I. Overview

The Accounting Office developed this manual in conjunction with the Purchasing, and Receiving/Inventory Control Offices. The purpose of this manual is to define and describe the University's policies and procedures governing property acquired by, or on behalf of, the University.

These policies and procedures apply to all University property, regardless of the source of funding. Additionally, this manual is intended to comply with the Financial Accounting Standards Board (FASB) Statement #93, "Recognition of Depreciation by Not-for-Profit Organizations", Generally Accepted Accounting Principles (GAAP), and all applicable federal and state governmental regulations relating to fixed assets.

Fixed assets can be defined as tangible property that have significant value and can be used over an extended period of time. Fixed assets are not intentionally acquired for resale, nor are they readily converted to cash. Additionally, they can be stationary or mobile.

Millersville University currently tracks its fixed assets using a software package developed by Systems and Computer Technology (SCT) as a part of the Banner software product. The SCT Fixed Assets module (FAS) provides a facility for tracking all fixed assets and it is integrated with the Purchasing and Payable modules.

II. Property Acquisitions

There are various methods through which the University may acquire fixed assets, as described below

• Purchases: All purchases of fixed assets must be properly authorized and approved. The proper object code must be assigned at the time a purchase order is issued and is encumbered into the Accounting System. Valid fixed asset object codes are as follows:

  	Code	Description
  	7840	Non-Computer Equipment
  	7850	Computer Equipment/Software
  	7860	Motor Vehicles
  	7870	Furniture
  	7880	Furnishings, Carpet and Draperies
  	7910	Land
  	7920	Non-structural Improvements
  	7930	Buildings
  	7940	Building Improvements
  	7949	Expended for Plant

  The Purchasing Office will make the determination whether an item is to be capitalized, based on the criteria set forth under the capitalization policy.

  If an asset is delivered directly to the using department, the Receiving/Inventory Control Office must be notified immediately. Anyone involved in the receipt of a fixed asset must obtain and forward the packing slip and/or invoice to the Receiving/Inventory Control Department.

• Gifts: When the University Advancement Office accepts a gift that meets the capitalization criteria, the Receiving/Inventory Control Department should be notified via a copy of the Gift Acceptance Form. The accepting department must accurately complete all pertinent information on the form. Upon receipt of the Gift Acceptance Form, the Receiving/Inventory Control Department will tag the donated asset and record the asset in the Fixed Assets System.

  If a donated asset is delivered directly to a using department, that department must notify the University Advancement Office immediately.

• Constructed Assets: When the University constructs fixed assets, the Receiving/Inventory Control Department must be notified when the unit is completed and placed into use. The total cost of the asset recorded in the Fixed Assets System should include all labor and materials charges. If the work performed represents a modification to an existing asset, the asset value should be increased appropriately.
• Installment Purchases: Items purchased on an installment plan must be recorded at the net present value. The installment payments are not capitalized, as they reduce the installments payable.
• Leases and Loans: Except for a capital lease as defined within this document, fixed assets in the custody of the University, on lease or long-term loan (over one year), should be recorded in the Fixed Assets System but not reported in the financial statements. A specific asset code may be assigned to this class for quick reference.
• Transportation Equipment: Property such as motor vehicles, boats, and aircraft are registered with the state. Applicable title documents are located in the Dilworth vault and are maintained by the Purchasing Office.
• Trade-Ins: When an asset is traded in, we must remove from the Fixed Asset System and replace the old item with the new item. Old equipment is often traded in for new equipment having a similar use. The trade-in allowance is deducted from the price of the new equipment, and the balance owed (boot) is paid according to the credit terms. The trade-in allowance given by the seller is often greater or less than the book value of the old equipment traded in which results in a gain or loss on the transaction. Because gains and losses are treated differently and must be reviewed asset by asset, the Accounting Department must be notified of all transactions involving trade-ins. The accounting department will calculate the cost of the new asset and make the appropriate adjustments.

Recognition of Gains

• The acceptable method of accounting for an exchange in which the trade-in allowance exceeds the book value of the old plant asset requires that the cost of the new asset be determined by adding the amount of boot given to the book value of the old asset. For example:

  Equipment traded in (old)
  Cost of old equipment	$4,000
  Accumulated depreciation at date of exchange	3,200
  Book value at date of exchange	$800
  Similar Equipment acquired (new)
  Price of new equipment	$5,000
  Trade-in allowance on old equipment	1,100
  Boot given (cash)	$3,900

  The cost basis of the new equipment is $4,700, which is determined by adding the boot given ($3,900) to the book value of the old equipment ($800). The entry to record the exchange and the payment of cash follows:

  Dr. Accumulated Depreciation---Equipment	3,200
  Dr. Equipment	4,700
  Cr. Equipment	4,000
  Cr. Cash	3,900

  It should be noted that the nonrecognition of the $300 gain ($1,100 trade-in allowance minus $800 book value) at the time of the exchange is really a postponement. The periodic depreciation expense is based on a cost of $4,700 rather than on the quoted price of $5,000. The unrecognized gain of $300 at the time of the exchange will be matched by a reduction of $300 in the total amount of depreciation taken during the life of the equipment.

