FIXED ASSET CAPITALIZATION & DEPRECIATION
Page Sections
Per its Bylaws, AvaCon may not own real property. In addition, AvaCon has no physical plant, buildings, or plans to acquire or construct buildings, therefore, the capitalization and depreciation of physical plant, buildings, renovations, betterments, or improvements to real property were not considered for this policy.
Capitalization
Requirements for Capitalization
To be considered for capitalization, and thus subject to depreciation, an asset must fulfill three characteristics:
1. The asset must be acquired (purchased, gift-in-kind) for use in operations and not for investment or sale;
2. The asset must have a useful life of at least three years;
3. The asset must have a cost value of at least $2,000 or more.
The basis for accounting for property and equipment is cost. All normal expenditures for readying an asset for its intended use are capitalized. Donated property or equipment is valued at its fair market value and is also capitalized.
Definition and Classification of Capitalized Costs
The Equipment category of asset classification is used for all costs associated with the purchase of tangible property that has a useful life of more than three years and cost in excess of $2,000 in total. All bulk purchases of tangible property are included in this category. Charges may also include the cost of installation, transportation, taxes, duty, or in-transit insurance. Tangible property includes furniture, fixtures, computer equipment, software, and vehicles. In addition to the net invoice price of an asset, all costs associated with modifications, attachments, accessories, or auxiliary apparatus necessary to make the property usable for its intended purpose may also be capitalized, only if incurred at the time of initial equipment purchase. All subsequent costs to maintain the equipment will be expensed.
Computer software includes net invoice cost and any related consulting and/or training costs associated with the initial software implementation. Internally developed software costs are expensed during the period incurred. Computer hardware and related components include net invoice cost plus freight and installation charges. Components include internal drives, processors, memory upgrades, key boards, and other items which do not individually meet the capitalization threshold, but when purchased as a component of a larger system are subject to capitalization.
Non-Capitalizable Expenses
Costs that are below the $2,000 threshold for capitalization are expensed.
Depreciation
Purpose
A provision for depreciation is recorded to attribute the cost of the asset over a useful life.
Depreciation Method
With the exception of artwork and books, all capitalized assets will be depreciated using straight-line method (historical cost divided by useful life) over the useful life of the asset. An asset’s useful life is the period of time over which services are expected to be rendered by the asset. The calculation of depreciation will be based on historical cost. The table below summarizes the useful life by category of assets placed in service:
| Asset Category |
Useful Life |
Yearly Rate |
| Furniture & Equipment | 7 Years | 14.29% |
| A/V Equipment | 4 Years | 25.0% |
| Computer Equipment | 4 Years | 25.0% |
| Laptops | 3 Years | 33.33% |
| Artwork | N/A | N/A |
| Books | N/A | N/A |
Salvage Value
Salvage value will generally not be utilized in calculating depreciation, unless the salvage value is specifically known.
Depreciation Timing
Depreciation of capitalized assets will commence in the year the item is placed into service or using the half-year convention. The half-year convention records a half-year of depreciation expense the first and last year of the asset’s useful life.
Asset Management
All tangible capital assets or equipment will be identified as “Property of AvaCon, Inc.” and will be assigned a unique inventory number. Inventory will periodically be inspected for compliance and/or auditing purposes.
Disposal of Assets
All equipment purchased with AvaCon funds is owned or controlled by AvaCon and may only be disposed of or transferred with prior written approval by the Executive Board. Periodically, equipment may be identified as sufficiently old or obsolete that it has virtually no value to AvaCon and/or no resale value. Such items may be donated to qualified nonprofit organizations with written approval by the Executive Board. AvaCon does not provide any warranties to the recipient organization, nor will AvaCon pay for shipping or installation costs.
