University of Minnesota
Internal/External Sales
“Equipment Purchases and
Depreciation”
Plant Funds, Transfers and other
Requirements
Rate Development - Depreciation
• Depreciation associated with capital equipment may be included
in the rate development.
• Depreciation expense will be calculated in the Asset
Management module.
• Separate capital equipment chartfield strings should be
established to account for capital related transactions.
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Learning Objectives
As a result of this session, participants will be able to:
• Set-up the account structure to record the purchase of a capital
asset and record depreciation
• Include equipment expense (depreciation) in the rate
development, budget and record actuals
• Validate depreciation with Inventory Services vs. rate
Development and Budget.
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Agenda
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Websites for more information
What is a Capital Asset
Key Terms and definitions
Using an ISO Plant Fund
Transferring Depreciation to the ISO Plant Fund
Questions & Answers
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Internal Sales Rate Development
Procedure and Website
Located at :
Internal Sales EFS website:
http://www.finsys.umn.edu/sales/int.html
Administrative Procedure Establishing Internal Sales Capital
Equipment Funds and Recording Depreciation:
http://policy.umn.edu/Policies/Finance/Accounting/INTERN
ALSALES_PROC05.html
Internal Sales Training Module:
http://www.finsys.umn.edu/sales/iso.html
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Inventory Services Website
Located at :
Inventory Services Website:
http://www.finsys.umn.edu/inventorysvs/inventorysvshome.h
tml
Instructions for Transferring Capital Equipment Assets
http://www.policy.umn.edu/prod/groups/president/@pub/@fo
rms/documents/form/um1556.pdf
Transferring or Selling Capital Equipment Assets to Another
University Department:
http://www.policy.umn.edu/Policies/Finance/Inventory/PROP
ERTY_PROC02.html
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Inventory Services Website
Located at :
Transferring or Selling Capital Equipment Assets to Another
University Department:
http://www.policy.umn.edu/Policies/Finance/Inventory/PROP
ERTY_PROC02.html
Asset Accounting, Asset Management, Asset Transfer Form –
Financial Management Training Courses http://www1.umn.edu/ohr/trainingservices/financial/efs/ind
ex.html#aa
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What is a Capital Asset
Capital assets are items that are used in the operations but are
not intended to be sold as part of such operations.
Capital assets must have:
• Acquisition value of $2,500 or greater per item
• A useful life greater than the capitalization threshold for the
asset category to which they belong.
• Capital equipment assets are tangible non-expendable personal
property items.
•A capital equipment asset must maintain its identity over the
course of its useful life.
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What is a Non-Capital Asset
Non-capital equipment assets are:
• non-expendable personal property items with an acquisition
value of less than $2,500 per item
OR
• an estimated useful life of less than one year.
Non-capital equipment assets are expensed.
Custodial organizations (DeptIDs) are responsible for all of the
capital and non-capital equipment assets in their custody.
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Key Terms Associated with Assets
• Acquisition cost - Includes the invoice price and the cost of any
modifications, construction, installation, insurance, freight and is
reduced by any trade-in. For donated assets the value is the fair
market value or appraised value at the date of the gift.
• Depreciation - The allocation of the cost of an asset over its
economic life.
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Key Terms Associated with Assets
• Useful Life - The length of time that a depreciable asset is
expected to be useable as defined by the Controller's Office
following Generally Accepted Accounting Principals.
• Inventory - An asset that a University department holds for sale or
use in providing goods and/or services to customers.
• Capital equipment assets are not "inventory."
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Internal Sales Depreciation Process
• Internal Sales Organizations can recover the cost of capital
equipment in the rates they charge other University departments
by including the appropriate depreciation in the rate development.
• Only include amounts for purchases already incurred.
• Not allowed to include amounts in their rates for anticipated
future purchases.
• Federal grants can’t include depreciation on equipment purchased
with federal funds.
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Internal Sales Depreciation Process
• Capital equipment must be transferred to the Internal Sales Plant
Fund specifically designated for this purpose, and costs are
recovered by including the applicable depreciation amount in
service rates.
• Plant Fund Code for ISO activity is 7201- Internal Sale Capital
Purchases
• The equipment acquisition and/or original purchase cost would be
recorded in account 168001- Equipment Acquisitions.
• This amount would show up as a negative value on the UMReport
“Account Budget Status for Current Non-Sponsored Funds”.
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Internal Sales Depreciation Process
• This depreciation is then transferred from the Internal Sales
operating fund into the plant fund account on a monthly, quarter,
or annual basis.
• Transfer codes to use for recording equipment depreciation are
the 600301 - Non-Mandatory Transfer In - Equipment Replace
and 610301- Non-Mandatory Transfer Out - Equipment Replace .
• The amount transferred from the operating account (610301)
value will be a negative amount and the amount received in the
plant fund account (600301) will be a positive amount.
• The result of the transfer will reduce (replenish over time) the
negative value (deficit) of the equipment in the ISO plant fund to
$0 after the useful life is complete.
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Internal Sales Depreciation Process Example
Purchase $100,000 capital asset in plant fund 7201 – ISO Capital
Purchases and transfer 12 months of depreciation (1,666.67 per
month)
Expenditures
• 168001- Equipment Acquisitions Budget:
-100,000.00
• 168001- Equipment Acquisitions Expenditure: -100,000.00
• 760101 - Equipment Depreciation Budget/Exp:
20,000.00
• 760101 - Equipment Depreciation Budget/Exp:
-20,000.00
Transfer In
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600301 NMTI - Equip Replace Budget:
20,000.00
•
600301 NMTI - Equip Replace Expenditure: 20,000.00
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Internal Sales Depreciation Process Example
Transfer 12 months of depreciation (1,666.67 per month) from
operating fund 1150 – Recharged Internal Sale :
Transfer Out
•
610300 Non-Mand Oth Trsfr Out-FinBdg Budget: -20,000.00
•
610301 NMTO - Equip Replace
Expenditures: -20,000.00
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Internal Sales Depreciation Process
• Policy and procedures for ISO capital purchases are not
voluntary.
• Capital Assets should not be depreciated in the ISO operating
fund using account 760101 – Depreciation – Equipment.
• Internal Sales equipment must be identified separately from nonInternal Sales equipment in the University's property accounting
system.
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Inventory Services
• Inventory Services is responsible for updating the accounting
system for all capital equipment.
• Inventory Services will assist departments to determine
depreciable life of capital equipment and appropriate method for
disposal of capital equipment.
• Units are responsible for the accuracy of the recording of the
purchase and depreciation for Internal Sales capital equipment.
• Inventory Service’s records are official and units will be audited
against what they have recorded.
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Inventory Services
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Inventory Services will assist in the identification of capital
equipment
•
Inventory Services will identify equipment that is purchased with
federal funds so that the department can appropriately account for
all equipment related to their internal sales activities.
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Summary
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Include depreciation in the rate development
Capitalize capital assets
Expense –Non-capitalized assets
Only include purchased or donated assets
Use ISO Plant Fund
Transfer depreciation from operating fund to plant fund to record
expense and replenish equipment purchase value
• Use Inventory Services to support activity
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Questions & Answers
Questions & Answers
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