the “parent”). However, if the improvement is not an integral part of the original asset, it may possess a different useful life than the parent asset.
For example, the useful life of a floor renovation project should not exceed the useful life of the building asset to which it relates because it is an integral part of the building that cannot exist on its own. Alternately, a wing addition to a building could have a useful life that exceeds the life of the building to which it is attached because it did not exist as part of the original asset.
Building improvements increasing the building’s useful life by at least 25 percent of the original life period should be capitalized in one of two ways:
- Capitalize as a betterment and record as an addition of value to the existing building using a parent/child asset management relationship. The parent’s useful life should be modified for the increase in useful life.
- If fully depreciated, recapitalize the eligible improvements as a new building asset and retire the original building asset. This procedure would be used in cases where major renovations are completed.
7.4.3 Depreciation Methodology
(Last Modified on May 1, 2017)
The straight-line depreciation method (historical cost less residual value, divided by useful life) will be used for buildings, building improvements, and their components. For useful lives of buildings, see Sections 7.15.1 and 7.15.2. Subsequent improvements that change the use or function of the building shall be depreciated.
Buildings designated as “historical” by the Georgia Department of Natural Resources will not be depreciated unless used in the operations of the University System of Georgia. However, any improvements or betterments not deemed “historical” by the Georgia Department of Natural Resources will be depreciated the same as any other improvements or betterments made to a building.
7.4.4 Capitalization Threshold
(Last Modified on May 1, 2017)
The capitalization threshold for buildings and building improvements is $100,000. Examples of expenditures to be capitalized as buildings include:
Purchased Buildings
- Original purchase price
- Expenses for remodeling, reconditioning, or altering a purchased building to make it ready to use for the purpose for which is was acquired (this would include payroll and related costs for employees directly involved in the modifications)
- Environmental compliance, such as asbestos abatement, etc.
- Professional fees, such as legal, architectural, inspections, title searches, etc.
- Payment of unpaid or accrued taxes on the building to date of purchase
- Cancellation or buyout of existing leases
- Other costs required to place or render the asset into operation
Constructed Buildings
- Completed project costs
- Interest accrued during construction
- Cost of excavating, grading, or filling of land for a specific building
- Expenses incurred for the preparation of plans, specifications, blueprints, etc.
- Cost of building permits
- Costs of temporary buildings used during construction
- Unanticipated costs such as rock blasting, piling, relocation of the channel of an underground stream, etc.
- Permanently attached fixtures or machinery that cannot be removed without impairing the use of the building
- Additions to buildings, such as expansions, extensions, enlargements, etc.
Building Improvements/Replacements
The following are examples that should be capitalized as improvements to buildings if (1) the addition of value to the existing building meets or exceeds the capitalization threshold, or (2) the addition increases the life or value of the building by 25 percent of the original life or cost.
- Conversion of attics, basements, etc., to usable office clinic, research, or classroom space.
- Structures attached to the building, such as covered patios, sunrooms, garages, carports, enclosed stairwells, etc.
- Installation or upgrade of heating and cooling systems, including ceiling fans and attic vents
- Original installation or upgrade of wall or ceiling covering, such as carpeting, tile, paneling, parquet, etc.
- Structural changes, such as reinforcement of floors or walls, installation or replacement of beams, rafters, joists, steel grids, or other interior framing
- Installation or upgrade of window or doorframes, upgrading of windows or doors, built-in closets and cabinets, etc.
- Interior renovation associated with casings, baseboards, light fixtures, ceiling trim, etc.
- Exterior renovation, such as installation or replacement of siding, roofing, masonry, etc.
- Installation or upgrade of plumbing and electrical wiring
- Installation or upgrade of phone or closed circuit television systems, networks, fiber optic cable, wiring required in the installation of equipment that will remain in the building, etc.
- Other costs associated with the above improvements
Examples of building improvements that should be capitalized (even when the improvements do not meet the $100,000 threshold):
- Institution has a storage/maintenance building that originally cost $ 200,000 with a useful life of 15 years. After 10 years the building was structurally reinforced with steel beams at a cost of $ 50,000, which extended the useful life to 20 years. Even though the $ 50,000 did not meet the capitalization threshold, this improvement would be capitalized because it extended the useful life by 5 years (33%).
- Institution has a greenhouse that originally cost $ 300,000 with a 25-year useful life. In year 10, the original wooden floor was replaced with a concrete reinforced floor. The cost of the improvement was $ 80,000 and the useful life remained the same. The $ 80,000 should be capitalized because it improved the value of the overall asset value by 27%, which is more than 25% of the original cost.
7.4.5 Building Maintenance Expense
(Last Modified on May 1, 2017)
The following are examples of expenditures, which should be recorded as maintenance expenses because they do not qualify as capital improvements.
- Adding, removing, and/or moving of walls relating to renovation projects that are not considered major rehabilitation projects and do not increase the value of the building
- Improvement projects of minimal or no added life expectancy and/or value to the building
- Plumbing or electrical repairs
- Cleaning, pest extermination, or other periodic maintenance
- Interior decoration, such as draperies, blinds, curtain rods, wallpaper, etc.
- Exterior decoration, such as detachable awnings, uncovered porches, decorative fences, etc.
- Maintenance-type interior renovation, such as repainting; touch-up plastering; replacement of carpet, tile, or panel sections; sink and fixture refinishing, etc.
- Maintenance-type exterior renovation, such as repainting, replacement of deteriorated siding, roof or masonry sections, etc.
- Replacement of a part or component of a building with a new part of the same type and performance capabilities, such as replacement of an old boiler or roof with a new one of the same type and performance capabilities or replacing a shingle roof with another shingle roof.
- Any other maintenance-related expenditure that does not increase the value or useful life of the building
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