Capital Assets

A capital asset is property, such as land, land improvements, easements, buildings, equipment, works of art and historical treasures, and infrastructure, with a cost equal to or greater than $5,000 and a useful life of two or more years. Capital assets are acquired for use in normal operations and are not for resale. These assets may be subject to depreciation. Effective FY2024, assets that are below $5,000, 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 detailed implementation procedures for small asset group purchases is posted on the OSC website. Exceptions to the $5,000 capitalization threshold will require written approval by the Office of the State Controller (OSC).

A physical inventory of capital and inventoried fixed assets is taken to verify that assets recorded are physically located in an agency. Inventories are taken at least annually. The inventory is taken by someone who does not have custody of the assets, nor responsibility for receiving, checking in, tagging, and recording the assets.

This policy applies to intangible assets other than leasing arrangements reported under GASB Statement 87, Leases; and subscription-based information technology arrangements (SBITAs) reported under GASB Statement 96, SBITAs. See OSC Statewide Accounting Policy 105.7 – Leases and SBITAs for further details on capitalization thresholds and other information pertaining to leasing arrangements.

Infrastructure assets are long-lived capital assets that normally are stationary in nature and normally can be preserved for a significantly greater number of years than most capital assets. Examples of infrastructure assets include roads, bridges, tunnels, drainage systems, water and sewer systems, dams, and lighting systems. Infrastructure assets acquired prior to July 1, 2001 may be classified as part of other capital assets (e.g., buildings).

Land is the real estate property held by the State. It can be purchased or donated. Since land is considered not to have a limited useful life and its salvage value is unlikely to be less than its acquisition cost, land is not depreciated.

When the State does not hold title to property acquired with federal funds, the property should not be capitalized. (Possession does not equal ownership). The property, however, can be inventoried for tracking purposes.

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.

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.