Establishing Internal Sales Capital Equipment Funds and Recording Depreciation

Capital Equipment Funds

Units conducting internal sales activity must prepare financing plans for any new facility construction or major facility renovation related to the internal sales activity. Financing plans must be approved by the Office of Budget and Finance prior to initiation of the project.

Units conducting internal sales activity must receive prior approval by the Office of Budget and Finance for financing plans related to the purchase of a major piece of capital equipment costing $100,000 or more.

When approved for this methodology, the capital related transactions should be recorded in the plant fund, and the costs will be recovered through allowable depreciation. Depreciation is transferred from the unit's operating activity into an associated plant fund account on an annual basis.

Separate capital equipment and buildings & improvements chartfield strings for purchases, at the time they occur, should be established in a plant fund to account for all capital related transactions for units conducting internal sales. The same DeptID, Program (and other chartfields) as the units operating charfield string (or chartfield string that is used to accumulate revenues and costs associated with the internal sales activity), should be used in a plant fund for all of the capital-related transactions.

Use of the capital chartfield strings is restricted to capital expenditures that relate to and benefit the internal sales activities. Additions to these chartfield strings will be transferred from related operating chartfield strings, based on appropriate depreciation costs. The following rules should be observed:

• Depreciation expense will be calculated in the Asset Management module and will be charged to the plant fund chartfield string on a monthly basis.
• The unit conducting internal sales activity will use these amounts to record the transfer from the operating chartfield string to the plant fund chartfield string.
• Transfers to the capital equipment chartfield should be based on equipment depreciation cost included in billing rates and must agree with depreciation amounts calculated by the Asset Management module. The equipment account chartfield string is restricted to equipment expenditure.
• Transfers to the buildings & improvements chartfield should be based on buildings & improvements depreciation cost included in billing rates and must agree with depreciation amounts calculated by the Asset Management module. The buildings & improvements account chartfield is restricted to buildings and improvements expenditures.
• If equipment is funded from a federal source (i.e. Federal agency grant/contract, agricultural appropriation, use federal passthrough to granter/contractor), depreciation cannot be recovered in rates charged to University accounts.
• Transfer codes to use for recording equipment depreciation are 600301/610301.

Capital vs Operating Leases

Units conducting internal sales activity that wish to recover the cost of a lease in the rates they charge other University departments must take into consideration if the lease is a capital lease or an operating lease. Please contact Internal Sales Compliance Office to determine whether a lease is capital or operating.

Capital lease

Depreciation is included in the rate proposal to recover the cost from users. The depreciation is calculated using the capitalized cost of the equipment, not the total lease payments.

Operating lease

Total annual cost of the operating lease may be included in the rates charged to the users.

Equipment Records

Internal Sales equipment must be identified separately from non-Internal Sales equipment in the University's property accounting system.

IMPORTANT: All capital equipment will be depreciated on a monthly basis based on the chartfield string where the equipment was originally purchased.