Frequently Asked Questions for Facilities and Debt Planning
What is asset capitalization?
Definition of asset qualifying for capitalization:
- Acquisition cost of $5,000 or more per unit.
- Capacity to function on its own (not a component unit of another asset).
- Tangible property.
- Useful life at least two years.
What are the equipment accounts?
- 4452—Software—All software should be charged to this account regardless of cost.
- 4481—Office Supplies—Equipment costing less than $5,000.
- 4826—Fabricated Equipment - Grant fund (funds 25-30) purchase of component pieces that will combine to form equipment with a final cost of at least $5,000.
- 4865—Technical Initiatives—Computers and related hardware costing less than $5,000 and that are not purchased with a procurement card or through Technology Purchases website.
- 4850—Equipment equal to or more than $5,000—Equipment costing at least $5,000.
- 8980—Miscellaneous Income—Proceeds received from the sale of equipment.
What equipment qualifies for capitalization?
Equipment qualifying for capitalization:
- Acquisition cost of $5,000 or more per unit.
- Capacity to function on its own (not a component unit of another asset).
- Tangible property.
- Useful life of at least two years.
Should repairs and maintenance be capitalized?
These costs should be expensed and include such items as painting, carpet replacement, cleaning buildings and machinery and replacing minor parts.
Are improvements and replacements capitalized?
The cost should be capitalized if it exceeds $100,000 and meets one of the following criteria:
- The useful life of the asset is extended.
- The quantity of services provided by the asset is increased.
- The quality of services provided by the asset is enhanced.
- An improvement is the substitution of an asset currently in use with a better asset (e.g., an old air conditioning unit is replaced with a more powerful and sophisticated air conditioning system).
- A replacement is the substitution of an existing asset with a similar asset (e.g., an old air conditioning unit is replaced with a new air conditioning system with essentially the same characteristics).
Should donated assets bE capitalized?
Donations that should be capitalized:
- Land, buildings, equipment and library holdings received as a gift will be capitalized at the fair market or appraised value at the time of the gift.
- Western Michigan University Foundation must be notified of all donated assets so that a gift receipt can be issued to the donor. This allows the donor to deduct the value of the donated asset on their income tax return.
Does software need to be capitalized?
Software that should be capitalized:
- Software that is purchased or licensed and modified using more than minimal incremental effort before being put into operation should be capitalized if the amount exceeds $250,000.
- Software developed internally should be capitalized if the cost of development and implementation exceeds $250,000.
Can I use 4xxx accounts with fund 63?
No, 2xxx accounts are used with fund 63. Contact Facilities and Debt Planning using the Contact Us link to the left with questions.