UH System Policies and Procedures
- Board of Regents Policies
- Executive Policies
- + 1. General Provisions
- + 2. Administration
- + 3. Organization
- + 4. Planning
- + 5. Academic Affairs
- + 6. Tuition, Financial Assistance, and Fees
- + 7. Student Affairs
8. Business and Finance
- 025. Fiscal Responsibilities within the University
- 026. Appointment of Fiscal Administrators and Assistant Fiscal Administrators
- 200. Overview
- 215. Definitions
- 220. General Principles
- 225. Limitations in Purchasing
- 230. Contracting for Services
- 235. Competitive Sealed Bidding
- 240. Competitive Sealed Proposals
- 245. Professional Services Procurement
- 246. Professional Services Procurement for Architects, Engineers, Land Surveyors, and Landscape Architects
- 250. Small Purchases
- 255. Sole Source Procurement
- 260. Emergency Procurement
- 265. Specialized Purchasing
- 266. Purchasing Cards
- 270. Types of Contracts
- 275. Contract Formation and Administration
- 281. Construction and Professional Services in Support of Construction
- 285. Cost or Price Reasonableness
- 290. Requirements of Federally Funded Purchases
- 295. Small Business and Small Disadvantaged Business Programs
- 300. Interests in Real Property
- 305. Use of Non-University Space and Facilities
- 350. Concessions
- 375. Fund Raising by a Recognized University Affiliated Volunteer Group or Non-Profit Organization
- 400. Risk Management Guidelines and Procedures
- 450. Records Management Guidelines and Procedures
- 509. Property and Equipment Overview
- 510. Loaned Property, Personally Owned Property, and Collections
- 512. Identification of Property
- 516. Property and Equipment Valuation (formerly Valuation of University Equipment)
- 521. Property and Equipment Acquisition
- 523. Receiving Property and Equipment
- 524. Property and Equipment Maintenance
- 530. Property and Equipment Storage and Movement
- 536. Subcontract Control of Government Property
- 539. Property and Equipment Record Maintenance
- 540. Physical Inventory
- 541. Property and Equipment Management Reports
- 542. Property and Equipment Utilization
- 543. Property and Equipment Transfer and Retirement
- 550. Capitalization
- 555. Impairment of Capital Assets and Retirement of Real Property
- 560. Post-Issuance Tax Compliance Procedures for Tax-Exempt and Build America Bonds
- 561. Tax Treatment of Non-Service Financial Assistance for Individuals
- 571. Administrative Procedure AP 8.571, University of Hawai‘i at Mānoa Athletics Ticket Sales for Events that are not University of Hawai‘i Athletic Competitions and that Involve Payments to Non- University of Hawai‘i Entities
- 602. General Ledger
- 611. Account Code
- 612. Establishment and Maintenance of Account Codes
- 615. Object Codes
- 617. Revenue and Higher Education Function Codes
- 619. Fund Groups
- 620. Gifts
- 621. Delinquent Financial Obligation Tax Setoff Hearings
- 622. University Endowments
- 635. Accounting For Leases
- 636. Supply Inventory
- 641. Journal Entries
- 650. Continuation Accounts
- 651. Non-Student Accounts Receivable and Delinquent Financial Obligations
- 671. Year-End Accounting Data
- 685. Cancellation or Replacement of University of Hawaii General Account Checks
- 686. Terminal Vacation Payout
- 701. Receipting and Depositing of Funds Received by the University
- 702. Administrative Procedure AP 8.702, Establishment of Electronic Funds Transfer and Receipt of Funds
- 710. Administrative Procedure AP 8.710, Credit Card Program
- 711. Administrative Procedure AP 8.711, Electronic Payments via University Websites
- 731. Student Accounts Receivable and Delinquent Financial Obligations
- 740. Dishonored Checks
- 750. Establishment and Maintenance of Change Funds
- 760. IRS Compliance for Reporting Cash Payments Over $10,000
- 770. Student Refunds
- 806. Roles and Responsibilities for Payment Transaction Processing
- 808. Bank Wire Transfer
- 851. Employee Out-of-State and Intra-State Travel
- 852. Personal Automobile Mileage Voucher
- 863. Relocation Allowances
- 867. Information Reporting on 1099-MISC and Backup Withholding on Payments
- 868. Reporting and Withholding on Payments to Nonresident Aliens and Foreign Corporations
- 870. Pay Types and Pay Days
- 871. Distribution and Security of Paychecks
- 872. Emergency (Priority) Payroll
- 873. Payroll Processing Cycle Deadlines
- 876. Overtime Authorization and Compensation
- 877. Salary and Wage Overpayment Recovery
