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The University has established a systematic method of building reserves for capital equipment replacement (i.e. equipment reserve and replacement) that emphasizes the long-term annual expense of equipment rather than sporadic expenditures for equipment.

University departments may create reserves for equipment replacement by moving non-recurring resources from the current fund to the plant fund. Those plant fund reserves may then be used to replace equipment in the current fund.

This policy cannot be used for any sponsored University account or Internal Service Organization. It is optional for all other University departments and colleges. However, once this option is chosen, the procedures require purchases from the plant fund.

Exclusions

Special Situations

See procedure related to ISO's – Procedure 3.2.1.5: Establishing Reserve Funds. Deficit balances in non-ISO chart strings will be charged interest at the same rates as current fund operating accounts. Transfers-out from the current fund into the equipment replacement/reserve funds will be permanent. No transfer out from these plant funds will be approved by Accounting Services. Any exceptions must be approved by the Budget Office.

Setting aside equipment reserves from current funds promotes prudent financial management by:

• Increasing awareness of the ongoing need for equipment replacement
• Segregating dollars reserved for future equipment purchases from current funds' carry forward balances
• Preventing inadvertent use of equipment reserves for non-equipment expenditures
• Encouraging departments to do more long-term planning and decrease the cyclical tendencies inherent when budgeting and funding for the equipment only in the year of the intended purchase

• Planning and Budgeting for Equipment Replacement
• Establishing Equipment Replacement/Reserve Accounts
• Transferring Resources to Equipment Reserve Accounts
• Purchasing From Equipment Reserve Accounts

• EXPENSE BUDGET - EB (GS92204, BA 1293)
• EXPENSE BUDGET TRANSFER - ET (GS92205, BA 1294)
• REVENUE BUDGET - RB (GS92206, BA 1295)
• JOURNAL VOUCHER - JV (GS92207, BA 1296)
• DEPARTMENTAL PURCHASE ORDER - POT (GS 92303, BA1289)
• CENTRAL REQUISITION SUPPLEMENT - RX (GS92212, BA 1304)

Subject	Contact	Phone	Email

Subject	Contact	Phone	Fax/Email
Primary Contact	Julie Tonneson	612-626-9278	tonne001@umn.edu
Setting up Accounts	Accounting Services	612-624-5035
Depreciation Rates	Inventory Services	612-626-8222
TIP Earnings	Budget Office	612-625-2858

Equipment Replacement/Reserve Funds

Plant funds created to aggregate reserves that will be used to purchase equipment.

• O&M - unrestricted 7401
• Other unrestricted 7200
• Restricted (non-sponsored) 7700

Capital Equipment

Any items purchased at a unit cost consistent with a capitalization amount of $2,500 and greater with a useful life of more than 1 year. Also includes improvements which increase the value or extend the useful life of equipment.

Accounting Services

Set up plant funds.

Area Managers

Send account chart field requests to Accounting Services.

Budget and Finance Office

Credit TIP earnings to plant fund chart strings. Charge interest for plant fund chart strings in deficit status. Grant exceptions for transfers out of the plant fund. Monitor any deficit spending in the plant fund.

Departments/ISO's

Decide if they will use equipment/replacement reserve funds. Purchase capital equipment from the plant funds.

Inventory Services

Provide information on equipment lives and depreciation rates.

RRC Managers

Approve DeptIDs that can use equipment/replacement reserve accounts.

• Appendix A: Chart of Account References

Paragraph content

• Administrative Policy: Processing Internal Accounting Transactions
• Administrative Policy: Selling Goods and Services to University Departments

Effective:

January 1998

Supercedes:

January 27, 1995 memo on "Funding Equipment Replacement"

To obtain a copy of a historical policy, e-mail the U Policy Librarian at policy@umn.edu or call 612-624-4372.