7.4 Buildings and Building Improvements
7.4.1 Building Definition
A building is 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.
7.4.2 Building Improvement Definition
Building improvements are capital events that materially extend the useful life of a building or increase the value of a building, or both. A building improvement should be capitalized as a betterment and recorded as an addition of value to the existing building if the expenditure for the improvement meets or exceeds the capitalization threshold, or the expenditure increases the life or value of the building by 25 percent of the original life period or cost.
Building improvements meeting the capitalization threshold or increasing the building value by at least 25 percent of the original cost should be recorded as an addition of value to the existing asset using a parent/child asset management relationship. The useful life of the improvement (the “child”) should generally not exceed that of the original asset (the “parent”). However, if the improvement is not an integral part of the original asset, it may possess a different useful life than the parent asset.
For example, the useful life of a floor renovation project should not exceed the useful life of the building asset to which it relates because it is an integral part of the building that cannot exist on its own. Alternately, a wing addition to a building could have a useful life that exceeds the life of the building to which it is attached.
Building improvements increasing the building’s useful life by at least 25 percent of the original life period should be capitalized in one of two ways:
Capitalize as a betterment and record as an addition of value to the existing building using a parent/child asset management relationship. The parent’s useful life should be modified for the increase in useful life.
Recapitalize the unamortized portion of the original building along with the eligible improvements as a new building asset and retire the original building asset. This procedure would be used in cases where major renovations are completed.
7.4.3 Depreciation Methodology
The straight-line depreciation method (historical cost less residual value, divided by useful life) will be used for buildings, building improvements, and their components. For useful lives of buildings, see Sections 7.15.1 and 7.15.2. Subsequent improvements that change the use or function of the building shall be depreciated.
Buildings designated as “historical” by the Georgia Department of Natural Resources will not be depreciated unless used in the operations of the University System of Georgia. However, any improvements or betterments not deemed “historical” by the Georgia Department of Natural Resources will be depreciated the same as any other improvements or betterments made to a building.
7.4.4 Capitalization Threshold
The capitalization threshold for buildings and building improvements is $100,000. Examples of expenditures to be capitalized as buildings include:
- Original purchase price
- Expenses for remodeling, reconditioning, or altering a purchased building to make it ready to use for the purpose for which is was acquired
- Environmental compliance, such as asbestos abatement, etc.
- Professional fees, such as legal, architectural, inspections, title searches, etc.
- Payment of unpaid or accrued taxes on the building to date of purchase
- Cancellation or buyout of existing leases
- Other costs required to place or render the asset into operation
- Completed project costs
- Interest accrued during construction
- Cost of excavating, grading, or filling of land for a specific building
- Expenses incurred for the preparation of plans, specifications, blueprints, etc.
- Cost of building permits
- Professional fees, such as legal, architectural, engineering, management fees for design and supervision, etc.
- Costs of temporary buildings used during construction
- Unanticipated costs such as rock blasting, piling, relocation of the channel of an underground stream, etc.
- Permanently attached fixtures or machinery that cannot be removed without impairing the use of the building
- Additions to buildings, such as expansions, extensions, enlargements, etc.
Examples of expenditures to be capitalized as improvements to buildings include:
Note: For a replacement to be capitalized, it must be a part of a major repair or rehabilitation project, which meets or exceeds the capitalization threshold, or the expenditure increases the value or useful life of the building by 25 percent, such as renovation of a student center. A replacement also may be capitalized if the new item/part is of significantly improved quality and higher value compared to the old item/part. For example, replacement of an old shingle roof with a new fireproof tile roof would be capitalized, while replacement or restoration to original utility level would not. Determinations must be made on a case-by-case basis.
- Conversion of attics, basements, etc., to usable office clinic, research, or classroom space.
- Structures attached to the building, such as covered patios, sunrooms, garages, carports, enclosed stairwells, etc.
- Installation or upgrade of heating and cooling systems, including ceiling fans and attic vents
- Original installation or upgrade of wall or ceiling covering, such as carpeting, tile, paneling, parquet, etc.
- Structural changes, such as reinforcement of floors or walls, installation or replacement of beams, rafters, joists, steel grids, or other interior framing
- Installation or upgrade of window or door frames, upgrading of windows or doors, built-in closets and cabinets, etc.
- Interior renovation associated with casings, baseboards, light fixtures, ceiling trim, etc.
- Exterior renovation, such as installation or replacement of siding, roofing, masonry, etc.
- Installation or upgrade of plumbing and electrical wiring
- Installation or upgrade of phone or closed circuit television systems, networks, fiber optic cable, wiring required in the installation of equipment that will remain in the building, etc.
- Other costs associated with the above improvements
7.4.5 Building Maintenance Expense
The following are examples of expenditures not to capitalize as improvements to buildings. Instead, these items should be recorded as maintenance expense.
- Adding, removing, and/or moving of walls relating to renovation projects that are not considered major rehabilitation projects and do not increase the value of the building
- Improvement projects of minimal or no added life expectancy and/or value to the building
- Plumbing or electrical repairs
- Cleaning, pest extermination, or other periodic maintenance
- Interior decoration, such as draperies, blinds, curtain rods, wallpaper, etc.
- Exterior decoration, such as detachable awnings, uncovered porches, decorative fences, etc.
- Maintenance-type interior renovation, such as repainting; touch-up plastering; replacement of carpet, tile, or panel sections; sink and fixture refinishing, etc.
- Maintenance-type exterior renovation, such as repainting, replacement of deteriorated siding, roof or masonry sections, etc.
- Replacement of a part or component of a building with a new part of the same type and performance capabilities, such as replacement of an old boiler with a new one of the same type and performance capabilities, replacement of a roof, etc.
- Any other maintenance-related expenditure that does not increase the value or useful life of the building