- 879. Post Death Payments
- 926. Administrative Procedure, AP 8.926 Administrative and Financial Management Requirements for Extramurally Financed Research and Training Programs/Activities of the University of Hawai`i (UH
- 927. Administrative Procedure, AP 8.927 Facilities & Administrative Cost Charges in Contracts and Grants
- 951. Accounting for Federally Matching Equipment Grants
- 956. Financial Conflicts of Interest (FCOI) for Public Health Services (PHS) Grants, Cooperative Agreements and Contract
- + 9. Personnel
- + 10. Land and Physical Facilities
- + 11. Miscellaneous
- + 12. Research
- Abolished Procedures (Post Oct. 2014)
- Archived AP
UH‐Related Laws and Rules
- Hawaiʻi Revised Statutes (HRS) 304A
- Hawaiʻi Administrative Rules (HAR) Title 20
Administrative Procedure 8.550 Administrative Procedure 8.550
Administrative Procedure Chapter 8, Business and Finance
Administrative Procedure AP 8.550, Capitalization
Effective Date: July 2016
Prior Dates Amended: This Administrative Procedure replaces A8.550, Capitalization, July 1999, June 2001, May 2003, May 2009; A8.551 Non-Expendable Personal Property May 2002, May 2003; and A8.552 Real Property December 2000, May 2002, May 2003
Responsible Office: Office of the Vice President for Budget and Finance/Chief Financial Officer
Governing Board and/or Executive Policy: EP 1.102, Authority to Manage and Control the Operations of the Campus
Review Date: August 2018
To establish capitalization policies and procedures for the proper accounting treatment of the University of Hawai‘i’s (University) capital assets to ensure conformity with Federal and State regulations and generally accepted accounting principles (GAAP). Capital assets include property, plant, and equipment purchased and constructed by the University.
A. Building - A structure with a roof and walls standing more or less permanently in one place, such as a house or school. Common components of a building include: foundations, framing, floors, walls, roofs, interior and exterior finish, doors, windows and hardware. The costs to be recorded are the costs of acquiring or constructing a building to be used by the University. Generally, all costs incurred beginning with excavation through completion of construction are considered part of the building costs. However, the cost of the building should not include the cost of land, land improvements, or equipment.
B. Building Improvement – An improvement that involves major alteration or renovations to an existing building. These costs should be capitalized and added to the building asset category for depreciation purposes. Routine maintenance projects such as repairing, painting, refurbishing should not be capitalized but charged as operating expense.
C. Capitalization – A process to record a cost as an asset, rather than an expense. This approach is used when an asset is expected to have a useful life more than one year. Capitalized assets include: property, plant, and equipment.
D. Capitalization threshold – A minimum dollar amount that is established by the University for asset capitalization purposes. The thresholds are as follows:
E. Construction in Progress (CIP) Asset – An accounting term that refers to an asset in which construction and related costs are recorded until the project is completed. When the project is completed, the asset or assets are classified in their actual form such as: buildings, building improvements, infrastructure, equipment, etc.
F. Depreciation – An accounting process to allocate the cost of a tangible capital asset over its estimated useful life in a systematic and rational manner.
G. Equipment – Tangible property that is used in the operations of a business that has a useful life for more than one year and an acquisition cost of $5,000 or more per unit.
1. Fixed Equipment – Equipment which is attached to a building but would not require an extraordinary expenditure to remove. It includes furniture and equipment affixed to the building that serves the function of the institution, such as built-in benches, cabinets, counters, and lockers.
2. Moveable Equipment – Equipment that is not built into or permanently fastened to a building and does not lose its identity when incorporated into a more complex unit. Examples are machinery (which is not part of a building’s mechanical system), furniture and furnishings, instructional and research equipment.
