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:

 

N/A

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:

 

  • Create 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.
  • Include only the assets related to the recharge activity in the recharge/service center organization plant fund (95) account.
  • Transfer cash in the amount equal to depreciation expense annually 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.”

 

 

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 8 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 FMS Cost Accounting 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.

 

Documentation must be provided 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