Fixed Assets Procedure

Purpose

These procedures provide a definition of a fixed asset, how fixed assets are to be recorded, their useful life and how they should be disposed of.

Definitions

Finance One

University Corporate Financial System

WIP

Work in progress

Content

1. Definition of a fixed asset

1. A fixed asset must have a future economic value to the University, be held for more than one year, and have a reliably measured value.
2. The University level for fixed asset capitalisation is set at $2,000. Any purchase costing less than $2,000 is considered minor equipment (dissection 3216 for sundry minor equipment and dissection 3316 for minor software). The level for computer purchases is set at $5,000. Any individual purchase costing less than $5,000 is considered minor computer equipment (dissection 3321). Items paid for by instalment or purchased in parts should be considered in total for the purposes of capitalisation.
3. The cost of repairing or replacing computer components and peripheral devices such as keyboards and monitors is to be expensed (dissection 3321 or 3329) unless the cost exceeds $5,000 and the expenditure increases the useful life of the fixed asset to which it is related.

2. Classes of fixed assets

1. The University classifies fixed assets into the following categories:
   1. Land (dissection 8841)
   2. Buildings (dissection 8842, WIP 8843)
   3. Computers (dissection 8848)
   4. Furniture (dissection 8851)
   5. Leasehold Improvements (dissection 8844)
   6. Library Books (dissections 8852 & 8857)
   7. Motor Vehicles (dissection 8849)
   8. Network Infrastructure (dissection 8845)
   9. Plant & Equipment (dissection 8846, WIP 8847)
   10. Software (dissection 8853, WIP 8854)
   11. Rare Books & Special Library Collections (dissection 8855)
   12. Artworks (dissection 8856)
   
   Ongoing projects should be coded to the applicable fixed asset WIP -additions dissection code.  All amounts relating to a finished fixed asset must be journaled from the WIP dissection code to the corresponding additions dissection code before they are capitalised.
2. More detailed classification is available when recording fixed assets on the central Asset Register.

3. Purchase of fixed assets

a. Land and Buildings

1. The capital works budget covers land purchases, new buildings (including associated equipment and furniture requirements), building improvements and upkeep and other key IT University projects (e.g. new student management system).
2. The Capital Development Committee is responsible for prioritising the capital works budget allocation. Further information can be obtained from the Project Management Office.

b. Other Fixed Assets

1. Fixed assets other than land and buildings may be purchased in accordance with the Financial Delegations Policy.
2. Budget allocations can be transferred from operating expenditure to capital expenditure, but not vice versa, with the authority of the appropriate Divisional Head, subject to the limits in the Schedule of Financial Delegations.
3. Fixed asset purchases may also be funded from Special Departmental Funds, External Research Grants, Otago Research Committee Grants, Trust Funds and capital carry forward credit balances. There is likely to be some conditions attached to the use of these sources of funding and further clarification should be sought from Financial Advisory, Financial Services Division.

c. Library Books and Periodicals

1. The Information Resources Unit of the Library is responsible for the purchase of library books, standing orders and journals.
2. Library staff select items that support the teaching, learning and research needs of academic programmes and consult with academic departments regarding selections for these purchases.
3. Further information can be obtained from the Associate University Librarian – Information Resources.

4. Fixed asset recording and documentation

1. Fixed assets are recorded on the Asset Register maintained by the Financial Control team, Financial Services Division. This register provides physical description, location, age, depreciation rate, cost, and current book value detail for each asset.
2. Approved purchases of fixed assets must be added to the Asset Register in Finance One on the Create Asset tab within the Finance One Asset Officer Role.  When a purchase order for a new fixed asset is receipted by the Supply Chain, they will complete an asset chart in Finance One (See Appendix I).  This will then be commissioned by the Financial Control team.
3. Fixed asset details recorded include the physical description, division, cost centre, purchase account, depreciation account, value (excluding GST), useful life, location code and asset classification. Data fields are also available for other useful information including manufacturer, model, and serial number.
4. It is recognised that not all fixed assets may be purchased via Unimarket (e.g. some may be purchased via PCards).  Finance Advisory will review the general ledger each month and any uncommissioned transactions will be treated as follows (See Appendix I):
   1. Journal the transaction to the correct asset addition dissection code
   2. Complete the New Assets Import Template spreadsheet:
      New Assets Import Template (XLS)
      • One fixed asset is to be recorded per row
      • All costs to get the fixed asset fit for use should be included in the value of the asset e.g. freight, installation, etc.
      • The amount on the spreadsheet must match the amount in the general ledger to the cent
      • If there are several fixed assets purchased on one invoice they must be separated into one fixed asset item per row
      • Forward the completed New Assets Import Template spreadsheet to the Financial Control team
        Email fsd.assets@otago.ac.nz
   3. Furniture additions do not need to be entered into the spreadsheet as these assets are created in bulk by the Financial Control team.
   4. The Financial Control team is responsible for reconciling the Asset Register monthly and the commissioning of all fixed assets.
5. All purchases of an asset nature under the value of $2,000 should be charged to a Minor Equipment Account (3216 for other minor equipment) in the relevant activity centre.
6. Items purchased by the Equipment Committee will be coded against the centrally held Equipment Committee budget. However, the fixed asset is attributed to the cost centre for which the fixed asset was purchased and any depreciation on the fixed asset will be charged to that cost centre.
7. Each fixed asset is attributed to a cost centre in the University. The budget manager responsible for the cost centre is also responsible for the physical safeguarding and control of the fixed asset. Any depreciation on the fixed asset is charged to the cost centre.
8. When purchasing motor vehicles please refer to the University Health and Safety Vehicle and Safe Driving Policy.

