Setting Up and Managing Capitalization Thresholds

PeopleSoft Asset Management can determine the capitalization status of an asset based on its total cost or unit cost, according to limits that you define. This can be accomplished by enabling the Capitalization Threshold feature. Capitalization Threshold is an optional feature that enables the system to automatically classify assets into one of the following categories: non-capital assets, capital assets, or expenses.

When setting up capitalization thresholds, you can further specify whether the threshold should be based on the asset itself or based on book. When you define capitalization threshold by asset, the capitalization status of an asset is determined using the cost parameters you define for the asset. Using this method, the asset can be classified as non-capital, capital, or expense.

When you define capitalization threshold by book, the asset will be capitalized according to the book’s capitalization status. Using this method, the asset is recognized as a regular financial asset. Using the capitalization threshold by book method, an asset can be capitalized in one book (for example, your primary book) and non-capitalized in another book (for example, your secondary book).

Capitalization threshold by book is useful for tangible property management and the ‘de minimis safe harbor’ election defined in Treasury Department regulation 9636. For example, assume you have a policy for your primary book that requires you to capitalize all items greater than $2500. The purchase of a piece of IT equipment for $3000 meets the capitalization criteria, so the asset will be capitalized in your primary book. However, Treasury Department regulation 9636 enables you to expense items under $5000. Thus, the asset will be non-capitalized in your secondary book.

With the Capitalization Threshold feature, assets are classified into one of the following categories:

• Capital Assets - The system generates an asset ID and stores physical and financial information. Financial information is stored in the Cost table (COST). The system also stores acquisition details. Therefore, these assets are trackable from both a physical and financial standpoint. This term is interchangeable with Financial Assets. Assets using the capitalization threshold by asset and by book method may be placed into this category.

• Non capital Assets - The system generates an asset ID and stores only physical information. The cost information is stored in the Non capitalized Cost table, (COST_NON_CAP). The system also stores acquisition details. Therefore, these assets are trackable from a physical standpoint only. This term is synonymous with Trackable Assets or Nonfinancial Assets.

  Assets using the capitalization threshold by asset method may be placed into this category, will store physical information only and are tracked from a physical standpoint only. Assets using the capitalization threshold by book method are stored in tables normally designated as financial, but the system designates it as a physical cost, rather than financial.

• Expense Assets - The system does not generate an asset ID. Assets using the capitalization threshold by asset method may be placed into this category. However, assets using the capitalization threshold by book method cannot be placed into this category. If an asset is entered online that does not meet the capitalization threshold, an error message appears saying that the asset has been catalogued as an expense due to its cost amount and could not be considered as an asset. If the asset is entered in batch, the system stores a message in an audit table that explains why that interface line was not processed. Because of their low cost, these assets are considered an expense when acquired and there is no interest to track them within the Asset Repository.

See Pages Used to View Cost History and Summarize Cost Rows

PeopleSoft Asset Management automatically catalogues the capitalization status for batch and online asset additions, provides processes to deal with adjustments to the original cost, balances out any potential clearing account with other feeder systems, and provides reports and audit trails to facilitate control of these transactions.

Adjustment transactions (ADJ) from feeder systems are also assessed for capitalization. The adjustments are not compared individually against the capitalization threshold to assess the capitalization action; rather, they follow the existing capitalization status that is assigned when the asset is added. For example, if an asset was catalogued as trackable, all of its adjustments, regardless of costs, are treated as non-capital adjustments. Adjustments processed in conjunction with its corresponding FAD, CAP is considered for the total cost of the asset as the preferred approach. Although, if this approach had a large impact in performance, it is acceptable to process the adjustments without checking the capitalization threshold. Subsequent negative adjustments and retirements coming from other sources follow the capitalization status of the asset.

The Capitalization Threshold Validation process validates whether assets still belong to the capitalization brackets to which they were initially catalogued after adjustments are made to the original cost. If an asset is in the same bracket as originally classified, then this process takes no further action; however, if it is not, the asset is moved to its respective capitalization bracket.

The following graphic represents the process flow for the capitalization threshold validation process:

Capitalization Threshold validation process flow:

Use the Capitalization Limits page (DEPR_CAP_LIMIT) to set up capitalization limit codes by business unit by book, as necessary, especially Germany.

Navigation:

Set Up Financials/Supply Chain > Product Related > Asset Management > Financials > Capitalization Limit

This example illustrates the fields and controls on the Capitalization Limits page. You can find definitions for the fields and controls later on this page.

Create a cost limit code, complete the applicable fields, and select the Low Value Switch check box to identify which limit amount triggers low value asset reporting. This is used only in certain countries.

For example, you might set up capitalization limits for Germany. Using the Cap Limit table, you can set up your system so that assets with a cost less than 800.00 EUR could be added, but the system would generate a warning that the cost was below the capitalization limit; likewise, assets with a cost less than 100.00 EUR could not be added and would generate an error message.

Use the Capitalization Thresholds page (CAP_THR_DEFN) to establish capitalization thresholds by asset profile to be used in automatic classification of capital asset, non capital asset, or expense asset.

Navigation:

Set Up Financials/Supply Chain > Product Related > Asset Management > Financials > AM Capitalization Thresholds > Capitalization Thresholds

This example illustrates the fields and controls on the Capitalization Thresholds page. You can find definitions for the fields and controls later on this page.

This example illustrates the fields and controls on the Capitalization Thresholds page. You can find definitions for the fields and controls later on this page.

Use the Capitalization Threshold Validation page (AM_CAPVAL_RQST) to run the process to validate whether an asset still meets conditions to remain in the capitalization status that it was originally catalogued upon asset addition based on the capitalization threshold process.

Navigation:

Asset Management > Asset Transactions > Financial Transactions > Cap Threshold Validation

This example illustrates the fields and controls on the Capitalization Threshold Validation page. You can find definitions for the fields and controls later on this page.

Supply the selection criteria for assets to be evaluated for capitalization threshold validation.

Use the Capitalization Threshold Summary Report page (AM_CAPSUM_RQST) to run a report to show the capitalization status of assets based upon criteria selection.

Navigation:

Asset Management > Financial Reports > Capitalization Summary Report

This example illustrates the fields and controls on the Capitalization Threshold Summary Report page. You can find definitions for the fields and controls later on this page.

Select criteria to report assets as they are classified according to the Capitalization Threshold process. The report displays the acquisition date, asset ID, description, quantity, tag number, serial ID, capitalized cost and non capitalized cost.