Financial Reporting and Safekeeping of Capital Assets Policy

On this page:

1. Purpose
2. Application and Scope
3. Definitions
4. Principles
5. Accountability and Compliance
6. Rules
7. Policy Revision Date
8. Attachments
   • Appendix A - Asset Capitalization Procedures
   • Appendix B - Moveable Capital Asset Disposal Procedures
   • Appendix C - Capital Asset Annual Physical Count Procedures
   • Attachment A - Authorization for Disposal of Moveable Capital Assets (accessible through MyMohawk SSO only)
   • Attachment B - Authorization for Budget Fund Allocation (accessible through MyMohawk SSO only)
   • Attachment C - Sample Inventory Count Sheet (PDF)
9. Specific Links

1. Purpose

The purpose of Mohawk College's Asset Capitalization Policy ("policy") is to ensure:

• the physical assets of the College are properly recorded on the College's capital asset sub-ledger.
• the physical assets of the College are accounted for through periodic inventory counts.
• the cost of acquiring capital assets of the College is amortized annually.
• the funding received for the specific purpose of acquiring capital assets of the College is amortized annually.
• that capital assets are properly accounted for when they are disposed.
• leasing of equipment is properly account for and approved.

2. Application and Scope

• This policy applies to all College employees who are responsible for:
• the acquisition of College assets;
• recording the acquisition of College assets in the capital asset sub-ledger;
• taking periodic counts of College assets;
• calculating and recording the annual amortized expense and revenue for College assets in the College's general ledger and capital asset sub-ledger;
• disposing of College assets;
• recording the disposal of College assets in the capital asset sub-ledger; and the
• leasing of equipment.

3. Definitions

"Accumulated amortization" means the cumulative amount of all amortization expense.

"Amortization expense" means allocating the capital cost of capital assets to College operating expense over the asset's expected useful life.

"Amortization revenue" means allocating the capital revenue of capital assets to College operating revenue over the asset's expected useful life.

"Asset tag" means the Mohawk College label, with a unique asset identifier number, which is permanently affixed to all capital assets of the College.

"Betterments" means the cost incurred to enhance the service potential or effectiveness of a capital asset. Service potential may be enhanced when there is an increase in the previously assessed service capacity, operating costs are lowered, the useful life is extended, or the quality of output is improved.

"Capital assets" means identifiable tangible properties, such as land, building and equipment that meet ALL of the following criteria:

1. Are held for use in the provision of services, for administrative purposes, for production of goods or for the maintenance, repair, development or construction of other capital assets.
2. Have been acquired, constructed or developed with the intention of being used on a continuing basis.
3. Are not intended for sale in the ordinary course of business.

"Capital cost" means the total cost of acquiring a capital asset. The cost includes the purchase price and all normal and reasonable expenditures necessary to make the asset operational (e.g. shipping, installation, duty, non-recoverable HST, etc.).

"Capital lease" means a lease that transfers substantially all the benefits and risks of ownership to the College. The College will account for capital leases as a capital asset and an obligation.

"Capital revenue" means the restricted contributions to the College for the purchase of capital assets. Capital revenue is deferred and amortized into revenue at the amortization rate for the related capital asset.

"FOAPAL" means the College's chart of account - Fund, Organization, Account, Program, Activity, and Location.

"Maintenance" means costs required to maintain the current service potential of a capital asset or facilities.

"Moveable assets" means assets that are able to be moved or rearranged and include major equipment, furniture and equipment, vehicles, computers and software.

"Net book value" means the value at which the asset is carried on the College's balance sheet. It is equal to the capital cost of the asset less accumulated amortization.

"Operating Lease" means a lease in which the lessor does not transfer substantially all the benefits and risks incident to ownership of property to the College. The item being leased is returned to the lessor at the end of the term. the College will account for operating leases as an expense.

"Point-of-sale" means the cashiering system used by the College to process payments.

"Real estate property" means land, buildings and improvements thereto.

"Repairs" means costs required to repair or restore current facilities or a capital asset at the College.

4. Principles

A. Accountability

The College is required by law to follow the Public Sector Accounting Standards when preparing financial statements for Mohawk College. These rules state that the College must capitalize and amortize its capital assets, must periodically verify the continued existence of its assets, and must remove assets from its books when they are no longer owned and/or used by the College.

B. Management of Resources

Asset inventories are necessary for the efficient management of capital resources. Mohawk College shall maintain inventories of furniture and equipment, computers and software, vehicles, building construction, leasehold improvements, land and site improvement.

5. Accountability and Compliance

5.1 Accountability Framework

This policy has been approved by the Senior Leadership Team.

