Fixed Asset - Capitalization and Depreciation Guidelines - Final

Date Issued: July 2014

Author: Matt Murray

1.0: Purpose

The following policy is intended to be a resource for finance professionals at Ingredion (the
“Company”) for guidance on specific accounting methods and application of US Generally
Accepted Accounting Principles (“US GAAP”). This policy does not replace or alter applicable
US GAAP; however, it is merely intended to assist in the consistent accounting across the
Company. Since all circumstances cannot be addressed in their entirety by these
guidelines, professional judgment is necessary in their application. When handling is in
question, please contact the Corporate Controller’s Group (Corporate Controller or Director
of Accounting Policy/Research).

2.0: Persons Affected

This policy is applicable to all domestic and international locations for Ingredion, Inc. and all
consolidated subsidiaries.

3.0: Applicable US GAAP Accounting Guidance

ASC 360 – Property, Plant & Equipment

4.0: Policy

The following discusses the Company’s policies regarding capitalization and classification of
fixed assets, depreciation methods, and guidelines for useful lives. This policy discusses
costs related to property, plant & equipment (“PP&E”) including those for initial acquisition,
construction, improvements, replacements, additions, and repairs and maintenance. The
Company’s accounting for property, plant, and equipment can require a significant amount
of judgment, especially when ambiguity exists. In those instances, it would be appropriate
to contact the Corporate Controller’s Group for additional guidance.

4.1 There are three general phases related to most major capital projects, which are
discussed below with their associated accounting treatment:

 Phase 1: Study Costs – costs either for preliminary evaluation or exploration of a

major capital project or determination studies related to selecting between
alternatives

o Preliminary Evaluation/Exploration – general costs incurred to identify

efficiencies and enhancements to current operations that may or may not be
pursued. Also includes costs related to choosing between multiple
alternatives. These costs would be incurred prior to an approved capital
project and therefore should be expensed as incurred.

o Determination Studies – studies that are performed, subsequent to choosing

between multiple alternatives, in order to determine/refine the details, scope,
design, etc. of a project that has been committed to and fully approved by
necessary members of management in accordance with the finance policy
“Policy for Approval of Capital Expenditures.” These types of costs are
focused on the “how” or “how extensive” questions rather than the “what” or
Fixed Asset - Capitalization and Depreciation Guidelines - Final
Date Issued: July 2014
Author: Matt Murray

“if” questions. Costs associated with determination studies should be

capitalized if a) the costs are no longer preliminary/exploratory in nature, b)
the likelihood of the project going forward and ultimately resulting in physical
capital expenditure is probable (percentage greater than 75%), and c) the
costs have been approved by all required members of management per the
policy (see above).

 Phase 2 and 3: Design and Implementation – costs incurred related to determining

the design (architectural drawings, engineering costs) of the capital asset and costs
related to constructing or acquiring the asset. Costs incurred during these phases
can be capitalized since relating to an approved capital project.

4.2 Initial expenditures for fixed assets should be capitalized if all of the following criteria
are met:

4.2.1 The asset is held for use in operations and not held for sale and is to be used
on a continuous basis in the production or supply of goods or services, or for
administration purposes.

4.2.2 Total expenditures for the asset is greater than $10,000 for non-IT related
assets and $1,000 for IT related assets. These thresholds apply to a single asset or a
system of related or interdependent assets that function as a system.

Example 1: The Company purchases 100 office chairs for various locations
which cost $175 per chair or $17,500 in total. These chairs do not meet the
“system of related assets” criteria in 4.2.2 above and should be expensed as
they are not in excess of $10,000 each.

Example 2: The Company purchases security cameras for $1,500 each as

part of a new security system at a plant location that costs $22,000 in total.
The cameras operate as an entire security system and the system is the
qualifying expenditure and meets the criteria in 4.2.2 above.

4.2.2.1 Capitalization is required for all fixed asset purchases above $10,000
for non-IT assets and $1,000 for IT assets. A subsidiary can elect to use a
lower capitalization threshold provided that the threshold a) is required for
statutory or local tax purposes, b) meets the other guidelines for
capitalization, and c) is used consistently over time.

4.2.2.2 IT related assets include servers, computer hardware, and computer

software.

