| VOLUME: I |
POLICIES RELATED TO ACCOUNTING ADMINISTRATION |
| SUBJECT: |
Capitalization of Capital Lease |
| SOURCE: |
American Institute of Public Accountants (AICPA) Guidelines for Colleges and Universities, GAAP
|
| DATE ISSUED: |
July 1992, Revised January 1996 |
| POLICY NO.: |
I-220 |
| RATIONALE: |
To define expenditures which will be classified as capital leases. |
| POLICY: |
If a leasehold contract contains an Option to Purchase, payments on Plant which are being leased on long-term contracts should be capitalized as leasehold equities. The contract must be for at least two (2) years, ownership of the property will be transferred to the university at the end of the lease, and the university must have the right to purchase the asset at the end of the lease or during the lease term.
All improvements made to the premises leased should be capitalized and depreciated over the remaining life of the lease if a given improvement meets the building capitalization criteria established in Accounting Administration Policy I-190, Capitalization of Buildings.
|
| DEFINITIONS: |
Plant is defined as the equipment, buildings, etc. of any institution. |
| PROCEDURE REFERENCE: |
In order for an item to be secured as a capital leasehold equity, the contract must be sent to the Capital Asset Management division of Financial Management Support so they can determine that it meets the requirements of leasehold equity.
The correct object code should be utilized on the disbursement vouchers in order for the payments to be capitalized. A list of the current object codes (income and expense classes) is available by contacting your campus Chart Manager (see listing; http://www.fms.indiana.edu/) or the Financial Information System's Object Code References Tables.
|
| CROSS REFERENCE: |
See Accounting Administration Policy I-190, Capitalization of Buildings.
For more detail and definition on this policy, refer to the Indiana University Capital Asset Manual, Accounting for Assets at Indiana University, distributed by the Financial Management Support department.
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| RESPONSIBLE ORGANIZATION: |
Financial Management Support |
