Capital Expenditure and Fixed Assets Accounting Policy and Procedures


Application


This document applies to  all University members making and approving capital expenditure (CAPEX) decisions on behalf of the University.

It is to be read in conjunction with the Asset Management Policy.

Note - All monetary figures referred to in this policy are stated in New Zealand Dollars and exclude New Zealand GST.

Purpose


To define the University’s approach and procedures for capital expenditure and the accounting of fixed assets.

To ensure that the University’s capital expenditure is planned, evaluated, authorised, implemented, monitored, and reported in a systematic manner that is consistent with best practice.

Policy


1.    Capital expenditure must be subject to significant advanced planning and review and appropriately authorised to ensure that acquisitions and disposals are: 

  • properly evaluated and scheduled
  • appropriately funded and maintained
  • prioritised in a way that is consistent with the University’s policies, Strategic Plan and Asset Management Plan

Procedures


Planning

2.    Capital expenditure may be funded from one or more of the following sources:

  • Standard Capital Budget Allocation
  • MIRE Fund
  • Small Service Division pool
  • Externally Funded Research
  • Philanthropy
  • Non-standard Capital Budget Allocation via business case approved by the Vice-Chancellor or delegate, or, where the amount sought exceeds the Vice-Chancellor’s delegated authority, the University’s Capital Expenditure Committee

3.    All faculties and service divisions at Level 2 and 2A of the University’s Organisational Structure (UOS) that receive a Standard Capital Budget Allocation must prepare a Capital Expenditure Plan as part of the Annual Planning and Budgeting Process, which includes:

  • a current schedule  of assets classified by condition and functionality scores as determined in the associated Asset Management Plan
  • a schedule of proposed asset purchases incorporating the prioritised budgeted items for the following year, forecast acquisitions for the following two years and projections of asset replacements and/or upgrades for critical or specialised assets where the economic life for those assets extends beyond three years;
  • assets related to joint Capex proposals with Property Services; and
  • sources of funding other than the Standard Capital Budget Allocation, where known at the time of submission

4.    Following consideration of the Capital Expenditure Plans, Budget Committee  are to advise the approved Standard Capital Budget Allocation for the following year

5.    Subsequent changes to the prioritised schedule of acquisitions are to be advised to Finance and reported in the next Semestral Review

6.    Faculties and service divisions that hold an approved Standard Budget Allocation are required to provide estimates of cash flows and their timing, in accordance with the annual planning timetable

7.    Forecast adjustments reflecting changes to estimated timing and/or level of capital expenditure must be submitted in line with the forecast process

8.    Where capital purchases in excess of $50,000 are intended to be made from off-shore suppliers, the purchaser is required to liaise with the University’s Treasurer within the Finance Division

9.    Approved Capex budgets do not constitute authorisation to incur the expenditure

Note - Each individual Capex purchases must be approved in accordance with the Financial Delegations Policy, and be supported by an approved business case where stipulated, before any commitment to expenditure is made

10.    Faculties and service divisions must plan for the management of asset disposals through regular monitoring of assets that are approaching the end of their useful lives

 

Acquisition

Acquisition of fixed assets

11.    For capital purchases, irrespective of funding source, the purchase must be authorised in accordance with the Financial Delegations Policy with the exception of library collections purchases, which are authorised as part of the Collection Management Plan

12.    Asset purchases whose capital cost exceeds the financial delegation of the dean or director require a business case be prepared and reviewed

13.    The type of business case required, the approval level  and the quality assurance requirements vary according to the capital cost, the complexity of the acquisition and risk profile - [Link here to the Investment Decision Matrix on the USPO sharepoint site]

14.    Control mechanisms must be used to track individual purchases as they are allocated to a project or a collective purchase

15.    Each business case must outline proposed control mechanisms in the “Management Case” section

16.    The relevant approver must either endorse these control mechanisms or require revised control mechanisms

Note - All capital purchases must meet the requirements set out in the Procurement Policy

17.    Joint asset acquisitions by two or more faculties or service divisions require:

  • approval from both faculties or service divisions involved
  • the identification of a primary faculty or service division to take custody of, and responsibility for, the asset

