Why are assets recorded at their original acquisition cost and not adjusted to reflect market value?
Generally Accepted Accounting Principles (GAAP) as well as Governmental Accounting Standards Board guidelines require assets to be recorded at original acquisition cost and then depreciated over their “useful” lives for financial reporting purposes.
For KU owned assets, individual asset depreciation is calculated and maintained centrally. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as set by the “Regents’ Institutions Capital Asset Policy.” Depreciable useful life should not be confused with “physical life.” Physical life refers to the total length of time an item of equipment is physically retained and used.
Regent’s Institutions Useful Lives:
- Buildings & Building Improvements---40 years
- Land Nonstructural Improvements/Infrastructure---25 years
- Vehicles---5 years
- All other Equipment---8 years (including computers)
- The estimated useful life of some capital items may deviate from the above standard policy based on industry standards, practical experience known at the time of acquisition, and/or building componentization.
The original acquisition cost, in addition to other unique asset identifiers, is often used on property accounting reports to help faculty and staff identify specific assets. For example, most faculty and staff can remember and identify a $10,000 piece of equipment that was purchased five years ago versus identifying an asset with a current net book value (original value less depreciation) of $3,750.