Capital Accounting

BAR 101 - May 28, 2015

Capitalization• The process of identifying projects, collecting

costs and recording of fixed assets. – Land– Buildings– Improvements Other Than Buildings (IOTB) also known as

Infrastructure– Construction In Process (CIP)– Library– Equipment

• Provides control, safeguarding, accountability and information needed for financial statement preparation.

Getting Started

• Get to know your projects. If your not the person in charge of the capital budget find out who is, and discuss the current projects.

• Make a copy of the SBCTC monitoring report. • Set up the Organization index with the SBCTC

project number.• Group similar activity by program within 9xx

Program grouping such As:

• Program organization:– 910 ERI– 920 Minor Works– 930 Roof Repairs– 940 Facilities Repairs– 950 Unusual projects – WATR Center– 960 Locally funded projects– 970 ESCO projects– 980 Major state-funded projects– 992 Facility Maintenance & Repairs

Set up methods to reconcile

• GAT all of the capital allocations (T/C 653). These will show up on GA3233.

• Pay attention to SMART page 211.• Keep a list which includes projects, coding and

the current allotment totals• Set up a spreadsheet by project to track

allocation spending.

Identifying capitalization object codes

• Not every state capital expense should be capitalized. IF the decision is made early on that the project will be capitalized, then use object codes that reflect this decision.

• JE – Land, JF – Buildings, JH – IOTB, JK – Arch & Eng Services JZ – OtherPlus if salaries/benefits are charged to the

project for capital management – Ax & Bx

Should I capitalize?• Typical projects not capitalized are

maintenance related, minor works, facilities repairs, furniture, fixtures floor coverings and roof repairs. Good object codes to use are EE, ER, JA, JB.

• Typical projects capitalized are the purchase of land, buildings, IOTBs or major renovations IF cost are greater than $100K.

• Replacements may be capitalized if they exceed 10% of the assets value. Must be considered extraordinary.

What about donated assets?• Use fair market value plus ancillary costs.• Put the asset on FAE with a fund.– 001 or 147 will put the asset in 997.Recorded in the GL’s then as 2xxx Dr with 9850 CrNote: Since this entry goes directly into fund

balance, you will be required to make a manual adjustment to the Statement of Revenue Expenditures and Changes to Net Position (SRECNP) in order to reconcile your Net Position.

If fund type 4, then record difference to 0418, 3213.

What about disposed assets?• Disposing assets from 997 that are fully

depreciated – no problem.– If the asset isn’t fully depreciated, the difference

will be a debit to GL 6597 used with object WF.

• If deposing assets from fund type 4 that are fully depreciated – no problem. – If the asset isn’t fully depreciated, the difference

to GL 3213 with revenue source 0418.

NO problem for the SRECNP.

Can we TJ the equip. into a fund type 4?• No, that won’t work. In proprietary funds the

J expenditures are reclassified to fixed assets. If you used a TJ, when it came time to reclassify you would be removing the TJ to replace it with a GL 2410.

• This would cause your T’s to be out of balance.

• It would be better just to move the JC to the proprietary fund.

Funding project by a student fee• Set project up in fund 147. Get an LEA

approved by the SBCTC. Asset in 997. Why?– Confusion– Ownership

• Periodically transfer revenue from fee source to 147.

• Be prepared to cover costs from other source.• When all costs and “other source”

repayments have been made, the fee can be removed, or reduced to cover maintenance.

What if that student fee project has a COP?

• Set up project number in fund 147. LEA not required. The SBCTC has set up a project number for the COP.

• Set up short & long-term debt in 999. • Making debt service payments:– Expense interest (PE) directly from 522.– Set up pro/org in 145 or 148 for the principal pymt– At time of payment, do a TP object transfer from

522 to the 145/148 account.– Pay principal (PD) out of the 145/148 account

Infrastructure questions• Do we reduce the value of land to create a IOTB

for parking lots? No, the IOTB is a separate asset.

• Remember to set up historic values for IOTBs with a fund. 001 is fine. Note: The asset offset in fund 997 will be 9850, and a manual adjustment will have to be made to the SRECNP. These can be referred to as a prior period adjustment. Either source 0485 or add a Special and Extraordinary Changes to Capital category line.

What if it’s new infrastructure?

• Use the buildings screen to set it up in FAE. Use commodity code 0650.

• Like buildings, the ITOB commodity code can be set for Construction In Process (0200). Collect the costs over the fiscal years, then when the project is completed, change the commodity code to 0650.

What about buying a new building?• Remember that a new building is part land,

building and infrastructure.• Use the building’s appraisal to pro-rate the

costs into these three categories.• If one of these “parts” are less than $100K?– Maybe add costs to pre-existing asset in FAE. A GL

entry will be required. Use a capital obj. code.– Add to FAE, but it will not show on CR2128, so no

GL entry will be made, but you will have a record for it. In this case, do not use JE, JF or JH.

Retainage questions• State capital contractor wants us to hold their retainage

in a bank account they select. When paid also add TC 012 for GL 1140/5116. This should be done by the fund not approp. index. For the Fin. Stmts both GL’s should be reclassified as non-current.

• Where a bank account is not selected the retainage can be held locally. Why? To get the expense into the capital budget while there is still allocation. How? GAT an expense to the project and put the off-set somewhere else. I use a 145 pro/org for all locally held retainage. The entry for 1140/5116 are not made for this.

• Keep a master spreadsheet for reconciliation and reporting purposes.

Interfund asset transfer• Proprietary fund to 997:• First, change it in FAE, use CR2128 to know

the dollars for accumulated depreciation. • GAT: – Proprietary fund Credit Asset, Debit Accum.

Deprec., balance to debit 3213 with 0418 source.– Fund 997 Debit Asset, Credit Accum. Deprec.

and balance to 9850.Note: this will require a manual adjustment to the

financial statements to keep net position correct. Adjust both the SRECNP and Cash Flow stmts.

LEAs• Local Capital Expenditure Authority (LEA) is

required by SBCTC for any fund 147 project.• Requests for one million and under are approved

by SBCTC. Requests over $1M have to be approved by the State Board’s BOT.

• LEA information requested: contact person, description, benefits to college, specific points (drop down box), background approval, fund amount and who approved the request & when.

• Approval from the SBCTC will come with a project number.

Proofing steps during audit• Identified projects & project costs by

FMSQuery or other access reports.• Prove object code corrections are made.• Identify WIP balances from prior years.• Tied in final FMSQuery $ to $ on CR2128• Show how project numbers & $ show on the

FAE Investment screen• Show how CR2128 is GATed for FMS• Show reconciliation of GL’s to CR2128

• Keep a list of the FAE facility changes. Use it as back-up for the next year. It’s a good ‘show and tell’ for the auditor.

• Keep a copy of the final Equipment (JC) reconciliation.

How do I find what we’ve got recorded?• There are FAE reports for all assets:– Land, MM5104– Buildings, MM5102– IOTB, MM5103– CIP, MM5121– Equipment/Library, MM5202

SBCTC resources

• At web: http://www.sbctc.ctc.edu/college/_f-allocation.aspx– Local Capital Allocation Procedures• LEA request form

–College Capital Information• Allocation Schedule (drop down box by college)• Expenditure Monitoring Report (drop down box

by college)

Questions?