Acquisition of leased assets

18.    Acquisitions of leased assets must adhere to the same procedures as the outright purchase of assets even though leased assets are not capitalised

19.    All lease acquisitions must also be authorised by the Chief Digital Officer (or delegate), with the exception of leased library collection assets that are authorised by the University Librarian

20.    A lease acquisition must be authorised based on purchase price, not annual lease payment or total lease commitment

Construction of fixed assets

21.    Capex related to the construction of a fixed asset must be recorded in the Balance Sheet as Work in Progress (WIP) until such time as the fixed asset is available for use

22.    The associated costs of studies of feasibility are to be recognised as expenditure in the period they are incurred

23.    Independent components of a larger fixed asset must be capitalised as and when they become available for use, regardless of the completion of the fixed asset as a whole

24.    Depreciation, repairs and maintenance costs, and lease payments for fixed assets that are directly related to the construction of a fixed asset are to be recognised on the Balance Sheet as Work in Progress (WIP) and contribute to the capitalised amount upon completion

Acquisitions of fixed assets using externally funded research (EFR) funds or philanthropic funds

25.    Where an asset is purchased via EFR or philanthropy, this policy continues to apply, and the asset must be recorded in the Asset Register

Acquisition of replacement assets

26.    Where there is a proposal for an acquisition of a replacement asset, the disposal of the existing asset and any expected proceeds/write-off must form part of that proposal

27.    Prepayments for capital expenditure must be recorded as such in the Balance Sheet until the asset can be fully capitalised, or transferred to Work in Progress (WIP)

Fixed Asset Register

28.    All fixed assets must be affixed prominently with an official University barcode tag as soon as the asset is received or completed. Exceptions include the following asset types:

  • electronic resources, including computer software
  • pool assets
  • transportation, including motor vehicles and
  • library collections, which are tagged with RFID tags 

29.    Faculties and service divisions are responsible for tagging and tracking their fixed assets

30.    If it is impractical to affix an asset tag sticker, a uniquely identifying number must be obtained from the asset itself (e.g. serial number, IMEI number, vehicle registration, etc.).

31.    An asset record for all fixed assets must be created in the Fixed Asset Register

32.    Assets must be recorded as either:

  • Financial assets (capitalised) or
  • Leased assets (non-capitalised) or
  • ‘Attractive’ assets (non-capitalised)

33.    Capitalisation thresholds for financial assets are:

  • all library collections, irrespective of price
  • all individual works of art, irrespective or price
  • IT equipment (excluding software) of $1,000 or over
  • items costing $5,000 and over

34.    Where individual assets below these capitalisation thresholds, but similar in type, timing, individual cost and estimated useful life are purchased, they must be pooled as a single asset record

35.    To be included as part of a pooled asset, the items being grouped must still meet all other required conditions of a capitalised asset, i.e.:

  • have a useful life in excess of one year
  • has not been acquired or constructed with the intention of resale and
  • may include such expenditure incurred on an existing asset to improve its functionality and/or extend its useful life but not merely reinstate the future economic benefit of an asset (i.e. repairs and maintenance)

36.    The cost of an accessory which is acquired for permanent attachment to an existing capitalised asset must be added to the existing asset if it meets any of the above capitalisation thresholds, with the exception of pooled assets

37.    Where a pooled asset is created, the capitalisation thresholds apply to the total cost of the pool, and the quantity for the asset record must match with the quantity of the members in a pool

38.    Fixed assets that individually meet or exceed the threshold for a Financial (Capital) Asset may not be pooled

39.    Pooled assets that also meet the definition of ‘attractive’ must also be recorded individually as attractive assets with identifying information and are therefore not exempt from affixation of asset tags

40.    Library collections are excluded from the pooled asset policy requirements in this policy

41.    Individually identifiable components of an asset, with a differing classification and/or useful life to the predominant component or parent, are to be recognised as separate and distinct assets

 

