University of Minnesota
Internal/External Sales
“Equipment Purchases and Depreciation”
Plant Funds, Transfers and other Requirements
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Rate Development - Depreciation
• Depreciation associated with capital equipment may be included in the rate development.
• Depreciation expense will be calculated in the Asset Management module.
• Separate capital equipment chartfield strings should be established to account for capital related transactions.
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Learning Objectives
As a result of this session, participants will be able to:• Set-up the account structure to record the purchase of a capital
asset and record depreciation• Include equipment expense (depreciation) in the rate
development, budget and record actuals• Validate depreciation with Inventory Services vs. rate
Development and Budget.
• Websites for more information
• What is a Capital Asset
• Key Terms and definitions
• Using an ISO Plant Fund
• Transferring Depreciation to the ISO Plant Fund
• Questions & Answers
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Agenda
Located at :
Internal Sales EFS website:
http://www.finsys.umn.edu/sales/int.html
Administrative Procedure Establishing Internal Sales Capital Equipment Funds and Recording Depreciation:
http://policy.umn.edu/Policies/Finance/Accounting/INTERNALSALES_PROC05.html
Internal Sales Training Module:
http://www.finsys.umn.edu/sales/iso.html5
Internal Sales Rate Development Procedure and Website
Located at :
Inventory Services Website:
http://www.finsys.umn.edu/inventorysvs/inventorysvshome.html
Instructions for Transferring Capital Equipment Assets
http://www.policy.umn.edu/prod/groups/president/@pub/@forms/documents/form/um1556.pdf
Transferring or Selling Capital Equipment Assets to Another University Department:
http://www.policy.umn.edu/Policies/Finance/Inventory/PROPERTY_PROC02.html
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Inventory Services Website
Located at :
Transferring or Selling Capital Equipment Assets to Another University Department:
http://www.policy.umn.edu/Policies/Finance/Inventory/PROPERTY_PROC02.html
Asset Accounting, Asset Management, Asset Transfer Form – Financial Management Training Courses - http://www1.umn.edu/ohr/trainingservices/financial/efs/index.html#aa
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Inventory Services Website
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What is a Capital Asset
Capital assets are items that are used in the operations but are not intended to be sold as part of such operations. Capital assets must have: • Acquisition value of $2,500 or greater per item • A useful life greater than the capitalization threshold for the asset category to which they belong.• Capital equipment assets are tangible non-expendable personal property items.•A capital equipment asset must maintain its identity over the course of its useful life.
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What is a Non-Capital Asset
Non-capital equipment assets are: • non-expendable personal property items with an acquisition value of less than $2,500 per item OR • an estimated useful life of less than one year.
Non-capital equipment assets are expensed.
Custodial organizations (DeptIDs) are responsible for all of the capital and non-capital equipment assets in their custody.
• Acquisition cost - Includes the invoice price and the cost of any modifications, construction, installation, insurance, freight and is reduced by any trade-in. For donated assets the value is the fair market value or appraised value at the date of the gift.
• Depreciation - The allocation of the cost of an asset over its economic life.
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Key Terms Associated with Assets
• Useful Life - The length of time that a depreciable asset is expected to be useable as defined by the Controller's Office following Generally Accepted Accounting Principals.
• Inventory - An asset that a University department holds for sale or use in providing goods and/or services to customers.
• Capital equipment assets are not "inventory."
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Key Terms Associated with Assets
• Internal Sales Organizations can recover the cost of capital equipment in the rates they charge other University departments by including the appropriate depreciation in the rate development.
• Only include amounts for purchases already incurred.
• Not allowed to include amounts in their rates for anticipated future purchases.
• Federal grants can’t include depreciation on equipment purchased with federal funds.
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Internal Sales Depreciation Process
• Capital equipment must be transferred to the Internal Sales Plant Fund specifically designated for this purpose, and costs are recovered by including the applicable depreciation amount in service rates.
• Plant Fund Code for ISO activity is 7201- Internal Sale Capital Purchases
• The equipment acquisition and/or original purchase cost would be recorded in account 168001- Equipment Acquisitions.
• This amount would show up as a negative value on the UMReport “Account Budget Status for Current Non-Sponsored Funds”.
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Internal Sales Depreciation Process
• This depreciation is then transferred from the Internal Sales operating fund into the plant fund account on a monthly, quarter, or annual basis.
• Transfer codes to use for recording equipment depreciation are the 600301 - Non-Mandatory Transfer In - Equipment Replace and 610301- Non-Mandatory Transfer Out - Equipment Replace .
• The amount transferred from the operating account (610301) value will be a negative amount and the amount received in the plant fund account (600301) will be a positive amount.
• The result of the transfer will reduce (replenish over time) the negative value (deficit) of the equipment in the ISO plant fund to $0 after the useful life is complete.
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Internal Sales Depreciation Process
Purchase $100,000 capital asset in plant fund 7201 – ISO Capital Purchases and transfer 12 months of depreciation (1,666.67 per month)
Expenditures• 168001- Equipment Acquisitions Budget: -100,000.00• 168001- Equipment Acquisitions Expenditure: -100,000.00• 760101 - Equipment Depreciation Budget/Exp: 20,000.00• 760101 - Equipment Depreciation Budget/Exp: -20,000.00
Transfer In • 600301 NMTI - Equip Replace Budget: 20,000.00• 600301 NMTI - Equip Replace Expenditure: 20,000.00
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Internal Sales Depreciation Process - Example
Transfer 12 months of depreciation (1,666.67 per month) from operating fund 1150 – Recharged Internal Sale :
Transfer Out
• 610300 Non-Mand Oth Trsfr Out-FinBdg Budget: -20,000.00
• 610301 NMTO - Equip Replace Expenditures: -20,000.00
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Internal Sales Depreciation Process - Example
• Policy and procedures for ISO capital purchases are not voluntary.
• Capital Assets should not be depreciated in the ISO operating fund using account 760101 – Depreciation – Equipment.
• Internal Sales equipment must be identified separately from non-Internal Sales equipment in the University's property accounting system.
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Internal Sales Depreciation Process
• Inventory Services is responsible for updating the accounting system for all capital equipment.
• Inventory Services will assist departments to determine depreciable life of capital equipment and appropriate method for disposal of capital equipment.
• Units are responsible for the accuracy of the recording of the purchase and depreciation for Internal Sales capital equipment.
• Inventory Service’s records are official and units will be audited against what they have recorded.
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Inventory Services
• Inventory Services will assist in the identification of capital equipment
• Inventory Services will identify equipment that is purchased with federal funds so that the department can appropriately account for all equipment related to their internal sales activities.
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Inventory Services
• Include depreciation in the rate development
• Capitalize capital assets
• Expense –Non-capitalized assets
• Only include purchased or donated assets
• Use ISO Plant Fund
• Transfer depreciation from operating fund to plant fund to record expense and replenish equipment purchase value
• Use Inventory Services to support activity
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Summary
Questions & Answers
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Questions & Answers