State of Connecticut Property Control Manual March 2016 - Chapter 4 ACQUISITIONS OF PROPERTY

state of connecticut

Chapter 4


Questions regarding this chapter should be directed to the following:
Asset and Inventory Mailbox
Elizabeth Daly, CPPA 860-702-3436 
Fiscal Policy Statewide Services 860-702-3440  

Assets may be acquired by various methods. These methods include purchase, donation, and construction and are discussed below.

Acquisition Methods

1. Purchase

The cost of personal property acquired through purchase includes ancillary costs such as freight and transportation charges, site preparation expenditures, professional fees, and legal claims directly attributable to asset acquisition. The cost does not include warranties or training on the use of the property.
For example: If an equipment item was purchased for $4975 and there are charges such as shipping, and/or installation for the item on the purchase order, bringing the cost equal to or greater than capitalization threshold, then the item would be capitalized, inventoried, and reported on the CO-59.
Acquisitions through the Capital Equipment Purchases Fund, Fund 12051
Account for these assets like any other capital purchase.
Data processing equipment purchased with a unit price of less than the capitalization threshold, a useful life of not less than five years and is procured with Capital Equipment Purchase Fund dollars will be coded as minor equipment and will not be capitalized. It is recommended that such items be designated as controllable property.

The cost of land and buildings acquired through purchase includes not only the contract price but also such other ancillary related costs as taxes and other liens assumed, title search costs, legal fees, surveying, filling, grading, drainage, and other costs of preparation for the use intended.
Trade-In of State Property
In an effort to upgrade equipment, a State agency may explore the feasibility of exchanging like items through the process of trading-in (including vehicles), as opposed to transfer or sale, when it is in the best economical interest of the State as determined by the owning agency.

Firearms, Weapons, and Ammunition
Any agencies with surplus firearms, weapons, and/or ammunition should complete a DPS-293-C Surrendered Firearms Log Sheet, a court order (if applicable) and a National Crime Information Center (NCIC) report for any firearms that are deemed surplus to their needs. Once this information has been compiled, contact the Firearms Recovery Unit at the Department of Emergency Services and Public Protection (DESPP) at 203-630-5600 to arrange a drop off. The options for scheduling are Tuesdays or Wednesdays from 10am-3pm and the time of the process varies based on the number of items being turned in.

2. Donation

Acquisition by Donation
Property acquired by donation is capitalized if it meets the established criteria.The asset is recorded at the price that would be paid to acquire an asset with equivalent service potential in an orderly market transaction at the acquisition date, or the amount at which a liability could be liquidated with the counterparty at the acquisition date is referred to as acquisition value. The following assets should be measured at acquisition value:
  1. Donated capital assets, as provided in paragraph 18 of Statement 34, as amended
  2. Donated works of art, historical treasures, and similar assets as provided in paragraph 27 of Statement 34
  3. Capital assets that a government receives in a service concession arrangement as provided in paragraph 9 of Statement 60.

3. Construction

Construction by Contract
All costs of an asset acquired by contract must be recorded whenever any portion of construction work in-process is placed in the custody of the State agency. The cost should be recorded separately to the assigned building number. A building can be in one of the following five stages of construction process:

1. Construction in Progress
The building is not occupied. In these instances the cumulative cost of projects in process does not have to be reported to the Office of the State Comptroller via the CO-59. Instead, this information is reported to the Office of the State Comptroller via customized GAAP closing package requests that are sent out at fiscal year end to facilitate the preparation of the State's Comprehensive Annual Financial Report. As the Department of Administrative Services, Division of Construction Services administers most capital projects, construction in progress data is maintained at the Department of Administrative Services. For capital projects that are administered by other State agencies, construction in progress information would be maintained at that agency.
2. Partially Complete
A component portion of a capital project (e.g., a new wing or floor) is substantially complete or complete and ready for use. A letter from the Department of Administrative Services, Division of Construction Services is issued declaring that the project is partially complete and ready for use, describing the areas that are partially complete, transferring ownership of the completed component to the client agency, and stating the approximate cost. This approximate cost figure for the partially completed project is used for insurance purposes and also for reporting by the client agency to the Office of the State Comptroller via the CO-59. The client agency records the estimated costs of the asset that is stated in the letter from the Department of Administrative Services, Division of Construction Services in the addition column on the CO-59.
3. Substantially Complete
An entire project is substantially complete and now under the client agency's custody, and ready for occupancy. The Department of Administrative Services, Division of Construction Services issues a letter, "Certificate of Substantial Completion". An estimated cost of the project to date is included in the letter, which is used for insurance purposes and for reporting by the client agency to the Office of the State Comptroller on the CO-59. In order to avoid duplicate reporting of capital project costs on the CO-59, it is important that the client agency delete the construction-in-progress costs previously reported to the Office of the State Comptroller and add the estimated cost included in the Certificate of Substantial Completion to the CO-59.
4. Completed
The Department of Administrative Services, Division of Construction Services prepares a "Certificate of Completion" when a building is entirely completed that indicates the final construction contract cost, pending potential closeout or contingency costs. It includes, unlike the "Certificate of Substantial Completion", certain additional project costs. Examples of these adjunct costs are additions or deletions to the original construction contract, design and DAS fees, and other project costs like telecommunication, hazardous material removal as part of major renovation that increases the economic life of the building, or construction performed separately by a contractor other than the major contractor. Project costs previously reported to the Office of the State Comptroller via the CO-59 should be adjusted, as part of the CO-59 reporting process, to reflect the final cost of the completed capital project.
If the completed project cost memorandum is not attached to the "Certificate of Completion", the agency should contact the Department of Administrative Services, Division of Construction Services to obtain the actual cost of the building.
Costs should not be based upon a percentage of construction completion, but on actual costs as reconciled with the Department of Administrative Services, Division of Construction Services or, for lesser projects and those not controlled by the Department of Administrative Services, those actual costs maintained at the agency level. Project costs should include all costs pertaining to the project.

