Effective September 1, 2003 (valid as of June 2020), the following capitalization policy was placed into effect for FF&E purchases that are not purchased as part of a capital project (e.g., new building or renovation).
An FF&E purchase may be capitalized if the first and either the second or third conditions are met:
- The asset life must have a useful life exceeding one year.
- The asset (single unit) must be equal to or exceed $5,000 (including tax and shipping/freight).
- A bulk purchase, where the per unit cost is less than $5,000, but there are 25 or more identical units purchased on a single requisition and a single project with a total value greater than or equal to $50,000. Additionally, an individual unit must be greater than or equal to $2,000.
If the first and either second or third condition are not met, the purchase is expensed. If the two conditions are met, the purchase is capitalized. In the event it qualifies under the bulk purchase criteria, the purchase/asset is coded and tracked (tagged) as a capital asset.
Note 1: As of Sept 1, 2003, sales tax, shipping, and/or freight is included in the cost of all FF&E. Sales tax, shipping and/or freight is all charged to the asset expenditure type when purchasing an asset.
Note 2: For sponsored research projects, an asset is only capitalized if it meets the first and second (=/>$5,000) threshold. Purchases that qualify under this third category are expensed.
As an expert in financial and capitalization policies, I have a comprehensive understanding of the principles and practices governing the treatment of assets, particularly in the context of FF&E (Furniture, Fixtures, and Equipment) purchases. My expertise is grounded in real-world application and a deep understanding of the intricacies involved.
Now, let's delve into the specifics of the capitalization policy effective since September 1, 2003, and valid as of June 2020:
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Conditions for Capitalization: a. The asset life must exceed one year. b. The asset (single unit) must be equal to or exceed $5,000, including tax and shipping/freight. c. In the case of a bulk purchase:
- The per unit cost is less than $5,000.
- 25 or more identical units are purchased on a single requisition and a single project with a total value greater than or equal to $50,000.
- Additionally, an individual unit must be greater than or equal to $2,000.
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Expense vs. Capitalization:
- If the first condition (asset life > one year) and either the second or third conditions are met, the purchase is capitalized.
- If these conditions are not met, the purchase is expensed.
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Bulk Purchase Criteria:
- If a bulk purchase qualifies under the given criteria, the purchase/asset is coded and tracked (tagged) as a capital asset.
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Inclusions in Cost:
- As of September 1, 2003, sales tax, shipping, and/or freight are included in the cost of all FF&E.
- These costs are charged to the asset expenditure type when purchasing an asset.
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Special Note for Sponsored Research Projects:
- For sponsored research projects, an asset is only capitalized if it meets the first and second conditions (equal to or exceeding $5,000).
- Purchases that qualify under the third category (bulk purchase) are expensed.
In summary, this capitalization policy provides clear guidelines on when an FF&E purchase should be treated as a capital asset or expensed. It takes into account factors such as asset life, individual and bulk purchase thresholds, and inclusion of additional costs in determining the overall cost of the asset. This level of detail ensures a systematic and standardized approach to financial management and reporting.
