CSOP 14.0 Capitalization Entries to the General Ledger

SUBJECT:

Capitalization Entries to the General Ledger

SOURCE:

Capital Asset Management

ORIGINAL DATE

OF ISSUE:

February 2010

DATE OF

LAST REVISION:

April 2011

CSOP NO:

14.0

RATIONALE:

Capitalization of assets occurs in the plant fund account for each Organization, Campus, or Reporting Auxiliary. In general, expenditures for Moveable Equipment will be capitalized within the 95 plant fund by Organization and expenditures for Art & Museum Objects, Buildings, Infrastructure, Land, Leasehold Equities, Library Books and other Non-Moveable items will be capitalized at the Campus Level.

Moveable Equipment purchased by a Reporting Auxiliary will be capitalized within the 95 plant fund account set up for that Reporting Auxiliary.

CSOP:

Object code for Capitalization

Plant Fund Account for Capitalization

Capitalization Process

Capitalization entries for Asset Retirement

Capitalization entries for Asset Transfers

Capitalization entries for Add Asset of Gift Equipment

Capitalization entries for Add Asset of Found Equipment

Capitalization entries for Depreciation Expense

 

Object code for Capitalization
The proper Balance Sheet Object Code is determined by an attribute of the Financial Object Code. This attribute is called the Financial Object Code Sub Type and links the Capital Expenditure Object Code (7XXX) to the Balance Sheet Object Code. For example, Object Code 7015 has an Object Code Sub Type of CM (Capital Equipment Moveable). All Object Codes with a Sub Type of CM are capitalized on the Balance Sheet as Object Code 8610.

Below is a full breakdown of the Object Code Sub Types and their associated capitalization and accumulated depreciation Object Codes.

 

 

Sub Type Expenditure Object Code Description Capital Object Code Accumulated Depreciation Object Code
AM
7600, 7677
Art and Museum
8615
 
BD
7300, 7301, 7302, 7303, 7377  
Buildings
 
8601
 
8901
CM
7000, 7015, 7070, 7700, 7701  
Capital Equipment
 
8610
 
8910
CL
7099
Capital Lease Purchases
 
9603
 
C1
 7019, 7020 Capital Lease Equipment Above Threshold  
8627
 
8927
C2
 
7022, 7023
Capital Lease Equipment Below Threshold  
8628
 
8928
CO
7031, 7032, 7036, 7731, 7732
Capital Equipment Federally Owned
   
UC
 
7500
Fabrications - University Constructed  
8618
 
8933
UO
7531, 7532
Fabrications Federal, or Other Owned
   
IA
7261 Intangibles  
8661
 
8961
IO
7263
Intangibles Federally Owned
   
IF
7400, 7402,  7408, 7409, 7410, 7411  
Infrastructure
 
8604
 
8904
LA
7200, 7201, 7277  
Land
 
8603
 
LR
7465, 7466, 7467, 7468, 7477 Land Improvements  
8665
 
8965
LE
7800, 7801, 7805 Leasehold Improvements  
8608
 
8908
LI
7100, 7157,7177 Library Books  
8613
 
8913


Assets created within CAMS that are "Federally Owned" will appear on inventory listings, but no "Federally Owned" payments are capitalized or depreciated in the General Ledger.

If an Object Code Sub Type has a blank accumulated depreciation Object Code it is because that type of asset is not depreciated.

Plant Fund Account for Capitalization
The proper 95 plant fund account number is determined by both the Object Code Sub Type and the Organization. Within the Kuali Financial System, each account number is assigned to an Organization and each Organization is assigned two 95 plant fund account numbers. One 95 plant fund account number, referred to as the Organization plant fund account number, is used by the capitalization process when Moveable Equipment items are purchased. The other 95 plant fund account number, referred to as the Campus plant fund account number, is used by the capitalization process when Non-Moveable capital items are purchased.

