SAM¾PROPERTY ACCOUNTING
PURPOSE AND OBJECTIVE OF PROPERTY ACCOUNTING 8600
General—Property 8601
Capital Assets 8602
Noncapitalized Property 8603
PROPERTY—DEFINITION 8609
Infrastructure 8610
Land 8611
Buildings 8612
Improvements Other Than Buildings 8613
Other Capitalized and Non-Capitalized Tangible Assets Property 8614
Intangible Assets 8615
Depreciation 8616
Useful Life and Amortization 8617
Repairs and Maintenance 8618
Impairment of Capital Asset and Related Insurance Recoveries 8619
PROPERTY ACCOUNTING—BASIC ACCOUNTING REQUIREMENTS/DIFFERENCE 8620
Basic Rules 8621
Journal Entries for the Capital Assets Group of Accounts 8622
ACCOUNTING FOR PROPERTY ACQUISITIONS 8630
Purchase 8631
Installment Purchase/Capital Lease Contracts 8632
Transfer 8633
Gift 8634
Internally Generated Intangible Assets 8635
ACCOUNTING FOR PROPERTY DISPOSITIONS 8640
Sale of Property 8641
Trade-in of Property 8642
Lost, Stolen, or Destroyed Property 8643
ACCOUNTING AND CONTROL OF PROPERTY 8650
Identification and Tagging 8651
Property Inventory 8652
FINANCIAL STATEMENT REPORTING REQUIREMENTS 8660
STANDARD JOURNAL ENTRIES—PROPERTY 8670
Entries for Funds Using the Capital Assets Group of Accounts 8671
Entries for Funds not Using the Capital Assets Group of Accounts 8672
Rev. 411 SEPTEMBER 2010
SAM¾PROPERTY ACCOUNTING
PURPOSE AND OBJECTIVE OF PROPERTY ACCOUNTING 8600
(Revised and Renumbered from 8630, 8651, 8652 03/86)
Property accounting procedures are designed to maintain uniform accountability for State property. These standard procedures are used to provide accurate records for the acquisition, maintenance, control, and disposition of property. The combination of accurate accounting records and strong internal controls must be in place to protect against and detect the unauthorized use of State property.
Departments which purchase property with Federal funds may wish to request the Federal agency's approval of the State property accounting procedures, should State procedures be significantly different from the Federal rules.
GENERAL—PROPERTY 8601
(Revised 06/10)
Generally, property refers to all assets used in governmental operations. Property includes infrastructure, land, buildings, improvements, machinery, furniture, tools, etc., and intangibles.
CAPITAL ASSETS 8602
(Revised 09/10)
State property is capitalized for accounting purposes when certain conditions are met. Capitalization means to record the property in the accounting records as assets. Tangible and intangible property must meet the following three requirements in order to be capitalized:
l. Have an expected useful life of at least one year;
2. Have a purchase cost or internally generated cost of at least $5000 (e.g., four identical assets which cost $3000 each, for a $12,000 total, would not meet the requirement); and
3. Are used to conduct State business.
When the above three requirements are not met, the property will be recorded as an expenditure and not a capital asset in the General Ledger. See SAM Section 8615 and 8635 for accounting instructions for intangibles.
When the term "equipment" is used in SAM, it refers to personal property which is capitalized.
NONCAPITALIZED PROPERTY 8603
(Revised 09/10)
Noncapitalized property are those property which do not meet all three requirements in the preceding SAM Section 8602, Capital Assets. Acquisitions of noncapitalized property are simply recorded in the property register and accounted for as expenditures. Record keeping, identifying, and tagging of such equipment shall be in accordance with SAM sections 8650 and 8651 respectively.
PROPERTY—DEFINITION 8609
(Revised and Re-numbered 06/10)
The following sections contain definitions of the property categories:
l. Infrastructure
2. Land,
3. Buildings,
4. Improvements Other Than Buildings,
5. All other (capitalized and non-capitalized) tangible property, and
6. Intangible property.
Rev. 411 SEPTEMBER 2010
SAM¾PROPERTY ACCOUNTING
INFRASTRUCTURE 8610
(Revised and re-numbered 06/10)
Infrastructure assets are long-lived capital assets that normally are immovable in nature and can be preserved for a significantly greater number of years than most capital assets. Examples of infrastructure assets include roads, bridges, streets and sidewalks, drainage systems, and lighting systems. Account for Infrastructure that uses the modified approach for reporting cost of use in General Ledger Account Number 2361. Account for Infrastructure that uses the traditional approach for reporting cost of use in General Ledger Account Number 2362.
