Fixed Asset Capitalization Policy

I. Scope

This policy applies to the Business Affairs Office.

II. Policy Statement

Indiana Wesleyan University establishes, maintains and reviews recorded assets to ensure the proper accounting treatment of all fixed assets. The valuation of fixed assets shall be based on historical cost and meet Generally Accepted Accounting Principles. It is the responsibility of Business Affairs to classify, record, and depreciate fixed assets in accordance with this policy.

III. Reason for the Policy

This policy exists so that fixed assets are accurately accounted for and reported on financial reports issued to both internal and external individuals and organizations.

IV. Procedures

A. Classifications of Fixed Assets

1. Expenses that can be capitalized are all ordinary and necessary costs the university incurs to get the asset ready for its intended use. Examples for each asset classification, minimum threshold for depreciation, and associated useful life is as follows:

Capitalization Thresholds
Asset Classification*	Capitalized Costs	Minimum Threshold for Depreciation	Useful Life*
Land	Purchase price of land, broker’s commissions, title and legal fees, accrued taxes, insurance, land preparation costs (building removal, excavation, etc.)	0	Perpetual
Equipment & Equipment Systems	Contract price, freight, installation costs, testing, and legal fees associated with a single unit or equipment system	$5,000	5-10 years
Building Improvements	Material costs and labor costs	$5,000	10-20 years
Land Improvements	Material costs and labor costs	$5,000	10-20 years
Buildings	For purchased buildings, costs include purchase price, realtor commissions, legal fees, reconditioning costs (refurbishing, remodeling, etc.). For constructed buildings, costs include materials, labor, permits, capitalized interest, etc.	$10,000	10-50 years
Library Books & Reference Materials	Purchase cost aggregated annually	$5,000	10 years

*See Definitions section

B. Recording of Fixed Assets

1. A fixed asset register shall be maintained by Business Affairs for all assets that will be reconciled to the University’s financial statements.

C. Depreciation Methodology

1. The straight-line depreciation method (historical cost less residual value, divided by useful life) will be used for all fixed assets.

a. A thorough review of fixed asset depreciation occurs annually.

b. Exclusions from Depreciation

i. Software, subscription based services, leased IT services or equipment are not capitalized.

ii. Land is deemed to have a perpetual useful life and therefore is not depreciated.

D. Disposal of Fixed Assets

1. In order to maintain the accuracy of the fixed assets records, all requests to dispose of fixed assets must be submitted to Business Affairs for approval. The Business Affairs team will review any potential gains or losses on the disposal.

2. If the disposal is approved, any gains or losses on the sale will be attributed to the primary academic unit.

V. Definitions

A. Building: A building is a structure that is permanently attached to the land, has a roof, is partially or completely enclosed by walls, and is not intended to be transportable or moveable.

B. Building Improvements: Building improvements are capital events that materially extend the useful life of a building or increase the value of a building, or both. Examples of building improvements: space remodel, addition of structures attached to a building, siding, HVAC, plumbing, electrical, windows, etc.

C. Capitalization: The process of gathering the costs of fixed assets that have economic benefit for the university that extends over more than five years. These costs are recorded as assets. Capitalization is moving an expense from the income statement to the balance sheet.

D. Capitalized Interest: Interest costs incurred during the construction of an asset that are capitalized with the asset.

E. Depreciation: The expense recorded annually to spread the cost of capitalized assets over their useful life. Depreciation is the process of moving it back to the income statement over time.

F. Equipment: Equipment includes machinery, furniture, vehicles and other personal property that is either a fixed or a movable tangible asset to be used for operations.

G. Equipment System: Multiple pieces of equipment that work together to be operational. Each piece is inoperable without the other parts.

H. Fixed Assets: Fixed assets are tangible and intangible assets that have useful lives of more than five years and have a historical cost value of $5,000 or more at the time of purchase. Donated fixed assets shall be valued at the estimated fair market value at the date of gifting.

I. Land: Land is the surface or crust of the earth, which can be used to support structures.

J. Land Improvements: Land improvements consist of betterments, site preparation and site improvements (other than buildings). Examples of land improvements: parking lots, fences, sidewalks, roads, drainage/sewer systems, retaining walls, outdoor lighting.

K. Library Reference Material: Library reference materials are information sources other than books which include journals, periodicals, microforms, audio/visual media, manuscripts, maps, documents, and similar items that provide information essential to the learning.

L. Useful Life: A period of time in which an asset or property is expected to be usable for the purpose for which it was acquired.