ALL AGENCIES, DEPARTMENTS, AND DISTRICTS GOVERNED
BY THE BOARD OF SUPERVISORS
EFFECTIVE: 1/1/85
REVISED: 7/1/89, 7/6/99
_________________________________
David E. Sundstrom, Auditor-Controller
1.
POLICY
Each department/agency is responsible for using
the proper coding for budgeting and payment of expenditures
for land, buildings and improvements, and equipment
based on whether the expenditures are maintenance,
betterments, additions, or alterations.
1.1
Purpose
To establish procedures and guidelines for
departments/agencies to use in selecting the
appropriate expenditure coding for land, buildings
and improvements, and equipment based on the
definitions of maintenance, betterments, additions,
and alterations transactions.
1.2
Authority
Authority
Subject
Board of
Supervisors Resolution No. 82-162 dated
February 2, 1982
Authorizes the Auditor-Controller
to prescribe the accounting policies
for all offices, departments, and institutions
under the control of the Board of Supervisors.
Board of
Supervisors Resolution No. 93-1390 December
14, 1993
Authorizes the Auditor-Controller
to revise the County’s procedures
for fixed assets.
Accounting
Standards and Procedures for Counties,
published by the California State Controller’s
Office.
Provides State guidelines
and procedures for fixed asset accounting.
1.3
Definitions
1.3.1
Fixed Assets
Tangible assets of significant value
having a utility which extends beyond
the current year that are broadly classified
as land, buildings and improvements,
and equipment.
1.3.2
Land
The investment in real estate other
than buildings and improvements.
1.3.3
Buildings and Improvements
Physical property of a permanent nature,
examples of which are buildings, structures,
monuments, fences, retaining walls,
pavement, sidewalks, bridges, docks
and waterfront improvements, tunnels,
viaducts, canals, and anything else
which adds value to property. This would
include the cost of improvements made
by the County to leased property. Fixtures
are permanent attachments to structures
which are not intended to be removed,
and which function as part of the structure,
such as boilers, lighting fixtures,
and plumbing, heating and ventilating
systems.
1.3.4
Equipment
Moveable property of a relatively
permanent nature with a significant
value. "Significant value"
is defined as a cost of $5,000 or more.
"Relatively permanent" is
defined as a useful life of one year
or longer.
1.3.5
Maintenance
Expenditures which neither materially
add to the value of property nor appreciably
prolong its life, but merely keep it
in an ordinary, efficient operating
condition. Maintenance costs are not
capitalized.
1.3.6
Capitalized Expenditures (Betterments)
Expenditures which materially add
to the value of property or appreciably
extend its life. The cost of capitalized
expenditures should be added to the
book value of the asset where the original
cost of a component being improved can
be specifically identified. If a component
is being replaced, the cost of the old
component should be written off and
the new cost capitalized. Capitalized
expenditures are on occasion referred
to as betterments.
The decision as to whether an expenditure
should be capitalized shall be made
by an evaluation of engineering, physical,
or other relevant factors apart from
cost.
With respect to buildings and improvements,
a "significant" betterment
is defined as one which results in an
improvement of at least $150,000.
1.3.7
Additions
New and separate units or extensions
of existing units are considered fixed
assets. As with betterments, the test
of significance is applied.
1.3.8
Alterations
Changes in the physical structure
or arrangement of fixed assets, the
cost of which does not qualify as an
increase in fixed assets under the foregoing
definitions of betterments and additions.
Alterations are not capitalized.
2.
PROCEDURES
2.1
Land
2.1.1
Coding
Fixed asset land is budgeted in and
charged to the "Land" account,
Object Code 4100. Agencies which use
organization reporting must use unique
organization codes, ranging from L001
- L999, in conjunction with Object Code
4100 to identify the specific project.
2.1.2
Costs to be Included
The cost of land includes all expenditures
in connection with its acquisition,
such as:
Receipts from the sale of salvage
should be credited against the land
cost if the sale is directly connected
with the acquisition of the land and
the salvage is sold within a reasonable
period of time after acquiring the land.
2.1.5
Rights-of-Way
The purchase of rights-of-way (easements)
where title is not acquired by the County
should be recorded as "Rights-of-Way",
Object Code 3600.
2.1.6
Land and Building Acquired as Single
Parcel
The value of the land should be determined
separately from the value of the building
and the amounts should be coded to Object
Codes 4100, "Land" and 4200,
"Buildings and Improvements"
respectively.
2.2
Buildings and Improvements
2.2.1
Coding
Fixed asset buildings and improvements
are budgeted in and charged to Object
Code 4200. Agencies which use organization
reporting must use unique organization
codes, ranging from P001 - P999, in
conjunction with Object Code 4200 to
identify the specific project.
2.2.2
Costs Included
The cost of buildings and improvements
includes all expenditures in connection
with their acquisition, such as:
Purchase price or construction
cost
Fixtures attached to the structure
Broker and architect fees
Permits and licenses
Condemnation costs
Insurance during construction
Major alterations or improvements
of existing structures
Non-removable leasehold improvements
Accident or injury costs
Net interest cost during construction
Payment of damages
2.2.3
Cost Reductions
The cost should be reduced for:v
Sale of salvage from materials
charged against the construction
Discounts, allowances and rebates
secured
Amounts recovered through surrender
of liability and casualty insurance.
New buildings and improvements of
$150,000 and over and significant betterments
and additions are capitalized and coded
to Object Code 4200. New buildings and
improvements under $150,000 and non-significant
alterations are not capitalized and
are coded to the appropriate services
and supplies account such as "Minor
Alterations and Improvements,"
Object Code 1402.
2.2.6
Fixtures
Items of equipment which are permanently
installed or attached to a structure,
and are not intended to be removed,
and which function as part of the structure,
are not considered fixed asset equipment.
These items are added to the overall
cost of the structure, and are coded
to Object Code 4200.
2.2.7
Infrastructure Assets
Construction on street, road, site
improvements, and flood control projects
fall within the definition of "Buildings
and Improvements." However, because
of the possibility of "pyramiding"
costs, and a serious question as to
whether the value derived from capitalization
justifies the work of maintaining accurate
records of capital value, expenditures
for these types of construction projects
are capitalized as Object Code 4200
during the year, but are deleted by
the Auditor-Controller from the fixed
asset listing upon receiving the notice
of completion. Agencies which use organization
reporting must use unique organization
codes, ranging from P001 - P999, in
conjunction with Object Code 4200 to
identify the specific project.
2.3
Equipment
2.3.1
Costs Included
The cost of equipment includes:
Purchase price or construction
costs, less discounts
Trade-in allowance
Freight
Sales, Use, Transportation, or
other taxes
Installation costs
2.3.2
Coding
Equipment items are budgeted in and
charged to the "Equipment"
account, Object Code 4000. Equipment
replacement expenditures are charged
to Object Code 4000 when: (1) the replacement
unit fits the "Equipment"
definition of Section 1.3.4 of this
procedure; and (2) the replacement unit
is an identifiable/functional unit by
itself (a component rather than an integral
part of a larger unit).
2.3.3
Test of Significance
Equipment items must have a cost of
$5,000 or more and a useful life of
one year or longer to be coded to Object
Code 4000. Equipment items which do
not qualify as fixed assets are budgeted
in and charged to the appropriate Services
and Supplies account, such as Object
Code 1809, "Minor Office
Equipment to be Controlled." Replacement
units which become part of a larger
asset which is not functional without
the replacement should be charged to
Object Code 1300, "Maintenance
- Equipment."
2.3.4
Donations
If acquired by donation, the fair
market value at the date received is
considered the cost of the equipment
item. See CAP No. 32, "Monetary
and Property Gifts: Acceptance, Reporting
and Disbursement."
2.3.5
Cost Test
In some instances the cost test is
applied to aggregates of units of similar
type or purpose, such as shelving and
filing drawers that create a filing
system, rather than to the units themselves.
Object Code 4000 should be used for
equipment components when: (1) the components
are to be assembled, and; (2) the combined
cost of the assembled components exceeds
$5,000, and; (3) the assembled unit
would be coded to Object Code 4000 if
purchased in an assembled state, or;
(4) the components qualify as fixed
assets in and of themselves.
In order to improve consistency in coding
certain types of expenditures, the following
guidelines are established by the State
Controller’s Office:
2.3.5.1
Modular Furniture
When purchasing modular furniture
only those components which individually
cost over $5,000 are charged to
Object Code 4000. All other components
are charged to Object Code 1809.