5.2 Compliance

The Chief Financial Officer is authorized to ensure that information within this policy is applied.

6. Rules

6.1 Purchase of Capital Assets

• At the time of acquisition, the requester must follow the Mohawk College Purchasing Policy.
• All capital assets with a pre-tax cost of $5,000 or more, and a useful life greater than 1 year are capitalized. Items with a value of less than $5,000 are considered non­ capital purchases, and are expensed in the period incurred.
• The bulk purchase of items, such as computers, that are financed via a loan is capitalized even though the individual values may be less than $5,000.
• Renovations and alterations that meet the definition of a betterment (see Section 3) will be capitalized. Each capital project will be examined by the Financial Services department to determine if it should be considered a capital betterment project. All other renovations and alterations are considered repairs and maintenance and are not capitalized.
• Purchased capital assets are recorded at capital cost.
• Donated capital assets are recorded at fair value at the date of donation (refer to Donations Policy CS-1006-2007 for further information).
• Assets acquired through a capital lease will be considered a capital asset for accounting purposes. Leases are reviewed by the Financial Services department to determine whether it meets the criteria for capitalization. Purchase of capital assets under a capital lease must be pre-approved by Financial Services. *
• The use of the College Purchasing Card to acquire a capital asset is prohibited (see Purchasing Card Policy CS-1002-2009). Purchasing a capital asset and seeking reimbursement through an expense claim form is also prohibited (see Travel Expenses and Hospitality Policy CS-1000-2013).

6.2 Capital Asset Categories and Account Codes

Each capital asset is assigned an account code based on the category it falls into. Refer to P2 in Appendix A for applicable categories and accounts.

6.3 Amortization Rates

Capital assets are amortized on a straight-line basis using the following rates based on the class of capital asset:

In the year of acquisition of a capital asset, the rate of amortization will be 50% of the normal amortization rate.

Subsequent to the year of acquisition the normal amortization rate will apply.

6.4 Safeguarding of Capital Assets

Financial Managers in organizational units are responsible for safeguarding capital assets in their area, and for the use, location tracking and initialization of disposal of these assets.

All moveable capital assets should have an asset tag, which is to remain on the asset permanently.

Financial Managers are responsible for completing the physical count of capital assets in their area as per instructions provided by Accounting Services. Refer to Appendix C - Capital Asset Annual Physical Count Procedures.

6.5 Leasing of Equipment

The terms and conditions related to any leasing of equipment on behalf of Mohawk College must be reviewed by Purchasing Services to ensure that the terms offered within the lease agreement are in the best interests of the College. The terms and conditions are subject to review and negotiation by the Director, Strategic Procurement.

Financial Services will assess the type of lease (capital versus operating) based on the terms and conditions of the lease agreement. Purchase of capital assets under a capital lease must be pre-approved by Financial Services.

Lease agreements/contracts must adhere to guidelines within the Contract Management Policy GC-4002-2020 and must be signed by authorized signing officers for the College.

6.6 Disposal of Capital assets

6.6.1 Real Estate Property

The Chief Building and Facilities Officer is responsible for facilitating the sale of College real estate property.

The College will obtain a fair market value assessment of property prior to providing it for sale. All recommendations for disposal of real estate are to be approved by the Board of Governors.

In accordance with the Ministry of Colleges and Universities (MCU) Proceeds from Sale or Encumbrance of College Property Binding Policy, the utilization of the proceeds from the sale of College owned property that was:

• Acquired from the government through the transfer of title for a nominal amount; or
• Purchased with direct funding support provided by the provincial government of the day for that purpose.
• requires the approval of the MCU.

The proceeds will be directed towards new capital initiatives and will be limited to facilities with a high academic component rather than those that primarily support administrative or ancillary operations.

The College will obtain written approval from the MCU prior to utilizing any funds.

When real estate property not acquired from government assistance is sold, Accounting Services will calculate the gain or loss on the disposal of the asset. If there is a gain, the following levels of approval are required for use of the net proceeds:

• Greater than $1,000,000 requires Board approval
• Less than $1,000,000 requires approval from the Mohawk Executive Group

6.6.2 Moveable Assets

Financial Managers in organizational units are responsible for initiating the disposal of moveable capital assets in their area.

All recommendations for disposal (scrap, sale or donation) of a College moveable asset must be done through the completion of the "Authorization for Disposal of Moveable Capital Assets" form (Attachment A, and available on MyMohawk under the Employee Tab, Financial Services section).

Purchasing Services is responsible for any sale or donation of College assets (excluding the disposal of land and buildings). Refer to Appendix B - Moveable Capital Asset Disposal Procedures for details on asset disposals.

