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What is the minimum threshold for capitalizing assets for a publicly-funded entity?

My predecessors established a very vague asset policy which I am now revising to include additional information. However, they bumped the asset threshold from $1,000 to $5,000 and stated this was due to a federal grant policy. Due to the relatively small budgets for a school, the $1,000 threshold would be much more practical. Does anyone know of any regulation stating schools receiving federal and state funds must use a $5,000 threshold?

Answers

(Agent, JKS Solutions, Inc.) |

There are no Statutory or GAAP guidelines about capitalization thresholds.

However various governmental bodies and organizations with federal contracts or similarly school boards, colleges, and other educational institutions will base their capitalization thresholds on the limits established by the organizations that they take money from as a means of standardizing policy.

If your predecessor was vague, the best bet is they had no idea what they were referring to, only that they had been told something in the past by someone else who was just as vague. Whenever you hear that type of answer its generally an indication that its a story passed down with nothing to back it up. If find that many accountants in middle management tend to not want to appear as if they do not know the answer so they will say something vague without support and hope no one forces the issue with a direct question. If your predecessor's boss has nothing to offer in the way of a citation and you cannot locate any language in the grant documents you currently administer, the comment was made up to make you stop asking questions.

A capitalization threshold is used to facilitate cost/benefit in the accounting process. Some companies use low thresholds and some companies use higher ones.

Whatever threshold you ultimately adopt will be based on facts and circumstances of your particular procurement process in combination with the property tax regulations you deal with. Some county governments are touchy about the level of cap policy because many computers today get expensed, but yet are still used in the business, and they want the taxes due on them.

Talk with your boss, your tax people, and the grant administrators and update your policy accordingly. Where the number comes from is less important than the information you provide to your team for training purposes.

I applaud you for recognizing that you may not have been told the real story by someone who never asked for the real story so made up some fluff to get by.

Louie Konkol
Title: CFO
Company: Idaho Department of Education
(CFO, Idaho Department of Education) |

OMB Circular A-87 addresses the capitalization limits. They use $5000 as a minimum for federal funds but defer more restrictive limits to the “governmental unit.” This means if your board, commission, state department, state or whatever your authorizing entity is, has something lower, you must comply with that. Don’t forget the threshold below that for “equipment.” It carries similar tracking requirements which can be found in EDGAR 80.32. In my experience the burdens associated with classifying capital vs non-capital are very similar in the public sector and generally the impacts to taxes and depreciation don’t exist. So you’re left with balancing transparency and risk, which is a different topic.

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