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Financial Management of Capital Assets

Effective: 02/08/10 Approved By: Sr. Associate Vice President for Financial Affairs and Deputy CFO
Revised: 05/28/21
For Assistance Contact: Assistant Controller

Purpose/Scope

This guideline provides guidance for capitalization, depreciation/amortization and construction in progress of capital assets purchased, constructed or developed using Unexpended Plant Funds.

This guideline includes the following classes of assets:
  • Land and land improvements
  • Buildings and building improvements
  • Facilities and other improvements
  • Infrastructure
  • Intangible assets
  • Construction in progress

For more information on approval, accounting, payment and closeout procedures for capital projects, see Financial Guideline — Capital Projects.

Authority

Governmental Accounting Standards Board Statements:
  • gasb.No34
  • gasb.No35
  • gasb.No51

State of Texas – Comptroller of Public Accounts: SPA Process User’s Guide.

UT System Policies:

University Guidelines

Table of Contents
  1. Capital Assets
  2. Plant Fund Accounting
  3. Asset Classes and Capitalization Thresholds
  4. Depreciation/Amortization of Capitalized Assets
  5. Construction in Progress
    1. Major Capital Projects $10 million and Above
    2. Capital Projects Below $10 million

A. Capital Assets

Capital assets are real or personal property or intangible assets that have an estimated useful life of greater than one year. Capital assets are capitalized for financial reporting purposes when their monetary value is equal to or greater than the established asset class threshold (see Asset Classes and Capitalization Thresholds).

B. Plant Fund Accounting

The Plant Funds consist of two major subgroups, Unexpended Plant and Investment in Plant.

Unexpended Plant Funds (71xx) are used for the improvement or expansion of UTSA physical facilities and development of capitalizable intangible assets such as internally-generated software. Expenditures may include but are not limited to land and building acquisition; construction of new facilities; major rehabilitation, renovation and remodeling; and internally-generated software projects. Allocations of funds for the aforementioned projects and the accounting entries related to bringing the assets to completion are recorded in Unexpended Plant Funds.

Investment in Plant Funds (7505) are used to record the value of completed capital assets and the related accumulated depreciation or amortization.

The UTSA Accounting Services Office (Accounting Services) performs a monthly capital project analysis to determine: (1) which expenditures should be capitalized and (2) the appropriate asset class for the capitalized expenditures.

Accounting Services records any additions and deductions in asset classes at a general ledger level in the Investment in Plant Funds by asset class (Land, Buildings, Improvements Other Than Buildings, Facilities and Other Improvements, Infrastructure, Intangible Assets and Construction in Progress).

Total additions to Construction in Progress and other categories of capitalized assets are recorded in the PeopleSoft Assets Module and in the General Ledger in the Investment in Plant Fund.

Capital asset acquisitions recorded in other funds (Grants and Contracts, Gift Funds, etc.) are also capitalized to Investment in Plant Fund as appropriate. Examples of such items include library books, works of art, vehicles, and equipment. For more information, see Financial Guideline — Accounting for Controlled Property and Capital Assets.

C. Asset Classes and Capitalization Thresholds

Examples of standard capitalization thresholds include the following:

Asset Class Description Threshold

Land and Land Improvements

  • Land can be used to support structures and may be used to grow crops, grass, shrubs and trees.
  • Land improvements consist of site preparation and site improvements (other than buildings) that ready land for intended use. The costs associated with land improvements are added to the land value.
EXAMPLES: Purchase price of land, demolition of existing buildings and improvements, land excavation, fill, grading and drainage.

Capitalize ALL

Buildings and Building Improvements

  • Buildings are permanent structures attached to land that have a roof, are partially or completely enclosed by walls and are not intended to be moveable or transportable.
  • Building improvements materially extend the useful life of a building or increase its value, or both. Improvements should be capitalized and recorded as an addition to the value of the existing building if the expenditure meets the capitalization threshold.
EXAMPLES: Purchase price or construction cost of a new building, structures attached to an existing building such as covered patios, and enclosed stairwells.

$100,000

Facilities & Other Improvements

  • Facilities are assets (other than general use buildings) that are built, installed or established to enhance the quality or facilitate the use of land for a particular purpose.
  • Other improvements are enhancements made to a facility or to land.
EXAMPLES: Fencing and gates, paths and trails, landscaping, and fountains.

$100,000

Infrastructure

Infrastructure consists of long-lived capital assets that are normally stationary in nature and can normally be preserved for a significantly greater number of years than most capital assets.

EXAMPLES: Roads and streets.

