The University of Chicago

Financial Services

  

1004 Land, Buildings, Equipment, and Books

1004.1 Capitalization Policy: Land, Buildings, Equipment, and Books

Subject Area: Accounting
Responsible Office: Financial Services
Sponsor: Associate Vice President for Finance
Originally Issued: July 1988
Revised: October 13, 2005, October 2006, April 2010, January 18, 2013
Refer Questions To: James Ribikawskis, 773-702-3690

Purpose: To establish a capitalization policy for financial accounting purposes for land, buildings, equipment, and books.

Policy

This policy applies only to land, buildings, equipment, and books which are owned or controlled, and used in the operations of the University. Land, buildings, equipment, and books not used in the operations should be treated as an investment rather than a capitalized asset. Capitalized assets include the following:

  1. Land - Cost to be capitalized includes all costs connected with acquisition and costs incurred in preparing the land for its ultimate use. These include but are not limited to the cost of: purchase, appraisals, professional services, and title insurance.
  2. Land Improvements - Improvements to be capitalized include the cost of landscape, surface parking lots, and outdoor public recreational fields having a cost in excess of $100,000. All costs of land improvements associated with newly constructed buildings will be capitalized.
  3. Building - Cost to be capitalized includes all costs related to acquisition or construction. Acquisition cost includes but is not limited to the cost of: purchase, professional services, appraisals and title insurance. Construction cost includes but is not limited to the cost of: professional services, materials, labor, and site preparation.
  4. Infrastructure – Costs to be capitalized include underground utility and steam tunnels or any other external, stationary asset that is not part of a building’s construction costs or the costs of land improvements. The costs should be in excess of $100,000 and have an expected life of 20 or more years. Examples of Infrastructure are – steam tunnels, electrical vaults, campus lighting, etc.
  5. Building Renovations - Building improvements to be capitalized are significant alterations or structural changes that a) cost in excess of $100,000 and b) meet one or more of the following conditions:

    1. The project extends the useful life of the building beyond what was originally scheduled.
    2. The project substantially changes the use or purpose of the original space.
    3. The project expands the total square footage of the building.

      The book value of a renovated building will be reduced by the cost of the components being replaced if such costs can be easily ascertained. If the book value of the asset being renovated is unknown, there will be no cost reduction of the fixed asset.
  6. Planning Costs – Capital project planning costs associated with the planned construction, renovation, or purchase of a specific building will be capitalized in advance of the capital project being approved (see Financial Policy No. 1301) to the extent such costs exceed $100,000. Planning costs include but are not limited to feasibility studies, preliminary drawings, and initial cost estimates. Previously capitalized planning costs will be written off to expense in the period it is clear the specific project will not move forward in the approval process.
  7. Demolition of Buildings - The book value of the building will be written off when a building is demolished. If the land is maintained and the original value cannot be determined, the land will be recorded at a nominal value of $1.
  8. Purchased Equipment - Purchased equipment to be capitalized is an article of nonexpendable tangible personal property with a useful life of more than one year and a cost of $5000 or more per unit.
  9. Constructed Equipment - For equipment constructed at the University, the acquisition cost includes costs similar to those for purchased equipment as well as the costs incurred for materials and recharge center services used in the course of construction. University labor expense, other than that embodied in a recharge center charge, is not included in the acquisition cost.
  10. Library Books - Capitalized library books include bound volumes, periodicals, serial titles, and microform. All such costs will be capitalized.
  11. Software - Operating software included in the price of the hardware will be capitalized. When purchased separately, software will be capitalized if the cost exceeds $100,000. Internally developed software with material and labor costs in excess of $100,000 will also be capitalized.
  12. Donated Assets - Land, buildings, and books received as a gift will be capitalized at the fair market or appraised value at the date of the gift. If market value or appraised value is not available, the gifts will be recorded at $1 nominal value. Equipment received as a gift having a fair market or appraised value of $5000 or more will be capitalized.
  13. Sales or Disposals of Capitalized Assets - The book value of land, buildings, equipment, and books will be removed from the accounting system when sold or disposed of. See Financial Policy No. 1004.3 for more information regarding Disposal of University Owned Property.

1004.2 Depreciation of Land Improvements, Buildings, Equipment, and Books

Subject Area: Accounting
Responsible Office: Financial Services
Sponsor: Associate Vice President for Finance
Originally Issued: July 1988
Revised: June 30, 2006, January 2010, June 2012
Refer Questions To: James Ribikawskis, 773-702-3690

Purpose: A provision for depreciation is recorded in the Financial Accounting System to reflect the net asset value of land improvements, buildings, equipment, and books throughout the useful life.

Policy

  1. Depreciation on capitalized assets will be calculated in accordance with applicable financial accounting pronouncements.
  2. Land improvements, buildings, equipment, and books will be depreciated using the straight line method over the following useful lives:

    Land
    DescriptionYears Useful
    Land Improvements - general 20
    Land Improvements - handicap accessibility 20

    Infrastructure

    DescriptionYears Useful
    Utility Systems - steam lines, chillers 20
    Utility Systems - electric vaults, electric loops 20
    Telecommunications Systems 5

    Componentized Building and Renovation

    DescriptionYears Useful
    Excavation and Backfill 60
    Exterior Walls and Foundations 60
    Framing 60
    Floors 60
    Roofs 40
    Partitions and Interior Finishes 25
    Electric System 20
    Plumbing System 25
    Heating and Air-Conditioning System 20
    Sprinkler System 25
    Elevators, Escalators, and Other Fixed Equipment 25
    Windows, Window Replacements 25
    Construction Exterior 30
    Alarm & P.A. Systems 20
    Non-Componentized Renovation Projects 25
    Non-Componentized Buildings 45
    Capitalized Interest 30

    Equipment

    DescriptionYears Useful
    Scientific and Technical 10
    Constructed Scientific and Technical 10
    Computer and Software 5
    Telecommunications 5
    Office and Educational 5
    Furniture and Fixtures 10
    Shop Machinery and Tools 10
    Vehicles 3
    Miscellaneous Equipment 7
    Library Books 10



  3. If equipment is acquired in the first half of the fiscal year, a full year's depreciation is recorded in the first year. If the asset is acquired in the second half of the fiscal year, no depreciation is recorded in that fiscal year.
  4. A full year's depreciation will be recorded for buildings under $25 million, building renovations, land improvements, leasehold improvements, and books in the year they are capitalized.
  5. Depreciation of newly constructed buildings over $25 million will commence in the month the building is placed into service and/or occupied.
  6. Leasehold Improvements (see Financial Policy No. 1009.2) will be depreciated using the straight line method over the remaining life of the lease or the useful life of the improvement whichever is shorter.

1004.3 Disposal of University Owned Equipment

Subject Area: Accounting
Responsible Office: Financial Services
Sponsor: Associate Vice President for Finance
Originally Issued: December 1984
Revised: February 2004, January 2010
Refer Questions To: James Ribikawskis, 773-702-3690

Purpose: To properly account for disposal of University-owned equipment. For purposes of this policy, disposals include equipment which is stolen, destroyed, discarded as junk, salvaged for parts and components, traded in, sold, or transferred to another institution.

Policy

  1. Financial Services is responsible for accounting for the disposal of all equipment at the time of disposal in accordance with the applicable financial accounting pronouncements.
  2. The departments are responsible for advising the Financial Services of all equipment disposals.
  3. Any sale of University equipment to third parties outside the University, including University employees, requires the prior approval of Financial Services and Procurement and Payment Services based upon written recommendation of the head of the department.
  4. Financial Services' Capital Funds must be notified of any internal relocation or sale of University-owned equipment. See Financial Policy No. 1004.5.
  5. The University Police Department must be notified when equipment is stolen.
  6. Equipment salvaged for parts and components must be removed from the property records.
  7. Purchase order requests and purchase orders must indicate if equipment is being traded in as part of the purchase.
  8. The transfer of equipment to another institution requires approval of Financial Services based upon written recommendation of the head of the Department or the administrative Dean, Vice President, or Director.

1004.4 Building and Building Renovation Construction Costs

Subject Area: Accounting
Responsible Office: Financial Services
Sponsor: Associate Vice President for Finance
Originally Issued: October 1992
Revised: January 2010
Refer Questions To: James Ribikawskis, 773-702-3690

Purpose: To properly account for building and building renovation construction costs.

Policy

  1. Financial Services is responsible for accounting for all building and building renovation construction costs in accordance with the applicable financial accounting guidance.
  2. All gifts received for the purpose of funding building and building renovation construction must be recorded in the Unexpended Plant Fund.
  3. All construction costs will be recorded in the Unexpended Plant Fund until such time as the construction is capitalized in the Investment in Physical Properties Fund.
  4. At the time the newly constructed building or building renovation is completed and has useful occupancy, all construction costs will be depreciated in accordance with applicable University policy (See Financial Policy No. 1004.2). Research related building construction and renovation, when completed, will be componentized and recorded as such in the Property Management System.

1004.5 Equipment Property Management System

Subject Area: Accounting
Responsible Office: Financial Services
Sponsor: Associate Vice President for Finance
Originally Issued: December 1989
Revised: February 2004, January 2010
Refer Questions To: James Ribikawskis, 773-702-3690

Purpose: To ensure proper management and control of equipment.