Below is a table illustrating how Object Code Sub Types dictate which of the two 95 plant fund account numbers will be used:

Sub Type Description 95 Plant Fund Account
AM Art and Museum Campus Plant Fund
BD, BF Buildings Campus Plant Fund
CM, CF Capital Equipment Org Plant Fund
UC, UF Fabricated Equipment Org Plant Fund
IA, IC Intangibles Campus Plant Fund
IF Infrastructure Campus Plant Fund
LA Land Campus Plant Fund
LR Land Improvements Campus Plant Fund
LE Leasehold Improvements Campus Plant Fund
LI, LF Library Books Campus Plant Fund

 

Capitalization Process
Account 1020000 purchases a computer under Object Code 7015 for $5,000.00. Object Code 7015 has a Financial Object Code Sub Type of CM, so the asset will be capitalized using Object Code 8610. Account 1020000 belongs to the Vice President/Chancellor/General Administration Organization and has been assigned an Organization plant fund account number of 9520074 and a Campus plant fund account number of 9520000. Because a Moveable capital item is being purchased, the capitalization process will post entries to the Organization plant fund account number, 9520074. The following entries will be generated:


Actual Purchase:

 

Account Number
Object Code
Object Code Description
Debit
Credit
1020000
7015
Computer Equipment
$5,000.00
 
1020000
8000
Cash in Bank
 
$5,000.00


Capitalization Entry:

Account Number
Object Code
Object Code Description
Debit
Credit
9520074
8610
Capital Equipment
$5,000.00
 
9520074
9899
Fund Balance
 
$5,000.00


As a result of the above entries, Account 9520074 shows $5,000.00 of capital equipment on its Balance Sheet and account 1020000 shows a capital expenditure on its Operating Statement.

Within the 9520074 account, an offset of $5,000.00 was posted to Object Code 9899 to balance the entry.

 

The Capital Asset Management System (CAMS) can generate four types of financial transactions that get posted to the General Ledger. They are Asset Retirements (AR), Asset Transfers (AT), Add an Asset (AA), and Depreciation Expense (DEPR). With one exception, all entries generated by these four processes will be posted to a 95 plant fund account. Only when Gift or Found Equipment is entered on the Add an Asset document will entries be posted to an individual operating account. In this case, offsetting entries will get posted to Income (Object Code 1175) and Expense (7XXX). This has no affect on cash or fund balance.

Capitalization entries for Asset Retirement
Retirement entries will, as a rule of thumb, only affect the 95 plant fund.

Example: Account 2321375 purchased a desk under Object Code 7000 for $5,000.00. Object Code 7000 has a Financial Object Code Sub Type of CM, so the asset was capitalized using Object Code 8610 in the Organization plant fund, 9520080.

If the asset is retired and there has been no Depreciation, the entries would be:

Account Number

Object Code

Object Code Description

Debit

Credit

9520080

4998

Gain/Loss Disposition of assets

$5,000.00

 

9520080

8610

Capital Equipment

 

$5,000.00

 

If the asset were partially depreciated, the entry might be:

 

Account Number

Object Code

Object Code Description

Debit

Credit

9520080

4998

Gain/Loss Disposition of assets

$2,500.00

 

9520080

8910

Capital Equipment

$2,500.00

 

9520080

8610

Capital Equipment

 

$5,000.00

 

Capitalization entries for Asset Transfers
Transferring an asset to another Organization will only affect the 95 plant fund. The capitalized cost, accumulated depreciation and the residual fund balance will be removed from the current owner's account and placed on the new owner's account.

Example: Account 6048400 purchased an X-ray machine under object code 7000 for $5,000.00. Object Code 7000 has a Financial Object Code Sub Type of CM, so the asset was capitalized using Object Code 8610 in the Organization's plant fund, 9548400.

If the asset is transferred to account 1035600 with an Organization plant fund of 9520024, and assuming no depreciation, the entries would be:

Remove the asset from the current account's plant fund:

Account Number

Object Code

Object Code Description

Debit

Credit

9548400

9899

Fund Balance

$5,000.00

 

9548400

8610

Capital Equipment

 

$5,000.00


Place the asset on the new owner account's plant fund:

Account Number
Object Code
Object Code Description
Debit
Credit
9520024
8610
Capital Equipment
$5,000.00
 
9520024
9899
Fund Balance
 
$5,000.00


Note that the same Object Codes used to capitalize the asset are used to transfer the asset. If depreciation had been recorded for this asset, the accumulated depreciation would have transferred as well.

