Systems and Procedures
A Division of The Corporate Controller's Office
IN

Procedure CR2019 - Accounting for Capital Equipment

Office of the Corporate Controller

Policy Steward facilitating procedure: Associate Vice President for Finance and Corporate Controller

Table of Contents:


GENERAL:

The University maintains records of equipment acquired by purchases, received as gifts, via leases which may or may not be considered a purchase, on loan, on consignment, and through departmental fabrication. These records are used with other information to determine the depreciation charge for capital equipment, to assist in generating the financial statements, and to determine insurance coverage. It is the responsibility of the Department of Property Inventory to maintain the record of all capitalized equipment, with the exception of The College of Medicine at Hershey Medical Center which maintains its own records on capitalized equipment.

In order for equipment to be capitalized, it must meet certain criteria. Equipment that is capitalized is tagged with an identifying number, and assigned an administrative area code number denoting responsibility for the equipment. This, and other pertinent information, is entered into a computer data base which maintains the "perpetual" inventory of all capitalized equipment. Any changes in the equipment, such as transfer to a different location or disposal, must be reported to Property Inventory. This procedure explains the criteria for capitalizing acquisitions and the methods used to identify, tag, inventory and account for capitalized equipment. Forms required to complete this procedure are referenced where applicable.

PROCEDURE:

CAPITALIZATION CRITERIA

The criteria for capitalizing equipment are:

  1. The equipment must have a value of $5,000 or more.
  2. The equipment must have a useful life of two (2) or more years.(Effective 7-1-97)

TYPES OF ACQUISITIONS

The University receives equipment by the following methods: purchases, gifts, leased equipment which may or may not be considered a purchase, on loan, on consignment, through fabrication, and miscellaneous additions. All capitalized equipment acquisitions must be reported to Property Inventory to ensure proper record keeping.

Purchases:

Equipment valued at $5,000 or more that is acquired from another department by an IDCC, through General Stores using a GREQ (no longer used - Broken link), and through the Department of Purchasing Services using a Purchase Order, REQR. One of the following Object Classification Codes is assigned, as applicable:

Currently, three other object classification codes are used for equipment acquisitions that are not capitalized:

These documents are processed through the normal Purchasing Services/Accounting Operations system.

NOTE:Use of the correct object class code for equipment acquisitions must be enforced when source documents are prepared to ensure proper recording of capitalized assets and reduce the amount of time spent by Property Inventory to review and adjust discrepancies. Refer to Object Classification Codes for a complete listing of object class codes and their intended use.

Leases/Loans/Consignments

Equipment valued at $5,000 or more acquired by lease, loan or consignment must be reported to Property Inventory to ensure adequate insurance coverage is provided. Leased equipment may be considered purchased equipment and will be capitalized if it meets the criteria of capitalizing leases according to The Financial Accounting Standards Board. These types of acquisitions should be reported using the Report Of Tangible Assets Acquired By Consignment, Lease, Or Loan. The following object classification codes are to be used:

Vehicles acquired by the University either through purchase, lease, loan or gift must be reported on the Report of Vehicle Acquisition or Disposition Form.

Gifts

Gifts-in-kind are another source of equipment to the University. Gifts are reported on the Gift Reporting and Transmittal Form (GRT).

Fabricated Equipment

Equipment fabricated by a department is considered an acquisition. The amount capitalized includes the actual cost of materials and direct labor. Contact Property Inventory before using Object Code 0705, for fabrication of capital equipment. The finished item must have a total value of $5,000 or more. Additionally, the use of the Purchasing Card in obtaining materials or paying for direct labor is prohibited.

Miscellaneous

Miscellaneous additions to equipment include equipment located during inventories that was not previously accounted for.

IDENTIFICATION OF NEW EQUIPMENT

General Information

At the end of each month, a listing is generated by the Office of Administrative Systems (OAS) of all documents processed that have the following Object Classification Codes:

This listing is broken down into four categories: General Budgets, Special Budgets, Miscellaneous Budgets (Restricted Funds), and a numerical listing of Purchase Order, IDCC, and GREQ voucher numbers for each of the Object Class Codes listed above.

