The constructed and fabricated asset policy of Dartmouth College determines the proper classification of costs for new construction, renovations, improvements, maintenance projects, and equipment. This policy has been developed to assist project managers and others with the important task of distinguishing between capital and non-capital costs, the accounting treatment for these costs, and the process to set up capital or fabricated projects. Costs that are capitalized are depreciated over their useful lives. Costs that are not capitalized are recorded as an expense in the year incurred.
Construction in progress (CIP) refers to all construction, renovation, improvement, fabrication, and customization projects or non-recurring extraordinary repairs and maintenance (such as flood damage repairs) where capital costs are greater than or equal to $50,000.
Fabricated equipment refers to equipment that is assembled or manufactured by Dartmouth using purchased materials and in-house machinery, tools, and labor. Fabricated equipment costing $25,000 or more and having a useful life of one year or more must be accounted for as construction in progress (CIP) until completion when it is placed into service as moveable equipment. Fabricated equipment costing $5,000 to $24,999 and having a useful life of one year or more must be recorded as moveable equipment. Reference Property, Plant, and Equipment Management Policy (ID: 024-0001) for more information.
Capital Costs of $50,000 or more incurred for a single project/purchase which are considered to be one of the following: (1) construction costs, fabrication, or a purchase that creates one new asset; (2) an improvement, renovation/replacement that either extends the life or adds value or functionality to an existing asset; (3) costs that correct functional inadequacies, change the use of an existing asset, or are necessary to put an asset into service, or (4) application/development stage costs for software, algorithm(s), and/or website development. See Appendix F for guidance regarding specific capital costs and how to record and account for them.
Examples of Capital Costs:
Non-Capital/Maintenance Costs (expensed):
(1) Capital projects of less than $50,000 and moveable equipment purchases of less than $25,000; (2) Costs which neither materially add to the value of an existing asset nor appreciably prolong its economic useful life, but keep it in ordinary, efficient operating condition. These costs are considered normal, recurring, periodic, and necessary to maintain the asset's economic useful life for the use(s) for which it was acquired or constructed; (3) Preliminary stage and planning costs for software/algorithm development and construction projects; (4) Post-implementation stage costs for software development.
Examples of Non-Capital Costs (expensed):
Setting up a CIP account:
Once a project has met the capitalization criteria set forth in this policy, a unique chart string must be created for the CIP. A CIP Account Setup Form (form attached at bottom of page) must be prepared and submitted to Construction.in.Progress@dartmouth.edu with project details, intended budget and budget details, and intended funding sources to request unique CIP funding and activity values. Approvals for the project budget and funding are required prior to CIP account creation. Approvals can be gathered by Financial Reporting once the CIP set-up form is submitted.
CIP budget approvals: Generally speaking, a CIP budget must be approved as part of the capital budget approval process. See FOM "Starting a Capital Project" page for more information. If a project arises outside of the capital budget approval timeline, an off-cycle request can be made pursuant to Appendix E of the Signature Authority Policy (Policy ID: 024-0040). Approvals will be documented by written communication within the CIP Account Setup form. Contact Construction.in.Progress@dartmouth.edu for assistance with this process.
CIP Funding approvals: Once the funding source(s) for a capital project have been determined, they must undergo the same approval process as the budget. Additional approval is required from the division fiscal officer(s) associated with the funding chart string(s). Approvals will be documented by written communication within the CIP Account Setup Form. Contact Construction.in.Progress@dartmouth.edu for assistance with this process.
Using a CIP account:
Once a CIP chart string has been established, project costs must be recorded directly to the unique string. Review Appendix H Capital Projects Natural Class Definitions (attached at the bottom of the page) for guidance regarding recording CIP transactions in the appropriate capital and non-capital natural classes. The Controller's Office will transfer funds from the identified funding source(s) to the CIP chart string as prescribed in the CIP Account Setup Form on a monthly basis. If a change to the budget, funding source, or other project details is needed, submission to Construction.in.Progress@dartmouth.edu is required and the updates will undergo additional approval processes as outlined above.
