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Background Information

There is one plant fund called "Equipment Replacement/Reserve Funds".

Equipment reserve funding is aggregated at the DeptID level, i.e. each DeptID in the current fund will have the same DeptID number and control of funds in the Equipment Replacement Reserve Funds.

Only fiscal year accounts will be created in these funds.

Budgeting for Replacement

In current funds, areas will budget for equipment replacement/reserves as a transfer-out (object code 9988 for equipment reserves), and in the applicable Equipment Replacement/Reserve Plant Funds they will budget the transfer-in (object code 5988 for equipment reserves) and the expenses for equipment (8200 and 8210).

Resources will be moved from current funds to the Equipment Replacement/Reserves Plant Funds through non-mandatory transfer codes. These transfers will be permanent (non-reversible) transfers to the plant funds.

Purchases for equipment which meet the capitalization criteria (the major criteria being those assets costing $2,500 or more in value with a useful life of more than 1 year will be made through these plant funds.)

Resources for replacement and reserves may come from current non-sponsored unrestricted funds (and restricted as the restrictions allow) but not sponsored funds.

TIP income will be applied to the equipment replacement reserve fund regardless of original fund source (all other TIP rules will be the same as current funds).

How Much To Transfer

For Non-ISOs: Because this is a voluntary process, each area must decide the amount of resources to be placed into the Equipment Replacement/Reserve Funds. Units are encouraged to make an initial transfer to the plant fund account of the amount being held in current funds for future equipment purchases, if any. Then on an annual basis, a transfer is made to the plant fund account of the amount equal to the annual depreciation for any equipment the unit intends to purchase or replace.

This process provides a benchmark for ongoing cost of aging equipment. It is one tool for units to use to determine how much should be transferred to the equipment replacement/reserve fund. Units are not required to set aside any specific amount of funds. Other methods to determine anticipated capital costs are allowed.

Information about capital equipment depreciation values is available from Inventory Services. A summary by RRC of annual depreciation is available in the Phase II budget instructions. In addition, the Budget Office will provide this report by area annually in August.

ISOs:
Internal Service Organizations that wish to recover the cost of capital equipment in the rates they charge other University departments may only include amounts for purchases already incurred. ISO's are not allowed to include amounts in their rates for anticipated future purchases. ISO capital equipment purchases must be made in the plant fund specifically designated for this purpose, and costs are recovered by including the applicable depreciation amount in service rates. This depreciation is then transferred from the ISO operating account into the plant fund account on a monthly, quarter, or annual basis. Policy and procedures for ISO capital purchases are not voluntary. Please refer to the policy Selling Goods and Services to University Departments.