1. University of Minnesota Internal/External Sales “Equipment Purchases and Depreciation” Plant Funds, Transfers and Record Keeping Requirements

2. 2 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.

3. 3 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.

4. 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 Queries and reports for monitoring assets Questions & Answers 4 Agenda

5. 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/INTERN ALSALES_PROC05.html Internal Sales Training Module: http://www.finsys.umn.edu/sales/iso.html 5 Internal Sales Rate Development Procedure and Website

6. Located at : Inventory Services Website: http://www.finsys.umn.edu/inventorysvs/inventorysvshome.h tml Instructions for Transferring Capital Equipment Assets http://www.policy.umn.edu/prod/groups/president/@pub/@fo rms/documents/form/um1556.pdf Transferring or Selling Capital Equipment Assets to Another University Department: http://www.policy.umn.edu/Policies/Finance/Inventory/PROP ERTY_PROC02.html 6 Inventory Services Website

7. 7 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 or equal to the capitalization threshold for the asset category to which they belong and greater than one year. 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.

8. 8 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.

9. Acquisition cost - Includes the invoice price and the cost of any modifications, construction, installation, in transit, 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. 9 Key Terms Associated with Assets

10. 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." 10 Key Terms Associated with Assets

11. 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. 11 Internal Sales Depreciation Process

12. Capital equipment purchases must be made in 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”. 12 Internal Sales Depreciation Process

13. 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. 13 Internal Sales Depreciation Process

14. 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 14 Internal Sales Depreciation Process - Example

15. 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 15 Internal Sales Depreciation Process - Example

16. 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. 16 Internal Sales Depreciation Process

17. Inventory Services 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. 17 Inventory Services

18. 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. 18 Inventory Services

19. Include depreciation in the rate development Capitalize capital assets Expense –Non-capitalized assets Only include purchased 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 19 Summary

20. Questions & Answers 20 Questions & Answers

21. 21