1.0 - Capitalization Rules


Capital Asset Management



November 2003



October 2015




To provide guidelines for the use of capital equipment object codes on procurement transactions and other financial documents.  Procurement transactions that use a capital object code are a primary source used to create capital assets in the university asset database. 


Art & Museum Objects  

Art and museum objects are non-depreciable pieces purchased or donated to the university.  Art and museum pieces shall be capitalized if the value is Five Thousand ($5,000) or greater.  If a collection is greater than $5,000 then it will be capitalized as a collection. Following is a listing of capital art and museum object codes:


7600 Art & Museum Objects

7677 Art & Museum Objects Gifts


Please contact your fiscal officer to determine the appropriate expense object code for purchases of art and museum objects below the capitalization threshold amount.



Expenditures on buildings for new construction, alterations or renovations must be Seventy-five Thousand Dollars ($75,000) or greater to be capitalized. The costs per building project include expenditures related directly to their acquisition or construction.  These costs include (1) materials, labor and overhead costs incurred during construction, (2) professional fees and building permits.  All direct costs incurred from excavation to completion are considered part of the building project. Interest on indebtedness related to the building will be capitalized during the construction process. Following is a listing of building capital object codes:


7300 Building & Attached Fixtures

7301 Building - Professional Fees - New

7302 Building - Prof Fees - Renovation

7303 Building - Improvements

7377 Building - Gifts


In order for costs to be capitalized and added to the cost of an existing building, they must meet the following criteria:

1. The improvement must be an attached fixture.

2. The expenditure must increase the life or enhance the utilization of the building.


All capitalized building projects should be processed through a construction account or renewal and replacement account and should not be recorded in an operating account. The building code should be identified in the account description of the construction account for all building projects.


Capital Lease

A lease purchase is a contractual agreement conveying the right to use property, plant, or equipment usually for a stated period of time.  A lease agreement involves at least two parties, a lessor and a lessee.  The lessor agrees to allow the lessee to use the item for a specified period of time in return for periodic payments.  There are two types of lease purchases available; an operating lease and a capital lease.


An operating lease includes a lessor (vendor), who collects rent, and a lessee (the university), who uses the leased equipment and pays periodic rent for such use.  The lessee merely uses the equipment; there is no transfer of ownership, or any risk of benefit of ownership. 


A capital lease transfers substantially all of the benefits and risk inherent in ownership to the equipment to the lessee. 


A “Capital Lease” purchase is the act of acquiring assets by making periodic payments, which generally consist of principle and interest.  Capital leased assets are not subject to a capitalization threshold.  Following is a listing of object codes for a capital lease agreement:


7099 Capital Lease

4403 Capital Lease Interest


An operating lease should use a rental object code such as 4620.  See CSOP 9.0 Capital Leases Agreements for more information on the capitalization of capital leased assets.


Computer Software

For software to qualify for capitalization purposes, it needs to meet all of the following requirements:


The acquisition cost is at least Five Hundred Thousand ($500,000).

The software must have a useful life greater than one year.

The department has the ability to sell, transfer, license, or rent the asset to another party OR the asset arises from a contractual or legal right.


Costs that should be capitalized:  The cost of the software and installation costs should be capitalized.


Costs that should be expensed:  Training and travel costs associated with capital purchased/licensed software should be expensed.


Costs associated with purchased/licensed software that do not meet the university’s capitalization threshold should be expensed to object code 4616. 


If the useful life is one year or less the costs associated with the software should be expensed to object code 4616.



Modifications to purchased/licensed software should be capitalized when the cost of the modification is at least Five Hundred Thousand ($500,000) AND any one of the following exists:   

  • A substantial increase in the functionality of the computer software allowing the program to perform tasks it was previously incapable of performing.
  • A substantial increase in the efficiency of the computer software, that is, an increase in the level of service provided by the computer software without the ability to perform additional tasks.
  • An extension of the estimated useful life of the software. (GASBS51, Par. 15)

If the modification does not meet both the dollar threshold and one of the three other criteria, the modification should be considered maintenance and the associated costs for the modification should be expensed.



Renewals are usually considered to be costs to continue the use of the software program. Renewals do not include any upgrades and should be expensed to object code 4616.  If the renewal includes new software functionality, please refer to the modification section above for capitalization requirements.



If purchased/licensed software includes maintenance and/or technical support these costs should be indentified separately from the capitalized costs and expensed to object code 4776.


