[Code of Federal Regulations]
[Title 48, Volume 7]
[Revised as of October 1, 2001]
From the U.S. Government Printing Office via GPO Access
[CITE: 48CFR9904.404-40]

[Page 381]
 
            TITLE 48--FEDERAL ACQUISITION REGULATIONS SYSTEM
 
     CHAPTER 99--COST ACCOUNTING STANDARDS BOARD, OFFICE OF FEDERAL 
           PROCUREMENT POLICY, OFFICE OF MANAGEMENT AND BUDGET
 
PART 9904--COST ACCOUNTING STANDARDS--Table of Contents
 
Sec. 9904.404-40  Fundamental requirement.

    (a) The acquisition cost of tangible capital assets shall be 
capitalized. Capitalization shall be based upon a written policy that is 
reasonable and consistently applied.
    (b) The contractor's policy shall designate economic and physical 
characteristics for capitalization of tangible assets.
    (1) The contractor's policy shall designate a minimum service life 
criterion, which shall not exceed 2 years, but which may be a shorter 
period. The policy shall also designate a minimum acquisition cost 
criterion which shall not exceed $5,000, but which may be a smaller 
amount.
    (2) The contractor's policy may designate other specific 
characteristics which are pertinent to his capitalization policy 
decisions (e.g., class of asset, physical size, identifiability and 
controllability, the extent of integration or independence of 
constituent units).
    (3) The contractor's policy shall provide for identification of 
asset accountability units to the maximum extent practical.
    (4) The contractor's policy may designate higher minimum dollar 
limitations for original complement of low cost equipment and for 
betterments and improvements than the limitation established in 
accordance with paragraph (b)(1) of this subsection, provided such 
higher limitations are reasonable in the contractor's circumstances.
    (c) Tangible assets shall be capitalized when both of the criteria 
in the contractor's policy as required in paragraph (b)(1) of this 
subsection are met, except that assets described in subparagraph (b)(4) 
of this subsection shall be capitalized in accordance with the criteria 
established in accordance with that paragraph.
    (d) Costs incurred subsequent to the acquisition of a tangible 
capital asset which result in extending the life or increasing the 
productivity of that asset (e.g., betterments and improvements) and 
which meet the contractor's established criteria for capitalization 
shall be capitalized with appropriate accounting for replaced asset 
accountability units. However, costs incurred for repairs and maintenace 
to a tangible capital asset which either restore the asset to, or 
maintain it at, its normal or expected service life or production 
capacity shall be treated as costs of the current period.

[57 FR 14153, Apr. 17, 1992, as amended at 61 FR 5522, Feb. 13, 1996]