CLASSIFYING PROPERTY - CAPITALIZED PROPERTY - 8602

(Revised: 10/2020)

Property is capitalized for accounting purposes when certain conditions are met. Capitalization means to record the property in the accounting records as capital assets if they meet predetermined criteria, commonly known as the capitalization threshold.

Assets/property that meet the capitalization threshold should be capitalized at the time of acquisition. Source documents supporting the acquisition should be retained and used consistently to maintain a satisfactory system of internal controls as required by the State Leadership Accountability Act. See Government Code sections 13400-13407.

Tangible and intangible capital assets must meet the following three requirements to be capitalized:

 

1. Have an expected useful life of greater than one year.
2. The purchase cost or internally generated cost of each individual unit must meet the capitalization threshold of $5,000 or more (e.g., four identical assets which cost $3,000 each, for a $12,000 total, would not meet the requirement).
3. Are used to conduct state business.

Capitalized costs include the purchase price or construction cost and the related costs incurred that are necessary to place the asset in its intended location and in a condition where it is ready for use. Related costs will depend on the nature of the asset acquired or constructed. See SAM sections 8610.1 – 8615.3.

When the above three requirements are not met, the property will be recorded as an expenditure and not a capital asset in the general ledger. See SAM section 8603, Non-Capitalized Property.