The listing received from OAS generally does not include documents processed for The College of Medicine at Hershey Medical Center since they maintain their own inventory records; however, the listing is reviewed to check whether any such references are included. Voucher listings for Object Class Codes 455 and 459 are reviewed for any dollar amounts greater than $5,000. Copies of all Purchase Order, IDCC, and GREQ vouchers appearing on the listings for Object Class Codes 710, 715 and 361, as well as those vouchers greater than $5,000 for Object Class Codes 455 and 459 are made from Accounting Operations microfilm files. (Refer to the Note on page 2 regarding object class codes.) Copies of applicable documents for Object Class Code 361 will be made only when an item first appears on the voucher listing as a new acquisition due to the recurring lease payments for these items each month.

Property Inventory reviews the copies of all vouchers on the OAS Listing to determine if any acquisitions may have been assigned to an incorrect Object Class Code and to establish which items are actually capitalized equipment. Discrepancies are investigated and resolved as encountered. In determining the value of equipment, the inventory clerk adds actual cost plus shipping and installation charges. If the equipment is received by gift, lease purchase, fabrication, or if the equipment is found while inventorying, the amount recorded for capitalization is the fair market value. Copies of the vouchers are sorted by administrative area within the Budget Codes chart and distributed to the inventory clerk in charge of the corresponding area.

Two copies of the Miscellaneous Budget (Restricted Funds) listing are received from OAS; one copy is filed by Property Inventory and one copy sent to Research Accounting. Research Accounting reviews the listing and notifies Property Inventory which items are sponsor-owned and which equipment will be owned by the University at the completion of a project. Property Inventory updates their copy of the Miscellaneous Budget listing with this information.

Equipment received by the University as gifts is initially identified to Property Inventory by the Office of University Development (OUD). Further information for special handling is provided (when appropriate) by the Associate Treasurer's Office. OUD provides a copy of the Gift Reporting and Transmittal Form and any additional information identifying the equipment, to Property Inventory when it is processed through the gift reporting system. The Associate Treasurer's office forwards a copy of the Appraisal Summary (IRS Form 8283) when provided by the donor, which alerts Property Inventory to initiate an internal "tracking" procedure in order to comply with IRS regulations if disposal occurs within the time period specified by the IRS.

Equipment fabricated by a department is reported to Property Inventory by that department. For example, Property Inventory is contacted by the Financial Officer or research area with a request to report equipment that will be fabricated as part of a research project. After fabrication, Property Inventory reviews all applicable documentation (i.e., Purchase Orders, invoices, log of all materials and sources of funding expended in the construction and a summary of all labor costs) to determine the cost of the fabricated equipment and whether or not it should be capitalized.

Equipment fabricated by the Office of Physical Plant is reported on the Jobs in Progress Report (Exhibit "A"). This report is sent to the Property Inventory Department and distributed to the inventory clerk assigned to the corresponding area.

Equipment found while the Property Inventory clerks are taking inventories, that is not currently on file, is considered miscellaneous additions to equipment that requires capitalization if valued at $5,000 or more.

Types of Identification Tags

The four types of tags (Exhibit "B") currently used for identification by Property Inventory are described below:

  1. Penn State University Equipment Tag: A black and white bar-coded tag is used for University-owned capitalized equipment. The words "PENNSTATE" are printed on the tag in black. These tags are pre-numbered in order by Metal Craft, Inc. The numeric sequence of numbers needed are indicated on the Purchase Order by Property Inventory when a batch of tags is ordered.
  2. Government-Owned Equipment Tag: United States Government-owned equipment is tagged with a red and silver tag. The words "U.S. Govt. Owned" are printed on the tag in red. A black and white bar-coded tag as described in #1 is also placed on government-owned equipment to facilitate inventorying. No eye-readable number will be embossed on the red and silver tag.
  3. Sponsor-Owned Equipment Tag: Sponsor-owned equipment is tagged with a yellow and silver tag. The words "Sponsor Owned" are printed on the tag in yellow. Equipment received via gift that is accompanied by an Appraisal Summary (IRS Form 8283-refer to Internal Revenue Code; Sec. 170 [a]) is also tagged with a yellow tag. This tag is also used on leased equipment for insurance purposes. A black and white bar-coded tag as described in #1 is also placed on this category of equipment to facilitate inventorying. No number will be embossed on the yellow and silver tag.
  4. Tag for Equipment that is not Capitalized: This tag is black and white similar to the bar-coded tag, but contains no number. The words "Property of Penn State" are printed on each white tag in black. It is placed on new equipment that is valued under the $5,000 capitalization criteria to assist the Property Inventory clerks during inventory. Also, equipment that is being "cannibalized" (disregarding value), and that is no longer useful, should be tagged with this tag.