Inventory Requirements

Units will be required, as part of their physical inventory, to inventory software to ensure that the software is still in use. When the software is no longer in use the asset should be retired.  Following is a listing of object codes for computer software:


7261 Intangibles University Funded

7263 Intangibles Federally/Other Owned


See CSOP 39.0 Computer Software for more information on the capitalization of computer software.



Infrastructure assets are long lived assets that normally are stationary in nature and normally can be preserved for a significantly greater number of years than most capital assets. 


The costs associated with infrastructure projects must be Seventy-five Thousand Dollars ($75,000) or more per project to be capitalized.  An infrastructure project could include cost for (1) street improvements such as traffic, street and walkway lights, street signage and guard rails, (2) road and waterway construction such as roads, streets, highways, alleys, sidewalks, curbs, culverts, and bridges, (3) underground distribution and collection systems and (4) telephone communication systems.  Following is a listing of infrastructure capital object codes:


7400 Infrastructure Improvements

7402 Infrastructure Professional Fees

7408 Infrastructure - Street Improvements

7409 Infrastructure - Road/Waterway Improvements

7410 Infrastructure - Underground Dist & Collection Sys

7411 Infrastructure - Telephone Communications


See Repair & Maintenance object codes such as 4700 for infrastructure projects not meeting the capitalization threshold.  See CSOP 20.0 Capitalization of Infrastructure for more information on the capitalization of infrastructure projects.



Land is non-depreciable property purchased by or gifted to the university.  There is no capitalization threshold as to the total cost spent for land.


All costs incurred in acquiring land or getting the land ready for its intended use should be considered as part of the land cost. These expenditures shall include (1) the purchase price, (2) closing costs such as title to the land, attorney’s fees and recording fees, (3) costs incurred in getting the land in condition for its intended use, such as grading, filling, draining, and demolishing of old buildings and (4) the assumption of any mortgages or liens.  Any other land improvement shall also be considered a land capital expenditure if it increases the utility. 


If both a building and land are purchased in the same transaction, the cost should be allocated between land and building assets based on their fair values.  Following is a listing of land capital object codes:


7200 Land

7201 Land Demolition

7277 Land Gifts


See CSOP 11.0 Capitalization of Land for more information on the capitalization of land.


Land Improvements

Capital land improvements are those items which have a life of their own exclusive of the land or building(s) and are considered betterments to the property.    


The cost of a land improvement project must be Seventy-five Thousand Dollars ($75,000) or more to be capitalized.  A land improvement project could include cost for (1) yard improvements such as yard lighting, exterior lighting, fencing, gates and parking barriers, and (2) landscaping improvements such as parking lot lights, paths, fountains, sculpture gardens and athletic fields.  Following is a listing of land improvement capital object codes:


7465 Land Improvements - Yard, Fencing & Barriers

7466 Land Improvements - Landscaping

7467 Land Improvements - Septic Systems

7468 Land Improvements - Professional Fees

7477 Land Improvements - Gifts


See Repair & Maintenance object codes such as 4700 for land improvement projects not meeting the capitalization threshold.  See CSOP 21.0 Capitalization of Land Improvements for more information on the capitalization of land improvements.


Leasehold Improvements

Leasehold improvements can be made to property that is leased by the university.  Leasehold improvements represent physical enhancements made to property by or on behalf of the university.  The university does not own the property but has chosen to lease the property and to incur leasehold improvements.  When improvements are made to the leased property and those improvements are permanently affixed to the property, the title to those improvements transfer to the owner of the property at the end of the lease term. 


To be capitalized as leasehold improvements the total cost of the improvements to the leased space must be Seventy-five Thousand Dollars ($75,000) or more.  The capitalized costs incurred by the university in constructing leasehold improvements to property that is leased represents an intangible asset or a license to use the improvements.  Leasehold improvements are depreciated over the term of the lease.  Following is a listing of leasehold improvement capital object codes:


7800 Leasehold Improvements

7801 Leasehold Improvements Professional Fees


Use repair & maintenance object codes such as 4700 for leasehold improvements not meeting the capitalization threshold.  See CSOP 24.0 Capitalization of Leasehold Improvements for more information on the capitalization of leasehold improvements.


Library Books

All cataloged library acquisitions of $1 or more shall be capitalized. Departmental purchases of manuals or other professional guides not cataloged in the university library system should be expensed.  Following is a listing of library book capital object codes:


7100 Library Books

7177 Library Books Gifts


Moveable Equipment

Equipment must meet two specific criteria in order to qualify as a capital purchase.  It must have (1) an acquisition value of at least Five Thousand Dollars ($5,000.00) and (2) a useful life expectancy of one year or greater. The term “equipment” includes delivery equipment, office equipment, machinery, furnishings, factory equipment, and similar fixed assets.   Generally equipment that is attached to a building is capitalized as moveable equipment when removing the equipment does not cause structural damage to the building and will not destroy the equipment. 


