[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: 48CFR9904.404-60]



[Page 366-367]

 

            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. 9904.404-60  Illustrations.



    (a) Illustrations of costs which must be capitalized. (1) Contractor 

has an established policy of capitalizing tangible assets which have a 

service life of more than 1 year and a cost of $6,000. The contractor's 

policy must be modified to conform to the $5,000 policy limitation



[[Page 367]]



on minimum acquisition cost established by the Standard.

    (i) Contractor acquires a tangible capital asset with a life of 18 

months at a cost of $6,500.The Standard requires that the asset be 

capitalized in compliance with contractor's policy as to service life.

    (ii) Contractor acquires a tangible asset with a life of 18 months 

at a cost of $900. The asset need not be capitalized unless the 

contractor's revised policy establishes a minimum cost criterion below 

$900.

    (2) Contractor has an established policy of capitalizing tangible 

assets which have a service life of more than 1 year and a cost of $250. 

Contractor acquires a tangible asset with a life of 18 months and a cost 

of $300. The Standard requires that, based upon contractor's policy, the 

asset be capitalized.

    (3) Contractor establishes a major new production facility. In the 

process, a number of large and small items of equipment were acquired to 

outfit it. The contractor has an established policy of capitalizing 

individual items of tangible assets which have a service life of over 1 

year and a cost of $500, and all items meeting these requirements were 

capitalized. In addition, the contractor's policy requires 

capitalization of an original complement which has a service life of 

over 1 year and a cost of $5,000. Items of durable equipment acquired 

for the production facility costing less than $500 each aggregated 

$50,000. Based upon the contractor's policy, the durable equipment items 

must be capitalized as the original complement of low cost equipment. 

(The concept of original complement applies to such items as books in a 

new library, impact wrenches in a new factory, work benches and racks in 

a new production facility, or furniture and fixtures in a new office 

building.)

    (4) Contractor has an established policy for treating its heavy 

presses and their power supplies as separate asset accountability units. 

A power supply is replaced during the service life of the related press. 

The Standard requires that, based upon the contractor's policy, the new 

power supply be capitalized with appropriate accounting for the replaced 

unit.

    (b) Illustrations of costs which need not be capitalized. (1) The 

contractor has an established policy of capitalizing tangible assets 

which have a service life of 2 years and a cost of $500. The contractor 

acquires an asset with a useful life of 18 months and a cost of $5,000. 

The tangible asset should be expensed because it does not meet the 2-

year criterion.

    (2) The contractor establishes a new assembly line. In outfitting 

the line, the contractor acquires $5,000 of small tools. On similar 

assembly lines under similar conditions, the original complement of 

small tools was expensed because the complement was replaced annually as 

a result of loss, pilferage, breakage, and physical wear and tear. 

Because the unit of original complement does not meet the contractor's 

service life criterion for capitalization (1 year), the small tools may 

be expensed.



[57 FR 14153, Apr. 17, 1992, as amended at 70 FR 37706, June 30, 2005]