7. Policy Revision Date

7.1 Revision Date

February 2028

7.2 Responsibility

The Chief Financial Officer is responsible for reviewing this policy every five years or earlier when required.

8. Attachments

• Appendix A - Asset Capitalization Procedures
• Appendix B - Moveable Capital Asset Disposal Procedures
• Appendix C - Capital Asset Annual Physical Count Procedures
• Attachment A - Authorization for Disposal of Moveable Capital Assets (PDF)
• Attachment B - Authorization for Budget Fund Allocation (PDF)
• Attachment C - Sample Inventory Count Sheet (PDF)

9. Specific Links

• CS-1202-2011 Purchasing Policy
• CS-1000-2013 Travel Expenses and Hospitality Policy
• CS-1002-2009 Purchasing Card Policy
• CS-1006-2007 Donations Policy

Appendix A - Asset Capitalization Procedures

P1. Responsibilities of Organizational Units Financial Managers

P1.1 Initiate and approve all capital asset purchases in their organizational unit and forward the Purchase Requisition to the Purchasing Services department.

The Purchase Requisition should include the following information:

• Appropriate capital account code combination (FOAPAL) - (see P2 below for account codes)
• Campus and room location of the capital asset
• A detailed description of the item to determine the appropriate asset category

P1.2 Safeguard capital assets in their area, and for the use, location tracking and initialization of disposal of these assets.

P1.3 Affix the asset tag provided by the Accounting Services department to the asset, and ensuring that all capital assets in their area have an asset tag.

P1.4 Complete the annual capital asset inventory count in their area - following instructions provided by the Accounting Services Department.

P1.5 Initiate the disposal of capital assets in their area by completing the "Authorization for Disposal of Moveable Capital Assets" form (Attachment A, and available on MyMohawk under the Employee Tab, Financial Services section).

P2. Capital Asset Categories and Account Codes for purchases that meet the criteria for a capital asset

Note: The bulk purchase of items, such as computers, that are financed via a loan is capitalized even though the individual values may be less than $5,000. Consult with the Financial Services department to determine correct account and category.

Accounts for Purchases Not Meeting Criteria for a Capital Asset

Purchases that do not meet the criteria of a capital asset, which will be consumed within 1 year, should be charged against the appropriate non-salary object codes such as:

44201- Suppl-Admin- Office
44001- Suppl- Instruction-Gen
450xx- Maintenance- Equipment-xx (specific)
471xx- Maintenance- Building-xx (specific)

Purchases that do not meet the criteria of a capital asset, which will not be consumed within 1 year, should be charged against one of the following accounts:

44090-Instructional-Software-Licenses
48501-Suppl-lnstruction -Furn & Equip
48701-Suppl-lnstruction-lnfo Tech [software (excluding upgrades and licenses), computers, printers, etc.]
44390=Admin-Software-Licenses
48901-Supplies-Admin-Furn & Equip
49101-Supplies-Admin-lnfo Tech [software (excluding upgrades and licenses), computers, printers, etc.]

Purchases deemed to be operating leases should be charged to one of the following accounts:

48401 Rental-Instruct-Furn & Equip
48601 Rental-Instruct-Info Tech
48801 Rental-Admin-Furn & Equip
48805 Rental-Admin-Trailer
49001 Rental-Admin-lnfo Tech

P3. Responsibilities of the Accounting Services Staff

P3.1 Create the asset tag for all capital assets, and deliver asset tags to the organizational unit where the capital asset is located within 2 weeks of entering the asset on the database.

P3.2 Enter new capital asset information into the capital asset sub-ledger. Ensure the description of the asset is clear and concise for easy identification during physical counts.

P3.3 Ensure the asset has been capitalized at the correct dollar amount and recorded in the capital asset sub-ledger.

P3.4 Balance the amount of capitalized assets in the capital asset sub-ledger to the amount of capitalized assets recorded in the general ledger accounts.

P3.5 Calculate and record the annual amortization expense and amortization revenue for College assets in the College's general ledger and capital asset sub-ledger.

P3.6 Coordinate capital asset inventory counts for assets with a net book value greater than zero on an annual basis, to ensure that the assets are on hand.

• Examine differences between the count and the assets recorded in the capital asset sub-ledger to determine if internal controls need to be strengthened.
• Remove any asset determined to no longer exist, from the capital asset sub-ledger, along with its related accumulated amortization based on the asset inventory count and receipt of approved Request for Disposal form. The loss on disposal will be recorded and disclosed on the College's statement of operations.
• Add new assets identified during an inventory count to the capital asset sub-ledger.
• Update the capital asset sub-ledger if the asset inventory count indicates an asset is in a different location than the location recorded in the capital asset sub-ledger, or the description needs updated.

