Capital Assets

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.

Capital assets should not be revalued when transferred between funds and/or component units of the State’s financial reporting entity. In these circumstances, the transferee should recognize the capital assets at the transferor’s carrying value. These intra-entity transfers include donations or purchases/sales of capital assets between any combination of the funds and/or component units of the State’s financial reporting entity including State agencies, universities, community colleges, and all other component units of the State.

Except as discussed below, works of art, historical treasures, and similar assets should be capitalized at their historical cost or acquisition value at the date of donation (assets donated prior to July 1, 2015 are recorded at their estimated fair value at the date of donation) whether they are held as individual items or in a collection.

Buildings are structures that are permanent in nature and have an asset life of two or more years. They are subject to depreciation.

Additions are considered separate assets and should be capitalized if the cost equals or exceeds the $5,000 capitalization threshold. An addition increases the physical size or operating capabilities of an asset through expansion or extension.