Property Management Policy & Procedure Manual
Section 200: Equipment Acquisition
Effective: 07/01/1996
Revised: 03/16/2018

 

On rare occasions, units may use a Capital Lease Agreement for the purchase of capital equipment. These agreements must be approved by the OSU Procurement and Contract Services Office and install payments will be over a period of five years or less. A capital lease has at least one of the following characteristics:

  1. Ownership of the property passes to OSU at the end of the lease.
  2. The lease contains a lease/purchase option.
  3. The lease lasts for 75 percent or more of the useful life of the equipment.
  4. The total of all lease payments (excluding insurance and maintenance costs) is greater than or equal to 90 percent of the fair market value of the equipment.
  5. A Commodity Lease Intake Form is submitted to and approved by Procurement and Contract Services.

Equipment purchased through a capital lease is "conditionally owned-insured" (title code CI) until the final payment is made and the department exercises the option to purchase.

When the final payment is made, the Business Center notifies Fixed Assets Property Management in Financial Accounting and Analysis. The inventory record is then updated to show "Purchase" rather than "Lease/Purchase" for the acquisition method and the title code is changed to "OSU owned-insured" (SI). If the option to buy is not executed, the asset is returned to the vendor and a Property Disposition Request Form (PDR) must be submitted to remove it from inventory

If federal funds are involved in the acquisition of equipment on a capital lease, the principal investigator must first determine that the source of funding allows for leasing.

Responsible Party Action
Department
  1. Complete and submit a requisition for the proposed capital lease of equipment and a Commodity Lease Intake Form to Procurement & Contract Services.
Purchasing
  1. Ensure requisition is properly completed.
  2. Solicit bids or quotes on the item from vendors.
  3. Send a copy of the signed capital lease agreement to Fixed Assets Property Management in Financial Accounting and Analysis (FA&A).
  4. Initiate purchase order in FIS Banner.
Department & Business Center
  1. Department receives equipment and invoice.
  2. Business Center processes FIS Banner invoice:
    1. Code all payment as 40111 Equipment-Capital Lease Payments for the principal amount and 28810 Interest Expense for that year's interest.
    2. Add text: (1) providing the inventory information for the creation of the asset record, and (2) noting the market value of the purchased asset.
    3. Each payment should reference the inventory number or Ptag assigned to the asset, either on the description line or in the text field (e.g., Monthly payment on copier, Ptag# 315062.)
  3. Upon final payment, the Business Center notifies Fixed Assets Property Management in FA&A.
Fixed Assets Property Management - Business Affairs
  1. When the initial capital lease payment is made, set up the asset in the inventory system using the Fair Market Value or total of principal payments as the asset value/Total Cost. The inventory record should reflect lease purchase and a title code of CI. An asset tag should be created and attached to the equipment at this time.
     
  2. Create a journal voucher (JV) to credit the capitalization fund for the Total Cost of the equipment on B2102 Capital Leases Payable - LT and debit E1001 NIP Change in Fixed Assets.
     
  3. Each year when the principal payment installments are made create a JV to debit B2102 and credit E1001 in the capitalization fund.
     
  4. When the final payment is made update the inventory record to reflect "Purchase" rather than "Lease Purchase" for the acquisition method and change the title code from CI to SI. Note: If the option to buy is not executed, the asset is returned to the vendor and a PDR should be submitted to remove it from inventory.