P3.7 Ensure all disposed assets are properly removed from the capital asset sub ledger.

P3.8 Calculate the gain or loss on disposal of assets, which is calculated as the difference between the net proceeds on disposal of the capital asset and the asset's net book value at the time of disposal. The net proceeds on disposal are the proceeds on disposal of the asset less the costs of disposing the asset. The asset's net book value is the original cost of the asset less accumulated amortization up to and including the year of disposal.

P3.9 Update the database periodically by removing old fully amortized assets based on threshold criteria approved by the Chief Financial Officer and the College's External Auditors.

P3.10 Randomly select organizational units on an annual basis to audit their active assets (all assets included on the Inventory Count and Inventory information sheets).

• Physically identify all assets on listing to ensure still in use by the area
• Obtain an explanation from the organizational units Financial Manager for any assets which can't be located
• Organizational units where issues are identified, will be subject to more frequent audits

P4. Key Contacts

Primary contact:

General Accounting Clerk Room: F104
Tel: 905-575-2053

Secondary contact:

Manager, Accounting Services Room: F104B
Tel: 905-575-2105

Appendix B - Moveable Capital Asset Disposal Procedures

P1. Items for Scrapping

If an item is no longer in working order, damaged or worn in such a manner to preclude sale, it will be recommended for scrap. The "Authorization for Disposal of Moveable Capital Assets" form (Attachment A, and available on MyMohawk under the Employee Tab, Financial Services section) must be completed and forwarded to the Manager, Purchasing Services, who will determine appropriate action for disposal of the item and forward a signed copy of this form to Accounting Services for capital asset control.

P2. Items for Reassignment

If an item is no longer in use in one departmental area of the College and another area of the College has use for the item, it can be reassigned by the Financial Manager of the area holding the asset. To complete the reassignment, the Financial Manager of the area holding the asset must communicate in writing with the Manager, Accounting Services outlining the following:

1. the description of the item
2. serial number
3. new room number/campus location
4. asset number
5. new organization code

P3. Items for Sale (includes items being considered for trade-in)

For all items, the "Authorization for Disposal of Moveable Capital Assets" form (Attachment A, and available on MyMohawk under the Employee Tab, Financial Services section) must be completed and forwarded to the Manager, Purchasing Services. The Manager, Purchasing Services will first consider redeployment of the asset elsewhere in the College. When an item with a capital asset number is being relocated from one Mohawk College department to another, the Manager, Purchasing Services must advise the Manager, Accounting Services in writing.

If the College has no requirement for the asset, the asset will be made available for sale or donation to outside parties.

Assurance of arm's length transactions and the appropriate identification/collection of taxes (GST/HST, if applicable) are the responsibility of the Manager, Purchasing Services.

P4. Process of Sale

Items with individual market value under $5,000 can be disposed of through a liquidation company, contract for services with shared proceeds, sold at fair market value to any known interested parties or donated to a charitable organization. The sale or donation method will be identified by the Manager, Purchasing Services in consultation with the College department, which has identified the surplus or obsolete items.

The Manager, Purchasing Services, in consultation with the College department which has identified the surplus or obsolete item(s), will post item(s) with a market value of over $5,000 on a national website, (i.e.GovDeals), where the item(s) will be auctioned off to the highest bidder.

If items offered for sale are not sold, the Manager, Purchasing Services in consultation with the department which has identified the surplus or obsolete items may dispose of these items in the most appropriate cost effective manner.

The College reserves the right to withdraw items from the sale at any time in the process, including after written sealed bids have been reviewed. The College reserves the right to reject or accept any and all bids. The item is offered on an "as is - where is" basis. The successful bidder must remove the item within seven (7) working days of notification of a successful bid.

If the Manager, Purchasing Services has interest in bidding on an item identified for sale - he/she will remove him/herself from the process and the Chief Financial Officer will appoint someone else to act on his/her behalf.

PS. Proceeds from the Sale

All proceeds from the sale of capital items are to be deposited through a College point-of-sale using a Departmental Deposit Form (available on MyMohawk under the Employee Tab, Financial Services section) to FOAPAL: 1100-2531-39950-000000-20-FF and must be accompanied by a copy of the "Authorization for Disposal of Moveable Capital Assets" form.

For trade-ins, the proceeds received will be booked to the FOAPAL above by Accounting Services upon receipt of the vendor invoice for the new asset purchased. The invoice should include a description of the asset traded in (including model # and serial# where applicable) and trade-in value received.