Operation

Maintenance of fixed assets

42.    Faculties and service divisions are responsible for the physical maintenance and security of their fixed assets

43.    Any work completed on a capital asset that results in greater utility from the asset (when compared with the utility prior to the requirement for the work) must be recorded in the Fixed Asset Register by way of an increase in the gross cost of the asset

44.    Any work completed on a capital asset that does not result in greater utility attributable to that asset must be recognised as a repairs and maintenance expense in the period incurred

45.    Any work completed on a capital asset that extends the useful life of the asset (when compared with the useful life prior to the requirement for the work) must be recorded in the Fixed Asset Register by way of an adjustment to the useful life of the asset

Location and asset manager of fixed assets

46.    Faculties and service divisions must ensure the current physical location and an asset manager responsible for their fixed assets (including leased and attractive items) are recorded in the Fixed Asset Register

47.    All University staff members are responsible for notifying the finance team for their faculty or service division when the location or asset manager of a fixed asset changes

48.    All fixed assets (including leased and attractive items) that are used or taken off-campus are required to be recorded as such in the Fixed Asset Register or the Library Management System

Depreciation of fixed assets

49.    Depreciation is charged on capital assets (in accordance with the University’s accounting policies) to allocate the cost of the assets over their estimated useful lives. Depreciation charges are recognised as an operating expense in the period they relate to

50.    Depreciation of an asset must commence from the first day of the month in which the asset is acquired, or in which it becomes available for use (in the case of a constructed asset)

Verification of fixed assets

51.    Stock takes to physically verify the existence, location, and functionality of all fixed assets (including leased and attractive items) must be carried out every two years on a rolling basis

52.    A write-off or adjustment must be made in the Fixed Asset Register, and an operating expense recognised, for any capital assets identified in the stock take that:

  • cannot be physically verified or
  • are damaged and non-functional or
  • have a current net book value that exceeds the asset’s recoverable amount due to impairment

53.    Authorisation in accordance with this policy must be obtained prior to the above adjustments being made

54.    Stock take documentation must be retained for sighting by external auditors

Loss or damage to University assets and insurance claims

55.    Where a fixed asset has been lost, stolen or maliciously damaged, faculties and service divisions are required to immediately report the situation to:

  • the New Zealand Police and/or local authorities, if the asset is located outside of New Zealand
  • Unisafe and
  • the University’s insurance brokers, by completing an insurance claim form, in accordance with the University Insurance Policy

56.    Assets that are lost, stolen, or damaged beyond repair are to be disposed of in accordance with this policy

57.    Any proceeds from insurance claims are to be recognised as income

58.    Where a claim results in a replacement asset, the replacement asset must be capitalised at fair value

 

Disposal

59.    All fixed asset disposals (both physical and in the Fixed Assets Register) must be authorised in accordance with the Capex Approval Limits set out in the Financial Delegations Policy. For replacement assets, the disposal approval may be obtained together with the approval for acquisition of the replacement asset

60.    The written consent of the Secretary will be sought for the sale or disposal of assets, or interests in assets in accordance with section 192(4) and (5) of the Education Act 1989

61.    The University Librarian has final decision on the relegation and deselection of library collection assets, and the following policy requirements (paragraphs 60 to 68) relating to fixed asset disposals do not apply to these assets

62.    For the purposes of applying Capex Approval Limits, the original cost price or fair value of the asset being disposed of must be used

63.    Net Book Value must not be used as the basis for authority

64.    Fixed assets may be disposed of if they are:

  • obsolete
  • unusable
  • traded-in/sold
  • missing (e.g. lost or stolen)
  • scrapped or
  • to be donated/gifted to an external party

65.    Fixed assets cannot be disposed of merely because:

  • they have been fully depreciated; or
  • the depreciated value is less than the capitalisation threshold set out in this policy

66.    Where a fixed asset is traded-in for another asset, the trade-in of the old asset and acquisition of the new asset represent two separate and distinct transactions, and require two separate records in the Fixed Asset Register

67.    Disposal of a fixed assets likely to result in a loss on disposal exceeding $5,000 require justification, including the reasons and means of disposal

