102.01 - Statewide Accounting Policy - Capitalization/Classification

Policy

A capital asset is property, such as land, land improvements, easements, buildings, equipment, works of art and historical treasures, and infrastructure, with a useful life of two or more years and cost equal to or greater than the applicable OSC capitalization thresholds below.

Building, right-to-use, subscription, and other intangible assets, which are generally classified as capital assets, each have supplemental policy guidance.  Refer to the Related Documents section below.

Capital assets are acquired for use in normal operations and are not for resale. These assets may be subject to depreciation. Effective FY2024, assets below the capitalization threshold that are purchased as a group and have a significant cost are subject to capitalization per GASB Implementation Guide 2021-1 Section 5.1.  A financial reporting update with detailed instructions regarding implementation procedures for small asset group purchases is posted on the OSC website.  Exceptions to the capitalization threshold will require written approval by the Office of the State Controller (OSC).

Assets with costs below the established category-specific capitalization thresholds are expensed, they are not capitalized nor depreciated for financial reporting purposes; except for asset group purchases that may fall under GASB Implementation Guide 2021-1 Section 5.1 noted above.  Agency management has the option of tracking assets valued between $500 and the established capitalization threshold for inventory purposes, with a threshold chosen at the agency’s discretion.  A physical inventory will be taken of inventoried assets at least once a year at the same time as the capitalized fixed assets are inventoried.

Procedures

N/A

Accounting Guidance

Costs incurred to keep a fixed asset in its normal operating condition that do not extend the original useful life of the asset or increase the asset's future service potential, are not capitalized. These costs are expensed as repairs/maintenance. According to GAAP, capital assets should be recorded at historical cost or estimated historical cost.  Cost includes purchase price or cost of construction plus any other charges incurred to place the asset in its intended location and condition for use. 

Examples of other charges include, but are not limited to:

• legal and title fees 
• appraisal and negotiation fees 
• surveying fees 
• other closing costs 
• damage payments 
• land-preparation costs 
• demolition cost 
• architect and accounting fees 
• insurance premiums during the construction phase 
• transportation charges
• interest cost incurred during construction of the asset through June 30, 2019 (Beginning July 1, 2019, interest costs incurred before the end of construction period are no longer capitalized.)

Donated capital assets should be recorded at their acquisition value at the date of donation plus ancillary charges with the following exception. Capital assets donated prior to July 1, 2015, are recorded at their estimated fair value at the date of donation. Acquisition value is the price that would be paid to acquire an asset with equivalent service potential in an orderly market transaction at the acquisition date. Acquisition value is a market-based entry price. Acquisition value may be calculated from manufacturers’ catalogs or price quotes in periodicals, recent sales of comparable assets, or other reliable information. Professional assistance may be helpful but is not required. The following assets should be measured at acquisition value:

• Donated capital assets
• Donated works of art, historical treasures, and similar assets as provided in paragraph 27 of GASB Statement 34
• Capital assets that a government receives in a service concession arrangement as provided in paragraph 9 of GASB Statement 60

In-house resources such as labor, materials, and supplies used from General Services should also be included as part of the cost of the asset. Capitalize the costs as if outside sources were used.

Classification: 

According to the Governmental Accounting Standards Board (GASB), the classification of capital assets depends upon the funds used to purchase them:

"A clear distinction should be made between general capital assets and capital assets of proprietary and fiduciary funds. Capital assets of proprietary funds should be reported in both the government-wide and fund financial statements. Capital assets of fiduciary funds (and similar component units) should be reported only in the statement of fiduciary net position. All other capital assets of the governmental unit are general capital assets. They should not be reported as assets in governmental funds but should be reported in the governmental activities column in the government-wide statement of net position” (prepared by OSC). 

Related Documents (Memos/Forms)

Internal Policy/Procedures Manual for Capital Assets

Depreciation Policy

Intangible Assets Policy

Physical Inventory Policy

Maintenance Policy

Leases and SBITAs

Revision History

• 7/1/2009 - Updated for GASB 51
• 1/26/2017 - Updated links
• 6/30/2017 - Updated for GASB 63 (changed net assets to net position) and GASB 72 (added requirement to prospectively report donated capital assets at acquisition value); added link to Internal Policy/Procedure Manual for Capital assets; minor edits.
• 7/31/2019 - Updated for GASB 89 (Interest costs incurred before the end of the construction period are not capitalized beginning July 1, 2019.)
• 6/4/2024 - Updated for GASB Implementation Guide 2021-1 Section 5.1 (asset group purchases with significant cost need to be capitalized beginning July 1, 2023).
• 1/21/2025 - Formatted for new ncosc.gov website.
• 6/24/2026 - Updated for capitalization threshold increase (effective July 1, 2026). Thresholds effective prior to July 1, 2026, have been archived. Contact OSC if needed.