R 30 - Long lived assets
4 stars based on
40 reviews
This chapter discusses property and equipment accounts. These accounts consist of the five accounts listed in the Bank Premises section of longlived assets to be disposed of by sale or trade FR 34 balance sheet, the Furniture and Equipment account and its related allowance for depreciation account, and the Other Real Estate account listed in the Other Assets section of the FR This chapter also gives instructions concerning leasehold improvements and software which are discussed in Deferred Charges see also paragraph 4.
Property and equipment, also referred to as fixed assets, are used in the production and distribution of services by all Federal Reserve Banks. Fixed assets have three primary characteristics: Acquired and held for use in operations, i. Long-term in nature greater than 1 year and Possess physical substance. Generally Accepted Accounting Principles GAAP generally require fixed assets to be recorded at their cost, including all normal expenditures to bring the asset to a location and condition for its intended use.
Full acquisition cost for fixed assets except software--see Appendix D includes all expenditures necessary to bring the asset to a location and condition in which it is usable for the purpose intended.
Full acquisition cost should also include trade-in allowances i. Further information on trade-ins is found in paragraph longlived assets to be disposed of by sale or trade Installation costs should include external costs of services, such as longlived assets to be disposed of by sale or trade who are contracted to work on the installation project, and salary and related benefits of staff and travel expenses incurred by staff or consultants who are directly involved with the installation project.
Integration costs that are related to the installation of equipment should also be capitalized. Capitalized installation costs of equipment should include the cost of initial programming if 1 the cost is included in and is indistinguishable from the price of the purchased equipment, 2 the programming is an integral part of the equipment and is not the type that could be performed in-house, and 3 there is no readily determinable fair value longlived assets to be disposed of by sale or trade the software.
The capitalized cost of an asset is written off periodically, or depreciated, in a manner that is systematic and rational after consideration of any salvage values see paragraph Allocating the cost of a long-lived asset over the accounting periods which the asset is used matches its cost with revenue generated throughout its useful life.
The Federal Reserve System uses the straight-line method for depreciating longlived assets to be disposed of by sale or trade assets. In general, assets should be capitalized using the individual asset method, which is based on the individual asset unit. Asset units should be readily identifiable subject to verification of existence without disassembly and provide economic benefit through distinct, substantive functionality.
Thus, in some instances, an asset may be an integrated unit made up of components that individually do not provide functionality without connection to the other components. The pooled asset method is described in paragraphs All other paragraphs relate to individual asset longlived assets to be disposed of by sale or trade.
The useful lives and capitalization thresholds discussed in the following paragraphs reflect minimum accounting requirements for Reserve Banks. Longlived assets to be disposed of by sale or trade on local experience or practice, Reserve Banks may establish policies authorizing shorter useful lives or lower capitalization thresholds.
The accounting rules for capitalizing and depreciating property and equipment have remained the same over the years with only minor departures for special circumstances. Accordingly, write-downs of property and equipment occur periodically as a result of adjusting assets to their estimated fair values. Prior toconstruction costs for improvements or additions to a building were capitalized as part of the original building only if the addition or improvement significantly increased the useful life of the longlived assets to be disposed of by sale or trade beyond the current depreciation schedule or added functionality or space, in accordance with generally accepted accounting principles.
In practice, ensuring accounting consistency for large improvement projects became burdensome, especially as some buildings approached the end of their initial useful lives. Sinceimprovements to existing buildings are evaluated, capitalized, and depreciated as separate assets as a practical expedient. Accordingly, underlying asset values are not adjusted for capitalized improvements regardless of when the underlying asset was acquired.
Improvement assets and accumulated depreciation, however, are adjusted if replaced or modified by a subsequent capitalized improvement and charged to depreciation expense. Property and equipment information is published weekly, monthly and annually in various publications as described in paragraphs A detailed table showing costs and net book values, by office, for land, buildings, building machinery and equipment, construction, and other real estate also appears in the Board's Annual Report.
Land is carried on the Reserve Bank's books at cost and is not depreciated. If the property includes a building or other structure which is longlived assets to be disposed of by sale or trade to be used for banking purposes, the portion to be charged to Land should be based on the assigned value in the purchase document or, in the absence of such specific information, on the appraised value. When appraised values are used and are different from the purchase price, the cost should be distributed on a pro-rata basis in the same proportion as the value of Land, Building, and Building Machinery and Equipment bears to total appraised value.
If the purchased property includes a building or other structure, which is to be razed, the entire purchase price should be allocated to the account. The cost of removing such structures should be charged to the account and the proceeds from the sale of salvaged materials should be credited. Incidental costs of demolishing the building such as liability insurance, measures taken to maintain adjacent property during operation, reinforcement of walls of adjacent buildings, other repairs made for safety, and reconnection or construction of sewers should also be included in this account.
The Land Improvements account is used to record costs incurred for capital land improvements which have limited lives e.
The Land Improvements account is reported as a sub-account to Land. The allowance for depreciation for land improvements is reported as a sub-account to the bank premises allowance for depreciation. The cost of each improvement should be recorded in a subsidiary ledger within the Land Improvements sub-account and depreciated over its own unique estimated useful life. Depreciation is recorded by debiting depreciation expense and crediting Accumulated Depreciation for Land Improvements.
The maximum useful life for land improvements is 20 years. This account is used to record costs of acquiring or constructing a building to be used by the Bank. The cost of a building should include all expenditures related directly to its acquisition or construction. Generally, all costs incurred beginning with excavation through completion of construction, are considered part of the building costs. The cost of the building should not include the cost of land, land improvements, or fixed machinery and equipment.
