University of Minnesota InternalExternal Sales Equipment Purchases and
- Slides: 21
University of Minnesota Internal/External Sales “Equipment Purchases and Depreciation” Plant Funds, Transfers and other Requirements
Rate Development - Depreciation • Depreciation associated with capital equipment may be included in the rate development. • Depreciation expense will be calculated in the Asset Management module. • Separate capital equipment chartfield strings should be established to account for capital related transactions. 2
Learning Objectives As a result of this session, participants will be able to: • Set-up the account structure to record the purchase of a capital asset and record depreciation • Include equipment expense (depreciation) in the rate development, budget and record actuals • Validate depreciation with Inventory Services vs. rate Development and Budget. 3
Agenda • • • 4 Websites for more information What is a Capital Asset Key Terms and definitions Using an ISO Plant Fund Transferring Depreciation to the ISO Plant Fund Questions & Answers
Internal Sales Rate Development Procedure and Website Located at : Internal Sales EFS website: http: //www. finsys. umn. edu/sales/int. html Administrative Procedure Establishing Internal Sales Capital Equipment Funds and Recording Depreciation: http: //policy. umn. edu/Policies/Finance/Accounting/INTERN ALSALES_PROC 05. html Internal Sales Training Module: http: //www. finsys. umn. edu/sales/iso. html 5
Inventory Services Website Located at : Inventory Services Website: http: //www. finsys. umn. edu/inventorysvshome. h tml Instructions for Transferring Capital Equipment Assets http: //www. policy. umn. edu/prod/groups/president/@pub/@fo rms/documents/form/um 1556. pdf Transferring or Selling Capital Equipment Assets to Another University Department: http: //www. policy. umn. edu/Policies/Finance/Inventory/PROP ERTY_PROC 02. html 6
Inventory Services Website Located at : Transferring or Selling Capital Equipment Assets to Another University Department: http: //www. policy. umn. edu/Policies/Finance/Inventory/PROP ERTY_PROC 02. html Asset Accounting, Asset Management, Asset Transfer Form – Financial Management Training Courses - http: //www 1. umn. edu/ohr/trainingservices/financial/efs/ind ex. html#aa 7
What is a Capital Asset Capital assets are items that are used in the operations but are not intended to be sold as part of such operations. Capital assets must have: • Acquisition value of $2, 500 or greater per item • A useful life greater than the capitalization threshold for the asset category to which they belong. • Capital equipment assets are tangible non-expendable personal property items. • A capital equipment asset must maintain its identity over the course of its useful life. 8
What is a Non-Capital Asset Non-capital equipment assets are: • non-expendable personal property items with an acquisition value of less than $2, 500 per item OR • an estimated useful life of less than one year. Non-capital equipment assets are expensed. Custodial organizations (Dept. IDs) are responsible for all of the capital and non-capital equipment assets in their custody. 9
Key Terms Associated with Assets • Acquisition cost - Includes the invoice price and the cost of any modifications, construction, installation, insurance, freight and is reduced by any trade-in. For donated assets the value is the fair market value or appraised value at the date of the gift. • Depreciation - The allocation of the cost of an asset over its economic life. 10
Key Terms Associated with Assets • Useful Life - The length of time that a depreciable asset is expected to be useable as defined by the Controller's Office following Generally Accepted Accounting Principals. • Inventory - An asset that a University department holds for sale or use in providing goods and/or services to customers. • Capital equipment assets are not "inventory. " 11
Internal Sales Depreciation Process • Internal Sales Organizations can recover the cost of capital equipment in the rates they charge other University departments by including the appropriate depreciation in the rate development. • Only include amounts for purchases already incurred. • Not allowed to include amounts in their rates for anticipated future purchases. • Federal grants can’t include depreciation on equipment purchased with federal funds. 12
Internal Sales Depreciation Process • Capital equipment must be transferred to the Internal Sales Plant Fund specifically designated for this purpose, and costs are recovered by including the applicable depreciation amount in service rates. • Plant Fund Code for ISO activity is 7201 - Internal Sale Capital Purchases • The equipment acquisition and/or original purchase cost would be recorded in account 168001 - Equipment Acquisitions. • This amount would show up as a negative value on the UMReport “Account Budget Status for Current Non-Sponsored Funds”. 13
Internal Sales Depreciation Process • This depreciation is then transferred from the Internal Sales operating fund into the plant fund account on a monthly, quarter, or annual basis. • Transfer codes to use for recording equipment depreciation are the 600301 - Non-Mandatory Transfer In - Equipment Replace and 610301 - Non-Mandatory Transfer Out - Equipment Replace. • The amount transferred from the operating account (610301) value will be a negative amount and the amount received in the plant fund account (600301) will be a positive amount. • The result of the transfer will reduce (replenish over time) the negative value (deficit) of the equipment in the ISO plant fund to $0 after the useful life is complete. 14
Internal Sales Depreciation Process Example Purchase $100, 000 capital asset in plant fund 7201 – ISO Capital Purchases and transfer 12 months of depreciation (1, 666. 67 per month) Expenditures • 168001 - Equipment Acquisitions Budget: -100, 000. 00 • 168001 - Equipment Acquisitions Expenditure: -100, 000. 00 • 760101 - Equipment Depreciation Budget/Exp: 20, 000. 00 • 760101 - Equipment Depreciation Budget/Exp: -20, 000. 00 Transfer In • 600301 NMTI - Equip Replace Budget: 20, 000. 00 • 600301 NMTI - Equip Replace Expenditure: 20, 000. 00 15
Internal Sales Depreciation Process Example Transfer 12 months of depreciation (1, 666. 67 per month) from operating fund 1150 – Recharged Internal Sale : Transfer Out • 610300 Non-Mand Oth Trsfr Out-Fin. Bdg Budget: -20, 000. 00 • 610301 NMTO - Equip Replace Expenditures: -20, 000. 00 16
Internal Sales Depreciation Process • Policy and procedures for ISO capital purchases are not voluntary. • Capital Assets should not be depreciated in the ISO operating fund using account 760101 – Depreciation – Equipment. • Internal Sales equipment must be identified separately from non. Internal Sales equipment in the University's property accounting system. 17
Inventory Services • Inventory Services is responsible for updating the accounting system for all capital equipment. • Inventory Services will assist departments to determine depreciable life of capital equipment and appropriate method for disposal of capital equipment. • Units are responsible for the accuracy of the recording of the purchase and depreciation for Internal Sales capital equipment. • Inventory Service’s records are official and units will be audited against what they have recorded. 18
Inventory Services • Inventory Services will assist in the identification of capital equipment • Inventory Services will identify equipment that is purchased with federal funds so that the department can appropriately account for all equipment related to their internal sales activities. 19
Summary • Include depreciation in the rate development • Capitalize capital assets • Expense –Non-capitalized assets • Only include purchased or donated assets • Use ISO Plant Fund • Transfer depreciation from operating fund to plant fund to record expense and replenish equipment purchase value • Use Inventory Services to support activity 20
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