LAND 8611
(Revised and Renumbered from 8652.1 03/86)
Land is real property and includes natural or artificial structures that are attached to it. Account for Land in General Ledger Account Number 2310.
When land is acquired, the amount capitalized is the purchase price plus all related costs. Related costs include legal and title fees, title search costs, and all cost incurred in getting the land ready for its intended use (e.g., grading, surveying, filling, draining, etc.).
BUILDINGS 8612
(New 03/86)
Buildings are structures which provide workplace, storage space, or are used in some other way for State activities. Account for Buildings in General Ledger Account Number 2321. Capitalized building costs include the purchase price plus all other cost incurred to put the building in condition for its intended use.
IMPROVEMENTS OTHER THAN BUILDINGS 8613
(Revised and Renumbered from 8651.1, 8651.3, 8652.2, 8652.21 03/86)
Additions, improvements, and betterments to assets will be capitalized if all of the conditions in SAM Section 8602 are met. Additions are extensions of existing units. Improvements and betterments ordinarily do not increase the physical size of the asset. Instead, they make the asset better than its previous condition (e.g., longer life, increased capacity, lower operating costs, etc.). Examples of improvements and betterments are roads, bridges, curbs and gutters, tunnels, parking lots, streets and sidewalks, drainage and lighting systems. Account for Improvements Other Than Buildings in General Ledger Account Number 2331. All other additions, improvements, and betterments will be capitalized to the asset benefited.
OTHER CAPITALIZED AND NON-CAPITALIZED TANGIBLE PROPERTY 8614
(Revised 3/96)
These include equipment and all other items accounted for in the property register.
For State accounting purposes, equipment refers to all tangible personal property which meets all of the requirements set forth in SAM Section 8602. Account for Equipment in General Ledger Account Number 2341. The cost of equipment includes the purchase price plus all costs to acquire, install, and prepare equipment for its intended use.
INTANGIBLE ASSETS 8615
(Revised 06/11)
An intangible asset is an asset that possesses all of the following characteristics:
a) Lacks physical substance. It may be contained in or on an item with physical substance (for example software stored on a compact disc) or it may be closely associated with another item that has physical substance (e.g., the underlying land in the case of right-of-way easement).
b) Is nonfinancial in nature (not in a monetary form similar to cash and investment securities, and it represents neither a claim or right to assets in a monetary form similar to receivables, nor a prepayment for goods and services).
c) Is identifiable. An intangible asset is considered identifiable when either of the following conditions is met:
· The asset is separable, that is the asset is capable of being separated or divided from the department and sold, transferred, licensed, rented, or exchanged, either individually or together with a related contract, asset, or liability; or
· The asset arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the department or from other rights and obligations.
Three types of intangible assets are excluded from the policy:
· Intangible assets acquired or created primarily for obtaining income or profit. These assets should be recorded as an investment.
· Assets resulting from capital lease transactions reported by lessees.
· Goodwill created through the combination of another entity and a state department.
Intangibles are considered capital assets and are accounted for in General Ledger Account Numbers 2410 through 2494. Examples of intangible property include patents, copyrights, trademarks, easements, land use rights (timber, mineral, water),and computer software, including websites.
Software are those instructions by which computerized equipment is directed to process information. By contrast, hardware consists of tangible equipment (e.g., computer, printer, terminal, etc.).
Intangible assets are considered internally generated if they are created or produced by a department or an entity contracted by the department, or if they are acquired from a third party but require more than minimal incremental effort on the part of the department to achieve their expected level of service capacity.
For internally generated intangible assets, see SAM section 8635 for additional specific capitalization requirements.
Intangible assets will be recorded at cost. Intangible assets will be capitalized if all of the requirements set forth in SAM section 8635, if applicable, are met. Cost includes all amounts incurred to acquire or internally develop the intangible asset and to ready the intangible asset for its intended use. Typical intangible property costs include the purchase price, development costs associated with internally generated intangible assets (see SAM section 8635 for more detail), legal fees, and other costs incurred to obtain title to the asset.
Land use rights associated with property already owned by the government are considered part of the land and should not be reported as intangible assets. In contrast, land use rights that were acquired in a transaction that did not involve acquiring the underlying property should be reported as intangible assets.
DEPRECIATION 8616
(Revised and Renumbered from 8651.5 3/86)
Depreciation is the expensing of a tangible asset's depreciable cost to the time periods benefited. An asset's depreciable cost is the cost or other basis less the estimated residual value. Residual value is the estimated value of an asset at the end of its useful life. Generally, depreciation is performed only by those proprietary funds which conduct enterprise or internal service fund operations.
USEFUL LIFE AND AMORTIZATION 8617
(Revised 09/10)
Useful Life and Amortization
Intangible assets are amortized over the useful life of the asset. The useful life of an intangible asset that arises from contractual or legal rights should not exceed the legal term of the rights. Renewal periods should be considered in determining the useful life if the department plans to seek a renewal and the anticipated costs of the renewal are nominal in relation to the level of service capacity expected to be obtained through the renewal. Otherwise, the department must account for the renewal as a replacement of the old intangible asset with a new intangible asset.
An intangible asset should be considered to have an indefinite useful life if there are no legal, contractual, regulatory, technological, or other factors that limit the useful life of the asset. A permanent right-of-way easement is an example of an intangible asset with an indefinite useful life. Intangible assets with an indefinite useful life are classified as non-amortizable. Computer software does not have an indefinite useful life. Generally, amortization is performed only by those non-governmental cost funds, such as Public Service Enterprise Funds, and Working Capital and Revolving Funds, that conduct enterprise or internal service fund operations.
REPAIRS AND MAINTENANCE 8618
(Revised and Renumbered from 8 651.4 3/86)
Ordinarily, repairs and maintenance costs are treated as expenditures which are not capitalized as property. These expenditures are incurred to keep assets operating and do not benefit future periods. Contact Department of Finance, Fiscal Systems and Consulting Unit if you have any questions about capitalizing repairs and maintenance costs.
IMPAIRMENT OF CAPITAL ASSET AND RELATED INSURANCE RECOVERIES 8619
(New 09/10)
A capital asset is considered impaired when its service utility has declined significantly and unexpectedly. The service utility of a capital asset is the expected usable capacity at acquisition. A capital asset may be impaired due to events or changes in circumstances, such as physical damage, obsolescence or changes in technology, enactment or approval of laws or regulations or other changes in environmental factors, a change in manner or duration of use, or a construction stoppage.
A capital asset generally should be considered impaired if both (a) the decline in service utility of the capital asset is large in magnitude and (b) the event or change in circumstance is outside the normal life cycle of the capital asset.
(Continued)
(Continued)
IMPAIRMENT OF CAPITAL ASSET AND RELATED INSURANCE RECOVERIES 8619 (Cont. 1)
(New 09/10)
Impaired capital assets that will no longer be used by a department should be reported at the lower of carrying value or fair value (i.e., additional depreciation expense and accumulated depreciation would be recorded in the year of the impairment to bring the carrying value down to the lower fair value).
Impairment losses on capital assets that will continue to be used by the department should be measured using one of three methods prescribed by the Governmental Accounting Standards Board that best reflects the diminished service utility of the capital asset. The prescribed methods are the restoration cost approach, the service units approach, or the deflated depreciated replacement cost approach.
Departments are required to evaluate prominent events or changes in circumstances affecting capital assets to determine whether impairment of a capital asset has occurred. A prominent event would be conspicuous or known to the department. It would be an event or circumstance that has prompted discussion by the governing board, management, or the media. Absent any such event or circumstance, departments are not required to perform additional procedures to identify potential impairment of capital assets beyond those already performed as part of their normal operations.
Impairment losses are generally reported as a direct expenditure to the program that uses the impaired capital assets. Insurance recoveries related to impaired assets are reported net of the related loss when the recovery is realized or realizable in the same fiscal year as the loss.
If a prominent event or change in circumstance has occurred and there is a potential impairment of capital assets, please contact the State Controller’s Office, GAAP Reporting Section, for additional instructions to help you identify whether impairment has occurred, measure the impairment loss, and account for the impairment loss and any insurance recoveries.
PROPERTY ACCOUNTING—BASIC ACCOUNTING REQUIREMENTS/DIFFERENCES 8620
(New 3/86)
Property accounting requirements differ depending on the category of the owner fund.
State funds are categorized as:
l. Governmental,
2. Proprietary, or
3. Fiduciary.
See the Uniform Codes Manual (UCM) for the classification of each State fund.
BASIC RULES 8621
(Revised 9/90)
The following table shows the basic accounting rules for each of the three fund categories. See SAM Sections 8670–8672 for standard property accounting Journal entries.