Capitalization Policies for the Acquisition, Management ... - Bright Hub

burpfancyΗλεκτρονική - Συσκευές

8 Νοε 2013 (πριν από 3 χρόνια και 7 μήνες)

70 εμφανίσεις


Business Name


Business Address


“Capitalization Policies for the Acquisition, Management, Sale and
Disposition of Company
-
Owned Fixed Assets”


Purpose
:

These
guidelines shall be observed by the management and staff of the company
,
who are

directly concer
ned
with

the
accounting and management
of

all company
-
owned fixed
assets
,

in relation to all transactions and projections related to the latter’s acquisition,
maintenance, sale and final disposition.

The guidelines set forth in this document shall be know
n as the company’s capitalization
policies
,

and are all
in

accordance with Generally Accepted Accounting Principles, federal
regulations and
requirements of

authorized
examining bodies
.


The guidelines likewise serve as the company’s
compl
iance
with the p
roperty
and equipment
regulations

accord
ing to
the
provisions embodied in Sec. 1.263A
-
1 of the Internal Revenue Code

for

Uniform Capitalization of Costs.



Capitalization Guidelines

Fi
xed
A
ssets



These
refer to
the

non
-
consumable
, tangible or intangib
le
objects procured by
the company as implements, tools, equipment, furniture, fixture
to the
official place
/s

of
business for the
purpose of carrying out all aspects of business operations
.

These physical objects do not include those that were purchased
for resale and shall be clearly
distinguished
as different
from those included under the merchandise inventory of stocks that
form part of the company’s cost of goods sold.

A reference to the words “capitalize”, “capitalizing” or “capitalization” would me
an that the
fixed assets shall be included in the company’s inventory list of
fixed
assets, whose acquisition
costs, fabrication or development costs, including all
in
direct and material expenses related to
its acquisition,
production or development,
will
be recovered through out the years of its
estimated useful life
,

by means of depreciation or amortization.

A reference to useful life denotes the wear and tear and technological usefulness of the asset in
carrying out a business process
.


To clearly i
dentify the fixed assets existing in the company to which these capitalization
guidelines will apply, they are enumerated as follows:

-

Office
F
urniture and Equipment

-

Computer Equipment


-

Computer Software

-

Computer
-

Other Equipment

-

Leasehold Rights and Im
provement

-

Vehicles




I.

Capitalization Policies for Acquisition, Production or Development

of Fixed
Assets

Office Furniture and Equipment
-
These refer to fixed assets whether movable or immovable
and found in the business premises, for administrative, marke
ting or trading purposes, including
those that enhance the overall appearance of the company’s business establishment/s.


-

The
purchase

cost
s

of
procured
items should not be less than $ 3,000

for the purpose of
qualifying the office furniture or equipment

as capitalized asset
s

and without taking into
consideration the incidental costs incurred to have the item
s

delivered, installed,
licensed or to render as fully and legally operational
for
their

use
in

the company’s
business operations.


-

Office equipment

and furniture that are fabricated and produced, whether internally or
externally must have production cost
s

comprising direct materials and direct labor
expenses of not less than $ 3,000 for purposes of qualifying the item
s

produced or
fabricated as capit
alized fixed asset
s
. This is also without taking into consideration the
i
ncidental costs incurred to have the item
s

delivered, installed, licensed or to render as
fully and legally operational for
their

use in the company’s business operations.


-


However,

for accounting, disposition and business projection purposes, the total
acquisition cost
s

of the office equipment or furniture, shall consider the purchase cost
s

or production costs plus the incidental expenses incurred to have the item
s

delivered,
insta
lled, licensed or to render as fully and legally operational
for
their


use
in

the
company’s business operations.


-

Any pre
-
production cost
s

related to the procurement or fabrication of the office
equipment, furniture or fixture shall likewise be added

for
purposes of
accounting,
disposition and business projection
s.



