Policy Area: Accounting and Financial Reporting
Policy Sub Area: Capital Assets
Authority: GASB Codification Section 1400
Effective Date: July 1, 1995
Last Revision Date: March 1, 2023
Policy Owner/Division: Statewide Accounting
Buildings are structures that are permanent in nature and have an asset life of two or more years. They are subject to depreciation.
Buildings are valued at the purchase price or construction cost. Cost should include all charges necessary to put the building or structure in its intended state of operation (i.e. professional fees for brokers, attorneys, architects, appraisers, financial advisors, interest during the period of construction through June 30, 2019, etc.). Beginning July 1, 2019, interest costs incurred before the end of construction period are no longer capitalized. Permanently attached fixtures to the building (i.e. heating and ventilation systems, roofs, plumbing, carpet, and electrical systems) should be included in the cost of the building.
When an addition that exceeds the agency's inventory/capitalization threshold is constructed, it is capitalized as a separate asset.
When a renovation/improvement is constructed, it is as a separate asset if it exceeds the capitalization threshold. Renovation and improvement costs are incurred to restore or improve buildings or other capitalized assets. Normally, these costs take place over an extended period. Care must be taken to distinguish between maintenance and renovation/improvement costs.
The buildings are to be included in the annual inventory of the controlling agency. The inventory ensures that the controlling agency has the buildings recorded in its records.
The long-term construction costs of buildings are paid from Capital Improvements (CI) budget codes. Costs are expended from CI budget codes while the building is under construction. Such costs would include architect fees, plumbing and electrical contracts, contractor fees, etc. Annually, the project to date expenditures (on the accrual basis) in the CI funds, less items capitalized, are recorded in the “Construction in Progress” account.
After a building is inspected by the State Construction Office, the agency receives a Letter of Acceptance from the State Construction Office. After receipt of this letter and when the building is ready for occupancy, the building is considered complete. The agency within 30 days of completion reclassifies the amount from the “Construction in Progress” account to the fixed asset building account and issues the building a fixed asset number. This should be done regardless of whether the total Budget Code accounting for the asset has been closed out. The agency sends a Building Update Form (for form example contact the State Property Office) to the State Property Office upon completion of the building, including such information as total cost, square footage, acquisition date, etc. Each agency should reconcile their records annually with the State Property Office to ensure that all buildings have been correctly reported.
Donated buildings should be recorded at their acquisition value at the date of donation plus ancillary charges with the following exception. Buildings donated prior to July 1, 2015, are recorded at their estimated fair value at the date of donation. Acquisition value is the price that would be paid to acquire an asset with equivalent service potential in an orderly market transaction at the acquisition date. Acquisition value is a market-based entry price. Acquisition value may be calculated from manufacturers’ catalogs or price quotes in periodicals, recent sales of comparable assets, or other reliable information. Professional assistance may be helpful but is not required.
If using in-house resources such as labor, materials, and supplies from General Services to construct or add on to the building, the costs are to be included as part of the cost of the asset. Capitalize the costs as if outside sources were used.
Maintenance expenses are incurred to keep assets in normal operating condition and to help maintain the original use of the building. Maintenance expenses do not extend the life of the building beyond the expected useful life at acquisition, nor do they increase the future service potential of the building. Maintenance costs are expensed and not capitalized. The costs are charged to repairs and maintenance.
- 01/22/2007 - To clarify definitions of renovations/maintenance.
- 01/26/2017 - Updated links
- 06/30/2017 - Updated for GASB 72 (added requirement to prospectively report donated assets at acquisition value); minor edits
- 07/31/2019 - Updated for GASB 89. Interest costs incurred before the end of the construction period are not capitalized beginning July 2019.
- 03/01/2023 - Removed reference to pre-GASB 87 capitalization guidance for leased buildings.