Policy and Procedures for Capitalization



Policy and Procedures for CapitalizationBACKGROUND INFORMATIONNote – The Capital Assets policy addresses the policy and procedures for the control and safeguarding of physical assets. This Capitalization Policy establishes the accounting for the PHA’s capitalized and non-capitalized assets based on the capitalization criteria set forth in the policy. The capitalization policy provides the requirements PHAs use to account for capital assets. A PHA’s capitalization policy sets criteria that when met, the cost is recorded as?capital assets, and if not met, the amount is charged to?expenses?when incurred. The threshold level set for a capitalization policy can vary considerably. A smaller PHA with few expenses may set a capitalization threshold of $1,000, whereas a larger PHA may prefer a higher threshold, such as $5,000. The capitalization policy applies to all programs of the PHA, including both federal and non-federal programs.This document provides a sample of a PHA capitalization policy and procedures.All PHAs. This sample provides an example capitalization policy and procedures for all PHAs, regardless of size or complexity.PHAs can simply cut and paste the sample into their policy and procedures document and modify as needed. ITEMS FOR CONSIDERATIONThe following provides items that the PHA needs to consider when developing their policy and procedures for capitalization and the major assumptions that were used to develop the sample policy and procedures.Assumption – The capitalization threshold will vary between PHAs so the PHA will enter the amounts on the policy.Assumption – The PHA will not capitalize stoves and refrigerators.Assumption – The capitalization policy will change for leases based on new GASB Statements.SAMPLE 1 – ALL PHAsCAPITALIZATION POLICYThis policy applies to all programs of the PHA, including both federal and non-federal programs.This policy establishes the capitalization criteria, including the capitalization threshold to distinguish and record certain transactions as a capital asset or as an expense.The following items must be capitalized (i.e., recorded as a capital asset on the PHA’s books).Land and Building Acquisitions – All land and building acquisitions are to be capitalized regardless of amount.Equipment – Equipment purchased or acquired by the PHA with a value of $XXX or more which is not physically attached to the PHA’s building structures, and the anticipated life or useful value of the equipment is anticipated to be more than one year. The equipment should be recorded as a capital asset.Building Improvement and Modernization – Modernization and renovation efforts of the PHA’s buildings, systems and infrastructure, such as parking lots or boiler systems with a value of $XXX or more and it is anticipated that the life of the item is extended by one year or more. The building improvement or modernization effort should be recorded as a capital asset.Capital leases – Capital leases are those in which the PHA is either leasing to purchase or leasing for the life of the asset. All leases of fixed assets must be differentiated between a regular operating lease and a capital lease. Assets acquired through a capital lease that meet the threshold for capitalization are to be capitalized and tracked as a capital asset.For purposes of the capitalization policy, stoves and refrigerators are always categorized as non-capitalized assets.The cost of an asset shall be defined using generally accepted accounting principles (GAAP).Assets that have been donated or transferred from another government will be recorded at fair value at the time of donation or transfer.ACQUISITION AND ACCOUNTING PROCEDURESBelow are the acquisition and accounting procedures for capital and non-capital assets. Acquisition Procedures for Capital and Non-Capital AssetsAll capital assets will need to be approved in the operating budgets or the Capital Fund Program Five Year Plan prior to purchase. The Executive Director may be required to consult the Board of Commissioners as other policies dictate. Below are the capitalization procedures to be used.Review the operating budgets to verify that the cost of the asset has been approved by the Board.The procurement policy will be used to determine the method of how the capitalized and non-capitalized asset will need to be purchased (e.g., small purchase method, sealed bid, etc.).Once the item is received and supporting cost material has been provided, the Finance office will determine based on a review of the capitalization policy, if the item is classified as a capital asset or a non-capitalized asset.Once the capital or non-capitalized asset is received, the item will be tracked in accordance with the PHA’s capital assets policy.Accounting Procedures for Capitalized and Non-Capitalized AssetsGenerally accepted accounting principles (GAAP) will be used to determine the actual cost of the acquired capital and non-capital asset.Capitalized Assets. Below are the accounting procedures for capitalized assets.In accordance with the capitalization policy, land, buildings, improvements and equipment that meet the capitalization policy criteria are to be recorded on the PHA’s book as capitalized assets.These capitalized assets will be tracked on a depreciation list (refer to the capital assets policy for tracking and control requirements) and depreciated.Depreciation costs will be based on the straight-line depreciation method (i.e., costs are depreciated evenly over the estimated useful life of the asset) and will begin with the date the asset was placed into serviceAll capital assets and related depreciation will be reconciled to the general ledger.Non-Capitalized Assets. Below are the accounting procedures for non-capitalized assets.For improvements and equipment that do not meet the capitalization criteria, the costs will be expensed to the appropriate budget / account line item.Refer to the capital asset policy for tracking and control requirements. ................
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