Sec. 1 Purpose
The purpose of this Policy is to document a standard for accounting for Construction in Progress (CIP).
Sec. 2 Principles
The University of Texas System follows the requirements and guidelines provided in GASB pronouncements (statements, interpretations, technical bulletins and concept statements).
Sec. 3 Policy Statement
The cost of all projects for construction of buildings, other improvements, equipment and intangible assets that are in progress (under way) at a particular point in time are reported as CIP until such time as the project is complete.
Sec. 4 Accrual and Depreciation
Expenses for CIP should be accrued at the end of the fiscal year. Depreciation is not applicable while assets are accounted for as CIP; however, when the project is placed into service the CIP should be capitalized to the appropriate asset categories and depreciated.
Sec. 5 Guidelines for the Accrual of CIP
5.1 Concept. CIP shall be accrued at year end.
5.2 Examples of Expenditures to be Capitalized.
a) Architect/Engineer Costs (See Exhibit A – Architect/Engineer Statement)
b) Construction Costs (See Exhibit B – Schedule of Values for an example of the Contractor’s costs)
5.3 Office of the Controller – Project Accounting.
a) On or about July 1, project accounting will issue a request to the project manager to contact vendors for estimated amounts due for work performed during the fiscal year that have not yet been invoiced. For documentation purposes, notice will be sent via email (see example in Exhibit C). Once the amount is agreed upon by both the vendor and the project manager, the estimate should be submitted to project accounting no later than August 15.
b) If project manager is unable to receive information from the vendor, an estimate will be created through project accounting based on the contract amount, prior rate of payments, and amount remaining on contract.
c) The total will include an estimate for retainage.
5.4 Institution Performing Own Construction. U. T. System institution shall use similar methods to determine estimates for amounts to be accrued for CIP at year end.
5.5 Accounting for retainage throughout construction. The amount of retainage related to each project will be provided by project accounting. The institutions should accrue this cost as they would any other construction cost, by project.
Sec. 6 Guidelines for Transferring CIP to an Asset Class
6.1 Capitalization of Assets. CIP assets are capitalized to the appropriate capital asset categories at the earliest occurrence of
a) execution of substantial completion contract documents;
b) occupancy; or
c) when the asset is in use.
6.2 Notification that CIP has ended.
a) Project accounting shall review substantial completion quarterly for any buildings that have been completed and qualify for capitalization.
b) Project accounting shall communicate with all institutions each July to determine if any buildings have been completed and qualify for capitalization that have not been transferred to the appropriate asset class. Final follow-up with the institutions will occur at the end of the fiscal year. Project accounting will provide componentization at fiscal year-end for CIP placed into service during the fiscal year. If the project is managed institutionally, the institution will prepare componentization.
Sec. 7 Depreciation Methodology
Depreciation is not applicable while assets are accounted for as CIP. Once the asset is placed into service into the appropriate category of fixed assets, it should be depreciated over the applicable useful life.
Architect/Engineer - this statement breaks down the work performed by the architect/engineer according to Basic Services fees, Additional Service fees, Change Order Services, and Reimbursable Expenses (See Exhibit A).
Building - a structure that is permanently attached to the land, has a roof, is partially or completely enclosed by walls, and is not intended to be transportable or moveable.
Building Improvements - capital events that materially extend the useful life of a building or increase the value of a building, or both.
Capitalization Thresholds - standard capitalization thresholds for capitalizing assets have been established for each major class of assets as follows:
Class of Asset
Facilities & Other Improvements
CIP - the construction activity status of buildings and other structures, infrastructure, additions, alterations, reconstruction, installation, and maintenance and repairs that are substantially incomplete.
Facilities and Other Improvements - those assets built, installed, or established to enhance the quality or facilitate the use of land for a particular purpose. Examples include: fencing and gates; landscaping; parking lots, driveways, and parking barriers; outside sprinkler systems; recreation areas and athletic fields (including bleachers); golf courses; paths and trails; septic systems; stadiums; swimming pools, tennis courts, basketball courts; fountains; plazas and pavilions; and retaining walls.
Infrastructure Assets - long-lived assets that normally are stationary in nature and normally can be preserved for a significantly greater number of years than most capital assets. Examples of infrastructure assets include roads, bridges, tunnels, drainage systems, water and sewer systems, dams, and lighting systems.
Retainage - an amount owed to contractors consisting of 5% of each payment amount that is withheld pending successful completion of the contracted work. Retainage so withheld shall be managed in conformance with Subchapter B, Chapter 2252, Texas Government Code. Contractors must submit a “Consent of Surety” with their payment application in order to have retainage released and paid to them.
Schedule of Values - breaks down the work performed by Cost of Work, General Conditions, Construction Phase Fees, Construction Contingency, and Preconstruction Fees (See Exhibit B).