Division of Financial Services
Cost and Capital Assets
To set accurate user fees, you must be able to identify the revenue and expense related to each recharge operation. However, you are not required to have a separate account for each recharge operation.
You are required to have a separate account(s), coded to either function 4420 or 4520. If you are charging depreciation in your rates, the unit should also have a corresponding renewal and replacement account (sub-fund RVREPL) and higher education function code of 442R or 452R.
You are required to have a separate account(s), coded to function 5000. The unit should also have a corresponding renewal and replacement account (sub-fund RVREPL) and higher education function code of 500R.
You are required to have a separate account(s), coded to function 5000. The unit should also have a corresponding renewal and replacement account (sub-fund RVREPL) and higher education function code of 500R.
In order to account properly for the activities of a recharge operation or service facility, the expenses of a period must be matched with the revenues relating to the same period. This is accomplished by recording both in the same account or series of accounts, which will also help identify the deficit or surplus for a given year and enable the unit to adjust a future user fee.
Record recharge operation and service facility revenue from other university accounts using the Earnings — Interdepartmental object code level IDRV. Most units will use object code 4020 for internal sales revenue. Record revenue generated from external cash sales using object code level OTRV. Normally, object codes 4010 — Sales of Goods or 4060 — Sales of Services would be the most appropriate object code to use.
For non-cash sales the unit can book the revenue to object code 1200 — Accounts Receivable Billed. When using this method, the unit should credit this object code when the bill is paid, eliminating the receivable.
Caution: Do not use a reverse expense object code to record revenues in a recharge operation or service facility account.
Record recharge operation and service facility expenses using the proper expense object codes, not a single code for all expenses.
Note: If your department chooses not to charge certain users of a service facility (i.e., provide a user subsidy), process a Distribution of Income and Expense (DI) e-doc to record the subsidized fees as an expense in your department's account and as a revenue in the service facility's account (for more information see the Subsidies).
Normally, the only allowable transfers into a recharge operation or service facility accounts are to fund user fee subsidies. Normally, the only allowable transfers out of recharge operation or service facility accounts are those to Renewal and Replacement Plant Fund Accounts for equipment replacement or renewal, as outlined in University Policy 3.10, Recharge Entities, Ithaca Campus Units.
Recharge operation and service facility accounts must not close to other accounts as part of the year-end closing process. Account balances must be rolled forward to the next accounting period to ensure that surpluses and deficits are properly reflected in the calculation of user fees.
A lease is an agreement that conveys the right to use property for a stated period of time. Because of certain tax, cash flow and other advantages, leases have become an important alternative to the outright purchase of property. Service facility managers contemplating leasing equipment are required to contact Cornell Procurement Services. All third-party leases must be reviewed, approved, and signed by a purchasing agent.
A lease that transfers a substantial portion of the benefits and risks inherent in the ownership of property is called a capital lease. In order for a lease to be classified as a capital lease, the lease must meet one or more of the following four criteria:
A capital lease is accounted for by the lessee as the acquisition of an asset, and the incurrence of a liability. The initial recording value of the leased asset is the lesser of the fair value of the leased asset or the present value of the minimum lease payments, excluding insurance, maintenance, taxes, and profits paid to the lessor. The asset is depreciated in the same manner as other Cornell assets. The useful life of the asset is either (a) the estimated economic life, or (b) the lease term, depending on which of the above four criteria was used to classify the lease. If either of the first two criteria was used in classifying the lease, the asset is depreciated over the economic life of the asset. In all other cases, the asset is depreciated over the lease term.
All leases not qualifying as a capital lease are classified as operating leases. Rental expense relating to an operating lease is amortized, on a straight-line basis, over the periods in which the lessee derives benefit from the asset.
There are several tax concerns regarding recharge operations and service facilities. Two are outlined below, though others may arise. If after reading this segment you need further guidance, send your questions to the University Tax Office.
Income from users who are not Cornell departments, students, faculty, or staff members may be subject to income tax. The recharge operation or service facility must separately identify such income. An informal method, such as a periodic survey of users, is sufficient for this purpose. The survey should be taken by the operation or facility manager at intervals during the year (such as one day a month) and should include the type of customer and amount of the sale. For purposes of the annual UBIT analysis, the manager can calculate the percentage of sales by type of customer and apply these percentages to total annual sales.
Note: Recharge operations need not track the information at this time. The University Tax Office will determine, based upon its annual review of gross revenues, which recharge operations will be asked to do so.
Units of the university are required to collect sales tax on the sale of goods from a "store" (a place or establishment where goods are sold from display with a degree of regularity, frequency, and continuity). This requirement does not apply if the sale is to another Cornell department, if the goods are delivered out-of-state, or if the customer provides a properly completed New York State exemption certificate.
For more information, contact the University Tax Office.
Recharge entities with inventories or stock-on-hand valued at $100,000 or more must establish an inventory asset account on the university's general ledger. Those recharge operations or service facilities with inventory or stock on hand valued at less than $100,000 may still be required to have an inventory asset account. Contact the manager of Accounting for assistance in evaluating whether it is necessary to have an inventory asset account.
If your recharge entity has established an inventory asset account, you must perform a physical inventory at least annually and reconcile the inventory to the accounting records. If your recharge entity is not required to have an inventory asset account, you may still choose to maintain internal inventory records. Inventory losses (i.e., shrinkage) or gains should be considered positive or negative operating expense of the operation.
