Capitalization of Capital Lease

Scope

All Indiana University units and employees.

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Policy Statement

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 the Capitalization of Building (FIN-ACC-I-190) policy.

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Reason for Policy

To define expenditures which will be classified as capital leases.

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Procedures

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 the Office of the Treasurer 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 of Accounts Manager or the Kuali Financial System's Object Code References Tables.

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Definitions

Plant: The equipment, buildings, etc. of any institution.

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History

The source to this policy is:

American Institute of Public Accountants (AICPA) Guidelines for Colleges and Universities, GAAP

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