The purpose of this paper is to give guidance for determining when to capitalize an expenditure that adds value to an existing item of personal property as a means to more fairly state the value of equipment on NOAA's balance sheet and depreciation expense on the income statement. Guidance is also provided for tracking non-capitalized accountable upgrades. The item being purchased will not function on its own without being installed with the original main unit. The removal of parts from within an original piece of equipment which decreases its functionality or capability as originally configured or which alternatively or as an additional consequence, decreases the usefulness or the useful life of the original unit. It includes all equipment, materials, supplies, and software.
Book value equals the acquisition cost less accumulated depreciation.
Expensing upgrade expenditures If the expenditure merely maintains the existing level of service of the asset or is less than the capitalization threshold, it should be expensed. When dealing with an upgrade, just as when dealing with any property issue, there are two factors that must be taken into consideration, accountability for the property and the financial accounting for the property. Both factors must be considered, and neither can be ignored. One can not talk about extending the useful life of a non-capitalized asset since the asset was expensed in the first place. If such additions are made within six months of the original asset's purchase date they are to be considered part of the original acquisition required to place the item into service and their costs will be added to the original acquisition cost.