CAS 404 - Capitalization of Tangible Assets

Purpose

This Standard requires that, for purposes of cost measurement, contractors establish and adhere to policies with respect to capitalization of tangible assets which satisfy criteria set forth herein. Normally, cost measurements are based on the concept of enterprise continuity; this concept implies that major asset acquisitions will be capitalized, so that the cost applicable to current and future accounting periods can be allocated to cost objectives of those periods. A capitalization policy in accordance with this Standard will facilitate measurement of costs consistently over time.

Definitions

Asset Accountability Unit

Original Complement of Low Cost Equipment

Repairs and Maintenance

Tangible Capital Asset

Requirements

Contractor must establish reasonable and consistently followed policy. The policy shall designate economic and physical characteristics for capitalization of tangible assets. Policy must come within the following guidelines:

• Minimum service life, which shall not exceed 2 years, but may be a shorter period;
• Minimum acquisition cost criterion which shall not exceed $5,000 but which may be a smaller amount.
• Contractor may designate other specific characteristics pertinent to capitalization policy.
• Contractor’s policy shall provide for identification of assets to the maximum extent practical.
• Costs incurred which result in extending the life or increasing the productivity of an asset and meet the criteria of the capitalization policy shall be capitalized. (Repair and maintenance are period costs.)

Applicability

Applies under full coverage only. 48 CFR 9904.404

Links

http://farsite.hill.af.mil/reghtml/regs/far2afmcfars/fardfars/far/farapndx1.htm#P852_146579