4.2.2.3 Note that computers or other IT equipment are sometimes purchased

in bulk (i.e. 100 computers at a time) and can be capitalized as the total
expenditure is over $1,000 though individual computers could be less than
$1,000 even though the assets do not operate as an interdependent system
of assets.
Fixed Asset - Capitalization and Depreciation Guidelines - Final
Date Issued: July 2014
Author: Matt Murray

4.2.2.4 A purchase of 100 office chairs in conjunction with a major overhaul

of a site location that includes other expenditures can be grouped as a system
of related assets.

Example: A location decides to enter into a new office space and purchases
50 desks, 50 chairs, and various other assets related to the new office space.
Individually, the asset purchases would be less than $10,000 though the total
expenditure related to the new location was in excess of $10,000 and can be
capitalized.

4.2.3 The asset has a useful life greater than one year

4.3 Expenditures for or related to fixed assets should be expensed in the period incurred if
the criteria in 4.2 above are not met.

4.4 The historical cost of acquiring a fixed asset includes costs (or activities) necessarily
incurred to bring it to the condition and location necessary for its intended use. The term
“activities” encompass physical construction of the asset in addition to all the steps required
to prepare the asset for its intended use. Incremental direct costs incurred necessary to
get fixed assets ready for their intended use including the design, engineering, acquiring,
constructing, or installing the specific fixed asset should be capitalized. These costs typically
include:

o Purchase price
o Site preparation (direct labor and materials – see 4.8 below)
o Transportation and handling costs (including internal transfers provided that
the additional cost does not cause the historical cost to be in excess of
estimated fair value of the asset)
 Significant transportation and handling expenses (defined as $100,000
or more) for internal transfers should be reviewed with the Corporate
Controller’s Group for appropriate treatment
o Installation costs (direct labor and materials – see 4.8 below)
o Work permit fees
o Import duties and sales taxes
o Set-up and break-in costs (also includes modifications to location)
o Interest, when applicable. (Refer to separate Capitalization of Interest Policy)

All expenditures not meeting the criteria for capitalization should be expensed as incurred.
See addendum at 7.1 for more detail on expenditures and the Company’s general
conclusion on whether to capitalize or expense the expenditure. The additional information
included in Section 7.1 is not meant to be all inclusive. Judgment should be utilized in
determining if expenditure qualifies for capitalization or if the expenditure should be
expensed as incurred. Consultation with the Corporate Controller (or his/her delegate) is
appropriate in cases where the determination of whether expenditures should be capitalized
is highly judgmental and is significant.
Fixed Asset - Capitalization and Depreciation Guidelines - Final
Date Issued: July 2014
Author: Matt Murray

4.5 Costs related to disposal of old equipment, if not related to replacement with new
equipment, should be considered cost of the disposal and should be expensed as incurred
and excluded from the gain or loss on disposal of the fixed asset. Costs related to disposal
of old equipment in conjunction with replacement with new equipment in the same physical
space should be considered as a cost of acquiring the new asset and should be capitalized in
accordance with the guidance in section 4.2.

Example: Location has a boiler with a remaining net book value of $200,000 and has
decided to scrap the fixed asset incurring a cost of $10,000 to transport the asset to a
scrapyard. The loss on disposal of the fixed asset should be $200,000 and the $10,000
should be recorded as an operating expense in the period incurred.

4.5.1 Costs related to the sale of equipment (transaction costs, broker fees) should
be included with the net proceeds upon sale and included in the gain or loss on
disposal of the fixed asset.

4.6 Subsequent expenditures related to existing fixed assets should be capitalized only if
the expenditure increases the future life of the existing asset beyond its originally assessed
standard of performance or adds additional functionality to the asset, or is either an addition
to or a replacement of a retired unit that meets the criteria in 4.2 above.

4.7 If an expenditure does not meet the capitalization criteria in 4.2 above, it should be
expensed as incurred. The following are examples of items that should be expensed:

4.7.1 Expenditures for assets or asset systems that total less than $10,000 for non-
IT assets and $1,000 for IT related assets. (or lower threshold if elected by entity)

4.7.2 Expenditures for repairs, maintenance, or replacement of component parts

which do not extend the useful life or significantly enhance the value of the fixed
asset should be expensed.

4.7.2.1 Professional judgment may be required on a case-by-case basis for

distinguishing expenditures that increase the useful life of a fixed asset from
repairs and maintenance. If the expenditure does not significantly increase
the efficiency or effectiveness of the asset or does not add functionality to the
fixed asset, it should be considered repairs and maintenance. Expenditures
that bring an asset to its original utility level are considered a repair and
should not be capitalized.

4.7.2.2 Examples of non-capitalized expenditures include: roof repairs,

interior or exterior repainting, window replacements, repairs (including re-
pavements) of floors, lighting, or window coverings.

4.7.2.3 Replacements of major assets such as roofs or flooring should be

capitalized. Includes complete replacement of roofs and floors and not just
repairs or maintenance of existing roofs and floors.

4.7.3 Expenditures for fixed assets with useful lives less than 1 year
Fixed Asset - Capitalization and Depreciation Guidelines - Final
Date Issued: July 2014
Author: Matt Murray

4.7.4 Expenditures or cost related to internal inefficiencies during the on-site

construction of assets, whether due to temporary idle processes, engineering errors,
industrial disputes, etc. Judgment should be used if excess cost related to the
construction of an asset is incurred to determine the appropriate cost to capitalize or
to expense.

4.7.5 Subsequent training costs (internal or external) on use of equipment

4.7.6 Costs which do not result in the construction or completion of the asset.
These costs should be expensed in the period in which it is more likely than not that
the asset will not be constructed or completed.

Example: A third party architecture firm is hired to perform drawings for the layout
of a new manufacturing location that cost $15,000 as part of a larger Company
approved plan to build the location. Prior to the completion of the project,
management has determined that the manufacturing location will not be built due to
capital or other constraints. As such, the cost related to the drawings of $15,000
should be expensed in the period in which it is concluded to be more likely than not
that the location would not be constructed.

4.7.7 Administrative or general costs of personnel not specifically assigned to the

project

4.7.8 Modification or improvement of an existing asset which results in less than a

25% increase in capacity or productivity. Judgment should be used in applying this
25% threshold.

4.8 Internal labor costs directly related to construction/development/assembly/installation

of fixed assets (both IT and non-IT) and appropriately tracked and documented should be
capitalized. As such, internal labor should be capitalized if all of the following criteria are
met:

1) Total capital project spend originally estimated to be in excess of $1,000,000.

-Note that for capital projects in excess of $1,000,000, internal labor should be
considered and documented in the capital planning process

2) Employee(s) is at least 75% dedicated to capital project(s).

-Note that employee(s) can be dedicated to one or multiple capital projects in

order to meet this criterion. The work related to the capital project must be in
the form on construction/assembly/development/installation of capital assets and
should be project engineers. Engineers working on process efficiencies (process
engineers) on previously existing capital assets and not capital expenditures
generally would not be included in this criterion.

-For IT capital projects, employee work must be related to the application

development stage. See the policy Fixed Asset – Capitalization of Internal Use
Fixed Asset - Capitalization and Depreciation Guidelines - Final
Date Issued: July 2014
Author: Matt Murray

Software for more information on the work related to the application

development stage.

3) Employee(s) is dedicated (at least 75% of their time) to the capital project(s) for
at least 3 months. Does not have to be 3 continuous months, rather should be a
significant (judgment to be used) amount of the employee’s time dedicated to
the project.

-Significant amount of judgment related to this criterion should be exercised in

order to determine if internal labor should be capitalized. The spirit of this
criterion is to capture employee time that is mostly dedicated to capital projects,
though circumstances could require employees to dedicate time on and off capital
projects over the course of the year.

4.8.1 For internal labor meeting the criteria above, an employee or employees’ time
should be tracked and documented. Appropriate tracking and documentation should
be determined by professional judgment of the location as related to the specific
capital project. The majority of projects with internal labor capitalized should be
supported by detailed time-tracking performed by engineers and reviewed/approved
by the respective accounting department.

4.8.1.1 Detailed time-tracking can be supported through the use of Excel or

other mechanisms.

4.8.1.2 It is acceptable to use either the employee’s actual rate per hour or
estimated rates per hour (plus fringe estimates) in determining the
appropriate amount of internal labor to capitalize.

4.8.1.3 Allocations of employee’s time based on budget or estimates without

detailed time-tracking can be considered appropriate in certain circumstances,
but should be documented accordingly.

4.8.1.4 For individuals working on multiple projects, time must be allocated to

projects based on the time-tracking mechanism utilized by the entity.

