0100 Accounting and Financial Reporting

The straight-line and units of output methods of depreciation, with an assumed salvage value of zero, are the recommended methods of depreciation. It is also recommended that depreciation for partial periods be computed using either the half-year convention or on the basis of the nearest full month. Straight-line is a time-based method used when the service life of the asset is affected primarily by the passage of time. Units of output should be used when the service life of the asset is affected primarily by the amount the asset is used. See table below for depreciation method guidelines.

The State of North Carolina recognizes a fiscal year beginning July 1 and ending June 30. Budgetary reporting, budgetary control, and financial reporting in accordance with GAAP are based on this accounting cycle.

A library is a repository for literary and artistic materials such as books, e-books, periodicals, newspapers, pamphlets, videos, etc. kept for reading or reference. Books and other library materials should be inventoried if the books/library materials have a useful life of 2 or more years and have a cumulative cost of $5,000 or more. This threshold is applied at each library level and not the agency level. All agencies should expense library books and other library materials in the year of acquisition.

Although the organization of each department is unique, the capital asset responsibilities should be distributed among several positions. This separation is necessary for adequate internal control. The following policies are recommended.

Prior to changing the assigned location of equipment within an agency, Part A of Form FAS-1 (or equivalent agency form) must be completed. The fixed asset number, description, current building and room number, and the reassigned building and room number must be included on this form. The form must be signed by the Division/Section Manager and transmitted to the Fixed Asset Officer. The Fixed Asset Officer should approve all location changes. After the location changes are approved, the Fixed Asset Officer will enter the location changes into the Fixed Asset System. Also, a copy of this form will be signed and returned indicating that inventory records have been adjusted.

Maintenance expenses are incurred to keep assets in normal operating condition and to help maintain the original use of the asset. Maintenance expenses do not extend the life of the asset beyond the expected useful life at acquisition or increase the future service potential of the asset. Maintenance costs are incurred to keep the asset operational throughout its useful life. Therefore, the replacement of roofs, plumbing and carpet are typically classified as maintenance costs. Other examples are engines on the ferries which are rebuilt after each season. This was an expected cost at the time of purchase. It does not extend the life of the asset longer than originally intended, so the costs are expensed.

Management is responsible for implementing procedures for maintaining control over and the safeguarding of assets. Physical security measures over facilities and authorized personnel must be established and documented.

Maintaining a positive identification of assets is the primary purpose of tagging. Tagging is important to: 

• Provide an accurate method of identifying individual assets, 
• Aid in the taking of physical inventory, 
• Control the location of all physical assets, 
• Aid in maintenance of fixed assets, and 
• Provide a common ground of communication for both the accounting department and the assets' users. 

Each agency is required to have an Internal Policy/Procedure Manual to detail the agency's capital asset requirements. This manual will not replace the requirements set forth in the statewide policies, but will individualize the statewide policies/procedures for each agency.

State agencies should assess their capital assets at least annually to determine if they have any impaired capital assets with material carrying values. OSC will request information relating to capital asset impairments in the year-end Annual Comprehensive Financial Report (ACFR) package. Based on the information provided, OSC will determine if the impairment needs to be recognized in the State’s ACFR. OSC will calculate any impairment losses and will make entries in NCAS (or will provide entries to agencies) to report any such losses. In addition, OSC will notify state agencies of the adjustment amount that should be recorded in the fixed asset system to reduce the carrying value of impaired capital assets. State agencies should post these adjustments to the fixed asset system during the next fiscal year as a prior period adjustment.