Non-Tagged Items

Acquisitions which cannot be tagged, such as paintings or radioactive equipment, are assigned an item number and a special condition code when entered on the computer data base (condition code "W" - Number assigned - Not on item - see Exhibit "C"). For the purpose of inventorying, "untagged" items are included on the numerical listing generated by OAS and can be identified by their condition code.

METHOD OF TAGGING EQUIPMENT

University Park

Capital acquisitions are assigned a bar-coded tag, the number of which is used to identify that item on the computer database. An administrative area code number is also assigned to denote the area responsible for each piece of equipment (see Budget Codes Chart for administrative areas). These tags are distributed to the Inventory Clerk in charge of the corresponding area.

As each Inventory Clerk prepares to tag equipment, they review the applicable documents (copies of vouchers, IDCC, etc.) for the equipment items they have been assigned to tag. Each document is stamped with a hand stamp (Exhibit "D") which labels the headings for the following information: tag number, building number, room number, item name, model, serial number, manufacturer, custodian, and administrative area. As much of this information as possible is recorded from the documents before actual tagging of equipment. The Inventory Clerk then sorts the documents by location of the equipment according to building.

The Inventory Clerk contacts the college/area liaison to set up a time to accomplish the actual tagging. When the Inventory Clerk goes to tag the acquisitions, he/she will take with them the tags, and pre-stamped documents (vouchers, IDCC, etc.). The college/area liaison will assist in locating the equipment for the Inventory Clerk. A tag is selected for the item being tagged. If the equipment is government-owned or sponsor owned (refer back to "Types of Identification Tags"), a second tag identifying the item as such will also be placed on the equipment. The tag is attached to the item in plain view and where it can be easily accessed by the bar-code scanner for subsequent inventory taking. Any information not previously recorded on the pre-stamped documents is completed by the Inventory Clerk.

After the physical tagging is completed, the Inventory Clerk transfers the information recorded on the pre-stamped documents to an Office Worksheet input form (Exhibit "E"). Certain condition codes are also assigned to denote the physical condition of the equipment (Exhibit "C"), location of equipment, items that cannot be tagged, items not being used and a general description of the equipment. These codes are used to sort the information on the data base into different categories as needed for various reports.

After completion of the input forms, a Property Inventory Aide reviews the forms and notes any necessary changes. The Property Inventory Aide Records forwards the forms to a Records Clerk who enters the information into the computer data base. (Refer to Exhibit "F" for a sample screen showing the detailed information maintained on the Property Inventory System data base.) This computer data base maintains the records of all capitalized equipment acquisitions. This information is used in determining the depreciation charge, to assist in generating the financial statements and in determining the amount of insurance coverage required for capitalized equipment.

Non-University Park Locations

Tagging By Contact Person

Tagging equipment at non-University Park locations is done similarly to the procedure for tagging equipment at University Park, except for the actual, physical tagging. After the Assistant Supervisor reviews the documents for equipment at non-University Park locations, the Office Worksheet (Exhibit "E") is completed with as much information as possible. At this point, a temporary number and a "Z" condition code (refer to Exhibit "C") is assigned to each piece of equipment so that it may be entered into the computer data base by the Records Clerk for capitalization even though the item has not been physically tagged yet. Property Inventory then prepares a copy of each document and sends the copies along with a Equipment Tagging Information Form/Non-University Park Locations (Exhibit "G") and proper tags, to the appropriate equipment contact person at the non-University Park location. Property Inventory assigns a block of pre-numbered tags to each non-University Park location for use as needed.

The contact person completes the information needed on the Equipment Tagging Information Form/Non-University Park Locations (Exhibit "G-1") and physically tags the piece of equipment. After completing the form, it is returned to Property Inventory. Property Inventory completes the information on the Office Worksheet (Exhibit "E") which is reviewed by the Assistant Supervisor and then entered into the data base. The "temporary" number is replaced with the actual tag number and any additional information obtained is entered.

Tagging By Property Inventory Personnel

Property Inventory personnel supervise and assist in the actual tagging of equipment at non-University Park locations when the equipment is purchased by the Commonwealth of Pennsylvania - Department of Property and Supplies; and when equipment is purchased on special budgets for new facilities (generally located at a non-University Park location).

The non-University Park location contact person will notify Property Inventory when they have moved into a new facility and when all equipment that has been purchased from special budgets or from Commonwealth Property and Supplies accounts has been received. After the initial tagging has been completed, it will be the responsibility of the Campus/College to physically tag any additional equipment purchased on operating budgets (refer back to "Tagging By Contact Person").

