University of Minnesota Internal Sales “Capital Equipment and Depreciation Reconciliation”

1. University of Minnesota Internal Sales “Capital Equipment and Depreciation Reconciliation”

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 Reconcile current fixed assets. Include equipment expense (depreciation) in the rate development, budget and record actuals Validate depreciation with Inventory Services vs. rate Development and Budget. 2

3. Inventory Services Website 3 Located at : Inventory Services Website: http://www.finsys.umn.edu/inventorysvs/inventorysvshome.html Instructions for Transferring Capital Equipment Assets http://www.policy.umn.edu/prod/groups/president/@pub/@forms/documents/form/um1556.pdf Transferring or Selling Capital Equipment Assets to Another University Department: http://www.policy.umn.edu/Policies/Finance/Inventory/PROPERTY_PROC02.html

4. Inventory Services Website 4 Located at : Transferring or Selling Capital Equipment Assets to Another University Department: http://www.policy.umn.edu/Policies/Finance/Inventory/PROPERTY_PROC02.html Asset Accounting, Asset Management, Asset Transfer Form – Financial Management Training Courses - http://www1.umn.edu/ohr/trainingservices/financial/efs/index.html#aa

5. History 5 • All capital assets in 115X as of 3/28/2011 were moved to the ISO Plant Fund 7201 – Internal Sale Capital Purchases. • The total balance for the operating fund and plant fund did not change. • Depreciation did not transfer from the operating fund to the plant fund. • Any other capital equipment accounts did not transfer ex. Gain or losses, disposals ect. • See Handout for communication and example

6. Guiding Principles 6 Guiding Principles: • Internal 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. Per federal regulations and U of M Policy, capital equipment cannot be purchased on ISO operating funds; it must be purchased and transferred to the plant fund, and the cost recovered for by the periodic depreciation charges to the ISO operating fund.

7. Objectives 7 Objectives: • Record depreciation in the ISO operating fund as an expense (use of funds) that relates to the revenue generated. • All fixed assets transferred to the internal sales Plant Fund 7201 after purchased. • Depreciation included in the rate development reconciles to the depreciation recorded in the ISO operating fund and the plant fund.

8. Reconciliation Process 8 • UM Reports for Non-Sponsored Reports - “Account Budget Status for Current Non-Sponsored Funds” • Enter DeptID • Group the report by Fund # • Group the report by Program # • Choose the option “Include Plant and Agency Funds”.

9. Reconciliation Process 9 • Run a detailed transaction report for the Equipment Acquisitions. This will include a list of all the fixed assets transferred into the plant fund. • Enter DeptID • Enter for Fund Code 7201 – ISO Plant Fund • Run a public query for department assets. • ASSETS_BY_UNIT_AND_DEPT

10. Reconciliation Process 10 • If there is value in account 168001 - Equipment Acquisitions or 168250 - Equipment in the operating fund 1150 or the fund designated for the ISO, the equipment value and depreciation must be moved to the Plant Fund. • Complete transfer documents. UM 1556: Capital Equipment Asset Transfer Form (pdf)

11. Reconciliation Process 11 • The amount that is in account 168001 – Equipment Acquisitions in the plant fund should be the purchase price plus all acquisition costs to put the capital asset in place of the capital equipment for the ISO. • Compare the detailed transaction report to the list of expected equipment. • Compare the Assets by Unit and Dept report to the list of expected equipment. • Transferred all ISO assets to the ISO Plant Fund. • Complete transfer documents to move assets.

12. Reconciliation Process 12 • The carry forward balance in the plant fund should be the purchase price plus all acquisition costs of the asset less accumulated depreciation (net book value) at year end. • If not, make correcting entry to record accumulated depreciation.

13. Reconciliation Process 13 The amount that is in account 760101 – Equipment Depreciation in the plant fund should be the total amount of the depreciation for the fiscal year. • If not correct, make correcting entry to record accumulated annual depreciation.

14. Reconciliation Process 14 The annual amount of depreciation for all ISO capital equipment should be included in the internal sales rate development. The total amount of depreciation recorded in the internal sales operating fund (1150 preferred) should equal the amount of total depreciation in account in the plant fund. The amount of depreciation transferred from the operating fund – 610301 – Non-Mandatory Transfer out to the plant fund 600301 – Non-Mandatory Transfer In .

15. Results 15 • Depreciation in the annual rate development equals the annual depreciation transferred out of the operating fund. • The annual depreciation in the Plant Fund will equal the annual amount of the depreciation transferred into the plant fund. • The rates should be adjusted is there are any additions, retirements or upgrades.

16. Summary 16 • Include depreciation in the rate development • Capitalize capital 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

17. Questions & Answers 17 Questions & Answers