CSOP 12.0 Fabricated Equipment

SUBJECT:

Capitalization of Fabricated Equipment

SOURCE:

Capital Asset Management

ORIGINAL DATE

OF ISSUE:

March 2005

DATE OF

LAST REVISION:

January 2017

CSOP NO:

12.0

RATIONALE:

To provide direction to university departments for the construction of fabricated equipment.

CSOP:

Fabricated Equipment

Capitalization of Fabricated Equipment

Fabrication Request Document

Preparation of a Requisition for Fabricated Equipment

Fabrication Review

 

Fabricated Equipment
A fabrication is a movable asset created (built) by a university organization. The term "Fabrication" is used in conjunction with movable equipment and should not be confused with building construction projects.

Fabricated Equipment can be distinguished by any one of the following characteristics:

  • Original Development The fabrication construction creates a one-of-a-kind piece of equipment that is built (designed) and assembled from individual parts.
  • Original Components  The original components bear no relationship to the finished equipment and should be attached to, or internal to the finished equipment. The original components should not be equipment that can be used independent of the fabricated asset.

The term fabrication is not synonymous with a project. For example, a grant may be given to a researcher for the purpose of completing a specific project that will require that several capital assets be fabricated. Each asset must have a fabrication document with an asset number assigned. A fabrication asset number must not be assigned to the grant or project, as there may be more than one asset involved.

 

Capitalization of Fabricated Equipment
Capitalization of fabricated equipment is dependent upon 1) the total capitalizable costs of the equipment, 2) who owns the equipment, and 3) where it will be located when in use.

 

The cost of individual components may be less than $5,000 each; however, the finished, tangible asset must have a total cumulative cost of at least $5,000 in order to be capitalized. Components having an acquisition value of $5,000 or more will be capitalized on their own merit if they are, or can be, stand alone equipment. Materials, parts and direct labor can be capitalized if they meet the ownership and location tests.

 

Direct labor for fabrications is defined as all hands-on assembly labor of the fabricated equipment, plus the direct supervision of that hands-on labor. Labor associated with research and the design of a fabricated asset should be expensed. In addition, labor costs that are impossible or impractical to trace to a specific fabrication should be expensed.

 

Ownership and Location Tests

If the fabricated asset is to be owned by IU (regardless of where it will be used), the costs to fabricate the asset including materials, parts, and direct labor should be capitalized. The object code of 7500 should be used in these situations.

 

If the fabricated asset will not be owned by IU but will be located at IU, the costs to fabricate the asset including materials, parts, and direct labor should be capitalized because the asset must be inventoried. The object code of 7531 or 7532 should be used in these situations depending on whether the owner is a federal entity.

 

If the fabricated asset will not be owned by IU, not located at IU, and the grant does not require IU to track the asset, then the components should be purchased with a supplies and expense object code.

 
Fabrication Request Document
A fabrication request document generates the asset number that is required when entering a requisition for fabricated equipment and selecting the Fabrication "CAMS Tran Type". Therefore, the organization must submit a fabrication request document prior to any purchases. A fabrication request document helps to ensure that costs are applied to the appropriate object code and to the proper fabrication asset number. The Fabrication document requires:

  • account
  • campus
  • building code
  • description
  • room number
  • asset type code must be 40000 (Construction in Progress)
  • estimated completion date
  • estimated life
  • estimated cost
  • and must meet with the fiscal officer's approval

When the Fabrication Request is reviewed by the University Capital Asset Office they may ask for a copy of the project proposal, a list of components you intend to purchase, and the ownership and location of the asset when in use. This will help them determine if your request should be considered fabricated equipment.

Preparation of a Requisition for Fabricated Equipment
When fabricated equipment is purchased, the Capital Asset Management System requires asset information regarding the fabricated purchase. This is accomplished by selecting the "CAMS Tran Type" of Fabrication. The CAMS Tran Type of "Fabrication" identifies payments as construction in progress. The fabricated asset will remain as construction in progress until Capital Asset Management is notified that the asset is substantially complete and ready for its intended purpose. 

 

When issuing a requisition the "CAMS Tran Type" can be accessed from the "Items" tab. From the "Item" tab click the line item "Edit" button. From the "CAMS Tran Type" pull down menu select "Fabrication." Selecting a transaction type of Fabrication will require input of the fabricated asset number obtained from the issuance of the fabrication request document. The asset number will ensure that all payments are applied to the correct fabricated piece of equipment. The requisition will require the use of the correct fabricated equipment object code.  Following is a listing of fabrication object codes:

Object Code Description
7500 Capital Equipment-University Constructed
7531 Capital Equipment-Univ. Const-Federally Owned*
7532 Cap Equip-Univ Const Other Owned


*A federally owned object code should be used when the federal granting agency holds title to the asset.

 

Fabrication Review

Twice a year, the University Capital Asset Office will request that organizations review the status of active fabrications. This review is to ensure that any fabrications that should have been closed during the year are closed before the end of the fiscal year. See CSOP 13.0 Certificate of Substantial Completion.

 

When the fabrication is completed the organization will complete a Certificate of Substantial Completion for Movable Fabrications.  Fabrications should be closed when the asset is placed into service.  The University Capital Asset Office will assign the create date and asset type code from information entered on the Certificate of Substantial Completion for Movable Fabrications. At this point the asset will begin to depreciate.

   

If ever the completed fabricated asset becomes not owned and not in the custody of IU, it should be retired using the retirement reason of External Transfer. 

 

DEFINITIONS:

Capital Equipment- must have an acquisition value of at least $5,000 and a useful life expectancy of one year or more.

Equipment-The term “equipment” includes delivery equipment, office equipment, machinery, furniture and fixtures, factory equipment and similar fixed assets.

Direct labor for fabrications is defined as all hands-on assembly labor of the fabricated equipment, plus the direct supervision of that hands-on labor.

CROSS

REFERENCES:

CSOP 1.0 Capitalization Rules
CSOP 8.0 Capitalization of Moveable Equipment
CSOP 13.0 Certificate of Substantial Completion
Policy FIN-ACC-I-150 Capitalization of Moveable Equipment

RESPONSIBLE

ORGANIZATION:

Organizations that purchase capital assets.