Capitalization entries for Add Asset of Gift Equipment
When entering information on the Add an Asset document for a gift, the initiator will supply the account number, Object Code and the market value of the item. Accounting entries are then created based on this information. The account will see offsetting entries to the expense Object Code (7XXX) and the income Object Code (1175), for the value of the item. To better isolate gift equipment from actual purchases, an Object Code of 7700 is used. The entries offset, having no effect on cash or fund balance.

Example:
Account 1270000 received a gift. The fair market value of the asset is determined to be $5,500.00. Object Code 7700 has a Financial Object Code Sub Type of CM, so the asset will be Capitalized using Object Code 8610 on the Organization’s plant fund, 9570074. The following entries are then created:

Transaction entered on Add Asset document:

Account
Object Code
Object Code Description
Debit
Credit
1270000
7700
Gifts of Capital Equipment
$5,500.00
 


Transaction Generated by Add Asset Document:

Account

Object Code

Object Code Description

Debit

Credit

1270000

1175

Capital Equipment Gift

 

$5,500.00


Capitalization Entries:

 

Account

Object Code

Object Code Description

Debit

Credit

9570074

8610

Capital Equipment

$5,500.00

 

9570074

9899

Fund Balance

 

$5,500.00

 

Capitalization entries for Add Asset of Found Equipment
When entering information on the Add an Asset document for found equipment, the initiator will supply the account number, Object Code and the market value of the item. Accounting entries are then created based on this information. The account will see offsetting entries to the expense Object Code (7XXX) and the adjustment Object Code (4997), for the value of the item. To better isolate found equipment from actual purchases, an Object Code of 7701 is used. The entries offset, having no effect on cash or fund balance.

Example:
Account 1270000 finds an asset. The fair market value of the asset is determined to be $5,500.00. Object Code 7701 has a Financial Object Code Sub Type of CM, so the asset will be Capitalized using Object Code 8610 on the Organization’s plant fund, 9570074. The following entries are then created:

Transaction entered on Add Asset document:

Account
Object Code
Object Code Description
Debit
Credit
1270000
7701
Found Cap Equipment
$5,500.00
 


Transaction Generated by Add Asset Document:

Account

Object Code

Object Code Description

Debit

Credit

1270000

4997

Capital Asset Adjustment

 

$5,500.00


Capitalization Entries:

 

Account

Object Code

Object Code Description

Debit

Credit

9570074

8610

Capital Equipment

$5,500.00

 

9570074

9899

Fund Balance

 

$5,500.00

 

Capitalization entries for Depreciation Expense
The Capital Asset Management System (CAMS) will calculate and post depreciation expense monthly. The straight-line method is used for the calculation. Each asset will be depreciated from the capitalization date (assigned when the Capital Asset Office officially recognizes the asset) and depreciated over the asset's useful life. Every asset in CAMS is assigned an Asset Type that has an associated useful life. The depreciation entry will debit Object Code 51XX, Depreciation Expense, and credit the appropriate accumulated depreciation Object Code based on the Object Code Sub Type. Depreciation expense has no affect on cash and will be posted to the 95 plant fund account.

Example: Account 6617000 purchased a printer for $9,000.00 using object code 7000. Object Code 7000 has a Financial Object Code Sub Type of CM, so the asset will be capitalized using Object Code 8610 to the Organization's plant fund, 9517000. Printers have a depreciable life of 8 years so the first month's depreciation would be calculated as follows:

Depreciation Expense = (Depreciable Base X (Number of Months to Depreciate / (Useful Life in Years X 12 Months per Year)))

$93.75 = ($9,000.00 X (1/(8 X 12)))

Depreciation expense entry:

Account Number

Object Code

Object Code Description

Debit

Credit

9517000

5115

Depreciation Expense

$93.75

 

9517000

8910

Accumulated Depreciation Expense

 

$93.75

DEFINITIONS:

Depreciation-The periodic charge to income that results from a systematic and rational allocation of cost over the life of a tangible asset.

CROSS

REFERENCES:

CSOP 1.0 Capitalization Rules

RESPONSIBLE

ORGANIZATION:

Organizations that purchase capital assets.