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SPA Process User’s Guide – Chapter 1 – Introduction to Capital Assets

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Buildings and Building Improvements

Building Definition

A building is a structure that is permanently attached to the land, has a roof, is partially or completely enclosed by walls and is not intended to be transportable or moveable. Buildings that are ancillary to the state’s highway network, such as rest area facilities and toll buildings, are reported as infrastructure rather than as buildings.

Building Improvement Definition

Building improvements are capital events that materially extend the useful life of a building or increase its value, or both. A building improvement should be capitalized and recorded as an addition of value to the existing building if the expenditure meets the capitalization threshold.

Building Componentization

Componentization is the process of separately calculating the depreciation of major building structural components, subsystems and equipment.

Effective Sept. 1, 2001 (as required by Texas Government Code Section 2101.015), state agencies that receive federal funds to implement federal or joint federal and state programs and own a building with a fair market value of at least $1 million componentize on a prospective basis. As each building component is replaced, it is separately depreciated based on its individual useful life. At a minimum, the agency should use the following component categories and suggested useful lives or refer to the SPA class codes for buildings in Appendix A:

Building Construction

Several state statutes address the construction of new buildings:

Depreciation Methodology

The straight-line depreciation method (historical cost minus residual value divided by useful life) is used for buildings, building improvements and their components. Subsequent improvements that change the use or function of the building are depreciated.

Buildings designated as “historical” by the Texas Historical Commission are not depreciated unless they are used in the operations of the state. However, any improvements not deemed “historical” by the Texas Historical Commission are depreciated like any other improvements made to a building.

Capitalization Threshold

The capitalization threshold for buildings and building improvements is $100,000.

Examples of Expenditures to Capitalize as Buildings

Purchased Buildings
Constructed Buildings
Examples of Expenditures to Capitalize as Improvements to Buildings

Note: For a replacement to be capitalized, it must be a part of a major repair or rehabilitation project that increases the value and/or useful life of the building (such as renovation of a student center) and meets the capitalization threshold. A replacement may also be capitalized if the new item or part is of significantly improved quality and higher value compared to the old item or part (such as replacement of an old shingle roof with a new fireproof tile roof). Replacement or restoration of an item to its original utility level is not capitalized. Determinations must be made on a case-by-case basis.

Building Maintenance Expense

These are examples of expenditures not to capitalize as improvements to buildings. Instead, the following items should be recorded as maintenance expense.

Building Demolition Costs

The Governmental Accounting Standards Board (GASB) has determined that demolition costs shall be capitalized or expensed depending on the following situations: