6.1.11 Asset Capitalization Guideline Policy

CAMPION COLLEGE BOARD OF REGENTS
POLICY: Financial Overview Report
CODE:  6.1.11

Date initially approved: January 23, 2013 

Background 

The following policy outlines the guidelines for Campion College management to determine whether an item will be considered a capital asset (captured in the Statement of Financial Position) or an operating expense (captured in the Statement of Operations).

General Definition from the Canadian Institute for Chartered Accountants (CICA) Handbook: 
“Capital assets, comprising tangible properties, such as land, buildings and equipment, and intangible properties, are identifiable assets that meet all of the following criteria:
(i) are held for use in the provision of services, for administrative purposes, for production of goods or for the maintenance, repair, development or construction of other capital assets; 
(ii) have been acquired, constructed or developed with the intention of being used on a continuing basis; 
(iii) are not intended for sale in the ordinary course of operations; and 
(iv) are not held as part of a collection.” CICA Handbook Section PS 4230.05


Application at Campion College 
With the exception of computers, items with a life expectancy of 2 years or more and a value of $10,000 or more are considered capital assets.

Items with a value of less than $10,000 are considered non-capital purchases. All computers with a value of $1000 or more are considered capital assets.

Renovations and alterations that meet the definition of a betterment (see below) and have a value of $100,000 or more are considered major renovations and alterations. These are considered a capital asset. All other renovations and alterations are considered minor renovations and alterations, which are a non-capital item and should be recorded as an operating expense.


Betterments, Repairs, Replacements and Maintenance

Betterments 
According to the CICA Handbook (2012), betterment is defined as: 
“The cost incurred to enhance the service potential of a capital asset is a betterment. Service potential may be enhanced when there is an increase in the previously assessed service capacity, associated operating costs are lowered, the useful life is extended, or the quality of output is improved. The cost incurred in the maintenance of the service potential of a capital asset is a repair, not a betterment. If a cost has the attributes of both a repair and a betterment, the portion considered to be a betterment is included in the cost of the capital asset.” CICA Handbook PS 4230.15

Examples: Expenditures to convert a meeting room into a lab may be a betterment while the cost of refurbishing an existing classroom or replacing a roof would be a repair. 
Betterments are treated as capital assets (set up as a sub-number of the related asset) and amortized accordingly.


Repairs, Replacements and Maintenance 
The cost incurred in the maintenance of the service potential of a capital asset is a repair, not a betterment.

Ordinary repairs are expenditures made to maintain assets in operating condition; they are charged to an expense account in the period in which they are incurred on the basis that it is the only period benefited. Replacement of minor parts, lubricating and adjusting of equipment, repainting and cleaning are examples of the type of maintenance charges that occur regularly and are treated as ordinary operating expenses.


Amortization Rates of Capitalized Assets 
For Campion College Financial Statement purposes, amortization is recorded on a straight-line basis (CICA, PS 4230.16-.24) at the following annual rates:

Asset   Rate
Buildings  2%
Library Materials  10%
Equipment  10%
Computing equipment  33%