Fixed Asset Expenditure Coding

SUBJECT: FIXED ASSET EXPENDITURE CODING NUMBER:
FA.2.
DEPARTMENTS & DISTRICTS AFFECTED: ALL AGENCIES, DEPARTMENTS, AND DISTRICTS GOVERNED BY THE BOARD OF SUPERVISORS
EFFECTIVE: 1/1/85 REVISED: 7/1/89, 7/6/99
 signed
_________________________________ David E. Sundstrom, Auditor-Controller
TABLE OF CONTENTS
1. POLICY
1.1 Purpose 1.2 Authority 1.3 Definitions
2. PROCEDURES
2.1 Land 2.2 Buildings and Improvements 2.3 Equipment 2.4 Treatment of Costs Subsequent to Acquisition 2.5 Choosing the Proper Expenditure Code
SUBJECT: FIXED ASSET EXPENDITURE CODING NUMBER:
FA.2.
DEPARTMENTS & DISTRICTS AFFECTED: ALL AGENCIES, DEPARTMENTS, AND DISTRICTS GOVERNED BY THE BOARD OF SUPERVISORS
EFFECTIVE: 1/1/85 REVISED: 7/1/89, 7/6/99
 signed
_________________________________ David E. Sundstrom, Auditor-Controller
1. POLICY
Each department/agency is responsible for using the proper coding for budgeting and payment of expenditures for land, buildings and improvements, and equipment based on whether the expenditures are maintenance, betterments, additions, or alterations.
1.1 Purpose
To establish procedures and guidelines for departments/agencies to use in selecting the appropriate expenditure coding for land, buildings and improvements, and equipment based on the definitions of maintenance, betterments, additions, and alterations transactions.
1.2 Authority
Authority Subject
Board of Supervisors Resolution No. 82-162 dated February 2, 1982 Authorizes the Auditor-Controller to prescribe the accounting policies for all offices, departments, and institutions under the control of the Board of Supervisors.
Board of Supervisors Resolution No. 93-1390 December 14, 1993 Authorizes the Auditor-Controller to revise the County's procedures for fixed assets.
Accounting Standards and Procedures for Counties, published by the California State Controller's Office. Provides State guidelines and procedures for fixed asset accounting.
1.3 Definitions
1.3.1 Fixed Assets
Tangible assets of significant value having a utility which extends beyond the current year that are broadly classified as land, buildings and improvements, and equipment.
1.3.2 Land
The investment in real estate other than buildings and improvements.
1.3.3 Buildings and Improvements
Physical property of a permanent nature, examples of which are buildings, structures, monuments, fences, retaining walls, pavement, sidewalks, bridges, docks and waterfront improvements, tunnels, viaducts, canals, and anything else which adds value to property. This would include the cost of improvements made by the County to leased property. Fixtures are permanent attachments to structures which are not intended to be removed, and which function as part of the structure, such as boilers, lighting fixtures, and plumbing, heating and ventilating systems.
1.3.4 Equipment
Moveable property of a relatively permanent nature with a significant value. "Significant value" is defined as a cost of $5,000 or more. "Relatively permanent" is defined as a useful life of one year or longer.
1.3.5 Maintenance
Expenditures which neither materially add to the value of property nor appreciably prolong its life, but merely keep it in an ordinary, efficient operating condition. Maintenance costs are not capitalized.
1.3.6 Capitalized Expenditures (Betterments)
Expenditures which materially add to the value of property or appreciably extend its life. The cost of capitalized expenditures should be added to the book value of the asset where the original cost of a component being improved can be specifically identified. If a component is being replaced, the cost of the old component should be written off and the new cost capitalized. Capitalized expenditures are on occasion referred to as betterments. The decision as to whether an expenditure should be capitalized shall be made by an evaluation of engineering, physical, or other relevant factors apart from cost. With respect to buildings and improvements, a "significant" betterment is defined as one which results in an improvement of at least $150,000.
1.3.7 Additions
New and separate units or extensions of existing units are considered fixed assets. As with betterments, the test of significance is applied.
1.3.8 Alterations
Changes in the physical structure or arrangement of fixed assets, the cost of which does not qualify as an increase in fixed assets under the foregoing definitions of betterments and additions. Alterations are not capitalized.
2. PROCEDURES
2.1 Land
2.1.1 Coding
Fixed asset land is budgeted in and charged to the "Land" account, Object Code 4100. Agencies which use organization reporting must use unique organization codes, ranging from L001 - L999, in conjunction with Object Code 4100 to identify the specific project.
