CLASSIFYING PROPERTY - CAPITALIZED PROPERTY - 8602
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.
Agencies/Departments shall capitalize the asset/property that meets the capitalization threshold at the time of acquisition. Agencies/Departments will retain acquisition source documents to maintain a satisfactory system of internal control as required by the State Leadership Accountability Act. For information on 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:
- Have an expected useful life of greater than one year.
- The purchase cost or internally generated cost of each unit must meet the capitalization threshold of $5,000 or more (e.g., four identical assets that cost $3,000 each, for a total of $12,000, would not meet the requirement).
- 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. For information on tangible and intangible capital assets, see SAM Sections 8610.1 through 8615.5.
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. For information on non-capitalized property, see SAM Section 8603.
Right-to-Use Lease Assets
Right-to-use lease assets must meet the following three requirements to be capitalized:
- Right-to-use lease contracts with $100,000 or more in total future lease payments over the lease term.
- Have a lease term greater than 12 months.
- The underlying tangible capital asset for financed purchases will retain the current capitalization threshold of $5,000 per unit.
For a description of right-to-use lease assets, see SAM Section 8615.4.
Right-to-Use Subscription-Based Information Technology Arrangement (SBITA) Assets
Right-to-use SBITA assets must meet the following requirements to be capitalized:
- The contract conveys control of the right to use another party’s (i.e., a SBITA vendor’s) IT software, alone or in combination with tangible capital assets (the underlying IT assets), as specified in the contract for a period of time in an exchange or exchange-like transaction
- The minimum noncancelable contract term is greater than 12 months.
- Right-to-use SBITA contracts with $50,000 or more in total upfront or future subscription payments over the subscription term.
- The underlying IT assets are used to conduct state business.
For a description of right-to-use SBITA assets, see SAM Section 8615.5.