-

To clearly establish what the company considers as incidental cost
s

that shall be added
to the capitalized cost, they may be any of, but not limited to, the following
expenditures:




F
reight/Shipping or Trucking Expenses



Insurance Expenses related to Shipment or Delivery



Installation expenses



Validation and Testing Fees, which may include labor, travel and professional fees



Training costs related to both pre and post installation.



Wa
rehousing and storage fees related to its importation.



Broker’s fees



Sales Taxes and Duties



Registration or License Fees

All other fixed asset items
in which
the
purchase or production costs are less than $ 3,000, and
the useful life of which will not ben
efit the company for more than three years and the absence
of which will not hamper the ordinary flow of business operations, will be treated as outright
expenses during the year that the expense
s

w
ere

incurred.


Computer Equipment

and their related c
omponents are capitalized regardless of value and will
include the following:



Mainframe Computer
System, including its related components



Server and its related component



Laptops and Desktop and its related components


-

However, subsequent procurements of
peripherals
for purposes of
replac
ing

the original
devices, like mouse, keyboards, hard drives, memory upgrades, and other miscellaneous
add
-
ons to the computer
,

shall be expensed and purchased as needed.


-

There will be no residual or scrap value recogniz
ed for cost allocations or depreciation
s
.


Computer Software


All computer software whether prepackaged
,

or developed externally or
internally
,

shall be capitalized if their acquisition costs shall be $ 50,000 or more.
In order to
qualify its related co
sts for capitalization, the following conditions must be met:



Software license fees are capitalized if the useful life will extend for more than
two

year
s
.

This denotes that the software should be a major enhancement
to
the existing
system.



Only the intern
al or external costs of software development during the application
development phase, are capitalized

for a specific and approved limit,




Costs to extract the data from the existing system to build the software are also
capitalized.



Upgrades may be capit
alized on a case to case basis; hence
,

prior approval should be
sought before any upgrades are
made
.

All other related costs pertaining to computer software acquisition and development
,

shall be
treated as outright expenses,
in

which the following shall b
e included:




Development costs during the preliminary stages
and were incurred

prior to
management’s approval of the software proposed.




Costs incurred for data clean
-
up and conversion.



Post implementation costs like training and routine maintenance che
ck
-
ups.


Computer
-

Other Equipment

refer to devices without which, the mainframe, the server
and the

laptops and desktops will still operate smoothly and will not hamper the business

operations
.
However, their existence and use greatly enhance the effici
ency of the
entire
computer

s
ystems
,
which ensure the smooth flow of business operations.
In order for its costs to be capitalized, the
device must have an acquisition cost of $ 50,000

or more

and an estimated useful life of 10
years
.

-

They shall include an
y of
,

but not limited to, the following:




Automated Storage Equipment



Equipment used for reproduction, for storage and for viewing microforms.



Equipment used for processing documents which includes photocopiers, shredders,
check
-
makers and the like



Screens
, cameras, projectors and other photographic equipment



Printers and binders



UPS or Uninterrupted Power Sup
p
ly



All systems furniture, i.e. computer desks and chairs

with estimated useful life of 8
years.


-

There will be no residual value recognized for purp
oses of cost allocation or
depreciation.



Leasehold Rights and Improvement
-

These expenses refer to non
-
routine costs of renovations
,
improvements, repairs and alterations to the leased property in order to make the latter useful
according to the company
’s business purpose.

-

They also refer to the fixtures that have become permanently attached to the building,
i.e. fire
-
alarm systems, plumbing systems, security, carpeting, flooring, lighting and
cabinetries.


-

Cost of landscaping, sewers, fencing and park
ing lots if allowed in the contract and if
necessary
,

form

part of the leasehold rights and improvement.


-

All costs classified as leasehold improvement shall be allocated or amortized for a period
of 10 years

without any residual or scrap value recognize
d.



The following conditions will qualify the costs of the leasehold rights and improvement for
capitalization:




The aggregate amount of the improvement costs is $ 50,000 or more.



Costs incurred for shipping of materials, installations as well as engin
eering and
architectural fees paid for the improvement.