4.8.2 Labor costs related to temporary or backfilled employees can be capitalized as

a proxy for the cost of employees that are used by the entity specifically for the
capital project or projects

4.8.3 For those employees meeting the criteria for capitalization discussed in 4.8
above, the following costs should be capitalized:

-100% of employee’s payroll and payroll related costs (fringe benefits)

Or

-Cost of hourly employees (internal or external) to backfill permanent

employees working on a specific capital project as a proxy of payroll and
payroll related costs for full-time employees dedicated to the project
Fixed Asset - Capitalization and Depreciation Guidelines - Final
Date Issued: July 2014
Author: Matt Murray

4.8.4 Internal labor can be capitalized for projects not meeting the criteria in section
4.8 above provided that the internal labor is directly related to preparing the asset
for its intended use. As such, a lower threshold for capitalization of internal labor
can be employed by entities but should be consistently followed by the entity over
time.

Example: Entity A determines that the $1,000,000 threshold is too high and decides
that an appropriate threshold to utilize given the size of the business and statutory
and tax reporting considerations is $100,000. Entity A should therefore capitalize
internal labor for all projects estimated to be over $100,000 in which employees are
greater than 75% dedicated to the project for 3 months or more. This threshold
should not be changed by Entity A unless approved by the Country Controller and
Corporate Controller.

4.8.5 See addendum at 7.2 below for specific questions and answers related to the
capitalization of internal labor.

4.9 Spare parts (otherwise known as mechanical stores) related to the production process
should be classified as Property, Plant & Equipment and are categorized into three major
types as discussed below, which follow different accounting treatments.

See Inventory – General Concepts for more information on supplies related to the product
being sold (packaging materials, etc.) as these items should not be classified as Property,
Plant & Equipment.

Type Description Examples Initial Subsequent

Accounting Accounting
Treatment Treatment

Small Spare Small spare Small nuts, Capitalize as These spare parts are
Parts parts used in bolts. Generally mechanical not depreciable items
production and costing less than stores as a and should continue
other $1,000. component of to be held at historic
equipment. fixed assets at cost. Expense to
Does not include historic cost COGS when put in
supplies or when the production
packaging purchased. process or when
materials as used. Review for
these items are impairment, loss or
included within obsolescence on at
Inventories least a quarterly
basis.
Large Spare Medium or large Fifth wheel, Record as fixed These spare parts
Parts spare parts kept spare asset item should not be
(purchased on hand in case equipment, separate from depreciated and
separate from a of breakdown or motors, etc. not related should continue to be
capital project) immediate need previously used machinery and held at historic cost.
Fixed Asset - Capitalization and Depreciation Guidelines - Final
Date Issued: July 2014
Author: Matt Murray

in production in production. equipment and Expense to COGS

process Generally items include at when put in the
costing more historical cost production process or
than $1,000 within when used. Review
mechanical for impairment, loss
stores. or obsolescence on at
least a quarterly
basis, which should
include an evaluation
of the aging or last
movement date of
these assets
Large Spare Medium or large Fifth wheel, Judgment If initial treatment is
Parts spare parts kept spare should be used based on 1), then
(purchased as on hand in case equipment, for these follow accounting
part of a capital of breakdown or motors, etc. not mechanical guidance above for
project) immediate need previously used stores non-depreciable large
in production in production. depending on spare parts. If based
process, Generally items whether it is on 2), then continue
purchased in costing more determined that to depreciate over
conjunction with than $1,000 these useful life and
a capital project mechanical reviewing for
stores have an impairment, loss, or
obsolescence obsolescence on a
factor and quarterly basis.
should therefore
be depreciated.
Two options are
provided:

1) Follow
treatment
above for
large spare
parts if
determined
not to have
an
obsolescence
factor

2) Capitalize as
part of the
related
machinery &
equipment
(with
separate
tracking for
Fixed Asset - Capitalization and Depreciation Guidelines - Final
Date Issued: July 2014
Author: Matt Murray

these items
within SAP)
and
depreciate
over a useful
life of 15-20
for most
machinery &
equipment
and 20-25
years for
dextrose
machinery &
equipment

Refurbished Large equipment Refurbished See above for The remaining net
Equipment previously used motor large spare book value of
in the parts. equipment taken out
production of service should be
process expensed to COGS.
Costs to refurbish
equipment should
become new historic
cost and should be
held in mechanical
stores at that amount
and not depreciated.
Expense within COGS
when placed back in
service.

See example below

for applicable
accounting treatment
for multiple
units/parts of the
same type within
mechanical stores.