Recognition of Loss

To illustrate the accounting for a loss on the exchange of one plant asset for another which is similar in use, assume an exchange based on the following data:

Equipment traded in (old)
Cost of old equipment	$7,000
Accumulated depreciation at date of exchange	4,600
Book value at date of exchange	$2,400
Similar Equipment acquired (new)
Price of new equipment	$10,000
Trade-in allowance on old equipment	2,000
Boot given (cash)	$8,000



The amount of the loss to be recognized on the exchange is the excess of the book value of the equipment traded in ($2,400) over the trade-in allowance ($2,000), or $400. The entry to record the exchange follows:



Dr. Accumulated Depreciation---Equipment	4,600
Dr. Equipment	10,000
Dr. Loss on Disposal of Plant Assets	400
Cr. Equipment	7,000
Cr. Cash	8,000

The custodian department should indicate any type of trade-in transaction when preparing the original requisition. The Purchasing Office should notify the Receiving/Inventory Control Department and the Accounting Office of such transactions.

• Surplus Government Property: These items are recorded at their fair market or appraised value, similar to a donated asset.
• Capital Appropriations: Fixed assets funded through Capital Appropriations should be capitalized and reported in the financial statements at cost.

III. Capitalization Policy

Capitalization is the process of recording an expenditure that will benefit a future period as an asset rather than treating the expenditure as an expense of the period in which it occurs. Any asset that meets the capitalization criteria described below should be capitalized and tagged.

V. Types of Fixed Assets

Fixed assets are classified into two categories: real and personal property.

Personal property encompasses all fixed assets that are not real property. Examples of personal property include equipment, furniture, fixtures, art collections, and library books. Personal property meeting the capitalization criteria must be tagged and recorded in the Fixed Assets System (FFX). The following general guidelines should be observed:

• The tag should be located in a conspicuous or accessible place, preferably toward the front of the asset.
• Individual items assembled into a system having a group cost greater than $5,000, and a useful life of at least two years, must be capitalized, with the major and most valuable unit being tagged. For instance, in the case of a personal computer system, the costs of the central processing unit (CPU), keyboard, and monitor should be combined into one value and the tag should be placed on the front of the CPU.
• In cases of modular furniture purchases, each assembled unit of furniture should be given one tag, which should be placed on the one piece having the highest value.
• Movable furniture, constructed by University personnel, should be capitalized and tagged. The cost of the asset should include all labor and materials.
• Donated asset should be recorded at fair market or appraised value, whichever is available at the time the gift is received, and tagged.
• Normal repair and maintenance expenditures are not capitalized, as they neither add to the value of the property nor materially prolong its useful life.
• Assets that cannot be tagged, such as software, should be given a tag number from a block of numbers assigned for that purpose (W - Equipment, Y - Vehicles, or Z - Furniture).
• Freight charges associated with an asset should be included in the asset's cost and charged to the same object code as the asset.
• Any equipment purchased by a grant program should follow the same capitalization procedures as University-purchased assets. However, this equipment is subject to the provisions of the specific grant program and should be easily identifiable.

The following are major classifications of personal property, and their related class codes, included in the Fixed Assets System:

• Office Equipment (OE) - typewriters, adding machines, telephones, facsimile equipment, calculators, check-writers, copiers, duplicating equipment, printing presses, shredding machines, answering machines, and postage meters.
  
  
• Furniture and Furnishings (FU) - desks, chairs, file cabinets, sofas, tables, beds, dressers, credenzas, work stations, lamps, grandfather clocks, showcases, and other fixtures.
  
  
• Carpeting (CA) - all types of floor coverings, such as carpeting, tile, and gym flooring.
  
  
• Draperies (DR) - all types of window treatments, including draperies, blinds, and stage curtains.
  
  
• Appliances (AP) - stoves, ovens, refrigerators, freezers, washing machines, dishwashers, dryers, microwave ovens, unit air conditioners, vending machines, commercial mixers, dispensers, coffee makers, and ice makers.
  