68.    Where a specialised or unique Asset is to be disposed of, faculties and service divisions must consult the relevant specialists (e.g. ITSS, Property Services, etc.) to determine the best possible means of disposal

69.    Fixed assets authorised for disposal must be made available for sale and advertised to all University staff members and students

70.    Where more than one party makes known their intention to purchase a fixed asset, the asset must be sold to the highest bidder

71.    No preference may be given to any party or individual

72.    Where practical, the selling price of a fixed asset is set at market value

73.    However, if a fixed asset is unable to be disposed of within a reasonable time frame, or the cost to advertise and arrange sale of the fixed asset exceeds the probable return from the sale, the asset may be sold below market value, or scrapped in an ethical manner

74.    The University offers no guarantees or warranty on the condition of the fixed assets it sells

Definitions


The following definitions apply to this document:

Asset: A tangible or intangible resource owned by the University as a result of past events and from which future economic benefits are expected to flow to the University. These include property, buildings, plant, machinery, vehicles, IT infrastructure, software, art and library collections, and scientific equipment 

Asset management plan refers to a documented plan established by the Asset Owner that details current assets, including critical and specialised assets, the condition of such assets and the replacement and maintenance programmes planned to ensure required assets remain fit for purpose, identifies asset managers responsible for the operation and management of the scheduled assets and contains the asset lifecycle information, including future asset acquisition requirements, necessary to support the development of the annual Capital Expenditure Plan

Asset manager: The person responsible for the operation and management of an asset over the lifecycle of the asset as delegated by the Asset Owner

Asset owners are capital budget holders in faculties and service divisions at level 2 or 2A in the University’s Organisational Structure (UOS)

Attractive asset: An asset owned by the University, with an original cost price below the capitalisation threshold for a financial asset, but that carries a high risk of being lost or stolen. Attractive assets are not capitalised to the University’s balance sheet, but they are recorded in the Fixed Assets Register for tracking purposes

Budget committee: The committee responsible for establishing the operating budget of the University and allocating capital expenditure associated with submitted  Capital Expenditure Plans

Business case: A document that provides the reasoning for a capital proposal and outlines the incremental cash flows associated with it. Guildelines and templates for the completion of Business Cases are available at [insert link to USPO Business Case Framework]

Capital Expenditure Plan: An annual plan detailing current assets categorized by condition, proposed replacement schedule, additional capital items required and sources of funding.

Capex schedule: A prioritized listing of all capital items sought for the coming year. The schedule is appended to the Capital Expenditure Plan. The listing is adjusted in accordance with the approved allocations and is then used to manage Capex within the allocation.

Capital Expenditure (Capex): For the purposes of this policy “Capital Expenditure” has the same definition as articulated in the Financial Delegations Policy i.e. “the;

  • acquisition of land, or

  • acquisition, extension, modification or refurbishment of a building, or

  • acquisition of a piece of equipment, or

  • acquisition or development of an IT system or application, or

  • acquisition of shares or equity like investments outside of investing the University’s working capital, or

  • acquisition of a work of art, or

  • acquisition of Library Materials

where the resulting expenditure would be capitalised under the University’s Accounting Policies

In addition, a “capital expenditure proposal” shall also be deemed to include a write-off, write-down, disposal or demolition of assets currently capitalised as well as long-term leases whose size and duration of commitment is akin to capital expenditure. (For the avoidance of doubt, all new or renewed leases where the undiscounted committed lease payments exceed $2.5 million shall be treated as “capital expenditure”.)”

Depreciation: The systematic measure of consumption of future economic benefits embodied in an asset over its useful life; representative of general wear and tear from use or the reduction in value due to the relative obsolescence of the asset as time passes

Electronic resources: Applications and knowledge-based reference sources for which the University pays an access fee for use, or purchases outright (e.g. computer software, data access resources, etc.)

