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

Other Capital Assets

Library Books and Reference Materials Definition

Library books are generally a literary composition bound into a separate volume and identifiable as a separate copyrighted unit. Library Reference Materials are information sources other than books (i.e. journals, microforms, audio/visual media, computer-based information, manuscripts, maps, documents and similar items) that provide information essential to learning or that enhance the quality of academic, professional or research libraries.

Library Characteristics

A professional, academic or research library normally has one or more of the following characteristics:

  • Internal controls are in place in lieu of central property management.
  • Information is housed in a centralized location.
  • Physical security measures are in place to protect the assets.
  • Checkout procedures and policies exist and are used.
  • Individual item costs and supplemental information are contained in a supplemental database.
  • Volumes assigned to the library are typically available to employees, students and other individuals to checkout or use.
  • The library helps the entity fulfill its mission.
  • The library’s value is material to the organization.
  • Equipment assigned to libraries typically remains under central security for on-premises use.
  • Maintains records of all books and other library items. These records suffice as detailed inventory.

Additions to a library should be reported in total as a separate component (layer) in SPA. Disposals should be made using the FIFO method. That is, exhaust the component value in the earliest fiscal year before posting disposals to the next fiscal year component.

Disposals should be made using an average cost per item (ending balance of library books divided by number of volumes held).

Depreciation Methodology

Professional, academic and research library books and materials should be depreciated.

The straight-line depreciation method (historical cost minus residual value, divided by useful life) is used for professional, academic and research books and materials.

Capitalization Threshold

All purchases of books and materials for a professional, academic or research library should be capitalized if the annual purchase meets the $5,000 threshold.

Periodicals and subscriptions should be expensed. Books and other materials purchased (not for the library) should be expensed.

Examples of Expenditures to Capitalize as Library Books and Materials

  • Invoice price
  • Freight charges
  • Handling
  • In-transit insurance charges
  • Binding
  • Electronic access charges
  • Reproduction and like costs required to place assets in service, with the exception of library salaries

Works of Art and Historical Treasures Definition

Works of Art and Historical Treasures are collections or significant individual items that are owned by a state agency and are not held for financial gain but rather for public exhibition, education or research as part of a public service. Collections or individual items that are protected and cared for or preserved are subject to an organizational policy that requires the proceeds from their sales to be used to acquire similar items.

Exhaustible collections or items are items whose useful lives are diminished by display or educational or research applications.

Inexhaustible collection or items are items whose economic benefit or service potential is used up so slowly that the estimated useful lives are extraordinarily long. Because of their cultural, aesthetic or historical value, holders protect and preserve these assets more than they do for similar assets without such value.

Depreciation Methodology

The straight-line depreciation method (historical cost minus residual value, divided by useful life) is used for exhaustible collections. Inexhaustible items are not depreciated.

Capitalization Threshold

All works of art and historical treasures acquired or donated are capitalized unless held for financial gain.

If a collection is held for financial gain and is not capitalized, disclosures must be made in the notes that describe the collection and the reasons these assets are not capitalized. Agencies should recognize program expense equal to the amount of revenues when donated collection items are added to noncapitalized collections.

Examples of Expenditures to Capitalize as Works of Art and Historical Treasures

  • Collection of rare books and manuscripts
  • Maps, documents and recordings
  • Works of art such as paintings, sculptures and designs
  • Artifacts, memorabilia and exhibits
  • Unique or significant structures

Leasehold Improvements Definition

Leasehold Improvements are improvements made by a lessee (i.e. new buildings or improvements to existing structures, etc.) The lessee has the right to use the improvements over the term of the lease. The improvements revert to the lessor upon lease expiration. Moveable equipment or office furniture that is not attached to the leased property is not a leasehold improvement.

Improvements made in lieu of rent should be expensed in the period incurred.

Depreciation Methodology

Leasehold improvements are capitalized by the lessee and are amortized over the remaining lease term or the useful life of the improvement, whichever expires first. Leasehold improvements do not have a residual value.

If the lease contains an option to renew and the likelihood of renewal is uncertain, the leasehold improvement should be written off over the life of the initial lease term or useful life of the improvement, whichever expires first.

Once a leasehold improvement involving a third party (i.e. not a state agency) has been fully amortized, the improvement must be removed from the financial records using disposal method 25 (Leasehold Improvements).

Once a leasehold improvement involving a state agency has been fully amortized, the improvement must be transferred by the lessee state agency to the lessor state agency.

Contact your SPA analyst for the proper procedures required before initiating the property transfer.

Capitalization Threshold

The capitalization threshold for leasehold improvements is $100,000.

Livestock

Agencies should capitalize animals that individually cost $5,000 or greater and have a useful life of more than one year.

Agencies should assign a unit cost to animals that are produced or acquired by a means other than by purchase and document that assigned cost and the methodology used to determine that cost.

Agencies will continue to internally control and protect non-capitalized animals from potential loss and may choose to account for animals at a more detailed level.

Depreciation Methodology

The straight-line depreciation method (historical cost minus residual value, divided by useful life) is used.

Capitalization Threshold

The capitalization threshold for livestock is $5,000.