This policy also applies to library
shelving units purchased for use
by the Orange County Public Library.
This policy also applies to combination
modular furniture/panels/partitions.
2.3.5.2
Panels/Partitions
When purchasing panels/partitions
in a group with a combined total
cost of $150,000 or more, the
expenditure should be coded to
"Buildings and Improvements,"
Object Code 4200, with an organization
code that identifies the structure
being improved. Individual panel/partition
purchases that cost less than
$150,000 should be coded to "Maintenance
- Minor Alterations and Improvements,"
Object Code 1402. Combination
modular furniture/panels/partitions
should be coded as described in
Section 2.3.5.1 – Modular
Furniture, above.
2.3.5.3
Software
Related volumes of software
with a combined cost of $5,000
or more are charged to Object
Code 4000. The cost of software
developed in-house is not capitalized.
Vendor alterations to software
are charged to maintenance if
the alterations are made to keep
the software in a usable state.
For example, if rate structure
by a program must be updated periodically,
this alteration would be maintenance.
2.3.5.4
Replacement Parts on Heavy
Equipment
The high cost of replacement
parts for heavy equipment, such
as tires, transmissions, engines,
blades, etc., would qualify for
capitalization under the State
Controller’s guidelines.
However, the nature of these expenditures
is such that the damaged parts
are replaced, sent out for repair,
and then put back into inventory
for future use, and therefore
are essentially spare parts for
ordinary maintenance. These expenditures
represent ordinary maintenance
for heavy equipment, and because
these costs do not provide for
extending the useful life of the
asset but simply allow the asset
to be used for its estimated useful
life, these types of expenditures
should be coded to Object Code
1300. This treatment pertains
to heavy equipment only and does
not change the capitalization
policy for similar types of expenditures
in other areas (e.g., dump truck
rehabilitation would still be
coded to Object Code 4000).
2.3.6
Fixtures
Items of equipment which are permanently
installed or attached to a structure,
and are not intended to be removed,
and which function as part of the structure,
are not considered fixed asset equipment.
The cost of these items should be added
to the overall cost of the structure.
2.4
Treatment of Costs Subsequent to Acquisition
Expenditures on fixed assets which are incurred
after the original acquisition are defined
and recorded as follows:
2.4.1
Significant Expenditures - Building
Capitalized expenditures (betterments)
and additions of at least $150,000 are
budgeted in and charged to the "Buildings
and Improvements" account, Object
Code 4200. Agencies which use organization
reporting must use unique organization
codes, ranging from P001 - P999, in
conjunction with Object Code 4200 to
identify the specific project.
2.4.2
Significant Expenditures - Equipment
Capitalized expenditures and additions
of at least $5,000 are budgeted in and
charged to the "Equipment"
account, Object Code 4000.
2.4.3
Expenditures not Meeting the Test
of Significance - Building
Maintenance and alterations less than
$150,000 are budgeted in and charged
to the appropriate services and supplies
account such as:
1400 Maintenance - Buildings,
Improvements and grounds
1402 Minor Alterations and Improvements
2.4.4
Expenditures not Meeting the Test
of Significance - Equipment
Maintenance and alterations less than
$5,000 are budgeted in and charged to
the appropriate services and supplies
account such as:
1300 Maintenance - Equipment
1809 Minor Office Equipment
2.5
Choosing the Proper Expenditure Code
Expenditure
Amount
Object Code
Maintenance
Any
1300/1400/1402
Land
Any
4100 *
Buildings
& Improvements
New
$1 - $149,999
$150,000 – Up
1402
4200 *
Betterments
$1 - $149,999
$150,000 – Up
1402
4200 *
Alterations
$1 - $149,999
$1 - $149,999
$150,000 – Up
1402
1403 (PFRD only)
4200 *
Equipment
New
$1 - $4,999
1509/1809/2309/2409
Betterments
& Additions
$1 - $149,999
$150,000 – Up
1402
4200 *
Alterations
$1 - $149,999
$1 - $149,999
$150,000 – Up
1402
1403 (PFRD only)
4200 *
* Agencies which use organization reporting
must use unique organization codes, ranging
from L001 - L999 for Object Code 4100, and
P001 - P999 for Object Code 4200, to identify
the specific project.
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