  
• Laboratory and Audio/Visual Equipment (LE and AV) - televisions, stereos, radios, video cassette recorders, projectors, cameras, tape recorders, microfiche & microfilm readers and printers, broadcasting equipment, satellite dishes, antennas, sound system microscopes, spectrometers, oscilloscopes, telescopes, scales, meters, incubators, chromatographies, analyzers, testing equipment, kilns, looms, x-ray machines, and clinical equipment.
  
  
• Shop Maintenance Equipment (VM) - drills, saws, grinders, battery chargers, lathes, hydraulic presses, and welding equipment.
  
  
• Housekeeping Equipment (VM) - buffers, carpet cleaners, vacuums, clothes dryers, pressure cleaners, sewing machines, and washing machines.
  
  
• Grounds Keeping Equipment (VM) - aerators, leaf vacuums, lawn mowers, spreaders, roto-tillers, mulchers, snow blowers, and irrigating equipment.
  
  
• EDP Equipment (CT) - mainframe, micro and mini computers, word processing equipment, card readers, card punches, magnetic tape feeds, printers, optical scanners, data entry devices, terminals, tape drives, disc drives, modems, mainframe software, and all other computer hardware, switchboards, and other related equipment.
  
  
• Lighting & Heating Equipment (MI) - air compressors, air conditioners, boilers, chandeliers, generators, boilers, heat pumps, ice machines, transformers, and water softeners.
  
  
• Musical Equipment (MI) - clarinets, pianos, saxophones, flutes, bassoons, drums, organs, and other musical instruments.
  
  
• Athletic Equipment (MI) - exercise bikes, soccer goals, backboards, athletic mats, billiard tables, bleachers, dumbbells, stairmasters, weight machines, and other related athletic equipment.
  
  
• Other Equipment (MI) - all items that cannot be classified in any other categories, such as musical instruments or athletic equipment.
  
  
• Vehicles and Light Maintenance Equipment (VM) - cars, vans, light trucks, motorcycles, jeeps, boats, buses, mobile homes, campers, lawn mowers, lawn tractors, snow blowers, swimming pool equipment, small generators, fork lifts, machine shop equipment, drilling equipment, custodial equipment, and small motorized vehicles.
  
  
• Heavy Maintenance Equipment (HM) - large trucks, bulldozers, backhoes, large tractors, concrete mixers, large generators, and trailers.
  
  
• Printing & Binding Equipment (OE) - binding machines, check signers, bundling machines, copiers, laminators, printing presses, staplers, and other related equipment.
  
  
• Capitalized Leases (CL) - a lease that transfers, to the lessee, most of the benefits and risks inherent to ownership of the property. See section on "Capital Leases" for more information.
  
  
• Leasehold Improvements (LI) - capitalizable improvements and extraordinary repairs made to fixed assets recorded as operating leases (leases that do not meet capital lease criteria).
  
  
• Works of Art (WA) - paintings, sculptures, drawings, prints, statues and jewelry. Note that rare works of art or historical treasures need not be depreciated, as stated in FASB 93.
  
  
• Library Books (LB) - physical bound volumes (books and periodicals), and bibliographic unit equivalents (media, maps, microfilm reels, microfiche, and sound recordings).
  
  

The Office of the Director of Library Services maintains all inventory records for library books. A Library Statistics report is periodically (annually) forwarded to the Accounting Office for processing. Library books are recorded within the Net Investment in Plant account.

• For financial statement purposes, library books are valued as follows:
• Books: valued at $10 per volume and include monographs, reference, juvenile, catalog titles, PA documents, theses, textbooks, and special collections
  
  
• Bound Periodicals: valued at $10 per volume.
  
  
• Non-Books: valued at $10 per volume and include maps, non-prints, abstracts and indexes, periodicals, government documents, newspaper subscriptions, pamphlets, university papers, manuscripts, broadslides, photographs, newspaper clippings, MU articles, name collections, etc.
  
  
• Microfilm: valued at $10 per reel.
  
  
• Micro cards, Prints, Fiche: valued at $1 per unit.
  
  

Net Increase:	Dr 8702/49702/1970/771 (Library)
	Cr 8702/49702/9411/771 (NIP Additions)
Net Decrease:	Dr 8702/49702/9411/771 (NIP Additions)
	Cr 8702/49702/1970/771 (Library)

Real Property

Real property includes land, buildings, building improvements, and other non-structural improvements such as streets, roads, bridges, pavements, landscaping, etc. Real property cannot be tagged but, for tracking purposes, is assigned an asset number in the Fixed Assets System.

