University of California Davis Self-Supporting Recharge Operations - Reserves
Self-supporting activities may be eligible to collect reserve funds for replacement and renewal of equipment, and/or general reserves to support the activities' operations. Please read through the descriptions and eligibility below for each type of reserve to determine which type best fits your operation.
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Reserve for Replacement and Renewal (Depreciation)
Reserve for replacement and renewal are self-supporting activity funds that are set aside for future replacement of existing equipment depreciated within the activities' rate structure. Reserve for replacement and renewal funds are generated when the depreciation expense of an eligible asset is built into the rates.
Asset Eligibility
Assets meeting all of the following criteria are eligible for depreciation under a self-supporting fund:
- Meet the requirements in Policies and Procedures Manual (PPM) 340-25, Recharge Activities
- Were included as part of an approved rate
- Have an acquisition value of $5,000 or more
- Were purchased with non-federal funds (If commingled, only the non-federal portion is eligible)
- Were not included in a Facilities and Administrative (F&A) cost pool. If you do not know if the equipment is included in an F&A cost pool, contact Costing Policy & Analysis.
Depreciation is effective from the asset's capitalization date (i.e., the date the item is put into service for the activity). In most cases, the capitalization date is the same as the asset's received date. When you enter the Received Date into the Aggie Enterprise Fixed Asset Module, the same date defaults into the Capitalization Date field. Only Equipment Management can change the capitalization date.
Asset Tracking
Depreciable assets for self-supporting activities are tracked separately from non-depreciable assets by recording them in their own unique Asset Custodial Code. Custodial Codes for depreciable assets belonging to self-supporting activities begin with a "D" and have "DEPR" in their name. You can request a self-supporting custody code by completing the Custodial Code Request Form. You can see your activity's depreciation by running the UCD Equipment Activity Report.
When you purchase a depreciable asset for your self-supporting activity, be sure to assign it to your "D" Custodial Code on your requisition. An updated rate proposal with the new asset listed should also be submitted so that Finance and Accounting can update their depreciation records. If you don't do this, depreciation will not occur.
If you have existing equipment that will now be used for a self-supporting activity, transfer it to your D custody code in Aggie Enterprise. Finance and Accounting will request documentation that the equipment has been approved in your rate. If the equipment hasn't been approved yet, documentation of the proposed rate change may suffice.
When assets are added to custody codes specific to self-supporting depreciating assets (i.e., the custody codes begin with a D), Finance and Accounting should be notified by submitting a Service Now ticket via recharge@ucdavis.edu.
Calculating Depreciation Cost
Depreciation is determined using this formula:
Depreciation Total = Asset Value - Salvage Value - Federal Amount * Utilization %.
(Note: Rarely does an activity include salvage value but if it does it can be up to 10% of the asset value).
The depreciation total is then divided by the asset's useful life, as determined by the Useful Life Schedule. For example, an item with a depreciation total of $12,000 and a useful life of 10 years will depreciate $1,200 per year.
The asset depreciation expense will post monthly to your activity utilizing Natural Account 770104 and the corresponding revenue will post to your reserves utilizing Natural Account 775104.
By exception, it may be possible to follow a useful life schedule other than that provided by UCOP. Provide Costing Policy & Analysis with the property numbers and your basis for requesting an exception (e.g., institutional experience) before purchasing the asset. If an exception is granted, inform General Accounting.
Purchasing Replacement Equipment
If the item being replaced cost more than the reserve amount collected to replace it, an additional chart of account segment should be provided on the requisition for the difference. All chart of account segments should utilize the unique project for the activity. Appropriate fund sources for the additional cost include general reserves and other department discretionary funding. Also, please note that the item being replaced can continue to be used by the activity but will not continue to be depreciated. If the new asset should be depreciated, the rate should be updated immediately.
Asset End of Use or End of Depreciable Life
When an asset has fully depreciated, there are three options:
- If it is still being used for the activity, it remains on the depreciable assets custody code; no further depreciation occurs.
- If it is no longer being used for the activity, but can still be used by your department, transfer it to a custody code for non-depreciating assets, via requesting an Asset Edit in Aggie Enterprise.
- If it is no longer needed for the activity and your department no longer has a use for it, follow the AggieSurplus instructions for equipment disposal.
General Reserve
General reserve funds are self-supporting activity funds that are set aside for future use. They can be used to fund costs related to the recharge activity such as unexpected expenses, operational deficits, etc. General reserve funds do not have the same restrictions as operational funds or other reserve funds. General reserve funds are derived from excess departmental NUD and/or markup and are not included in the rate as a specific cost. Only those activities not operating in a deficit are eligible to move the excess departmental NUD and/or markup to the reserve account.
Departments must notify recharge@ucdavis.edu, at fiscal year end, to process the reserve distribution by referencing the chart of account project segment, amount and backup calculation documentation. The activity must not be in deficit and surplus funds must be available for the amount requested. Finance and Accounting will transfer the balance to reserve and the expense will post to your activity utilizing Natural Account 770101. The corresponding revenue will post to your reserves utilizing Natural Account 775101.