Closing CIP account
When a project is substantially complete and determined to be in service, the project must be componentized, and the underlying assets must be entered into the Oracle Fixed Asset module and depreciated over their useful lives. Substantial completion is defined as:
"The stage in the progress of the Work when the Work or designated portion thereof is sufficiently complete in accordance with the Contract Documents and applicable permits and approvals so that the Owner can occupy or utilize the Work for its intended use, with only minor punch list items remaining. The Work will not be considered suitable for Substantial Completion review, and the Contractor shall not be deemed to have achieved Substantial Completion until: (i) all Project systems included in the Work have been started up, tested, and are operational as designed and scheduled; (ii) to the extent reasonably required, the Contractor has instructed Owner's personnel in the operation of all systems and equipment; (iii) the site has been cleaned up and complete reclamation, including without limitation removal of excess materials, rock, sand, paving, debris, dumpsters, supplies, equipment and trailers, and disconnection of temporary utilities, and (iv) the Contractor has arranged for and obtained all designated or required governmental inspections, written approvals, and certifications necessary for legal use and occupancy of the completed Project."
Once the substantially complete status is confirmed by the project managers, the date of substantial completion is used to determine when the project will be componentized. The Financial Reporting Analyst will complete the Componentization Template for each project and refer to the Componentization Guide for a list of components and a reasonable method for allocating total project costs to these components. Once Financial Reporting has componentized a project and all trailing costs have been recorded, the Project string will be disabled, and the CIP account closed. No further charges can be charged to the unique CIP string.
Fabricated Equipment Accounting Process
Fabricated equipment with an estimated cost of $5,000 or greater and a useful life of one or more years must be recorded in the Fixed Asset Module. Please refer to the Property, Plant, and Equipment Policy Appendix E for information regarding both capital and non-capital equipment thresholds.
Fabricated Equipment $5,000 - $24,999
For fabrication projects with an estimated cost of $5,000 or greater, complete an Intent to Fabricate Form and send to the Fixed Asset/Surplus Property Administrator. Some grant agreements may require tracking fabricated equipment under the standard threshold of $5,000. Fixed Assets must be contacted prior to acquiring property that does not fit within Dartmouth's standard Property Plant and Equipment Policy.
Fabricated Equipment Greater than $25,000
For fabrication projects with an estimated cost of $25,000 or greater, a CIP Account Setup Form (form at the bottom of the page) must be completed to request CIP Funding and Activity values. As fabricated equipment CIPs do not fall under the capital budget approval process or Appendix E of the Signature Authority Policy, approval from the PI and a completed Intent to Fabricate Form are required prior to CIP account creation.
Funding Approval: Fabricated equipment CIPs do not require the same funding approval as construction CIPs. If the funding comes from a grant, the signed Intent to Fabricate Form and notification to the relevant post-award grant manager in OSP will meet the approval requirements to create the CIP account. Funding from any other sources requires the approval of the division fiscal officer.
As costs are incurred for the fabricated equipment, record CIP transactions to Natural Class 1724-CIP CONST Moveable Equip or the applicable internal Natural Class(s) (see Appendix H for guidance).
Financial Reporting will enter fabricated assets into the Oracle Fixed Asset Module when they are complete and put into use. When the fabricated equipment is complete and in service, notify the Fixed Assets/Surplus Property Administrator by sending the IRA GL Transaction report and indicate the completion date and useful life to email@example.com. The Fixed Assets/Surplus Property Administrator will notify Financial Reporting. Financial Reporting will complete the Componentization Template, disable the CIP chart string, and capitalize the equipment.
Disposals and Transfers
The Fixed Asset/Surplus Property Administrator must be notified of all disposals or change of location of fabricated equipment through transfer, sale, gift, donation, recycle, disposal, or retirement in order to properly account for sales proceeds and gain/loss on sale, location information, and/or removal of the asset and corresponding accumulated depreciation from the Oracle Fixed Asset Module. Additionally, Financial Reporting must be notified of all partial and complete building demolitions. Please refer the Property Disposition Policy for information regarding both capital and non-capital property disposals.