2.1.2 Costs to be Included
The cost of land includes all expenditures in connection with its acquisition, such as:
  1. Purchase price
  2. Appraisal and negotiation fees
  3. Surveying fees
  4. Cost of consents
  5. Condemnation costs
  6. Clearing land for use
  7. Demolishing or removing structures
  8. Filing costs
  9. Relocation costs
2.1.3 Donations
If acquired by donation, the fair market value at the date received is considered the cost of the land. See County of Orange Accounting Manual Procedure(CAP) No. R.2., "Monetary and Property Gifts: Acceptance, Reporting and Disbursement."
2.1.4 Cost Reductions
Receipts from the sale of salvage should be credited against the land cost if the sale is directly connected with the acquisition of the land and the salvage is sold within a reasonable period of time after acquiring the land.
2.1.5 Rights-of-Way
The purchase of rights-of-way (easements) where title is not acquired by the County should be recorded as "Rights-of-Way", Object Code 3600.
2.1.6 Land and Building Acquired as Single Parcel
The value of the land should be determined separately from the value of the building and the amounts should be coded to Object Codes 4100, "Land" and 4200, "Buildings and Improvements" respectively.
2.2 Buildings and Improvements
2.2.1 Coding
Fixed asset buildings and improvements are budgeted in and charged to Object Code 4200. Agencies which use organization reporting must use unique organization codes, ranging from P001 - P999, in conjunction with Object Code 4200 to identify the specific project.
2.2.2 Costs Included
The cost of buildings and improvements includes all expenditures in connection with their acquisition, such as:
  1. Purchase price or construction cost
  2. Fixtures attached to the structure
  3. Broker and architect fees
  4. Permits and licenses
  5. Condemnation costs
  6. Insurance during construction
  7. Major alterations or improvements of existing structures
  8. Non-removable leasehold improvements
  9. Accident or injury costs
  10. Net interest cost during construction
  11. Payment of damages
2.2.3 Cost Reductions
The cost should be reduced for:v
  1. Sale of salvage from materials charged against the construction
  2. Discounts, allowances and rebates secured
  3. Amounts recovered through surrender of liability and casualty insurance.
2.2.4 Donations
If acquired by donation, the fair market value at the date received is considered the cost of the buildings or improvements. See CAP No. R.2., "Monetary and Property Gifts: Acceptance, Reporting and Disbursement."
2.2.5 Test of Significance
New buildings and improvements of $150,000 and over and significant betterments and additions are capitalized and coded to Object Code 4200. New buildings and improvements under $150,000 and non-significant alterations are not capitalized and are coded to the appropriate services and supplies account such as "Minor Alterations and Improvements," Object Code 1402.
2.2.6 Fixtures
Items of equipment which are permanently installed or attached to a structure, and are not intended to be removed, and which function as part of the structure, are not considered fixed asset equipment. These items are added to the overall cost of the structure, and are coded to Object Code 4200.
2.2.7 Infrastructure Assets
Construction on street, road, site improvements, and flood control projects fall within the definition of "Buildings and Improvements." However, because of the possibility of "pyramiding" costs, and a serious question as to whether the value derived from capitalization justifies the work of maintaining accurate records of capital value, expenditures for these types of construction projects are capitalized as Object Code 4200 during the year, but are deleted by the Auditor-Controller from the fixed asset listing upon receiving the notice of completion. Agencies which use organization reporting must use unique organization codes, ranging from P001 - P999, in conjunction with Object Code 4200 to identify the specific project.
2.3 Equipment
2.3.1 Costs Included
The cost of equipment includes:
  1. Purchase price or construction costs, less discounts
  2. Trade-in allowance
  3. Freight
  4. Sales, Use, Transportation, or other taxes
  5. Installation costs
2.3.2 Coding
Equipment items are budgeted in and charged to the "Equipment" account, Object Code 4000. Equipment replacement expenditures are charged to Object Code 4000 when: (1) the replacement unit fits the "Equipment" definition of Section 1.3.4 of this procedure; and (2) the replacement unit is an identifiable/functional unit by itself (a component rather than an integral part of a larger unit).
2.3.3 Test of Significance
Equipment items must have a cost of $5,000 or more and a useful life of one year or longer to be coded to Object Code 4000. Equipment items which do not qualify as fixed assets are budgeted in and charged to the appropriate Services and Supplies account, such as Object Code 1809, "Minor Office Equipment to be Controlled." Replacement units which become part of a larger asset which is not functional without the replacement should be charged to Object Code 1300, "Maintenance - Equipment."
2.3.4 Donations
If acquired by donation, the fair market value at the date received is considered the cost of the equipment item. See CAP No. 32, "Monetary and Property Gifts: Acceptance, Reporting and Disbursement."