5. Depreciation

1. All fixed assets except Land and Special & Rare Library Collections have a limited useful life. The Financial Control team capitalises the fixed asset by including it on the University Balance Sheet and then reduces the value of the fixed asset by charging depreciation to the cost centre.
2. The fixed asset is depreciated to its estimated residual value. University fixed assets are depreciated down to residual values as follows:

Fixed asset type	Estimated useful life	Depreciation rate p.a.	Notes
Buildings and components	10 to 250 years	0.4% to 10%
Motor Vehicles	3 to 10 years	10% to 33.3%	see note 1 below
Furniture and Fittings	5 to 10 years	10% to 20%
Plant and Equipment	4 to 60 years	1.7% to 25%	see note 2 below
Computers	3 to 10 years	10% to 33.3%
Library Collections	5 to 10 years	10% to 20%

3. Depreciation is calculated monthly and charged to each cost centre in dissections 5111–5191.
4. The breakdown of this monthly charge is available in Finance One.

Note 1: All Motor Vehicles will have a “Salvage Value” entered on the Asset Register as the time of purchase. The Salvage Value will be set at 30 per cent of the purchase price. The vehicle will then be depreciated to this Salvage Value over a 4 year period. In the last year of depreciation the Assistant Accountant – Assets and Insurance will approach the departmental owner of the vehicle to review the current Salvage Value and the estimated period the department will retain the vehicle – after this review the Salvage Value and the Remaining Life of the vehicle will be adjusted accordingly and the vehicle depreciated to the new Salvage Value over the new estimated useful life. Note 2: The default depreciation period for Plant and Equipment is 10 years – this will be used unless the asset chart is annotated with an item appropriate useful life.

6. Fixed asset disposal – Statutory provisions

Education and Training Act 2020

1. Section 282(4)(a) of the Education and Training Act 2020 states that the power to sell or otherwise dispose of assets or interests in assets shall not be exercised without the written consent of the Secretary. Subsection 5 of Section 282 modifies this by allowing an institution to:
   'Sell or otherwise dispose of, or mortgage or otherwise charge, an asset or interest in an asset, where the value of the asset or interest does not exceed an amount determined by the Minister or an amount ascertained in accordance with a formula determined by the Minister'.
2. The following fixed assets cannot be disposed of without first obtaining government approval:
   • Any fixed asset, other than land or buildings, where the market value of the asset being disposed exceeds $50,000 should be referred to Treasury Assets and Insurance Accountant, Financial Services Division.
   • All Land and Building fixed assets should be referred to the Manager of the Property Management Unit, Property Services.

Consumer Guarantees Act 1993

3. The Act requires goods to be of an acceptable quality and reasonably fit for any particular purpose. The University may be in breach if any defects are not specifically drawn to the consumer's attention prior to sale.

Fair Trading Act 1986

4. Prohibits any person from engaging in "conduct that is misleading or deceptive or is likely to mislead or deceive".

7. Fixed asset disposals – General

1. Disposal includes any sale, trade-in, loss, destruction, theft or write-off. The sale or gifting of a fixed asset to another University of Otago department is NOT a Disposal – see Fixed Asset Transfer procedures below.
2. The Head of Department is responsible for the custody and maintenance of their department's fixed assets. All disposals must be made with the appropriate Senior Leadership Team member's full authority in accordance with the Financial Delegations policy.  
   Refer to the   Schedule of Financial Delegations for details of delegation levels
3. A Fixed Asset Disposal Form must be completed and forwarded to the Financial Control team.
   Email fsd.assets@otago.ac.nz
   Download the Fixed Asset Disposal Form (PDF)
4. The University must receive the maximum value for fixed asset disposals and disposal processes should be fair. GST must be accounted for in fixed asset sales as the University is GST registered.
5. Disposal options include trade-in, transfer to another University department, sale by auction, dismantling and public tender.  
   For further advice on the best options for a particular disposal, contact:
   Email procurement@otago.ac.nz