Appendix A Definitions
Appendix C Additional Guidance for Specific Types of Equipment
Appendix E Property, Plant, and Equipment Thresholds
Appendix F Constructed Asset Guidance for Specific Costs
Appendix H Capital Projects Natural Class Definitions
CIP Account Setup Form (attached below)
Componentization Template (attached below)
Accounting for Moveable Equipment Purchased on a CIP Chart String
Pursuant to the Property, Plant, and Equipment Policy (Policy ID: 024-0001), moveable equipment purchased on a CIP account chart string or through the typical purchase requisition process must be tagged and tracked in the Oracle Fixed Assets Module. As such, moveable equipment, including AV equipment, purchased as part of a CIP will be recorded separately from other charges. All information required to be provided for moveable equipment purchases pursuant to the Property, Plant, and Equipment Policy will be provided for moveable equipment purchases of $5,000 or greater when purchased on a CIP account chart string. If the contractor for the capital project purchased the equipment, these charges should be recorded separately from other construction costs and all required information for moveable equipment purchases will be supplied. Refer to Property, Plant, and Equipment Management Policy (ID: 024-0001) and the Moveable Equipment Inventory Policy (ID: 024-0011) for guidance on moveable equipment and required information and documentation.
Chart String Guidance
Pursuant to Property, Plant, and Equipment Policy Appendix E, moveable equipment purchases must be recorded to specified natural classes based on the cost of the asset/equipment. These specified natural classes differ for CIP accounts; use the natural classes in accordance with the guidance below for moveable equipment purchases on CIPs.
Purchases from external vendors
Purchases from another department within Dartmouth
Accounting for Studies and Planning Costs
This Appendix provides guidance on the accounting for the costs of planning and studies related to potential capital projects.
The first stage during which costs are incurred related to long-lived assets is the Preliminary Stage. During the Preliminary Stage, activities are performed exploring the opportunities for acquisition or construction of the asset. Typical activities that occur in the Preliminary Stage include the following:
US GAAP has limited guidance on capitalization policies for facilities constructed for a reporting entity's own use. However, the reference materials listed at the end of this Appendix provide helpful guidelines in this area. These materials indicate that accounting for costs during the Preliminary Stage of a construction project is similar to accounting for costs associated with start-up activities, for which guidance is provided in ASC 720-15, Other Expenses - Start-up Costs. ASC 720-15 states that such costs should be expensed as incurred.
Setting up a CIP account
Preliminary Stage costs may be expensed, either in a CIP project (non-operating), charged directly to operations, or charged directly to a deferred maintenance reserve (operating), as appropriate. Preliminary Stage work may be approved as part of the annual Capital Budget, but a CIP account will only be set up when a specific asset-producing project has been identified and approved.
Once the asset-producing project has been identified, the cost of studies or other planning activities can be charged to a CIP account if the estimated costs meet the minimum threshold for establishing a CIP account (currently $50,000). Subactivity 0000-Default must be used to identify these Preliminary Stage costs within the CIP account string. As part of componentization, these costs will be expensed.
Managing a CIP account
If the project moves forward to the Design phase, costs should be charged to the same CIP account; however, Subactivity 0000 must be disabled and a new Subactivity set up for the remainder of the work. The CIP project will be closed after the componentization process is complete. If additional planning dollars are approved, Subactivity 0000 should continue to be used.
If the planning work or feasibility study does not lead to an approved capital project within an agreed upon period of time (normally 1-2 years), the CIP account will be closed. The Controller's Office may grant exceptions to this timing for unusual circumstances.
Appendix to Constructed Asset Policy
The proposed Statement of Position issued by the Financial Reporting Executive Committee of the AICPA (FinREC), Accounting for Certain Costs and Activities Related to Property, Plant and Equipment (2003).
PwC accounting and financial reporting guide, Property, plant, equipment, and other assets, issued in June 2017 and partially updated in September 2018.
Effective Date: FY19.