This account should be charged when a building is purchased for immediate Bank use or when the Construction account is closed upon completion of a project.
Thereafter, only major alterations, renovations and improvements may be added to the capitalized cost of the building. Such major improvements should be recorded and depreciated individually in the Bank's subsidiary records. The account should be credited only when the building or major improvement is sold, demolished, longlived assets to be disposed of by sale or trade otherwise retired, such as by transfer to the Other Real Estate account.
Projects such as repairing, painting or refurbishing should be charged to expense unless they meet the capitalization tests for improvements as defined in section The maximum useful life of a building is 50 years.
Improvements should be assigned unique useful lives, not to exceed 50 years. This account comprises stand-alone or supplemental equipment with a shorter expected life than the building but that would remain as part of a building upon its sale or abandonment by the Reserve Bank. The account should be debited when a building is purchased or when the Construction account is closed out upon completion of a project.
The account should be credited when the equipment is disposed of, or when the building to which it pertains is sold or transferred to the Other Real Estate account.
Subsequent purchases or capitalizable improvements to building machinery and equipment will be recorded by increasing the Building Machinery and Equipment asset account see paragraph Building machinery should be capitalized if the full acquisition cost paragraph When property is purchased for immediate use, the estimated amount of machinery and equipment that is included in the building should also be included in this account.
If the purchased property includes building machinery and equipment which is to be dismantled, the proportionate cost allocable to such machinery and equipment should be charged to the asset account Land. If the building or other structures are to be held for future Bank use, no allocation will be necessary since the entire cost of the property will be charged to Other Real Estate.
The maximum useful longlived assets to be disposed of by sale or trade of building machinery and equipment is 20 years. Improvements may be assigned unique useful lives, not to exceed 20 years.
This account is used to accumulate all capitalizable costs relating to a building or renovation project, and is closed out following completion of the project. This account should longlived assets to be disposed of by sale or trade charged for all costs of a new building, the purchase price of a building to be held for future use pending renovation, and all renovation and improvement costs.
Receipts from the sale for such items as scrap or recoveries of building costs for such items as change orders and insurance should be deducted from the amount of the project to be capitalized. Upon completion of a given project, amounts that were accumulated in this account should be analyzed and capitalized in accordance with the provisions contained in this chapter.
Construction projects should be capitalized in a timely fashion i. Resolution of punch list items and billing disputes should not delay capitalization unless their nature is so significant that the asset s are rendered virtually unusable until resolution.
Reserve Banks may capitalize and depreciate salaries of employees directly engaged in construction projects if they are performing functions that an outside contractor or consultant would be retained to perform if the internal staff were not available or did not have the necessary expertise.
Personnel costs associated with management oversight should not be capitalized if they are of an administrative nature. As costs are incurred, they should be analyzed for propriety as capital costs related to the project. Expense items should not be carried in this account except as necessary when commingled with other costs.
When such expense items are finally determined, they should normally be applied to the current year's expenses. Similarly, costs related to building and construction projects, such as consulting fees and survey costs, that have not been and are not likely to be approved by the Board in the near future should be expensed when incurred, rather than included in this account.
The following are examples of disbursements, which are to be capitalized as land, land improvements, building, and machinery and equipment. The list is intended to suggest the scope of the Bank Premises accounts and is not exhaustive. Costs incurred to replace ducts, conduits, cables, wiring, and power points that support specific building, machinery, and equipment should be recorded as installation costs. The following are examples of expenditures that are to be capitalized as furniture and equipment.
The list is intended to suggest the scope of the furniture and equipment accounts, and is not exhaustive. Two accounting methods are followed in capitalizing and depreciating these assets--the "individual asset" method as is used for all other asset categories and the "pooled asset" method.
In addition to purchased furniture, a Reserve Bank may, at its option, capitalize and depreciate salaries and the outside cost of materials that are consumed in the construction of furniture and equipment by Reserve Bank personnel. These costs are also capitalized and depreciated using the pooled asset method. The pooled asset method of capitalizing, depreciating, and handling improvements is discussed in paragraphs All other paragraphs in this chapter relate to the individual asset accounting method.
Maximum useful lives for furniture and equipment asset groupings under both the individual asset and pooled asset method are found in table Equipment with the exception of those items that are pooled should be capitalized on an individual item basis and recorded within the appropriate asset account.
This account should be charged for the full acquisition cost as described in paragraph The pooled asset method is used to account for furniture, furnishings, and fixtures. Under the pooled asset accounting concept, no individual item has a recorded and separately identifiable book value.
Rather, it is the group pool account that carries a book value. Accordingly, as will be noted from the following instructions, once a pool account has been established, the amount in the pool account remains unchanged for as long as the pool account remains in existence until it is fully depreciated. All purchases handled under the pooled asset method are to be capitalized into pooled accounts at full acquisition cost, including, where applicable, such items as outside installation costs, furniture assembly, freight charges, warehousing, insurance, and taxes.
Each calendar year will be considered as a separate pool and all purchases made within a given calendar year will be considered a part of that pool account. If a Reserve Bank has been granted approval to capitalize a particular bulk purchase of low-cost equipment, that purchase will be handled similarly to pooled assets, in that longlived assets to be disposed of by sale or trade items will not be individually tracked or have separately identifiable book values.
Depreciation will be calculated monthly on the gross amount of each pool account, using the "straight-line method.
