Recharge Standard Operating Procedures

 

SUBJECT:

Including Annual Depreciation Expense in Recoverable Rate

SOURCE:

Cost Accounting, Financial Management Services

DATE ISSUED:

November 2015

DATE OF LAST REVISION:

June 2019

RSOP NO:

3.0 

RATIONALE:

To provide guidance on how and when a recharge/service center can recover depreciation expense in the rate calculation.

RSOP:

A recharge/service center is allowed to incorporate its annual depreciation expense from the last completed fiscal year into the recoverable rate calculation.

 

In order to recover depreciation a department is required to:

 

  • Include only the assets related to the recharge activity. These assets should be on the Asset Recovery Report with the correct allocation.
  • Transfer cash in the amount equal to depreciation expense during the current fiscal year from the recharge/service center 66* account to the renewal and replacement 92* account for future capital purchases. Please include a detailed description on the KFS Transfer document that includes the depreciation period.  For example, “Transferring depreciation expense for FY 2015.” Departments should only transfer depreciation for the prior fiscal year or a closed period in the current fiscal year.

 

To streamline the depreciation documentation process,  FMS recommends  creating a recharge/service center organization that only contains recharge/service center 66* accounts, one or more renewal and replacement 92* accounts and a plant fund 95* account. If applicable, related construction 90* and debt service 91* accounts should also be included. 

 

Federally Funded Assets or Cost Share Accounts

 

Depreciation expense associated with a federally funded asset or cost share account is not allowed to be included in the recoverable rate. Please refer to the instructions document step 14 to determine if depreciation expense is associated with a federally funded asset or a cost share account.

 

Depreciation for assets funded by other (non-federal) sponsored projects may also need to be excluded from the recoverable rate.  Please contact auxacct@iu.edu for guidance.

 

Shared Assets

 

For active assets that are shared between multiple accounts, the recharge/service center will only be able to claim the allocable depreciation related to use of the asset by their recharge activity.

 

FMS recommends departments provide documentation to support the allocation of the asset’s depreciation.  Appropriate allocation methods include hours of usage, number of jobs, space used, etc. The allocation cannot be made based on percentage of revenue. 

 

Exceptions to this standard operating procedure require the approval of the Chief Accountant.

DEFINITIONS:

Debt Service: Funds required to cover the repayment of principal and interest on bonds and notes issued by the University.

 

Depreciation: The method for allocating the cost of capital assets to periods benefiting from asset use.  The method used must be in accordance with Generally Accepted Accounting Principles (GAAP.) 

 

Recoverable Rate Calculation: The process that recharge/service center account goes through to determine the amount that they charge for goods or services to other Indiana University accounts.

 

Renewal and Replacement Account: Accounts used to set aside funds for replacement of renewable property (typically capital assets or desktop computers).

 

Recharge/Service Center Activity: An activity that furnishes goods or services to another Indiana University department for the convenience of the university and charges a fee directly related to, and not more than the allowable cost to provide the goods or services.

CROSS

REFERENCE:

OMB Uniform Guidance (PDF) "Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards"

RESPONSIBLE

ORGANIZATION:

Organizations that bill other Indiana University departments for goods or services