Do not include non-capital, repair expense items. Routine repair, and maintenance; including replacements and renovation costs that are incurred to maintain the asset in its operating condition and that do not increase the asset's economic benefits over those originally intended are not to be included and are expensed. For example, roof replacement, painting, and paint removal are not capital costs.
5. Final closeout
This occurs when all foreseen project contingencies have been resolved and all project costs have been finalized.

Agency (self) Administered Projects
The same project cost accounting rules apply to agency administered projects as discussed in the previous "Construction by Contract" section. The difference is that the Department of Administrative Services, Division of Construction Services has less, and conceivably no oversight of the project, and therefore it is the responsibility of the agency to properly account for and report their capital project expenditures.
Construction by Agency
The principal factors to be considered in recording the cost of assets constructed by an agency's own labor force is based upon the use of cost accounting concepts.
Additions, Renovations, Improvements and Repairs to Assets
All additions, renovations, or improvements, which increase the economic benefits to be derived from an asset, will be capitalized. The expenditures must clearly and significantly enhance the value.

Routine repair and maintenance; including replacements, return the asset to its original condition. Agencies should treat any maintenance or repair that returns a capital asset to its original condition, regardless of the amount spent, as an expense. These costs do not increase the asset's economic benefit.

Building additions or renovations are a large portion of the State's capital projects. The completed Construction in Progress records will provide support for the total cost of a building, including the project (or projects) under which it was built and the projects which represent additions or renovations.

A few examples will illustrate this point:

A. Repair and Maintenance
A roof is worn out and needs to be replaced and costs $100,000 to repair. This repair will not be capitalized because it merely restores the building to its original status.
B. Improvement
Same situation as above except that the State decides to install a significantly better roof with solar collection panels at a cost of $750,000.

1) determining the cost of the replacement if it were to be done and
2) subtracting this amount from the total cost of the renovation determines the capitalized amount.
$750,000 for solar roof
$100,000 for replacement roof
$650,000 add to the value of the building
Agency personnel will review capital projects and determine which are true additions or betterments to existing buildings versus those which are merely repairs and maintenance. This decision must be made on a case-by-case basis.
For capital projects that do not require a certificate of completion, record the asset when final payment has been made.

4. Miscellaneous Acquisitions

Acquisition by Foreclosure
Property acquired in this manner should be recorded at appraised value at time of acquisition. The cost data should include the total amount of all taxes, liens, and other claims surrendered, plus all other costs incidental to acquiring ownership and perfecting the title.
Acquisition by Eminent Domain
Eminent domain is the right of the State to appropriate private property for public use, usually with compensation to the owner. The property should be recorded as if acquired through purchase. The cost would be the amount of compensation paid to the owner and other ancillary charges.
Acquisition Methods Intangible Assets
Intangible Assets may be:
The acquisition cost of an intangible asset is based on actual cost or fair value and the capitalized amount is recorded. Regardless of the method of acquisition, all ancillary costs of the intangible asset are to be included in the total costs. Donated intangible assets are recorded at the fair value at time of acquisition plus ancillary charges required acquiring the asset. Constructed or Internally Generated: Direct cost of materials, components, contracted services, professional fees & services, in-house employee payroll and fringe benefit costs directly allocable to the project. Do not include any training costs. If acquisition costs are not readily available, historical cost estimation methods can be used.

Return to Table of Contents
Return to Index of Comptroller's Manuals
Return to Comptroller's Home Page