For proceeds from the sale of items originally funded from departmental funds, the Director of the area may make a formal request to secure these funds by way of a budget allocation by completing an "Authorization for Budget Fund Allocation" form (see Attachment B). This request is to be directed to the Chief Financial Officer ("CFO") for approval.

NOTE: If it is determined that items sold have originated from other than departmental funds (i.e. Facility Renewal Funding, Special Grant, Board Reserves, Capital Planning Committee Funding, etc.) the proceeds may not be secured by the selling department. Approval from the CFO will be required before any proceeds are allocated to the selling department.

When the asset is sold prior to being fully amortized, the total proceeds to be assigned to a department via a budget allocation will be the lesser of actual proceeds received and gain on disposal of the asset as determined by Accounting Services. The total budget proceeds assigned to a department must be utilized in the current fiscal year (i.e. the carryover of proceeds to subsequent fiscal years is not allowed).

Appendix C - Capital Asset Annual Physical Count Procedures

P.1. Capital Asset Items for Counting

Any moveable capital asset that has a net book value greater than zero in the year of the physical count will be included in the Capital Assets Annual Physical Count.

P.2. Process of Count

Each year the Accounting Services department sends to all Financial Managers the following documents:

• Instructions for Capital Assets Annual Physical Count Memorandum which includes the timelines for conducting the count.
• Inventory Counts Sheets for the Financial Managers areas of responsibility (sample copy Attachment C). The counts sheets detail the assets to be counted; their Org Code; Asset ID#; Asset Description; Serial# if applicable; Invoice Date of the asset acquisition; Total Cost of the asset; the Purchase Order#; Room #; Campus Location and an area for additional information.
• Inventory Information Sheets detailing all assets with a net book value of zero within the Financial Managers area of responsibility. These assets do not have to be counted, it is for information purposes only.

Once the Instructions for Capital Assets Annual Physical Count, the Inventory Count Sheets and the Inventory Information Sheets have been distributed to the Financial Managers the count of assets can begin. The Financial Managers are instructed to use the Inventory Count Sheets to:

1. Locate each asset on the sheets.
2. When the asset has been located check the box for the asset in the Check if Located column on the count sheet. If the asset cannot be located make a note in the Additional Information column on the count sheet describing why the asset could not be located.
3. Confirm the asset's description. If the description does not accurately reflect the asset the Financial Manager should change the count sheet to show a preferred description.
4. Confirm the asset's correct Room# and Campus. If the actual Room# or Campus is different than shown on the count sheet the Financial Manager must change the count sheet to show the correct Room # or Campus.
5. When the asset has been located the Financial Manager must look for an asset tag affixed to the asset.
   
   If there is an affixed asset tag with the same number as shown on the count sheet - check the box for the asset in the Check if Tagged column on the count sheet.
   
   If an asset tag cannot be found for the asset leave the check box blank for the asset in the Check if Tagged column on the count sheet.
   
   If there is an asset tag affixed but it is not the same number as listed on the count sheet - make a note in the Additional Information column of the count sheet.
6. If the Financial Manager has any comments about an asset such as the asset has been disposed or why the asset could not be located the Financial Manager will make a note in the Additional Information column on the count sheet.
7. If during the asset count a tagged asset is located that does not appear on the count sheet the Financial Manager is required to add the asset number, asset description, supplier name if known, serial #, room # and campus to the count sheet.
8. The completed Inventory Count Sheets are to be returned to the General Accounting Clerk by the count deadline. The count deadline date is defined in the Instructions for Capital Assets Annual Physical Count Memorandum.
9. The Financial Managers should review the Inventory Information Sheets and return to the General Accounting Clerk by the count deadline if there are any changes required to the information of the asset (i.e. description change, location change, disposal of asset etc.)

P.3. Analysis of the Count

When the completed Inventory Count sheets and Inventory Information Sheets are completed and returned to Accounting Services - staff in Accounting Services will:

• Examine differences between the count and the assets recorded in the capital asset sub-ledger to determine if internal controls need to be strengthened.
• Remove any asset determined to no longer exist, based on the asset inventory count and submission of an approved Authorization for Disposal of Moveable Capital Assets form, from the capital asset sub-ledger, along with its related accumulated amortization. The loss on disposal will be recorded and disclosed on the College's statement of operations.
• Add new assets identified during an inventory count to the capital asset sub ledger.
• Update the capital asset sub-ledger if the asset inventory count indicates a preferred asset description or if an asset is in a different location than the location recorded in the capital asset sub-ledger.

Any assets not located during the count will be:

• Further investigated by the General Accounting Clerk to locate the asset.
• Be recorded on the Capital Asset database as disposed. Approval for disposing of missing assets is required from the College's Controller