ACCOUNTING FOR CAPITAL EXPENDITURE

What is classed as Capital Expenditure Expenditure on Assets that: are intended for use on a continuing basis in the companys activities (Companies Act) have physica substance and are he d for use in the production or supp y of goods and services! for renta to others! or for administrative purposes on a continuing basis ("#$ %&) 'herefore expenditure incurred to ac(uire ong)term assets such as property! p ant or e(uipment shou d be capita ised* 'his can inc ude the fo o+ing: ,abour costs of the entitys o+n emp oyees arising in the construction or ac(uisition of the asset* 'he -niversity uti ises this definition to charge .ro/ect 0anagers sa aries to Capita .ro/ects 0ini)pro/ects comprising invoices of ess than 1234 (the -niversitys materia ity thresho d be o+ +hich expenditure +ou d not norma y be capita ised) +here the tota expenditure is greater than this amount eg bu 4 .C purchases or +here the ac(uisition of a arge piece of e(uipment is comprised of severa sma er purchases* Craig $herrit shou d be advised of these to ensure that they are capita ised* As a genera ru e! subse(uent expenditure on fixed assets shou d be charged to a #evenue budget* $uch expenditure is genera y of a repairs and maintenance nature and does not improve the asset* 5o+ever subse(uent expenditure can be capita ised +here it: .rovides an enhancement of the economic benefits of the asset or re ates to a ma/or inspection or overhau of the asset that restores the economic benefits of the asset Expenditure that sh!uld n!t "e capitalised 'he above inc udes: Administrative and other genera overheads* $pecifica y hospita ity! trave ! turfing and bushes are not capita and if charged to a Capita .ro/ect code shou d be recharged to a #evenue budget* ,abour costs not re ated to the specific asset C!din# $tructure %!r Capital Expenditure 6ui dings 7omina 8 AA99 6udgetho der 8 33-E$ Activity 8 A::9999 E(uipment 7omina 8 A699 6udgetho der 8 32-99

Activity 8 dependent on the funding source eg ':: or #:: for Core! #6: for $"C! #;A for a #esearch Counci etc Auth!risati!n le&els 'hese +i norma y be consistent +ith eve s for #evenue expenditure* 5o+ever! in the case of <nstitutiona Capita .ro/ects higher authorisation eve s have been set for Estates staff on the basis that budgets for these pro/ects have previous y been approved by the =perating 6oard (previous y >."EC)* De%erred Capital Grants 'hese are sources of externa funding used to+ards the meeting the cost of a capita pro/ect* As +e as $"C Capita grants these can inc ude "undraising (norma y channe ed via the ?eve opment 'rust)! and ;rants from bodies such as the 75$ and #esearch Counci s* 'he coding structure for ?C;s is: 7omina 6udgetho der 5AAA 8 $"C 6ui dings %&-;A 56AA 8 7on "C 6ui dings %&-;A 5AA6 8 $"C E(uipment %&-;6 56A6 8 7on "C E(uipment %&-;6 'he Activity code +i norma y be comparab e to the expenditure code for a simi ar funding source eg #6: for $"C! #;A for a #esearch Counci ! #;6 for ?eve opment 'rust etc C!ntri"uti!ns t! Capital Expenditure %r!' C!lle#e Re&enue "ud#ets @hen a Co ege is funding a contribution to a Capita pro/ect the simp est method of actioning this from a 0anagement Accounting point of vie+ is to input a /ourna entry debiting a Co ege code and crediting the Capita pro/ect code* 'he merits of this are that the /ourna +ou d provide an audit trai of the Co ege contribution the <AE bottom ine budgeted surp us +ou d not change 5o+ever! the above is not proper "inancia Accounting practice terms because: the -niversitys fixed assets +i be understated in the year that the /ourna is processed the -niversitys <AE surp us +i a so be understated 'o satisfy both the 0anagement and "inancia Accounting re(uirements it is therefore proposed that +hen a Co ege contribution is approved the Co eges revenue budget for that year +i be decreased and the capita pro/ect budget increased by the amount of the contribution a compensating budget +i be set)up in "inancia Ad/ustments in code BC33 0C333 -::3333* @hen preparing the out)turn forecast for "inancia Ad/ustments it +i be assumed that there +i be ni

expenditure against this budget* @e +i therefore satisfy the dua aim of not changing the <AE budgeted surp us +hi e at the same time ref ecting reduced revenue expenditure in the out)turn forecast Capital Expenditure %unded %r!' Discreti!nar( and Principal)s D!*r( Reser&es %* "unded from reserve dra+)do+ns additiona to those inc uded in that financia years revenue budgets: a) the norma activity code +i app y eg expenditure funded from :oo ogy ?iscretionary reserves shou d be charged to #=D33E%* b) ba ance sheet nomina and budgetho der codes shou d a so be used* 'hese +i vary depending on +hether the expenditure is 6ui dings (AA99 33-E$) or E(uipment (A699 32-99 eg 32-:F for :oo ogy)* 2* "unded from reserve dra+)do+ns a ready inc uded in that financia years revenue budgets: As in (%) but +ith a compensating budget addition to BC33 0C333 -::3333 At the year)end the re evant reserve ba ance shou d be reduced to ta4e ref ect this expenditure* Capital Expenditure %unded %r!' C!re Re&enue "ud#et underspends r!lled %!r*ard %r!' a pre&i!us %inancial (ear A capita pro/ect budget shou d be estab ished and the ?epreciation budget shou d be up ifted to inc ude re ated ?epreciation charges*