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Equipment Procedure


Revised: September 16, 2011

Most Grants and Contracts are negotiated at a Modified Total Direct Costs (MTDC) indirect cost
rate. The MTDC rate excludes indirect costs from being charged to the Equipment (80) and
Fabrication of Equipment line items (81). If items cannot be capitalized in 80 or 81, then the
expenses will be charged to M&O (50) along with the applicable indirect (90) charges. It is
therefore imperative that principal investigators categorize anticipated expenses in the correct
line items before a project is submitted. These rules are intended to give a better understanding
of which items will be capitalized and the accounting procedures of capitalized items as they
relate to the DEFINE system:

(80): Equipment: For items to be expensed in the (80) Equipment sub-account, the item must
be a stand-alone piece, valued at $5,000 or more and have a useful life for more than a year at the
time of acquisition. Freight and installation charges, if any, are considered part of the acquisition
        Upgrades and Improvements: Any additions, or improvements to an existing stand alone
piece of equipment will be capitalized if the improvement is greater than $5,000 and/or
increases the original equipment’s value by more than or equal to 25%. The value of the
improvement will be added as a component of the original item. The improvement will have the
same inventory tag number as the original item.

(81): Fabrication: Non-expendable items under $5,000 may be capitalized if they are used to
assemble a stand-alone piece of equipment with a value of $5,000 or more. Normal repair,
maintenance, and expendable supplies such as toner, glue, grease, and replaceable tubes are not
capitalized expenses. A fabrication sub-account is established for each piece of capitalized
equipment that will be constructed or assembled over a period of time. When a Principal
Investigator knows that a piece of equipment will be fabricated, they should notify the Office of
Grant and Contract Services in order to give the name of the equipment to be fabricated. OGCS
will then revise the description for the fabrication sub-accounts. For example, the following
account consists of two fabricating account descriptions:

                 80 Equipment
                 81 Spectrometer (Fabrication in progress)
                 82 Positron Annihilator (Fabrication in progress)

The 1832 expenditure object code is the only object code to be used for purchases of fabrication
items. All purchases for the fabricated item whether greater than or less than $5,000 should be
coded with object code 1832 and charged to the fabrication sub-account assigned to that item.
The charges for each piece of fabricated equipment must be correctly accounted for by their
account descriptions. For example, the fabricated expenses for the Positron Annihilator should
be charged to 82, not 81, or 80.

Documents and receipts should be kept in a file as support for the value of the final piece of
equipment. Once fabrication of the equipment is complete (ie. now a functioning, stand-alone
piece), the Principal Investigator should notify the Capital Asset Management Office (CAM)
Box 19536 ext. 2191 so they can tag the equipment and include it on the department’s inventory.
Any improvements or upgrades after the completed fabrication follow the standard upgrade and
improvements rule.

Please note that fabricated pieces of equipment should always be completed before the project
end date. It is extremely important to notify the CAM office when the fabricated item is
functional as it pertains to its intended use.

    Pro Card: The Pro Card may be used to purchase fabricated items under $5,000. It is the
department’s responsibility to identify any items on the Pro-Card statement used for fabrication
by writing the account number with the appropriate sub-account description and changing the
object code to 1832. This is the only way accounting will be notified that the charge should be
capitalized. Individual ProCard purchases are limited to $2,000 or less via ProCard usage policy

Any unique situations regarding capitalization of equipment should be deferred to the judgement
of the CAM office.