Changing the Capitalization Threshold for Equipment
Date: June 22, 2004
Sender: Policies and Procedures, Controller’s Office
To: Campus Policies and Procedures Update
Subject: Changing the Capitalization Threshold for Equipment
The Office of the President has announced that the University of California is increasing the minimum dollar threshold to $5,000 in its definition of equipment for purposes of capitalization, inventory, and indirect cost application and calculation.
Due to the current budget situation, various constituent groups on the campuses have requested that the equipment capitalization threshold be increased to $5,000. A systemwide review was conducted and widely discussed with Administrative Vice Chancellors, Vice Chancellors of Research, Budget and Planning Officers, and Controllers. Based on the systemwide review, it was estimated that the tracking of these items would be reduced by 74% resulting in systemwide savings of $4.5 million. Estimates for the Berkeley campus indicate a reduction in items that will need tracking from 69,500 to 17,900. In addition, reducing the number of items to be tracked should allow the University to enhance control and stewardship over the remaining, more significant items of equipment and promote our compliance with external and University policy and procedures.
Based on the potential savings and the advice and comments received during this consultation, the equipment capitalization threshold will be increased to $5,000 effective July 1, 2004, as follows:
1) The University will define equipment as articles of non-expendable tangible personal property having a useful life of more than one year, and an acquisition cost of $5,000 or more per unit. This definition will be used for capitalization, inventory, and grants and contracts (indirect cost) purposes.
2) Exception: for purposes of determining the indirect costs applicable to specific grants or contracts, the previous threshold of $1,500 should be retained through June 30, 2006. Indirect costs will be applied to all expenditures for items below $5,000 beginning July 1, 2006.
Increasing the capitalization threshold will greatly reduce the University’s burden of recording and tracking items of equipment, thereby producing the potential cost savings. It will also increase our compliance with required federal and University control procedures and reduce the risk of future audit disallowances. It will not, however, eliminate the University's stewardship function of accountability for all University property. The new capitalization threshold will affect a variety of University functions and require some variations in sponsored project budgets going forward.
Further information on where to direct questions and additional guidelines to facilitate this change is available in the document “Changing the Capitalization Threshold for Equipment - Q&A” located at http://ga-fs.vcbf.berkeley.edu/UCBEquipmentThresholdQ&A.doc.