[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: 48CFR9904.404-50]

[Page 381-382]
 
            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. 9904.404-50  Techniques for application.

    (a) The cost to acquire a tangible capital asset includes the 
purchase price of the asset and costs necessary to prepare the asset for 
use.
    (1) The purchase price of an asset shall be adjusted to the extent 
practical by premiums and extra charges paid or discounts and credits 
received which properly reflect an adjustment in the purchase price.
    (i) Purchase price is the consideration given in exchange for an 
asset and is determined by cash paid, or to the extent payment is not 
made in cash, in an amount equivalent to what would be the cash price 
basis. Where this amount is not available, the purchase price is 
determined by the current value of the consideration given in exchange 
for the asset. For example, current value for a credit instrument is the 
amount immediately required to settle the obligation or the amount of 
money which might have been raised directly through the use of the same 
instrument employed in making the credit purchase. The current value of 
an equity security is its market value. Market value is the current or 
prevailing price of the security as indicated by recent market 
quotations. If such values are unavailable or not appropriate (thin 
market, volatile price movement, etc.), an acceptable alternative is the 
fair value of the asset acquired.
    (ii) Donated assets which, at the time of receipt, meet the 
contractor's criteria for capitalization shall be capitalized at their 
fair value at that time.
    (2) Costs necessary to prepare the asset for use include the cost of 
placing the asset in location and bringing the asset to a condition 
necessary for normal or expected use. Where material in

[[Page 382]]

amount, such costs, including initial inspection and testing, 
installation and similar expenses, shall be capitalized.
    (b) Tangible capital assets constructed or fabricated by a 
contractor for its own use shall be capitalized at amounts which include 
all indirect costs properly allocable to such assets. This requires the 
capitalization of general and administrative expenses when such expenses 
are identifiable with the constructed asset and are material in amount 
(e.g., when the in-house construction effort requires planning, 
supervisory, or other significant effort by officers or other personnel 
whose salaries are regularly charged to general and administrative 
expenses). When the constructed assets are identical with or similar to 
the contractor's regular product, such assets shall be capitalized at 
amounts which include a full share of indirect costs.
    (c) In circumstances where the acquisition by purchase or donation 
of previously used tangible capital assets is not an arm's length 
transaction, acquisition cost shall be limited to the capitalized cost 
of the asset to the owner who last acquired the asset through an arm's-
length transaction, reduced by depreciation charges from date of that 
acquisition to date of gift or sale.
    (d) The capitalized values of tangible capital assets acquired in a 
business combination, accounted for under the ``purchase method'' of 
accounting, shall be assigned to these assets as follows:
    (1) All the tangible capital assets of the acquired company that 
during the most recent cost accounting period prior to a business 
combination generated either depreciation expense or cost of money 
charges that were allocated to Federal government contracts or 
subcontracts negotiated on the basis of cost, shall be capitalized by 
the buyer at the net book value(s) of the asset(s) as reported by the 
seller at the time of the transaction.
    (2) All the tangible capital asset(s) of the acquired company that 
during the most recent cost accounting period prior to a business 
combination did not generate either depreciation expense or cost of 
money charges that were allocated to Federal government contracts or 
subcontracts negotiated on the basis of cost, shall be assigned a 
portion of the cost of the acquired company not to exceed their fair 
value(s) at the date of acquisition. When the fair value of identifiable 
acquired assets less liabilities assumed exceeds the purchase price of 
the acquired company in an acquisition under the ``purchase method,'' 
the value otherwise assignable to tangible capital assets shall be 
reduced by a proportionate part of the excess.
    (e) Under the ``pooling of interest method'' of accounting for 
business combinations, the values established for tangible captial 
assets for financial accounting shall be the values used for determining 
the cost of such assets.
    (f) Asset accountability units shall be identified and separately 
capitalized at the time the assets are acquired. However, whether or not 
the contractor identifies and separately capitalizes a unit initially, 
the contractor shall remove the unit from the asset accounts when it is 
disposed of and, if replaced, its replacement shall be capitalized.

[57 FR 14153, Apr. 17, 1992, as amended at 61 FR 5523, Feb. 13, 1996]