Policy

  1. All equipment owned by the University, including equipment purchased through sponsored programs, is subject to University policy.
  2. The safeguarding and use of movable equipment assigned to a department is the responsibility of the department chairperson.
  3. The purchase of equipment with University funds for personal or private use is prohibited.
  4. Use of University property in an off-campus location must be approved by the department chairperson.
  5. Financial Services is responsible for maintaining a permanent, detailed record of all fixed and movable equipment owned by the University, including sponsored program acquisitions and gifts of equipment. (Please see Financial policy 1004.1.)
  6. Financial Services is responsible for maintaining a permanent, detailed record of all fixed and moveable equipment used by the University but owned by the federal government or other external agencies. Such equipment will be assigned a unique property tag and will remain part of the permanent property records until disposed of.
  7. Departments must notify the Development Office and Financial Services of all gifts of equipment that have been received.
  8. Financial Services must be notified of any changes in status of equipment such as relocation or disposal. All changes in status are to be recorded in the permanent inventory record. (See Financial Policy No. 1004.3, Disposal of University Owned Equipment.)

1004.6 Physical Inventory of Equipment

Subject Area: Accounting
Responsible Office: Financial Services
Sponsor: Associate Vice President for Finance
Originally Issued: December 1989
Revised: October 2006, April 2010, February 2014, December 2014
Refer Questions To: James Ribikawskis, 773-702-3690

Purpose: To ensure physical inventories of equipment are performed on a regular basis and in compliance with federal regulations for equipment purchased with federal funds.

Policy

  1. Financial Services is responsible for ensuring that physical inventories of equipment are performed on a regular basis.
  2. Individual departments are responsible for conducting physical inventories of equipment.
  3. An annual physical inventory must be made for all University equipment with a net book value of $50,000 or more.
  4. University equipment with a net book value less than $50,000 must be physically inventoried annually based on a statistical sample of equipment provided by Financial Services.
  5. Equipment maintained by the University and owned by the federal government or other external agencies must be physically inventoried on an annual basis.
  6. Equipment purchased with federal funds must be inventoried at least once every two years.

1004.7 Equipment Screening

Subject Area: Accounting
Responsible Office: Financial Services
Sponsor: Associate Vice President for Finance
Originally Issued: December 1989
Revised: May 1998, January 2010, December 2014
Refer Questions To: James Ribikawskis, 773-702-3690

Purpose: To assure the avoidance of purchasing unnecessary or duplicative equipment in accordance with Section 200.318(d) of the Office of Management and Budget Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards.

Policy

  1. Financial Services is responsible for maintaining a permanent, detailed record of all fixed and moveable equipment owned by the University or used by the University but owned by the Federal government and other external agencies.
  2. University departments are responsible for reviewing (screening) departmental equipment records provided by Financial Services before purchasing an item of equipment to determine if similar and suitable items are available in the department that would make it unnecessary to acquire an additional item of equipment.
  3. The above screening procedure must be documented before an item of equipment in excess of $5,000 is charged against a Federal award.
  4. Procurement and Payment Services will monitor compliance with this policy by reviewing all purchase orders for items of equipment in excess of $5,000 charged to a Federal award for evidence that such screening has taken place.

1004.8 Capitalization of Interest

Subject Area: Accounting
Responsible Office: Financial Services
Sponsor: Associate Vice President for Finance
Originally Issued: March 1997
Revised: January 2010, June 2012
Refer Questions To: James Ribikawskis, 773-702-3690

Purpose: To properly account for capitalization of interest costs.

Policy

Interest cost shall be capitalized as part of the historical cost of acquiring certain assets. (See Financial Policy No. 1008.) To qualify for interest capitalization, assets must require a period of time to get them ready for their intended use. (For example, assets the University constructs for its own use such as facilities). Interest capitalization is required if its effect, compared with the effect of expensing interest, is material. If the net effect is not material, interest capitalization is not required. However, interest cannot be capitalized for assets constructed or acquired using gifts or grants that are restricted by the donor or grantor to construction or acquisition of those assets to the extent that funds are available from such gifts or grants.

In situations involving qualifying assets financed with the proceeds of restricted tax-exempt borrowings, the amount of interest cost to be capitalized shall be all interest cost of those borrowings less any interest earned on temporary investment of the proceeds of those borrowings from the date of borrowing until the specified qualifying assets acquired with those borrowings are ready for their intended use. For qualifying buildings exceeding $25 million in construction costs, interest will be capitalized through the month the building is placed into service and/or occupied.

In all other situations, the interest cost eligible for capitalization shall be the interest cost recognized on borrowings and other obligations. The amount capitalized is to be an allocation of the interest cost incurred during the period required to complete the asset. The interest rate for capitalization purposes is to be based on the rates of the University's outstanding borrowings. If the University associates a specific new borrowing with the asset, it may apply the rate on that borrowing to the appropriate portion of the expenditures for the asset. A weighted average of the rates on other borrowings is to be applied to expenditures not covered by specific new borrowings. Judgment is required in identifying the borrowings on which the average rate is based.


#