8. Fixed asset disposals – ITS E-Waste and E-Cycle Centre

1. Electronic equipment and components should be recycled; refer to ITSE-Waste and E-Cycle Centre.

9. Fixed asset disposals – Sale of surplus fixed assets to staff

1. Fixed Assets that are replaced by the University remain the property of the University until such time as they are sold, or disposed of if they have no realisable value.
2. The University will not sell fixed assets to staff or others at a value that is less than can be realised by sale on the open market. If the market value of a fixed asset is not able to be easily assessed, the Chief Financial Officer must be consulted for a value to be agreed.
3. Fixed assets with no realisable value should be disposed of in the most appropriate manner, which may include gifting to staff, but only where an appropriately experienced independent person provides written advice to the University that the fixed asset being disposed of has no realisable value.
4. All sales or gifting of fixed assets to staff require the approval of the Chief Financial Officer. Written advice from the Chief Financial Officer will be provided to the Financial Control team, Financial Services Division attached to the fixed asset disposal form.
5. The Chief Financial Officer shall from time-to-time publish guidance and process advice on the sale of surplus assets to staff.
   Guidance on sale of surplus assets to staff (PDF)

10. Fixed asset disposals – Motor vehicles

1. Special conditions apply to the disposal of motor vehicles. All motor vehicles should be disposed of via auction at Turners. The Treasury Assets and Insurance Accountant should be notified of all intended Motor Vehicle disposals prior to their disposal. Vehicles will not be sold directly to staff, if any staff wish to purchase University vehicles, they can only do so through Turners' auction process.

11. Fixed asset disposals – Sales receipts

1. Proceeds from the disposal of a fixed asset must be credited to the University bank account and Cashiers advised. Refer to deposit instructions for guidance. A fixed asset disposal form must be immediately forwarded to the Financial Control team after the disposal. If there are no proceeds from the disposal a fixed asset disposal form must still be completed and forwarded immediately to the Financial Control team.
2. If a fixed asset is traded in, the supplier's invoice must show separately the total cost of the new item and the allowance for the item traded in. A fixed asset disposal form must accompany the supplier invoice before it will be passed for payment.
3. The Financial Control team will reconcile the sale proceeds stated on the disposal form with the department account code to ensure funds have been received and credited appropriately.

12. Fixed asset disposals – Accounting treatment

1. All proceeds from the disposal of a fixed asset should be credited to the Department's Proceeds from Sale of Asset account (dissection 5211).
2. The 5211 account is included in the calculation of the department carry forward. Any remaining fixed asset book value on the disposal will be credited (debited) to the Departments Book Value of Assets Sold (dissection 5215). The 5215 account does not impact on the department carry forward. The net effect of the 2 entries is the gain (loss) on sale of the assets for financial reporting purposes.
3. The loss/gain/depreciation recovered on sale will be calculated by the Financial Control team using the fixed asset disposal form.

13. Transfer of fixed assets between Departments and/or Divisions

1. If a division or department wishes to transfer a fixed asset to another University Division or Department, a fixed asset transfer form must be completed and forwarded to the Financial Control team.
   Email fsd.assets@otago.ac.nz
   Fixed Asset Transfer Form (PDF)
   • The form must be signed by both the transferee and transferor of the fixed asset (i.e. agreement by both parties)
2. Any deemed transfer price for the fixed asset should be processed via journal entry by the purchasing department as an internal grant.
3. The Financial Control team will prepare the necessary entries to transfer the fixed asset between the departments concerned. The fixed asset cost and accumulated depreciation will transfer to the new cost centre when the fixed asset is transferred in Finance One.

14. Control of fixed assets

1. An important University internal control objective is the safeguarding of fixed assets. University fixed assets are widely distributed and the responsibility for their safeguarding rests with the Head of Department.
2. All fixed assets should be secure wherever possible. Fixed assets should only be removed from the premises with the permission of the Head of Department and a system for recording the location of such fixed assets should be in place.

15. Fixed asset audits

1. The Asset Register is one of the key tools in ensuring fixed assets can be accounted for. An audit of the main asset register will be carried out on a regular basis to ensure that the accuracy and completeness of the register is maintained.
2. An annual verification of high value fixed assets in selected classes will be performed.  Items will be selected based on the original cost value. Verification should be actioned by 20 December each year and documented on the appropriate record sheet.
3. An audit will take the form of a cyclical check to ensure that all assets per the register are still in the department, that all new assets have been correctly added to the register, and that other information included in the register is accurate.
4. In order to achieve these checks a Financial Services Division representative will assist the department to conduct the checking on a test basis.

16. Insurance

1. The University has an extensive insurance programme aimed at minimising the risk of significant loss to the University. The insurance policy has a high level of excess which reduces the premium costs but means that departments incur the first $1,250,000 of every claim (except for motor vehicle claims). Hence insurance does not remove the obligation to manage risk within the departments.
2. The Marine Cargo transport policy covers goods in transit within New Zealand and Australia only. Staff taking assets to other countries, which exceed the covers available on the University Travel Insurance, must arrange additional Marine Cargo transport insurance cover.

Related policies, procedures and forms

• Appendix I: Asset creation flow chart (PDF)
• Insurance Procedure
• TEC Asset Management
• Guidance on sale of surplus assets to staff (PDF)

Contact for further information

For further information, contact:

Treasury Assets and Insurance Accountant
Email fsd.assets@otago.ac.nz