2.3.5 Cost Test
In some instances the cost test is applied to aggregates of units of similar type or purpose, such as shelving and filing drawers that create a filing system, rather than to the units themselves. Object Code 4000 should be used for equipment components when: (1) the components are to be assembled, and; (2) the combined cost of the assembled components exceeds $5,000, and; (3) the assembled unit would be coded to Object Code 4000 if purchased in an assembled state, or; (4) the components qualify as fixed assets in and of themselves. In order to improve consistency in coding certain types of expenditures, the following guidelines are established by the State Controller's Office:
2.3.5.1 Modular Furniture
When purchasing modular furniture only those components which individually cost over $5,000 are charged to Object Code 4000. All other components are charged to Object Code 1809. This policy also applies to library shelving units purchased for use by the Orange County Public Library. This policy also applies to combination modular furniture/panels/partitions.
2.3.5.2 Panels/Partitions
When purchasing panels/partitions in a group with a combined total cost of $150,000 or more, the expenditure should be coded to "Buildings and Improvements," Object Code 4200, with an organization code that identifies the structure being improved. Individual panel/partition purchases that cost less than $150,000 should be coded to "Maintenance - Minor Alterations and Improvements," Object Code 1402. Combination modular furniture/panels/partitions should be coded as described in Section 2.3.5.1 - Modular Furniture, above.
2.3.5.3 Software
Related volumes of software with a combined cost of $5,000 or more are charged to Object Code 4000. The cost of software developed in-house is not capitalized. Vendor alterations to software are charged to maintenance if the alterations are made to keep the software in a usable state. For example, if rate structure by a program must be updated periodically, this alteration would be maintenance.
2.3.5.4 Replacement Parts on Heavy Equipment
The high cost of replacement parts for heavy equipment, such as tires, transmissions, engines, blades, etc., would qualify for capitalization under the State Controller's guidelines. However, the nature of these expenditures is such that the damaged parts are replaced, sent out for repair, and then put back into inventory for future use, and therefore are essentially spare parts for ordinary maintenance. These expenditures represent ordinary maintenance for heavy equipment, and because these costs do not provide for extending the useful life of the asset but simply allow the asset to be used for its estimated useful life, these types of expenditures should be coded to Object Code 1300. This treatment pertains to heavy equipment only and does not change the capitalization policy for similar types of expenditures in other areas (e.g., dump truck rehabilitation would still be coded to Object Code 4000).
2.3.6 Fixtures
Items of equipment which are permanently installed or attached to a structure, and are not intended to be removed, and which function as part of the structure, are not considered fixed asset equipment. The cost of these items should be added to the overall cost of the structure.
2.4 Treatment of Costs Subsequent to Acquisition
Expenditures on fixed assets which are incurred after the original acquisition are defined and recorded as follows:
2.4.1 Significant Expenditures - Building
Capitalized expenditures (betterments) and additions of at least $150,000 are budgeted in and charged to the "Buildings and Improvements" account, Object Code 4200. Agencies which use organization reporting must use unique organization codes, ranging from P001 - P999, in conjunction with Object Code 4200 to identify the specific project.
2.4.2 Significant Expenditures - Equipment
Capitalized expenditures and additions of at least $5,000 are budgeted in and charged to the "Equipment" account, Object Code 4000.
2.4.3 Expenditures not Meeting the Test of Significance - Building
Maintenance and alterations less than $150,000 are budgeted in and charged to the appropriate services and supplies account such as:
  • 1400 Maintenance - Buildings, Improvements and grounds
  • 1402 Minor Alterations and Improvements
2.4.4 Expenditures not Meeting the Test of Significance - Equipment
Maintenance and alterations less than $5,000 are budgeted in and charged to the appropriate services and supplies account such as:
  • 1300 Maintenance - Equipment
  • 1809 Minor Office Equipment
2.5 Choosing the Proper Expenditure Code
Expenditure Amount Object Code
Maintenance Any 1300/1400/1402
Land Any 4100 *
Buildings & Improvements
New $1 - $149,999 $150,000 - Up 1402 4200 *
Betterments $1 - $149,999 $150,000 - Up 1402 4200 *
Alterations $1 - $149,999 $1 - $149,999 $150,000 - Up 1402 1403 (PFRD only) 4200 *
Equipment
New $1 - $4,999 1509/1809/2309/2409
Betterments & Additions $1 - $149,999 $150,000 - Up 1402 4200 *
Alterations $1 - $149,999 $1 - $149,999 $150,000 - Up 1402 1403 (PFRD only) 4200 *
* Agencies which use organization reporting must use unique organization codes, ranging from L001 - L999 for Object Code 4100, and P001 - P999 for Object Code 4200, to identify the specific project.
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