Example of Refurbished Mechanical Stores: Plant purchases 3 units at $20,000/unit. It

costs the plant $5,000 to repair/refurbish one of the units.

Dr. PP&E (Mechanical Stores) $60,000

Cr. Cash/Accounts Payable $60,000
To record purchase of machinery spare parts

Dr. Repairs & Maintenance (COGS) $20,000

Cr. PP&E (Mechanical Stores) $20,000
Fixed Asset - Capitalization and Depreciation Guidelines - Final
Date Issued: July 2014
Author: Matt Murray

To place one part into service

Dr. PP&E (Mechanical Stores) $5,000

Cr. Cash $5,000
To take out mechanical store from service and place repaired part back into PP&E at cost to
refurbish. No entry recorded when taken out of service since previously expensed to COGS.
For depreciating assets with remaining NBV, the remaining NBV should be expensed to
COGS when sent for refurbishment.

Dr. Repairs & Maintenance (COGS) $15,000

Cr. PP&E (Mechanical Stores) $15,000
To place one of the remaining parts into service at average value (see calculation below)

2 units @ $20,000 = $40,000

1 unit @ $5,000 = $5,000

Total 3 units @ $45,000 or $15,000/unit

4.9.1 Locations should perform a high-level review (a full physical required at least
every 5 years) of assets included in mechanical stores for obsolescence, loss,
damage, impairment, etc. on at least an annual basis. The review should include
consideration of the age or last movement date of mechanical stores in order to
properly assess impairment. Consideration should be made for mechanical store
items or categories in which no movement has occurred in greater than 2 years.

4.9.2 Mechanical stores determined to be damaged or obsolete should be considered

impaired and the assets net book value should be expensed to COGS down to net
realizable value (or scrap value, if any).

4.9.3 Mechanical stores determined to be missing should be expensed to COGS and

removed from the corresponding fixed asset subledger.

4.9.4 Impairment or loss of mechanical stores should be evaluated based on the

policy Impairment and Disposal of Long-Lived Assets on at least a quarterly basis.

4.10 Fixed asset expenditures should be classified based on the type of asset under the
following general categories:

 Land – solid part of the earth’s surface whether improved or unimproved. Includes
the cost of land, title fees, legal fees, survey costs, and zoning fees

 Land Improvements – includes parking lots, sidewalks, landscaping, irrigation

systems, and similar expenditures

 Buildings – includes roofed structures for the permanent or temporary shelter of

persons or equipment
Fixed Asset - Capitalization and Depreciation Guidelines - Final
Date Issued: July 2014
Author: Matt Murray

 Building Improvements (included within Buildings) – improvements to existing

buildings including renovations or alterations of an existing building that adds useful
space to the structure or extends the location’s useful life

 Equipment – includes personal property such as production equipment, furniture,

and fixtures and can be permanently affixed to a building but is separate from the
building itself

 Leasehold Improvements – improvements to land, building, or other fixed assets

leased by the Company

 MIS Equipment – includes enterprise software or other computer software for

internal use. Enterprise software is defined as software intending to solve an
enterprise problem, rather than a departmental problem and can be in the form of:
enterprise resource planning (ERP) software, customer relationship management
(CRM) software, enterprise asset management (EAM) software, or business process
management software (as examples).

 Mechanical Stores – includes expenditures related to spare parts or other operating

equipment that is not currently used in the production process

 Vehicles – includes automobiles, trucks, etc. owned by the Company

4.11 Expenditures for PP&E (progress payments, pre-capitalization costs) for assets not yet
placed in service should be recorded to PPE Cost – Capital CWIP in Hyperion. Expenditures
should be accumulated in this account until the asset is placed in service according to the
guidelines in 4.12 below.