Externally Funded Research: Research activities funded through a research contract where external parties usually specify the use of funds

Fair value: An amount for which an asset could be exchanged between knowledgeable willing parties in an arm’s length transaction in an active market. If a market price is unobtainable, a best estimate resulting from available information such as quotes or estimates for similar assets in identical condition or identical assets in a similar condition and by making reasonable adjustments

Financial delegation: The monetary limits specified at various hierarchical levels in the Financial Delegations Policy to allow authority to approve expenditure

Fixed asset: For the purposes of this policy, fixed assets are defined as:

  • assets with an expected useful life in excess of one year (i.e. a non-current asset);

  • assets not intended for resale or to be used as a material in the construction of an asset intended for resale;

  • items of property, plant and equipment;

  • software licenses with an indefinite life;

  • items leased to the University (Leased Assets); and

  • items with a high risk of being lost or stolen (Attractive Assets)

Fixed Asset Register: A system used to record, maintain and report on the fixed assets held by the University. The University uses the Asset Management module of PeopleSoft Financials as its Fixed Asset Register. A separate Library Management System is also used to record non-financial information relating to library collection assets

Impairment: A permanent reduction in the value of an asset where it is determined that the current net book value of the asset exceeds the recoverable amount. Impairment can occur due to factors such as wear and tear, lack of maintenance, new technological innovations/obsolescence, etc

Leased Asset: An asset owned by a third party but for exclusive use by the University in exchange for periodic lease payments. Leased assets are not capitalised to the University’s balance sheet, but they are recorded in the Fixed Assets Register for tracking purposes

Library Collections: The University’s library collections includes physical and electronic materials and resources to support the University’s current and anticipated research, teaching and learning needs. It also includes special collections of materials deemed worthy of preservation because of their uniqueness, rarity or monetary value

Loss/(Gain) on disposal: The difference between and asset’s net book value and the net amount actually recovered on disposal (i.e. sale or scrap) of the asset

MIRE Fund: A contestable fund for the acquisition of Major Items of Research Equipment (MIRE), which are items of equipment costing $0.5m or more, and are acquired principally to support externally-funded research (EFR) activity. The fund is administered by the MIRE Advisory Group, and underwrites some of the depreciation and operating costs of the acquired asset during a start-up period, after which it is expected that adequate EFR funding will have been applied for and received to cover the full depreciation costs of the asset

Net book value: The original cost of an asset (i.e. purchase or construction costs, plus costs to bring it to location and condition intended for use), plus any additions or disposals, less accumulated depreciation costs and impairment loses

Obsolescence: A loss in the utility of an asset due to the development of improved or superior equipment, but not due to physical deterioration

Off-campus asset: Includes portable assets (e.g. laptops, etc.) used by designated staff or temporarily loaned to University staff, and assets that are permanently affixed on another site other than University campus (e.g. field locations, private residence, etc.

Pooled assets: A group of items similar in type, timing, individual cost and estimated useful life (e.g. ten meeting room chairs, a several pieces of office furniture including a writing desk, drawers, a desk chair, and a filing cabinet) that have been purchased together (e.g. on one invoice, or from one supplier at a similar time) and can be easily identified and maintained as one group asset

 Project: A collection of revenue, expenses and capital expenditure with the common objective of achieving a particular outcome

Recoverable amount: The value of expected future economic benefits that can be obtained from an asset, either by continued use, or sale of that asset

Risk profile risk profile – refers to the Investment Decision Matrix on the USPO sharepoint site

Standard Capital Budget Allocation: Expenditure necessary for a Faculty or Service Division to maintain their current operations, allowing for growth and planning for the replacement of assets as they become obsolete

Useful life: The period of time over which the future economic benefits of an asset are expected to be consumed. Or the total service, expressed in terms of production or similar units, expected to be obtained from an asset

Work in progress (WIP): The cumulative costs in constructing or acquiring and asset that will be capitalised when that process is complete

University means the University of Auckland but does not include its subsidiaries 

University members include members of Council, committee members, students, staff members, committee appointees, the University’s companies’ staff and board members and contractors working for and on behalf of the University

Key relevant documents


Document management and control


Content manager: Group Financial Controller

Owner:   Chief Financial Officer

Approved by:   Vice-Chancellor

Date approved:  March 2017

Review date:  March 2020