H. Infrastructure – A long lived capital asset that is normally stationary in nature and can be preserved for a significantly greater number of years than most capital assets. Examples of infrastructure assets include roads, sidewalks, bridges, tunnels, drainage systems, water and sewer systems, dams, and lighting systems.
I. Intangible Asset – An asset that lacks physical substance and usually is very difficult to evaluate for valuation. Corporate intellectual property, trademarks, copyrights, goodwill, and brand recognition are examples of intangible assets.
J. Land - Land comprises the portion of real property that is not a building or other classification of asset. It is basically the ground that the title document identifies. Land cost should include all expenditures to acquire a site (purchase price, closing costs, legal fees, and recording fees) and costs to prepare a site for construction (removal of existing structures, draining, filling, and clearing).
K. Land Improvement – Betterments that are made to prepare the land for its intended use. Costs incurred for land improvement should have limited lives such as parking lots, fences, and landscaping.
L. Library Books – Collections that are maintained by the libraries. Library collections shall include, but not limited to books, bound volumes, periodicals, photographs, audio-visual materials, etc. that are identified, cataloged, shelved, and stored by the libraries.
III. Administrative Procedure
A. Accounting Principles
1. Purchased assets should be reported at historical cost. The cost of a capital asset should include ancillary charges necessary to place the asset into its intended location and condition for use.
2. Donated capital assets should be reported at their estimated fair value at the time of acquisition plus ancillary charges, if any.
3. The proper timing of capitalization of expenditures is required to comply with the matching principles of GAAP.
1. Construction (CIP Projects)
a. Capitalized Expenditure
(1) Expenditures are capitalized if aggregate project costs are expected to equal or exceed the applicable capitalization threshold and:
(a) Result in additional asset services (expanded facilities);
(b) Result in more valuable asset services (upgraded facilities); or
(c) Extend normal service life beyond one year; or
(d) Subsequent costs to initial acquisitions that result in extending the life or increasing the value of a real property asset shall also be capitalized.
(2) Assets should be placed in service when the project:
(a) Is substantially completed at 95% or more, either in phase or the entirety of a project and in use;
(b) Facilities offices receive Notice of Beneficial Occupancy or Project Acceptance Notice.
Note: Resolution of punch list items and billing disputes should not delay capitalization unless the nature is so significant that the asset is rendered virtually unusable until resolution.
b. Non Capitalized Expenditure
Expenditures should not be capitalized if they were incurred to maintain an asset in good operating condition. The following examples, although not all inclusive and subject to varying circumstances, are generally considered to be current non-capitalized expenditures:
(1) General Repairs
(2) Roof Repairs
(4) Window Replacements
(5) Alterations and rearrangement which prepared existing space for new purposes
(6) Replacement projects (e.g. building improvement) which cost less than $100,000.
(7) Replacement floor and window coverings, such as: linoleum, tile, carpet, blinds, and drapes. Such costs associated with new construction, however, are capitalized.
a. Expenditures should be capitalized if the equipment has a useful life for more than one year, and an acquisition cost of $5,000 or more per asset accountability unit (AAU). AAU is defined as encompassing all components and/or subsystems as necessary for the asset to perform and function for an intended purpose or mission. The capitalization value shall consist of the purchase price, and costs incurred to prepare the asset for its normal or intended use.
b. Equipment fabricated or constructed by the University for its own use shall be identified as an AAU and capitalized accordingly. Each AAU shall include all direct costs (materials, purchased components and labor expenses).
c. Costs incurred for repairs and maintenance, which either restore the moveable equipment AAU to, or maintain it at its normal or expected service life or production capacity shall be treated as operating costs of the current period.
a. Purchased software with a unit acquisition cost of $25,000 or more per unit shall be capitalized. Software developed or obtained for internal use with a unit acquisition cost of $25,000 or more shall be capitalized. Costs of software developed or obtained for internal use shall include:
(1) Payroll and payroll-related costs for employees who are directly associated with developing the internal use software. Eligible employees, for example, are programmers and end users who are directly involved with the development or testing of the software.