4.11.1 Projects outstanding in Construction Work in Progress (“CWIP”) at month end

should be reviewed for appropriateness, which should be a joint process with both
the accounting department and plant operations. The status of outstanding projects
should be documented, which could be any of the following:

a. Projects that are still in process and continue to accumulate costs, but have
not yet been placed in service

b. Projects that are still outstanding, but do not continue to accumulate costs
due to various reasons (strategic decisions for assets, project delays, etc.).
Consideration should be given as to the likelihood of these projects ultimately
being completed – see Impairment or Disposal of Long-Lived Assets policy.

c. Projects that have been placed in service, but will commence depreciation
the following month (see section 4.12 below)

4.11.2 Note that monthly account reconciliations are required for CWIP balance sheet
accounts as noted in the Account Reconciliations – Corporate Guidelines policy.
Fixed Asset - Capitalization and Depreciation Guidelines - Final
Date Issued: July 2014
Author: Matt Murray

4.12 Depreciation should commence and the asset should be placed in service (and
removed from construction in progress) when the asset is substantially complete and is
ready for its intended use. The point of time at which as asset is ready for its intended use
is critical in determining its acquisition cost. Some assets are ready for their intended use
when purchased. Other assets are ready for their intended use by a series of activities
whereby diverse resources are combined to form a new asset(s).

4.12.1 The term “substantially complete” in 4.12 above refers to when the entity can
use the asset and only incidental punch list type work remains. In order to
determine if substantially complete, a small level of testing may be necessary to test
the operation of the asset. This small level of testing would be considered a period
of time before the asset is determined to be “substantially complete”. Note that this
period typically should not exceed 3 months.

4.12.2 The term “ready for its intended use” refers to the asset being available for its
intended production capability even if production is not expected for a period of time.
Actual use of the asset is irrelevant in determining when to place an asset in service.

Example: A finishing line is constructed by a team of internal and external engineers

and the construction is substantially complete after a relatively minor level of testing
was performed on the asset. Due to external market conditions, production is not
expected to occur for 3-6 months as sales orders have not yet been received for the
product. The finishing line is available and ready for its intended use (and therefore
should be placed in service and depreciated) even though production is not expected
to occur for 3-6 months.

4.12.3 Note that the asset can be placed in service prior to receiving the final invoice
related to the expenditure. The payment of all invoices related to a capital
expenditure is irrelevant in determining the period in which as asset should be placed
in service.

4.12.4 If the construction or purchase of an asset is completed in parts, and each

part is capable of being used independently while work is continuing on other parts,
depreciation should commence on each part when it is substantially complete and
ready for its intended use.

4.12.5 If an asset must be completed in its entirety before any part of the asset can
be used, depreciation should commence when the entire asset is substantially
complete and ready for its intended use.

4.12.6 Internal orders in SAP should be closed out in a timely manner after the asset
is placed in service, which should generally be within 3 months of placing the asset in
service.

4.13 Depreciation should be recorded on a monthly basis for fixed assets under the straight-
line method which will result in the systematic and rational allocation of the cost of the asset
over its estimated useful life. Depreciation should be recognized for all asset classes based
on its estimated useful life to the Company, usually relating to the anticipated period of
productive use of the asset. Salvage or residual value should generally be assumed to be
Fixed Asset - Capitalization and Depreciation Guidelines - Final
Date Issued: July 2014
Author: Matt Murray

zero. Depreciation expense should be recognized from the date placed in service based on
the following minimum guidelines:

4.13.1 Assets placed in service between the 1st and 15th of the month should record
at least a half month’s depreciation in the month placed in service. Assets placed in
service between the 16th and end of the month should begin to record depreciation in
the following month.

4.13.2 Note that these are minimum guidelines for recording depreciation expense.
A more precise calculation or determination of depreciation expense based on the
actual date the asset is placed in service is appropriate.

Example: An asset was determined to be ready for its intended use on December
16th. Based on 4.13.1 above, it would be acceptable to begin depreciation expense
on January 1st. Based on 4.13.2 above, it would be more appropriate to begin
depreciating the asset on December 16th.

4.14 The following table reflects the Company’s guidelines for estimated useful lives for the
various asset classes. Judgment should be used in determining the appropriate useful life
for assets not specifically discussed below.

Asset Class Estimated Useful Life

Land N/A – not depreciated
Land Improvements 20 – 25 years
Buildings (and building 25 - 50 years
improvements)
Machinery & Equipment (excluding 15 - 20 years
dextrose M&E)
Dextrose Machinery & Equipment 20 - 25 years
Lab Equipment 7 - 10 years
Furniture & Fixtures 5 - 10 years
Enterprise Software (SAP, etc.) 5 - 7 years
Other Application Software 3 – 7 years
Computer Equipment 2 - 4 years
Automobiles 3 - 5 years
Leasehold Improvements Shorter of 7-10 years or the term
of the lease (as defined within
Accounting for Leases)

4.14.1 If a location determines that an asset should have a useful life outside of the
guidelines set forth in 4.14 above, approval of the Corporate Controller is required.
The rationale for a different useful life should be presented to the Corporate
Controller and maintained by the location in order to properly document this
deviation from policy.

