[Code of Federal Regulations]

[Title 48, Volume 7]

[Revised as of October 1, 2005]

From the U.S. Government Printing Office via GPO Access

[CITE: 48CFR9904.404-50]



[Page 365-366]

 

            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



[[Page 366]]



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 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]