Michigan State University
Controller's Office
Most revolving accounts should have the funding capability to meet normal equipment needs on an ongoing basis. Revolving accounts may carry amounts to accumulate funds for the purchase or replacement of more costly equipment.
There are certain revolving account operations that require very costly equipment. The high cost may be for a single piece of equipment or for a pool of equipment. Under these conditions, it may be necessary to establish a depreciation reserve in the Plant Fund to accumulate funds over an extended period of time to be used for equipment replacement.
Depreciation is a legitimate expense that may be passed on to users of a service or purchasers of a product. Operations that service other accounts of the University are obligated to limit rates so as to essentially maintain a breakeven status, particularly if federal project accounts are charged for the service or product. This obligation creates a dilemma unique to university accounting.
For purposes of federal projects, internal finance charges applicable to loans are not allowable. External finance charges or finance charges included as a part of lease purchase agreements may be allowable. The principal portion of a loan repayment may be allowable for federal projects if the payments are not greater than comparable and reasonable depreciation rates. Questions relating to allowable charges to federal projects should be directed to the Contract and Grant Administration office.
Depreciation charged as an expense to operations may be an acceptable inclusion to the rate for federal project purposes. However, a rate for federal project purposes may not include both the depreciation expense and the cost of internal loan repayments or purchase lease payments. In other words, duplicate costs cannot be assessed against federal projects.
It is with this brief background that the following equipment depreciation policy has been developed.
Equipment depreciation may be charged to a revolving account under the following conditions:
Consideration will be given for units to recover both depreciation and related debt service charges provided that the revenues are generated by predominantly non-University users.