Subsequent
non
-
routine
costs of repairs or alterations made on the leased property
and amounting to $ 50,000 or more
,

with a useful life of two years and the absence
of which can affect the company’s

business operations
.






All other repairs made on the leased premises costing less than $ 50,000, for reasonable
repairs and maintenance determined per lease contract as borne by the company in its role
as the lessee of the property, shall be expens
ed

Vehicles or Transportation Equipment



These refer to the vehicles
acquired by the
company in carrying out the daily affairs and operations of the business. They shall be
distinguished as different from the vehicles partly
-
owned by the company’s key
officials and
partly subsidized by the company
,

not as asset but as part of
an employee
-
compensation
package.


All company owned vehicles are capitalized and the costs are allocated or depreciated for an
estimated useful life of 5 years, to which no r
esidual or scrap value shall be recognized.



II.

Capitalization Policies for Renovation, Overhaul or Repairs


Renovations, overhauls and major repairs of all fixed assets amounting to $ 25,000 or more,
which w
ere

approved on the basis that the altera
tions or repairs shall enhance the usefulness,
efficiency or capability of the
fixed asset.

The capitalized costs of repairs shall be allocated or depreciated over the remaining useful life of
the fixed asset.

A project for renovation or equipment overha
ul should have prior management approval before
launching any pre
-
production costs.



III.

Fixed Asset Depreciation Policies

The company allocates the cost of its capitalized fixed assets over the years of
their
estimated useful life by using the straight
-
line

depreciation method.

To provide a clear guideline on how each type of fixed asset should be depreciated, a
chart of the fixed assets depreciation components is provided below:

Fixed Asset

Minimum
Capitalized
Cost

Estimated
Useful Life

Residual
Value





Office Equipment, Furniture and Equipment

$ 3,000


3 years

none

Computer
Mainframe Systems


All purchase
costs


7 years

none

Server

All purchase
costs

7 years

none

Laptop and Desktop

All purchase

costs

3 years

none

Computer Software


$ 50,000

2 years

none

Computer


Other Equipment

$ 50,000

10 years

none

Computer


Furniture

All purchase
costs

8 years

none

Leasehold Rights & Improvements

$ 50
,000

10 years

none

Vehicles or Transportation Equipment

All purchase
costs

5 years

none


IV.

Fixed Asset Disposition Policies

The head of the accounting department in
-
charge of the property section shall determine if a
company’s fixed asset has decr
eased its operational efficiency, where replacement becomes a
better alternative to overhaul or major repairs. Recommendations for asset disposition in
connection with a fixed asset’s decrease of productivity shall there originate from this
department.

Ho
wever, a fixed asset replacement analysis should support such recommendations
in relation
to proposals to dispose any major equipment used for business operations. The following
information shall be provided as part of the analysis:



Ratio of inefficient fi
xed asset to total assets



Ration of replacement asset to total assets



Ratio of repairs and maintenance prior to replacement to total assets



Ratio of repairs and maintenance after replacement to total assets



Sales to fixed assets prior to replacement



Sales
to fixed assets after replacement



Net Income to fixed asset prior to replacement



Net Income to fixed asset after replacement



Financial statements from where these ratios are presented and extracted



Comparisons of ratios against industry average



If necessa
ry, analyses and comparisons should include hours o
r

mileage usage

Recommendations for obsolescence shall be supported by data gathered by the IT department
to support the
underlying
circumstances

that made the item obsolete
.

The following methods of disp
osition shall be considered:



Donation


by considering the tax benefits as well as the fulfillment of the company’s
commitment to social responsibility.




Recycling


by considering its possible impact to the environment in cases where there
are no charita
ble institutions that will benefit from the donation of the retired assets.




Auction Sale
-

as the least method preferred, after a reasonable determination that
donation or recycling
are not suitable as methods of disposition.


All approved recommendations

for fixed assets dispositions shall be covered by the company’s
pre
-
numbered fixed
-
asset disposition tickets and filed together with the documents supporting
its final disposition from point of recommendation to physical removal.