RELOCATION OF EQUIPMENT

Permanent Transfers

Equipment permanently transferred to another department is reported on the Report of Disposition or Permanent Transfer of Tangible Assets -DISP, which is sent to Property Inventory.

These transfers require updating of the information on the equipment data base such as administrative area, location custodian and other information as applicable. If the administrative area does change and the equipment is tagged with an old tag (other than a bar-code tag), the equipment will be re-tagged according to current procedures.

Temporary Transfers

In the case of a temporary transfer of equipment to another University location, a Report of Temporary Relocation of Tangible Assets is completed and sent to Property Inventory. "Temporary" is defined as the relocation of equipment for a period of two weeks or more, up to and including one year.

Per University Policy FN14, Temporary transfers of University equipment to a non-University location for the purpose of University business is reported to Property Inventory when the equipment is tagged and the transfer will be for a period of 30 days or more. The Request For Authorization to Use University Tangible Assets at a non-University Location is used for this type of transfer.

Updating of the data base information for a temporary transfer is at the discretion of Property Inventory depending on the length of time involved and nature of the transfer.

Property Inventory maintains copies of all transfer forms received. Property Inventory assigns a consecutive document number to each form and when the data base is updated that applicable document number is also entered to serve as a cross-reference for additional information concerning the transfer of equipment.

ACCOUNTING ADJUSTMENTS

If an area determines that a different budget should have been charged for a piece of equipment, that area may request that Accounting Operations prepare a Journal Voucher to correct the entry. Journal Vouchers can only be used to adjust current year activity. All Journal Vouchers containing a capital equipment Object Class Code are reported to Property Inventory by OAS on a monthly listing.

Property Inventory researches each Journal Voucher to determine what changes need to be made to their data base to reflect the accounting change. Property Inventory record the applicable Journal Voucher number on the computer database for any equipment that is affected by the change.

Property Inventory performs a monthly reconciliation of the information contained on their inventory data base to Accounting Operations' records to ensure proper classification of equipment.

DISPOSITION OF EQUIPMENT

General Information

Any piece of capitalized equipment which is disposed of in any manner must be properly recorded on the Property Inventory computerized data base. Wherever possible, the tag must also be removed and destroyed. Any piece of equipment tagged with a red or yellow tag may not be disposed of until Property Inventory is notified. Any item with a red tag is government-owned and cannot be disposed of without specific permission from the government. Any item with a yellow tag is sponsor-owned or received as a gift. Disposal of a gift item so tagged must be reported to the donor and the IRS (IRS Form 8282) if disposal occurs within two years of the date of receipt of the gift (refer to the Associate Treasurer's Office and to IRS Regulations for more information).

Types of Disposals

There are four ways in which the disposal of equipment is categorized by Property Inventory. Each category is represented on the data base by a specific Disposal Code as follows:

Disposal Code 1

Disposals are reported by department on the Report of Disposition or Permanent Transfer of Tangible Assets - DISP. This form indicates the changes needed to be made by Property Inventory to update their computer data base. These disposals include equipment sent to Salvage and Surplus (refer to Procedure BS2011 - Salvage and Surplus Operation Including Sales Stores), trade-ins, lost equipment, or dismantled equipment.

NOTE:If there is an exchange of money between departments, an IDCC form should reflect these amounts for capitalization purposes.
Disposal Code 2

Equipment items that are not located by Property Inventory clerks or by the departmental personnel during inventories. This equipment is written off by the Property Inventory Department at the request of the budget executive of the administrative area in charge of the equipment. (Refer to the "Equipment Not Found" section.)

Disposal Code 3

Used to make prior year corrections and to delete a record from the data base.

Disposal Code 0

Reversal of a prior disposal. If for example, an item is discovered during inventorying that had previously been recorded as disposed, but is actually still being used, it will be reactivated as a miscellaneous addition in order to be included in current activity reporting.

Use of Disposal Codes "1" and "2" will omit the item from current activity reports but a record of the equipment remains on the data base for reference by Property Inventory. A record of equipment assigned a Disposal Code of "3" will remain on the data base only until the end of the fiscal year and then it will be deleted.

INVENTORY METHODOLOGY

General Information

Physical inventories of movable and fixed equipment are performed by Property Inventory to verify the existence, location, condition, and use of equipment that is on their capitalized equipment data base. Physical inventories are required every two years by U.S. Government Regulation A-21. Also, when a furnished facility is acquired, a physical inventory is taken of movable and fixed equipment.

The Auditing Department performs periodic reviews of the Property Inventory Department to ensure compliance with procedures and proper record keeping.

The Property Inventory Department notifies the person in charge of the administrative area to be inventoried as to the date the inventory will start and the approximate time it will end. The department head should, in turn, notify the college/area liaison of the above information.

Verification of Existing Equipment

A listing of equipment (by administrative area, in building and room order) is requested by Property Inventory from OAS for the area to be inventoried. The Property Inventory Supervisor discusses the listing with the Inventory Clerk to identify areas where inventorying may be a problem (i.e., due to the nature of the equipment being inventoried). When the actual inventory is taken, two teams of inventory clerks, with the inventory listing, proceed in an orderly manner around each room. The college/area liaison may assist in the actual inventory process. If an item is tagged, the Inventory Clerks check the listing to verify the existing information. Equipment found without a tag, and which is estimated to be valued at $5,000 or more, is recorded on a PSU Inventory Information Sheet (Exhibit "H"). Any unusual circumstances noted while taking the actual inventory are also recorded on this form.

After the actual physical inventory is taken, equipment listed on the PSU Inventory Form is researched by the Inventory Clerk to determine actual cost, and for any item valued at $5,000 or more, how it was obtained. The item will then be tagged and entered on the capitalized equipment data base.

Equipment Not Found

The Records Clerk enters a special code ("U" in the "Unlocated" field of the data base) for any piece of equipment not found during the actual inventory. Using this code, a report is generated of all items on the inventory listing that were not located by the Inventory Clerks. This report is sent to the budget executive for the area, who relays the information to the college/area liaison. The liaison tries to locate the equipment on this report. The report, signed by the budget executive, is returned to Property Inventory indicating which items were located by the department or that the item should be written off. Any equipment not found by Property Inventory personnel or department personnel is written off by Property Inventory as requested by the budget executive responsible for the equipment.

The unlocated equipment is categorized as a disposal on the computer data base by the Records Clerk. Equipment that the department indicates has been located will be assigned a condition code of "X" (Exhibit "C") if Property Inventory does not revisit the area to verify this information. Revisiting an area is not always possible due to time constraints; however, an item assigned an "X" condition code during a prior inventory will be verified by Property Inventory.

AUDIT COORDINATION - FINANCIAL AND PROCEDURAL

The Financial Officer is responsible for ensuring that procedures pertaining to the accountability and safeguarding of all cash receipts, cash funds, and other assets are established and followed in accordance with approved University policies and procedures. Regular audits relating to advances, cash, travel, equipment accountability, and other expenditures provide a means to protect University assets. The Financial Officer is responsible for working with Internal Audit when audits are being performed in the administrative area, as well as performing an annual audit that is submitted to the Assistant Controller.

RECORD RETENTION, DISPOSITION AND DESTRUCTION:

Record retention must be managed in accordance with Policy AD35 - University Archives and Records Management, and records schedules approved by the Records Management Advisory Committee, Office of General Counsel, and Office of the President. These retention requirements are the University's retention criteria, either derived or based upon federal, state, and local statute or regulations, industry standards, and business needs. Retention beyond recommended time periods require justifiable reasons and warrant review by the Records Management Officer or designee. All documents must be maintained in such a manner so as to provide ease of access for review, and to provide a suitable audit trail for all transactions.

Upon expiration of a stated period of time, documents must be discarded and/or destroyed, unless permission is granted by Records Management Officer or designee to retain the records. Archival records created more than 20 years prior to the current date must be reviewed before destruction. Units should also contact the University Archivist before discarding any document which may be of permanent or historical value to the University. To safeguard the privacy of individuals, documents that contain salary information, personally identifiable information (PII), or student records must also be shredded. See Policy AD53 - Privacy Policy and AD22 - Health Insurance Portability and Accountability Act for additional information regarding privacy and the protection of an individual's personal information. For documents that must be shredded, departments may arrange for Blue Bag service by contacting the Blue/White Shredding Program of the Office of Physical Plant. Exceptions to the practice are as follows:

Additional questions may be directed to the University Archivist or the Records Management Officer.

EXHIBITS:

CONTACT INFORMATION:

For questions, additional details, or to request changes to this procedure, please contact the Assistant Controller.

CROSS REFERENCES:


Procedure Status:

Date Approved: 06-30-00

Most recent changes:

Revision History (and effective dates:)