Policy and Procedures: Capitalization – Land and Building 1

Responsible Office: Controller 2 Effective Date : Fiscal Year 2017 3

4 5 Policy Statement: 6 All land and building projects with an acquisition cost of greater than $3,000 and with useful life more 7 than one year are evaluated for capitalization. 8 9 Land and Building project costs are evaluated on the basis of unit of property which is defined as a series 10 of components which are “functionally interdependent” to perform a specific function. The costs 11 associated with the unit of property include costs associated with design, contracts negotiation, and 12 contract management. 13 14 Reason for Policy: 15 The Institute operates a significant campus facility in support of its instruction, research, and auxiliary 16 programs. The acquisition, improvement, space changes, leasehold improvements and maintenance 17 expenditures are managed to comply with Government property controls in accordance with uniform 18 guidance Title 2 – Subtitle A – Chapter II – Part 200. In conjunction with the system used to control 19 Government property and property purchased by specific sponsored projects, the Institute maintains 20 control of its own property using the same techniques. 21 22 Roles and Responsibilities: 23 The Property Administration department manages all project records and with input from Financial 24 Reporting classifies projects as capital or maintenance based upon their nature. Financial reporting 25 manages the subsidiary record for capitalized expenditures by component type and records the 26 capitalization of completed projects to their corresponding general ledger asset accounts. 27 28 Property Administration will request separate project funds for significant phases of large projects. 29 Phases should be capitalized (placed in service) within 12 months of the completion of the significant 30 contracts within the phase. 31 32 Procedures: 33 Land – (LA; GL Account 840) 34 The capitalization amount of the land is based upon the information in the purchase documents as 35 follows: 36

Amount of purchase agreement or appraisal (if available) plus acquisition costs. 37

10% of the purchase price of a building when a building is acquired and a land appraisal is not 38 available. 39

If the acquisition of a property (building & land) is acquired with the intent of retaining the land 40 and demolishing the building, the demolition and land regrading costs must be capitalized to 41 land. 42

43 Land Improvements – (LI; GL Account 841) 44 The purchase agreement value or post acquisition projects (total cost) substantially improving the 45 property/land will be capitalized. 46 47 Project types that will be capitalized include: 48

Infrastructure – Utilities / Irrigation 49

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Landscaping 1

Sidewalks 2

Initial paving or replacement of parking lots 3 4

Building Shell – (GL Account 843/843T) 5 Capitalized costs will include the capital project costs which have reached 100% of budget and have 6 been finalized by Property Administration. These projects will include substantial renovations and 7 structural changes intended to increase the useful life of the building or alter its use. 8 9 Building shell will include the following unit of property categories: 10

Building Structure (BD) - original acquisition price, partial demolition costs at acquisition 11

Building Improvement (BI) - shell, roof, windows, floors, space changes, 12

Building Systems – (BE) - HVAC, plumbing, electrical/cabling, elevators/escalators, fire 13 protection/alarms, security systems, utility distribution systems 14

Fixed Equipment – (BF) - (permanently attached) - exhaust fans, transformers, signage, cold 15 rooms, fume hoods, lighting 16

17 Leasehold Improvement - (LH; GL Account 843L) 18 Costs associated with capital projects that will be amortized over the corresponding lease term of the 19 underlying lease. These costs will be associated with the building shell unit of property categories. 20 21 Project Administration – Project Evaluation and Classification Process 22 Capital projects greater than $50,000 are identified during the annual Institute Performance Planning 23 Process (these may include significant renewal and replacement projects). Capital projects less than 24 $50,000 are identified during the annual departmental budget process. Other capital projects may be 25 initiated by Property Administration with Budget Office approval. 26 27 Financial reporting reviews the project description and budget indicated on the “Capital Project Fund 28 Create Form” to determine if the project is a capital project (Fund Type 90) or a renewal/replacement 29 project (Fund Type 92). Any questions regarding the classification as capitalized or expended projects 30 are resolved by discussion between the plant accountant and the project manager prior to establishing 31 the project fund. 32 33 Considerations of a Capital Project (Type 90 - Troy, 91 – Troy Leasehold, 9U - Hartford, 9L – Hartford 34 Leasehold) include: 35

Project budget is greater than $3,000 36

Useful Life greater than 10 years 37

Consideration of the impact on the unit of property: 38 ­ New construction 39 ­ Improvement 40

Betterment – significantly enhance the service purpose of a unit of property 41 Adaptation - additional costs incurred to re-purpose the asset 42

­ Restoration – substantially restore a depreciated unit of property 43 44

Consideration of Renewal & Replacement (Type 92 - Troy, 9R - Hartford) include: 45

Project budget is less than or equal to $3,000 or greater than or equal to $3,000 and is not a 46 material improvement. 47

Renewal will occur more than once within life of the original unit of property (recurring in 48 nature) 49

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Consideration of the impact on the unit of property: 1 ­ Preservation – maintain the unit of property to perform the original intended purpose 2

3 Capitalization of Administrative Projects to Capital Assets 4 The project funds mentioned above are temporary in nature. During the project, costs are reflected as 5 construction in progress (CIP). Once the project is complete, the costs are capitalized to an asset type 6 (Type 96; Type 97). 7 8 Property Administration and the project managers will monitor project completion (placed in service 9 date). Once a project has been completed, a project manager submits a “Project Completion Notice” 10 (PCN) to Financial Reporting which contains an allocation of the project costs to the corresponding 11 component categories. 12 13 Financial reporting will transfer the project costs from the temporary project fund types to a capital 14 asset 96/97 fund type following receipt of the PCN. The asset may either be noted in the V Building 15 Module as a parent (new asset) or as a child (addition.) 16 17 18

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1 Property Administration Project Classifications 2 3

Account Depreciation Class Asset Type Project Type

840 Land Land Site Improvements

841 Land Improvement Land Improvement Sidewalk

Parking Lots

Grounds Infrastructure

Utility Infrastructure

Irrigation

Fields (Grass & Turf)

Landscaping

843/843L Shell Building Shell Foundations

Shell

Roof/Drainage

Windows

Floors

Code Work (ADA etc)

Asbestos Removal

Design Fees

Shell Building Improvement Building Components

Structural Component

Building Systems Building Systems HVAC (Heating, Ventilation, Air Conditioning)

Electrical

Information Technology Building

Mechanical

Elevator/Escalator

Fire Protection / Alarms

Security

Fixed Equipment Fixed Equipment Fume / Exhaust

Signage

Cold Rooms

Clean Rooms

4 5 CONTACT: John Kalbacher, Director of Financial Reporting 6 7