$500,000

Intangible Assets

Intangible assets are defined by Governmental Accounting Standards Board (GASB) Statement No. 51: Accounting and Financial Reporting for Intangible Assets as assets that have all of the following characteristics:

  1. Lacking physical substance,
  2. Non-financial in nature, and
  3. Having a useful life of more than one year (beyond a single reporting period).
EXAMPLES: Easements, land rights (water, mineral and timber rights), and computer software.

$100,000 – $1,000,000*

*The threshold for internally-developed software projects is $1,000,000; however, purchased/licensed software with a cost of $100,000 or more is capitalized regardless of whether it will be modified as part of a development project.

For information on capitalization of equipment, see Financial Guideline — Accounting for Controlled Property and Capital Assets.

D. Depreciation/Amortization of Capitalized Assets

Capitalized assets are depreciated (real and personal property) or amortized (intangible assets) over their estimated useful lives using the straight-line method (historical cost less residual value, if any, divided by useful life).

NOTE: Depreciation/amortization is not calculated for inexhaustible items such as land, works of art, historical treasures, and perpetual easements.

UTSA adheres to the capitalization and depreciation/amortization standards for capitalized assets as required by Governmental Accounting Standards Board (GASB) Statements No. 34, 35 and 51.

Depreciation/amortization is calculated monthly and is based on the State Property Accounting (SPA) system's Class Codes for useful life.

Following are examples of SPA Class Codes and default useful lives (see State of Texas — Comptroller of Public Accounts: SPA Class Codes and Annual Financial Report (AFR) Categories for the complete list).

Class Code Description Default Useful Life for Depreciation/Amortization

006

Parking Lots

240 months

031

Componentized Buildings

360 months*

057

Roads and Streets

240 months

308

Internally Developed Software

60 months (see fmog.0404.utsa)

311

Enterprise Software

72 months (see fmog.0404.utsa)

* UTSA has elected to assign a useful life of 600 months for componentized buildings unless the UTSA associate vice president for facilities determines that a specific building will have a useful life of 360 months in accordance with the SPA default amount.

Accumulated depreciation/amortization is summarized and recorded at the general ledger level by Accounting Services in the Investment in Plant Fund as a total for buildings, equipment, library books, vehicles/aircraft, facilities and other improvements, infrastructure and intangible assets.

Total accumulated depreciation on buildings is recorded in the Asset Module and the General Ledger in the Investment in Plant Fund.

E. Construction in Progress

Construction in Progress is the economic construction/development status of buildings and other structures, infrastructure, intangible assets, additions, alterations, reconstruction, installation, and major repairs.

All construction costs associated with a project are accumulated and capitalized as Construction in Progress if the project meets the capitalization threshold for the applicable asset class. Construction in Progress is closed out and transferred to the appropriate asset class by Accounting Services when the project is:

  • Substantially complete,
  • Occupied, or
  • Placed in service.

Replacements or renovations are capitalized if they increase the value of a building or other facility by $100,000 or more. The total cost of a project includes items such as: preparation of plans, costs of permits, and professional services fees such as architect and contractor fees.

1. Major Capital Projects $10 million and Above

The UTSA Department of Major Capital Projects and Real Estate manages major capital projects costing $10 million or more. The projects are maintained in the Construction-in-Progress (CIP) program by the UT System. Accounting Services requests the Construction in Progress Transfer Request form monthly from the Department of Major Capital Projects and Real Estate to determine if any major capital projects should be transferred to the Investment in Plant Fund. Before transferring a project to the Investment in Plant Fund, Accounting Services will prepare a componentization breakdown for buildings (a listing of core elements by cost such as roof, exterior shell, HVAC system). Accounting Services then transfers the project(s) to the Investment in Plant Fund, including componentization information by SPA Class Code if applicable to ensure that depreciation/amortization is recorded correctly.

2. Capital Projects Below $10 million

Capital projects costing less than $10 million are managed by the UTSA Office of Facilities (Facilities). See Financial Guideline – Capital Projects for more information. Accounting Services sends a list of current Construction in Progress projects each month to Facilities for review and updating of project status. When a project is complete, Accounting Services requests a completed Construction in Progress Transfer Request form from Facilities. This form determines which projects should be transferred to the Investment in Plant Fund. Accounting Services then transfers the project(s) to the Investment in Plant Fund, including componentization information by SPA Class Code, if applicable, to ensure that depreciation/amortization is recorded correctly.

Related Forms

  1. Construction in Progress Transfer Request Form
  2. Form 4/5

Revision History

Date Description
05/28/21 Updates throughout guideline to reflect current practices.
04/12/16 Updated DEFINE information for transition to PeopleSoft.