Service costs that can be capitalized with equipment  purchases include:

  • Cost of assembling the asset
  • Cost of installation
  • Freight
  • In-transit Insurance
  • Preparing the site and asset for its intended use
  • Training

The following are not considered capital equipment regardless of cost or useful life:

  • Repair or replacement parts.  (Use object code 4700- Repair & Maintenance or 4776 –Service or Support Maintenance Contracts.) 
  • Maintenance and Warranty agreements (Use object code 4776 - Service Maintenance Contracts.)
  • Purchased software license agreements are not capitalized unless ownership is indicated within the license agreement and the acquisition cost is $500,000 or more.  Software license agreements not indicating ownership or having a value of less than $500,000 should be expensed to 4616-Computer Software Purchases.  (See CSOP 39.0 Computer Software)


When additional equipment is received on a purchase order at no cost, these items are considered gifts to the university.  Please contact capasset@iu.edu if this situation should arise.  


The acquisition cost of an asset is decreased by any full order discount on the purchase order.  A trade-in allowance reduces the acquisition value of the asset as well.  (See CSOP 11.0 Trade-In of Similar Capital Equipment)


Spare Equipment  

Sometimes equipment is purchased with the intent to be used as a spare, or backup, in case of a failure of an in-service asset.  Spare equipment is an asset that can be used independently (i.e. router or server purchased with the intention of being a spare).  Spare equipment should be capitalized if over the capitalization threshold.  The asset status code for spares should be “S” for storage until such time the equipment is used.  

Spare or Replacement Parts   Spare or replacement parts are not capitalized.  To meet the definition of a spare or replacement part, the part must not be able to be used independently.  For example, a replacement line card purchased for an existing router would be considered a replacement part and should be expensed.


System Assets  

In some instances, purchases of components can be capitalized together as one asset under moveable equipment, referred to hereafter as system assets.  System assets are defined as components that work together to perform one function.  Each component is necessary for the system to function as a whole.  Removal of any one component would result in the system not operating at the required capacity or for its intended purpose. This includes software that is internal to the asset and is necessary for the asset to function for its intended purpose.



Upgrades to equipment are capitalized when any one of the criteria listed below is met:

  • A substantial increase in the functionally of the equipment which allows it to function or perform tasks it was previously incapable of performing.
  • A substantial increase in the efficiency of the equipment, that is, an increase in the level of service provided by the equipment without the ability to perform additional tasks.
  • An extension of the estimated useful life of the equipment.

The following is a listing of moveable equipment capital object codes:


7000 Capital Equipment

7015 Computer Equipment

7031 Capital Equipment - Federally Owned

7032 Capital Equipment - Other Owned

7070 Trade-in Capital Equipment


A federally owned object code should be used when the granting agency holds title to the asset.  For more detailed information on how to choose the appropriate object code see CSOP 8.0 Capitalization of Moveable Equipment.


Moveable Fabricated Equipment

The term “Fabrication” is used in conjunction with moveable equipment and should not be confused with building construction projects.  The transaction type of “Fabrication” identifies payments as construction in progress.  A fabrication is a moveable asset designed and constructed by a university organization.  A Fabrication Request document generates the asset number that is required when the Fabrication “CAMS Tran Type” is selected.  Therefore, the organization must submit a Fabrication Request document prior to any purchases.  Following is a listing of fabrication capital object codes:


7500 Capital Equipment - University Constructed

7531 Capital Equipment - Univ. Construct-Fed Owned

7532 Other Owned Fabricated Equipment


See CSOP 12.0 Capitalization of Fabricated Equipment for more information on the capitalization of fabricated equipment. 



Capital Equipment- must have an acquisition value of at least $5,000 and a useful life expectancy of one year or more.

Depreciation-  The periodic charge to income that results from a systematic and rational allocation of cost over the life of a tangible asset. 

Equipment-  The term “equipment” includes delivery equipment, office equipment, machinery, furniture and fixtures, factory equipment and similar fixed assets.


CSOP 8.0 Capitalization of Moveable Equipment

CSOP 11.0 Capitalization of Land

CSOP 12.0 Capitalization of Fabricated Equipment

CSOP 39.0 Computer Software


Organizations that purchase capital assets.