Contracts and Grants Accounting

ACCOUNTING FOR FABRICATED EQUIPMENT

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  1. Overview
  2. Treatment of indirect costs (overhead) on fabricated equipment
  3. General Ledger account codes
  4. Examples
  5. References

1. Overview

The University may have to build equipment that is not available elsewhere. This equipment will be primarily used in the area of research performed under a sponsored project.

To ensure we account for such costs on a consistent basis and to ensure compliance with federal regulations, the University has developed the procedures described below.

2. Treatment of Indirect Costs (overhead) on Fabricated Equipment

The University may create equipment that is not available elsewhere. Fabricated property items are created either for use by the sponsor or for use by the University in the research program.

Standard items that are altered or customized to make them usable on a sponsored project do not qualify as fabricated property.

Non-expendable, tangible personal property which has an acquisition cost of $5,000 or more per item (including sales tax and excluding freight) and a life expectancy of more than one year is defined as equipment.

Fabricated items regardless of cost that are either created for transfer to a non-University entity, or are expected to have a useful life of less than one year, do not meet the University's definition of inventorial equipment and should not be treated as such.

Non-federal sponsors may define equipment differently from the University and, once accepted, this definition becomes the definition for the purposes of the specific agreement.

a. Fabricated equipment: Cost > $5,000, life of more than one year and title retained by the University.
If a piece of equipment is to be fabricated, the cost of its components plus, all materials, labor, supplies, and services from outside vendors or authorized internal recharge activities provided by campus recharge units (see list of recharge units and rates) used in the fabrication process are exempt from indirect costs, if all of the following three requirements are met:

i. title is retained by the University
ii. total cost is greater than $5,000, and
iii. the item has a useful life expectancy of more than one year.

Department labor, travel or other operating expenses associated with the fabrication such as salaries of Principal Investigators, graduate student researchers, or other comparable personnel who participate in the fabrication process are not included in the acquisition cost of the item and are subject to indirect costs.

b. Fabricated equipment: Title is not retained by the University.
If the fabricated piece of equipment is a deliverable and title is not retained by the University, all costs of its fabrication are subject to indirect costs.

c. Fabricated equipment: Equipment life is less than one year.
If the fabricated item has a life expectancy of less than one year, it does not meet the definition of equipment and all fabrication costs are subject to indirect costs.

d. Fabricated equipment: Equipment cost is less than $5,000.
If the fabricated item has a total cost of less than $5,000, it does not meet the definition of inventorial equipment and all fabrication costs are subject to indirect costs.

3. General Ledger Account Codes

Use the following account codes to record fabrication costs on Contracts & Grant expenditures:

54231 Inventorial/Capitalized Fabrication Costs of Equipment
Services, labor from outside vendors or campus recharge units, materials, supplies, and equipment used for in-house fabrication of inventorial/capitalized equipment. Total cost of all components of fabricated equipment must have a cost of $5,000 or more per item, title is retained by the University and equipment has life expectancy of more than one year. These costs are exempt indirect overhead on contract & grants expenditure

55301 Non-inventorial/Non-Capitalized Fabrication Costs
Services, labor from outside vendors or campus recharge units, materials, supplies, and equipment used for in-house fabrication of non-inventorial/non-capitalized equipment. The fabrication costs are either for non UC entity, total cost of item < $5,000 or life of equipment is less than one year. All these costs of fabrication will be subject to indirect cost.

(Note: We have discontinued the use of account 54230 these cost are now reported in account 54231 along with all other inventorial fabrication costs.)

4. Examples

a. Department fabricates two gauges, total cost of materials, labor & other costs of the equipment are $9,200:
All cost are charged to account 55301 and overhead is assessed on the expenditures as cost of each gauge is less than $5,000.

b. Equipment cost $100,000, useful life of 7 years, sponsor originally retained title, at end of the award sponsor passes title to the campus:
All cost are charged to account 55301 and overhead is assessed on the expenditures as at time of fabrication the intended owner of the equipment is the third party.

c. Department fabricates radioactive detection equipment total cost of $34,000, sponsor assigns title to UC, assets is used in research. Equipments planned use is for one test due to radioactive contamination of the equipment rendering the equipment unusable for future use. Experiment takes 7 months:
All cost are charged to account 55301 and overhead is assessed as the life of the equipment is less than one year.

d. Equipment cost $900,000, useful life of 5 years, UC retains title:
All costs are charged to account 54231, overhead is not assessed on the costs as equipment is defined to be inventorial, with a useful life in excess of 1 year and the University owns the equipment.

5. References

For additional information on fabrication see:

  1. UC Berkeley Equipment Management policies
  2. UC Contract and Grant Manual, University's definition of inventorial equipment are described in Chapter 2-526
  3. UC Contract and Grant Manual Chapter 7, Section 7-205
  4. Accounting Manual Chapter P-415-32, Plant Accounting: Inventorial Equipment-Fabricated Items
  5. Additional information concerning fabricated equipment is found in Section B-Ic. of BUS-29;
  6. UC Berkeley Equipment Management website – Fabricated equipment