The following are major classifications of real property included in the Fixed Assets System and their related class codes as defined within the system:

• Land (LA) - Land is recorded on a facility (excluding buildings) or parcel basis and is not subject to depreciation. The cost includes negotiated purchase price, broker's commissions, legal fees, title fees, recording fees, escrow fees, surveying fees, any existing unpaid taxes or other liens on the property that are assumed by the buyer, and all other costs related to the acquisition.
  
  
• Land/Non-Structural Improvements (NI) - Land and non-structural improvements are physical changes or additions to the land of such proportion as to increase the utility of the land (excluding structures). Land improvements include landscaping, paving, curbing, roads, sidewalks, fences, retaining walls, sewers, bridges, drainage facilities, running tracks, basketball courts, tennis courts, artificial turf, parking lots, outdoor lighting and utility distribution systems.
  
  
• Buildings (BD) - Buildings are structures erected to stand more or less permanently, and are designed for human use and occupancy or as shelter for animals or goods. Each structure is comprised of such components as framing, interior finish, roof structure and cover, and building service systems (plumbing, sewerage, heating, ventilating, air conditioning, lighting, power, elevators, fire protection, public address systems, emergency power systems) which are all included in the asset cost. A purchase involving the acquisition of both land and buildings requires that the cost be allocated between the assets. A major addition to a building, such as the construction of an additional wing, should be classified as a building rather than as a building improvement.
  
  
• Building Improvements (BI) - Building improvements are enhancements that extend the useful life of a building. This includes minor additions, roof replacement, installation of elevators, replacement of central air conditioning or heating systems, installation of fire protection systems, replacement of plumbing and wiring, and other major renovations.
  
  
• Construction in Progress - Construction in progress is the cost of on-going construction of an asset that, upon completion, will satisfy the established criteria and definitions of a capital asset. It is reflected as a capital asset in the Net Investment in Plant Fund, but is not depreciated or recorded in the Fixed Assets System until construction is completed.
  
  

VI. Capital Leases

All leases should be accounted for according to the provisions of FASB Accounting Standard #13, "Accounting for Leases", which provides for the distinction between capital and operating leases.

Leased equipment should be classified as a capital lease if it meets one or more of the following criteria at its inception:

1. The lease transfers ownership of the property to the lessee by the end of the lease term.
   
   
2. The lease contains a Bargain Purchase Option. A Bargain Purchase Option is an option to purchase the leased property at a price substantially lower than the fair value of the property at the date the option becomes exercisable, which makes the exercise of the option almost certain.
   
   
3. The lease term is equal to or greater than 75% of the estimated economic life of the leased property. Estimated Economic Life is the estimated remaining useful life of the property for the purpose it was intended, regardless of the term of the lease
   
   
4. The present value of the Minimum Lease Payments is equal to or greater than 90% of the fair value of the leased property. (This criterion is not used to evaluate a lease that begins with the last 25% of the original estimated economic life of the leased property). Minimum Lease Payments are the minimum rental payments due during the lease term plus any payments or guarantees that the lessee must make concerning the leased property at the end of the lease term (excluding a lessee's obligation to pay executory costs apart from the rental payments). Fair value is the price for which the leased property could be sold between unrelated parties in an arm's length transaction.
   
   

The lessee records a capital lease as an asset, along with a corresponding liability, in the Investment in Plant Fund. The value of the lease is the lesser of the fair value of the leased property or the present value of the minimum lease payments. Fair value is determined at the inception of the lease. The present value of the minimum lease payments is computed at the beginning of the lease term. The discount rate used by the lessee to determine the present value is the lower of the lessee's incremental borrowing rate or the interest rate implicit in the lease (if known).

VII. Departmental Responsibility

VIII. Disposals

Although ownership of an asset rests with the University, an individual department may transfer, trade in, or surplus an asset, following proper department procedures. However, a department may not dispose of assets on its own. Any time an asset is disposed of, the Receiving/Inventory Control Department must be notified in writing by the department head responsible for the asset. A disposal can be defined as one of the following:

• Lost or Stolen: Any lost or stolen equipment must be reported to the Receiving/Inventory Control Department, the Director of Purchasing, and University Security. If applicable, insurance claims will be promptly initiated by the Director of Purchasing. If the asset is not recovered within 90 days, it should be removed from the Fixed Assets System. If the asset is subsequently recovered, the appropriate departments must be notified in a timely fashion.
  
  
• Unserviceable: Property that is worn out, obsolete, or damaged beyond repair must be reported to the Receiving/Inventory Control Department, which will inspect the asset and determine if the asset is of no value.
  
  
• Destroyed: Any destruction of assets must be reported, in writing, to the Receiving/Inventory Control department for verification.
• Serviceable: All serviceable assets should be reported to the Receiving/Inventory Control Department for surplus, repair, or reassignment.

