Depreciation

Scope

This policy applies to all capitalized assets owned or accounted for by the University.

Reason for Policy

This policy provides guidance as to the application of GASB for the University to ensure compliance with external reporting requirements.

Policy Statement

Capital Assets are depreciated using a straight-line method over the expected Useful Life of the asset with depreciation expense being recognized in plant funds.  With exception of Exhaustible Library Materials, the Depreciation for each asset will begin on the in-service date for the Capital Asset. Exhaustible Library Materials are depreciated as Composite Assets utilizing the Half-Year Convention.

For the purpose of Depreciation, the University has identified the following categories of Capital Assets that are depreciated.

• Buildings and Building Components (including Building Improvements)
• Infrastructure
• Equipment
• Exhaustible Library Materials
• Exhaustible Artwork and Historical Treasures

The following categories of Capital Assets are not depreciated:

• Land
• Construction in Progress
• Inexhaustible Artwork and Historical Treasures
• Livestock
• Inexhaustible Library Collections
• Equipment in Progress

Definitions

Depreciation - is an element of expense resulting from the use of long-lived Capital Assets. It is conventionally measured by allocating the expected net cost of using the asset (original cost less estimated salvage value) over its estimated Useful Life in a systematic and rational manner provided by the Government Accounting Standards Board (GASB) Codification 1400.114.

Useful Life - the time period over which an asset is expected to provide service potential.

Exhaustible - an asset is one that will be “used up” and needs to be depreciated to capture the cost of that “use.”  Library general collections are library holdings of an institutional library (not departmental reference library) that are Exhaustible by nature and have a Useful Life greater than one year.

Inexhaustible - assets whose value is depleted so slowly that the estimated Useful Life is extraordinarily long.  They may include assets that are essentially permanent in nature, assets that do not become obsolete, or assets cared for using methods intended to preserve them in perpetuity. Inexhaustible assets are not depreciated. Examples include: land; certain land improvements (excavation, grading, fill); works of art and historical treasures cared for using museum preservation standards.

Composite Assets - grouping many assets so that their total cost is carried by and depreciated as one asset. This single asset is termed a composite asset, and associated assets are known as composite members.

Half-Year Convention - under this convention, all property placed in service or disposed of during a fiscal year is treated as placed in service or disposed of at the midpoint of the year. This means that a one-half year of Depreciation is allowed for the year the property is placed in service or disposed.

Accountabilities

UM System Controller’s Office:

• Analysis of Depreciation expense for reasonability.

UM System Supply Chain – Asset Management and Campus Accounting Offices:

• Maintenance of the assets within the Asset Management system and for the integrity of the details upon which the Depreciation calculations are based.

Additional Details

Forms

Related Information

In accordance with GASB No. 34, “Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments” and GASB No. 35, “Basic Financial Statements – and Management’s Discussion and Analysis – for Public Colleges and Universities,” the University of Missouri System began depreciating certain assets as of July 1, 2001.

Policy 22401 on Capital Assets

History

This policy combines the following former policies:

• Accounting Policy Manual 20.15 – Capital Assets – Depreciation (revised 5/1/2007)
• Accounting Policy Manual 20.16 – Schedule of Depreciable Lives (revised 8/22/2007)

Procedure

Schedule of depreciable lives