Capital Equipment Asset Transactions:
- Units conducting internal sales activity must receive prior approval by the Office of Budget and Finance for purchases of capital equipment costing $100,000 or more.
- Capital equipment asset transactions must be recorded in Internal Sales Capital Purchase - Fund 7201.
- The cost of the capital purchase will be recovered over the useful life of the equipment through allowable depreciation.
- Depreciation is manually transferred from the unit's internal sales operating activity (Fund 1150 or 1151) or the unit's external sales operating activity (Fund 1026) into the Internal Sales Capital Purchase Fund 7201 at least on an annual basis. At the end of the useful life, the equipment net book value should equal zero.
- Capital Equipment Asset costs that are not recovered through established Internal Sales Rates must be recorded in a current fund associated with the source of the funding.
Federal requirements mandate that capital expenditures for general purpose equipment, buildings, and land are unallowable as direct charges. Internal Sales units must not charge equipment, buildings, or land purchases to Fund 1150 or 1151.
A separate internal sales accounting structure, should be used for each unique internal sales activity. The Internal Sales Capital Purchase Fund 7201 should use the same DeptID, Program and other chartfield codes that uniquely identify the internal sales activity in the internal sales operating Fund (1150 or 1151).
Use of the Internal Sales Capital Purchase Fund is restricted to capital expenditures that relate to and benefit the internal sales activities. The following rules must be observed:
Capital Equipment Purchases:
- Internal Sales equipment must be purchased in the Internal Sales Capital Purchase Fund 7201 using Account 850101.
- Note: The Internal Sales Capital Purchase fund will go into deficit and the value of the equipment will be recovered over its useful life.
- Depreciation expense will be calculated in the Asset Management module and charged to a central DeptID and Program value.
- The unit conducting internal sales activity will manually record the depreciation expense transfer to the Internal Sales Capital Purchase Fund 7201 from the Internal Sales Operating Fund (1150 or 1151) using transfer Accounts 600310/610310 – ISO Depreciation Expense.
- Note: The unit must use the same DeptID where the asset was purchased when recording the depreciation expense transfer.
- Depreciation transfer amounts to the Internal Sales Capital Purchase Fund 7201 must agree with depreciation amounts calculated by the Asset Management module.
- Units may choose to subsidize the depreciation of the equipment.
- Note: Additional transfers to the Internal Sales Capital Purchase fund 7201 from other current funds may be needed when subsidizing depreciation expense. Contact the Internal/External Sales department for appropriate accounting treatment.
- The annual depreciation costs included in the internal sales billing rates should equal the amount being transferred to the Internal Sales Capital Purchase Fund from the Internal Sales Operating Fund.
- Note: If equipment is funded from a federal source (i.e. Federal agency grant/contract, agricultural appropriation, federal pass-through to granter/contractor), depreciation cannot be recovered in rates charged to other university departments.
Capital Equipment Disposals:
- Capital equipment asset gains or losses due to disposal of the capital equipment asset should be recorded in the Internal Sales Operating Fund (1150 or 1151). Contact Internal/External Sales department for appropriate accounting treatment.
Allowable Guidelines / Criteria:
- Expenses should be moved timely in the fiscal year they were created.
- Adhere to Administrative Policies: Managing University Capital Equipment and Selling Goods and Services to University Departments, and any departmental policies related to capital equipment purchasing, transfers and disposals.
Capital vs Operating Leases
Units conducting internal sales activity that wish to recover the cost of a lease in the internal sales rates must take into consideration if the lease is a capital lease or an operating lease. Contact Internal/External Sales department to determine whether a lease is capital or operating.
Depreciation is included in the internal sales rate. The depreciation is calculated using the capitalized cost of the equipment, not the total lease payments.
Total annual cost of the operating lease may be included in the rates charged to the users.
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 to a central chartstring. Units should use the Asset Management reports found on UMReports in order to determine their monthly depreciation amounts.