(2) External direct costs of materials and services consumed in developing or obtaining the internal use software such as fees paid to third party consultants, cost of developing or acquiring coding, and testing.
b. Costs for training, maintenance associated with an existing system where no substantive new functionality is being added, and data conversion shall be expensed as incurred.
c. Software developed for internal use with unit acquisition cost of $25,000 or more shall be reported to the Property and Fund Management Office (PFMO) via PFMO-73 Fabricated Equipment. Capitalization costs shall cease when the software has completed testing and ready for its intended use. Upon completion of software development, the Fiscal Administrator, or Asset Representative shall inform the PFMO via memorandum of the completion of the project and the in-service date.
4. Works of Art
a. For works of art, estimated current market value in lieu reporting of reporting a cost-based amount is acceptable. Works of art may be excluded from inclusion in the financial reports if all of the following criteria are met:
(1) They are held for exhibition, education, or research in furtherance of public service rather than financial gain;
(2) They are protected, kept unencumbered (i.e., not pledged as collateral), cared for, and preserved.
5. Library Books
a. Library books will be capitalized monthly based on aggregate acquisition costs.
b. A monthly report is sent to Fiscal Administrators to verify their acquisitions for accuracy.
c. Acquisitions defined as library books shall be coded according to the table in section D.
d. Yearly depreciation will be calculated based on acquisitions.
6. Donated Assets
Donated asset units that meet the criteria for capitalization shall be assigned a fair market value at the time the institution takes custody. The University of Hawaii Foundation DP014, Transmittal Form for Non-Cash Gifts, shall be completed to document the donated transaction.
7. Maintenance and Warranty
The cost of maintenance, whether purchased with the property or purchased separately, shall not be capitalized for financial reporting since the cost of maintenance or warranty are not considered tangible, i.e., it is a guarantee against defects or poor workmanship under normal use.
8. Examples of Capitalized Expenditures
Attachment 1 provides examples of expenditures, which are to be capitalized as land, land improvements, infrastructure, building, and equipment. The list is intended to suggest the scope of capital expenditures processed by the University and is not exhaustive.
C. Depreciation Schedule
Depreciation is an accounting method of allocating the cost of a capital asset over its estimated useful life. In the Kuali Financial System (KFS), the “in-service date” records the starting date in the useful life of a capital asset. The University uses the straight-line method to depreciate its capitalized assets. Refer to Attachment 2 for details.
D. Object Codes Used in the KFS
1. The object codes used in the KFS for capitalized assets describe the asset category and the ownership. The first three digits of the object code describe the asset category and the last character describes the ownership.
76XX = Construction
77XX = Equipment
78XX = Library Books
A = Agency owned
F = Federal owned
G = Federally funded, University vested
U = University owned
Payments made during the construction for buildings, land improvements, and infrastructure shall utilize the object codes in the following table until the capital project is first placed into service.
3. Equipment, Capital Lease, Controlled Property, and Non-Capitalized Equipment
Payments for these items shall utilize the object codes in the following table:
4. Library Books
Payments for library collection items shall utilize the object codes in the following table:
E. Project Completion Reporting
Upon completion of a capital project or fabrication, the Fiscal Administrator, Facilities Project Manager, or Asset Representative must inform the PFMO via memorandum of:
1. Completion of the capital project or fabrication
2. In-Service date
3. Percentage of cost allocations for construction projects involving multiple AAU. It is to ensure that the expenditures are appropriately capitalized for audited financial statement purposes.
4. A copy of Notice of Beneficial Occupancy or Project Acceptance Notice.
IV. Delegation of Authority
There is no administrative specific delegation of authority.
V. Contact Information
Property & Fund Management Office, 956-8735, or email@example.com
A. Link to superseded Executive Policies in old format https://www.hawaii.edu/policy/archives/ep/
B. Link to Administrative Procedures in old format https://www.hawaii.edu/policy/archives/apm/sysap.php
VII. Exhibits and Appendices
Attachment 1: Examples of Capitalized Assets and Expenditures
Attachment 2: Depreciation Schedules by Asset Classification
Vice President for Budget and Finance/Chief Financial Office
July 08, 2016
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