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Reporting Requirements for Annual Financial Reports of State Agencies and Universities

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Reporting Requirements for Annual Financial Reports of State Agencies and Universities

Capital Assets

Impact of Threshold on Indirect Cost Plans

The state of Texas establishes capitalization thresholds based upon statewide materiality considerations. These thresholds may differ from capitalization requirements of various federal programs. The determination of whether to maintain separate asset records for cost recovery purposes must be reconciled with the cost that may ultimately be recovered and the potential impact of federal compliance requirements.

Changes in capitalization thresholds are generally applied prospectively. Assets recorded under the previous thresholds are left as capitalized and depreciated/amortized for the remainder of their useful life.

A history of capitalization threshold changes:

  • Effective Sept. 1, 2001, the state increased the capitalization threshold for personal property from $1,000 to $5,000. Prior to this agencies had to either depreciate their assets or apply an asset use allowance of 6.67 percent on assets over $1,000 when determining the cost of assets to be recovered on federally funded programs.
  • Effective Sept. 1, 2009, the state increased the capitalization threshold for purchased computer software from $5,000 to $100,000. Additionally the state modified the capitalization policy to clarify that the threshold is to be applied based upon the aggregate purchase. The previous $5,000 threshold was applied based upon a unit cost approach.
  • Effective Sept. 1, 2009, the state established new capitalization thresholds for various categories of intangible capital assets. Internally generated computer software is capitalized if the development costs exceed $1,000,000; all other intangibles with a limited useful life are capitalized if their cost meets or exceeds $100,000. Intangible capital assets with infinite useful lives are capitalized regardless of cost.