Upon notification of an asset disposal, the Receiving/Inventory Control Department prepares a "Capital Equipment Inventory Deletion" form and routes the form to the Accounting Office for processing. This pre-numbered form includes such information as the date of the disposal, the reason for the deletion, the authorized person, department name, department cost center, asset tag number, asset description, and total asset cost.

Upon receipt of the deletion form, the Financial Accountant is responsible for reviewing the deletion for appropriateness, assigning a deletion code, calculating any current year depreciation, and processing the disposal into the Fixed Asset System, using Banner’s Fixed Asset Adjustment Form (FFAADJF). Current year depreciation is calculated by taking the full year depreciation amount for the asset and dividing in half. Currently, the following deletion codes are defined in the Fixed Assets System:

DA	Damaged OB Obsolete-Discarded
EC	Error Correction SL Sale
LS	Lost/Stolen TO Transferred Out
TR	Trade In
BU	Surplus Bulk Disposal

For reconciliation purposes, when processing the disposal into the system, the number on the top of the deletion form is used as the transaction reference. Once a deletion has been processed, the source document is filed in a binder and held in the Accounting Office for a period of three years.

IX. Transfers

Occasionally, changes to custodian names and numbers, as well as locations, will need to be changed for asset records. When an asset is transferred to a different location, the Receiving/Inventory Control Department should be notified immediately so the asset record can be updated. Transfers are recorded Banner’s Fixed Asset Transfer Form (FFATRAN) and can be processed for changes in custodian name and/or number, building location, and room number. Most transfers are processed by the Receiving/Inventory Control Department, although the Accounting Office also has the capability to process transfer transactions.

X. Adjustments

Any errors discovered that are non-dollar in nature can be corrected by the Receiving/Inventory Control Department, while adjustments related to dollar values or depreciation methods must be processed by the Accounting Office.

When an error related to total cost is discovered by the Receiving/Inventory Control Department, an "Approved Asset Cost Adjustment" form should be completed and forwarded to the Accounting Office for verification and processing. This form should contain as much information as possible relating to the cost adjustment. After the error has been confirmed, the Accounting Office will post an adjusting entry and file the supporting documentation for future reference.

If an error that is non-dollar related is discovered, such as an incorrect custodian name or number, the Receiving/Inventory Control Department will post any necessary entries to correct the inaccuracy.

XI. Reconciliations

The Accounting Office reconciles the General Ledger accounts in the NIP fund (8702) to the detail transactions within the Fixed Asset System weekly to insure the two systems are in balance. The Fixed asset details are produced by the Brio query report that is used to compare to the account balances in the NIP fund. Variance must be researched and explained.

For year-end reconciliation purposes, the following format may be used:

	Beginning inventory
+	Additions during the year
-	Deletions during the year
	Ending Inventory

XII. Physical Inventory of Equipment

On an annual basis, a departmental inventory listing is sent to each department head. The department head is required to verify that any equipment in the department's possession is on the list. Any discrepancies discovered should be noted directly on the inventory sheet. Once the department has completed its annual inventory, the department chairperson should sign the inventory verification sheet and return it to the Receiving/Inventory Control Department in a prompt fashion.

An on-going physical inventory is conducted by the Receiving/Inventory Control Department so that the entire campus is generally inventoried within a cycle of no more than seven years. The statistical sampling method of inventory verification performed for an interval of two years may also be adopted to comply with grant and contract requirements.

XIII Depreciation Policy

All capitalized assets, with the exception of land, library books, and "inexhaustible collections", must be depreciated. The University currently depreciates all assets annually, using the Straight Line Method, with a half-year convention. This is a depreciation method based on the passage of time, recognizing equal periodic charges over the estimated useful life of an asset. The calculation is as follows:

Depreciation Expense =
	Asset Cost - Salvage Value
	Estimated Useful Life

The half-year convention means that during the first year, one-half of the above calculation is recorded as the depreciation expense. The other half of this expense will be recorded in the final year of depreciation for the asset.

Salvage value is the estimate of the amount that will be realized at the end of the useful life of a depreciable asset. Frequently, depreciable assets have little or no salvage value at the end of their estimated useful life and, if immaterial, the amount may be ignored. Salvage value for assets with a cost in excess of $50,000 should be evaluated individually.

The current year depreciation expense, and the accumulated depreciation, is reported in the financial statements as required by FASB Statement #93. Currently, the University is not transferring the required funding to the Renewal and Replacement Fund.

IX. Banner Fixed Asset Procedures.