Fixed Assets

Policy

FIACCT 09-02_00 Fixed Assets – Betterments

Effective: March 16, 1998
Revised: July 2, 2001

Purpose

This policy describes the steps to follow to add a Betterment to an existing asset in FINET Fixed Assets.


Policy

A betterment is added to an asset in FINET by processing an FA document and using the last two digits of the FA Number as a component number. The preceding 13 digits of the FA Number associated with the betterment must be the same as the parent asset number. A betterment is treated as a separate asset in FINET, the component number making it unique. For this reason, betterments are added and retired individually just like any other asset.


Background

To determine when an addition or improvement to a fixed asset should be recorded as a current expense or capitalized and a betterment added to FINET Fixed Assets, the following guidelines should be applied.

1. Repair or maintenance expenditures should be recorded as a current expense regardless of the dollar value. A repair or maintenance expenditure is one that does not increase the future service of an asset. Painting, repairs, miscellaneous parts, and normal servicing are all examples of repair and maintenance expenditures. A major overhaul that extends the life of an asset should be a capital outlay expenditure.

Example: A car was involved in an accident. $7,000 was expended to repair the car and restore it to its previous condition. The $7,000 is a repair and maintenance expenditure since the future service of the asset was not increased. The car was essentially the same as before the accident.

2. Additions or improvements (increases the value, life, or capabilities of a fixed asset) costing $5,000 or more should be recorded as capital expenditures. Similar additions that cost less than $5,000, if purchased within the same fiscal year, are also to be recorded as capital expenditures. Additions or improvements costing less than $5,000 and purchased in a subsequent fiscal year, should be recorded as current expense.

a. Example: A building was built for $500,000. Two years later, an addition was constructed for $100,000. Both expenditures are recorded as capital outlay.

b. Example: Software was purchased for $100,000. The software was upgraded the same year for $25,000. The software was upgraded again two years later for $35,000. All three expenditures are recorded as capital outlay. All software expenditures for $5,000 or more paid to a vendor, consultant, or contract programmer should be recorded as capital expenditures. All expenditures for internally developed software should be expensed.

c. Example: A computer cost $4,000. Two years later additional functionality was installed costing $1,350. (The additional functionality did not qualify as a repair or maintenance expenditure). The computer is not a fixed asset before or after the upgrade, and therefore all costs are recorded as current expense.

d. Example: If the computer was purchased for $4,000, and the additional functionality was installed within the same fiscal year, the computer would be considered a fixed asset. The value would be recorded as $5,350 ($4,000 + $1,350). Both expenditures are recorded as capital outlay.

e. Example: A $300 graphics card is added to a PC that was purchased for $6,000 in a previous fiscal year. The graphics card is not a repair and maintenance expenditure since it increases the service or capabilities of the PC. The capitalized cost of the PC will remain at $6000 and the $300 graphics card will be expensed.


Procedures

Responsibility

Action

Agency

  1. Log onto the mainframe and access the FINET accounting
    system.
  2. To add a betterment, see the FA – Adding Fixed Assets from
    Payment Vouchers and Scratch Adds
    policy in this section of
    the manual.

    The additional cost should be recorded as a betterment by
    completing the resulting shell FA (or completing a scratch add if a shell FA was not created by a payment voucher) and linking the original asset record with the betterment using the original 13 character asset number and specifying a unique component
    number for each betterment. The first 13 characters of the betterment record must be identical to the first 13 characters of the parent asset or the association will not be made.

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