Building Picture EPB Employees Credit Union
Expense Policy
Phone: (423) 648-3413, Fax: (423) 698-2912, email: epbecu@epbecu.org
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The information contained herein is for the Directors, Officers, Employees and Members of EPB Employees Credit Union, 1500 McCallie Avenue, Chattanooga, Tennessee, USA. It is provided as both a convenience and as an off-site backup in case of an emergency. No authorization is given to any other person or entity to use this information in part or in whole.
EXPENSE POLICY
 (Policy on Capitalizing Expenditures)

EPB EMPLOYEES CREDIT UNION

PURPOSE:

This policy is for the purpose of establishing guidelines to be followed in determining what expenditures will be capitalized by the Credit Union.

 

ACCOUNTING PRINCIPLE:

The criteria used in establishing these guidelines is based upon Generally Accepted Accounting Principles (GAAP)... to not capitalize an expenditure for a capital item would result in an understatement of Assets and Net Income. Conversely, to capitalize an expenditure when it should be expensed would overstate Assets and Net Income.

 

PURCHASE AUTHORIZATION:

By establishing these guidelines, the Board of Directors of the EPB Employees Credit Union authorizes its Manager or Acting Manager to make expenditures without prior Board approval for capital items with a value of $300 or less and no more than four such purchases in any fiscal year. Expenditures made for all other capital items require prior Board approval.

 

GUIDELINES:

Additions, replacements, and improvements should be capitalized if they meet the requirements set forth below. Maintenance and repair charges should never be capitalized. The expenditure for an item normally will be capitalized if it meets any one of the following:

  1. **Cost $600 or more and has a useful life of at least two (2) years, or
  2. Extends the useful life of an existing asset by at least two (2) years, or
  3. **Consists of multiple items purchased in quantity costing $600 or more if the items are to be used together as a unit. The following items would fall in this category: panels, drawers, cubicle file cabinets, mini blinds where all windows are covered, etc.
The guidelines established herein should provide a consistent method of handling capital expenditures. See the Appendix for types of classifications referred to under Guidelines Section.

 

APPENDIX TO CAPITALIZATION POLICY
1. Maintenance and repairs.

Maintenance is the keeping of property at a standard operating condition, and repair is the restoration of a capital asset to its full productive capacity after damage, accident, or prolonged use, without increase in the previously estimated service life or capacity. Therefore, these expenditures would be expensed as opposed to capitalized.

Repairs frequently involve replacement of equipment parts. How the asset was originally recorded will determine whether or not the replacement part should be capitalized. For instance, if the engine of an automobile had been recorded as a separate unit, the replacement cost of this unit would be capitalized; however, if the entire automobile had been recorded on the fixed asset records as an individual unit, the replacement cost for the engine would be treated as a repair and expensed. This concept applies to all fixed and movable equipment, such as plumbing, electrical work, x-ray equipment, etc.

 2. Additions.

An addition includes new units and extensions, expansions, and enlargements of old units. They may comprise entirely separately assets such as a new building or a piece of equipment.

 3. Improvements.

Improvements (betterments) are distinguished from additions because an addition is merely an increase in quantity, whereas an improvement is a substitution with an increase only in quality, i.e. extending the useful life of an existing fixed asset, increasing its normal rate of output, lowering its operating cost or otherwise adding to the worth of benefits it yields. A betterment is distinguished from an item of repair or maintenance in that the latter has the effect of keeping the asset in its customary state of operating efficiency without the expectation of added future benefits. Examples of improvements are substitution of a tile roof for wooden shingles, replacement of pine flooring with hardwood, or installation of a more powerful motor in a commercial fishing boat.

 4. Replacements

Replacements are distinguished from improvements by the type of substitution made. Substitution of a new machine identical except in age and condition is a replacement but not an improvement. Substitution of a superior new machine for an old one is both a replacement and an improvement. In either case, the item in question should be capitalized if they meet the end cost and useful life requirements listed earlier.

 

 Approved October 26, 1987
Reviewed June 23, 1994
Reviewed April 18, 1996
Reviewed August 20, 1998
Reviewed August 26, 1999
**Revised May 23, 2002
Reviewed July 24, 2003
Reviewed March 16, 2005