A recharge operation typically occupies rooms not dedicated to its specific function, but used for other purposes, such as a fax machine located in an administrative office. It is not necessary to differentiate the functional classification of the space occupied by the recharge operation from the remaining area in the room.
A service facility typically occupies rooms dedicated solely to its specific function. Since the facilities expenses (i.e., utilities, custodial, and maintenance costs) of the service facility are normally paid by the university and not recovered through the service facility user fees, they are included in the university's indirect cost rate. To accurately assign these costs, the space associated with the service facility must be functionally coded to the activities supported by the service facility as Instruction, Research, Public Service, or Ancillary Support (an activity that is none of the others).
Identify the rooms occupied by the service facility among these four space functions based on percentage of use. You may use an analysis of the accounts charged by the service facility or the customers served to estimate the functional usage of the rooms.
If there are customers outside the university, a percentage of space should be coded to 7.2 – Outside Agencies. For specialized Animal Recharge Services, functional coding of 4.9 might be appropriate. This methodology must be adequately documented.
Note: A complete discussion of the coding of space is available in University Policy 2.7, Reporting the Use of Facilities. Contact the manager of Cost Analysis for assistance with issues on the functional coding of space.
Your space coding will depend on what facilities costs are included in your rate. Please contact the manager of Cost Analysis for assistance.
In accordance with OMB Uniform Guidance, section 506(f) ii Circular A-110, Section C.53, units must retain all records pertaining to recharge operation and service facility activity for three years starting from the end of the fiscal year (or other accounting period) covered by the rate submission. This includes backup documentation of how the rates were derived and any invoices billed during the fiscal year. Contact the manager of Cost Analysis to obtain this date for further information.
A recharge operation or service facility may recover the acquisition costs of capital assets (e.g., equipment) by including depreciation as a component of the total costs to be recovered through the user fee. By recovering capital asset acquisition costs in this manner, a portion of the assets cost is assigned to the periods in which the asset is providing a benefit.
Caution: It is important that the federal government not be charged for a piece of equipment directly through a user fee and indirectly through the depreciation component of the indirect cost rate. To preclude the possibility of such double-recovery, the following actions are required:
The recognition of depreciation expense for a particular asset commences in the year in which the asset is placed into service. Depreciation expense is calculated using the straight-line method, and the university calculates depreciation on a monthly basis for all non-building capital assets.
Under this method, depreciation expense is calculated by dividing the assets acquisition cost by its depreciable life.
For example (see the table below for a total breakdown):
| Years | Fiscal Year | Months Per Fiscal Year | Monthly Depreciation | Total Depreciation |
|---|---|---|---|---|
| Total depreciation | 60 | $1,000.00 | $10,000.00 | |
| Year 1 | 2015 | 9 | $166.67 | $1,500.00 |
| Year 2 | 2016 | 12 | 166.67 | 2,000.00 |
| Year 3 | 2017 | 12 | 166.67 | 2,000.00 |
| Year 4 | 2018 | 12 | 166.67 | 2,000.00 |
| Year 5 | 2019 | 12 | 166.67 | 2,000.00 |
| Year 6 | 2020 | 3 | 166.67 | 500.00 |
For assets that are flagged as being part of a service facility, units can obtain the annual depreciation amount directly from the Kuali Financial System (KFS) or by running query in OBIEE.
The following is a list of depreciable lives approved by the federal government that should be used when calculating the annual recovery cost of moveable equipment:
| Equipment Type | Useful Life in Years |
|---|---|
| Computers | 3 |
| Vehicles | 4 |
| Audiovisual, business machines, lab (high-tech) | 5 |
| Clinical lab, research lab (mechanical) office furniture, tools, miscellaneous | 10 |
Caution: If depreciation included in a user fee is based on a different useful life than shown above, it must be justified, documented, and approved by the manager of Cost and Capital Assets.
If the recharge operation or service facility receives a piece of donated equipment, the fair market value of that equipment is used to calculate the amount of depreciation recoverable through the user fee.
Recharge operations and service facilities that wish to include equipment depreciation cost in their user fees must establish a Renewal and Replacement Plant Fund Account (sub-fund RVREPL) and higher education function code of 442R or 452R. Contact the supervisor of Plant Accounting for assistance with establishing a Renewal and Replacement Plant Fund Account.
Before fiscal year-end the unit should process a journal transferring funds to the Renewal and Replacement Account based on the actual deprecation for the year. A unit may choose to transfer this revenue on a more regular basis. Always use appropriate transfer object codes (i.e., 7000 -- Transfer from Current Operating and 8040 – Transfer Out to Renewal and Replacement). Apart from funding received from sources external to recharge operations and service facilities, the only means of generating funds from which to acquire capital assets is from the depreciation of existing assets.
Caution: The cumulative amount of transfers to the Renewal and Replacement Plant Fund Account in any fiscal year must not exceed the amount of depreciation expense that was included in the user fee calculation.
Capital asset purchases are not to be charged to recharge operation or service facility accounts. Capital asset purchases should be charged to the Renewal and Replacement Plant Fund Account to the extent that funds are available. If the balance in the Renewal and Replacement Plant Fund Account is insufficient to cover the acquisition cost of an asset, the department must secure additional funding from a source external to the recharge operation or service facility. Renewal and Replacement Plant Fund Accounts must not be in overdraft (deficit).
Caution: The depreciation amount used in the user fee calculation will need to be adjusted if the federal government has provided full or partial funding towards the purchase of a particular piece of equipment in a recharge operation or service facility. Depreciation must not be charged for the portion of equipment purchased with federal funds.
