Accounting & Financial Reporting

Self-Supporting Activities - Depreciation

What is depreciation?

Depreciation is the decline in an item's value due to factors such as age and use. The university depreciates assets with an acquisition value of $5,000 or more.

Why do we depreciate assets?

We depreciate assets to more accurately reflect an activity's financial condition, to account for the loss in value over time and, specific to self-supporting units, to provide funding to replace the item at the end of its useful life.

What assets qualify for depreciation?

Assets meeting all of the following criteria are eligible for depreciation:

  • Meet the requirements in Policies and Procedures Manual (PPM) 340-25, Recharge Activities
  • Were included as part of an approved rate
  • Have an acquisition value of $5,000 or more
  • Were purchased with non-federal funds (If commingled, only the non-federal portion is eligible)
  • Were not included in a Facilities and Administrative (F&A) cost pool. If you do not know if the equipment is included in an F&A cost pool, contact Costing Policy & Analysis.

When does depreciation begin?

Depreciation is effective from the asset's capitalization date (i.e., the date the item is put into service for the activity). In most cases, the capitalization date is the same as the asset's received date. When you enter the Received Date into the Capital Asset Management System (CAMS), the same date defaults into the Capitalization Date field. Only Equipment Management can change the capitalization date.

How do we track depreciable assets?

Depreciable assets for self-supporting activities are tracked separately from non-depreciable assets by recording them in their own Asset Custodial Code. Custodial Codes for depreciable assets belonging to self-supporting activities begin with a "D" and have "DEPR" in their name. If you have access to FIS Decision Support (DS), you can see your activity's depreciation by entering your custody code into the Depreciation Report (KFS) (379) query.

When you purchase a depreciable asset for your self-supporting activity, be sure to assign it to your "D" Custodial Code on your requisition. If you don't do this, depreciation will not occur. In addition, be sure to set up a budget for object consolidation SB75 - Depreciation.

If you have existing equipment that will now be used for a self-supporting activity, transfer it to your D custody code in CAMS. General Accounting will also ask you for documentation that the equipment has been approved in your rate. If the equipment hasn't been approved yet, documentation of the proposed rate change may suffice.

How can I request a custody code for depreciable self-supporting assets?

Complete and submit the Custodial Code Request Form.

How will Accounting know that our activity has depreciable assets?

Accounting reviews Decision Support reports and equipment tracking system documents for depreciating assets.

When assets are added to custody codes specific to self-supporting depreciating assets (i.e., the custody codes begin with a D), provide General Accounting with the operating and depreciation accounts.

When assets have fully depreciated, have been removed from these custody codes, or sent to Aggie Surplus, General Accounting discontinues the depreciation process.

How is depreciation calculated?

Depreciation is determined using this formula:

Depreciation Total = Asset Value - Salvage Value - Federal Amount * Utilization %.
(Note: Rarely does an activity include salvage value but if it does it can be up to 10% of the asset value).

The depreciation total is then divided by the asset's useful life, as determined by the Useful Life Schedule. For example, an item with a depreciation total of $12,000 and a useful life of 10 years will depreciate $1,200 per year.

General Accounting typically depreciates assets monthly. Using the example above, your operating account ledgers would be debited $100 per month in Object Consolidation SB75 - Depr (specifically object code 7238 - Depreciation). In addition, your equipment reserve account ledgers would be credited $100 per month.

By exception, it may be possible to follow a useful life schedule other than that provided by UCOP. Provide Costing Policy & Analysis with the property numbers and your basis for requesting an exception (e.g., institutional experience) before purchasing the asset. If an exception is granted, inform General Accounting.

What must I do when replacing equipment used in my self-supporting activity?

When buying an item to replace a fully depreciated asset, create a Requisition (REQS) document in KFS. On the REQS, use your Reserve for Renewal and Replacement account (i.e., belongs to fund 76xxx). In addition, use your department's custody code for your depreciable assets (it should begin with a D and have DEPR in the name).

The item being replaced can continue to be used by the activity but will not continue to be depreciated. If your department has another use for the replaced asset, transfer it to a custody code for non-depreciating assets, via an Asset Transfer Global (ATG) document in KFS. If your department no longer has a use for the replaced asset, follow the Aggie Surplus instructions for equipment disposal.

If the new depreciation amount results in an increase in the rate, update the rate immediately. Otherwise, update the rate the next time the rate is reviewed.

If I have an approved rate change, or if I want to change the accounts, who should I notify?

Notify General Accounting. For rate changes, include supporting documentation indicating the approved rate change. For account changes, provide the existing and the new accounts.

What happens when an asset has fully depreciated?

When an asset has fully depreciated, there are three options:

  • If it is still being used for the activity, it remains on the depreciable assets custody code; no further depreciation occurs.
  • If it is no longer being used for the activity, but can still be used by your department, transfer it to a custody code for non-depreciating assets, via an Asset Transfer Global (ATG) document in KFS.
  • If it is no longer needed for the activity and your department no longer has a use for it, follow the Aggie Surplus instructions for equipment disposal.

What happens when an asset is no longer needed for the activity?

If your asset is still depreciating and is no longer being used for your self-supporting activity, inform General Accounting so that depreciation of the asset can be stopped. Please note that once the depreciation process stops, it won't be restarted for the asset. For example, we don't "turn off" depreciation for one month and resume it the next.

If the asset can still be used by your department, transfer it to a custody code for non-depreciating assets, via an Asset Transfer Global (ATG) document in KFS; otherwise, follow the Aggie Surplus instructions for equipment disposal.

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