4.15 Depreciation expense should continue to be recorded on a straight-line basis over its
original useful life unless one of the following events occurs:
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Date Issued: July 2014
Author: Matt Murray

4.15.1 Asset meets the criteria and is classified as an Asset Held for Sale. See Fixed
Assets – External Reporting Policy for more details. Depreciation expense should
cease to be recorded in the period in which the relevant criterion is met.

4.15.2 Impairment (full or partial) has been recorded for the asset and a new useful
life is determined to be required. See Impairment or Disposal of Fixed Assets Policy
for additional information.

4.15.3 If original useful life is no longer determined to be appropriate and a new

useful life is concluded to be more reasonable given facts and circumstances. Any
change to the original useful life should be accounted for prospectively as a change
in accounting estimate and should be approved by the Corporate Controller and
should be reported to the Corporate or Local Tax Departments.

Example: Asset purchased on 12/31/11 for $300,000 with an original useful life of 5
years was determined on 12/31/12 that a remaining useful life (at that date) of only
2 years was appropriate. As of 12/31/12, $60K has been recorded as depreciation
expense in 2012 and accumulated depreciation is $60K. Starting in 2013, annual
depreciation expense should be recorded in the amount of $120K based on the new
useful life of 2 years and remaining asset net book value of $240K.

Year One

Dr. Depreciation Expense $60,000

Cr. Accumulated Depreciation $60,000

Years 2-3

Dr. Depreciation Expense $120,000

Cr. Accumulated Depreciation $120,000

4.15.3.1 Locations should perform a periodic review (on at least an annual

basis) of estimated useful lives to determine if changes to these estimates are
required. This review should include a consideration of the entity’s estimated
productive use of the asset, and other factors such as wear and tear,
obsolescence, and maintenance or replacement policies.

4.16 Start-up activities are those one-time activities related to opening a new facility,
introducing a new product or service, conducting business in a new territory (or with a new
class of customers), initiating a new process in an existing facility or commencing some new
operation. This includes such activities as:

 Cost of product flush batches

 Cost of external service technicians during line start-up
 Costs incurred to hire new employees prior to the start of revenue generation
 Salaries and benefits of new employees (including line operators) incurred
prior to the start of revenue generation
Fixed Asset - Capitalization and Depreciation Guidelines - Final
Date Issued: July 2014
Author: Matt Murray

 Initial cost of training new employees

4.16.1 Start-up activities should be expensed as incurred and should not be

capitalized.

4.16.2 Start-up activities related to the development of a fixed asset should follow
the accounting in 4.2 above.

4.17 Each location should perform a review of property, plant & equipment to determine
existence of the long-lived assets on at least an annual basis. This review should consist of
a high-level review of assets in the fixed asset subledger to confirm existence or other
events (disposal, etc.) related to these assets. Assets should be timely removed from the
asset subledger when disposed of or abandoned or when taken out of service.

4.17.1 Per the Internal Accounting Control Manual, a full physical of fixed assets
should be performed at least every 5 years.

5.0: Definitions

Fixed Asset – generally includes land, improvements to land, buildings, improvements to

buildings, vehicles, machinery, furniture, equipment, leasehold improvements, and all other
tangible assets that have initial useful lives extending beyond a single reporting period.

Estimated Useful Life – period of time over which a fixed asset is expected to provide
economic benefit to the entity. In the determination of the estimated useful life, it is
presumed that an entity will perform normal, ongoing, and periodic maintenance activities
on the PP&E.

Qualifying Expenditures - any reasonable cost involved in acquiring the asset, bringing
the asset to its final location, and preparing the asset for use in production should be
included as a qualifying expenditure.

6.0: Responsibilities

N/A

7.0: Related Documents

7.1 – Capital vs. Expense Table

7.2 – Capitalization of Internal Labor – Q&A

Fixed Asset - Capitalization and Depreciation Guidelines - Final
Date Issued: July 2014
Author: Matt Murray

8.0: Exhibits

Account Table:

SAP Account SAP Hyperion Hyperion Description of

Description Account Description Intended Use of
Account

9.0: Change Matrix

Section Reason for Change Date

All Initial issuance 7/1/14