What Assets are Capitalized in an Association?

What Assets are Capitalized in an Association?

This is a question that caused disputes among the accounting “powers that be” (AICPA and FASB) for over ten years. The resulting answer was not absolute. Instead, they defined what is industry standard. Thus, there is leeway to capitalize MORE assets than is industry standard, but NOT LESS.

The following is in keeping with industry standards as defined in the Financial Standards Accounting Board’s Codification (FASB), which contains generally accepted accounting principles (GAAP) – section 972, et seq. While GAAP allows additional items to be capitalized outside of the following guidelines, it is not industry standard to do so.

Capitalized assets will be recorded on the balance sheet of the financial statements of the association in the operating fund (FASB 972-10-45-7).

The Board will designate whether to purchase the capitalized assets from the replacement fund (reserves) or operating fund and document that decision in their minutes. Either is acceptable. For accounting purposes, if the asset is purchased from reserve monies it will be transferred to operating fund to be held as an asset of the operating fund (FASB 972-10-25-1)

The capitalized assets will be depreciated over their estimated useful lives based upon the straight line method of depreciation. (FASB 972-10-35-1).

We recommend that the Board adopt a Capitalization Policy which includes the above information. It would also include the dollar amount and minimum life of capitalized assets. For example, an association may choose to capitalize all assets meeting the above criteria with a value over $1,000 and a life of more than two years. A sample Capitalization Policy is found in our Forms Section.

The other two things a Board may consider is 1) removing assets that are on the books that don’t meet the approved criteria and/or 2) adding assets that are not on the books that meet the approved criteria. Either action should be documented in the Board meeting minutes. For assets that are to be added to the financial statements the following information is needed: