TITLE 2 PUBLIC FINANCE
CHAPTER 20 ACCOUNTING BY GOVERNMENTAL ENTITIES
PART 1 ACCOUNTING AND CONTROL OF FIXED ASSETS OF STATE
GOVERNMENT,
ACCOUNTING
FOR ACQUISITIONS AND ESTABLISHING CONTROLS
2.20.1.1 ISSUING AGENCY: General Services Department, Administrative
Services Division.
[2.20.1.1 NMAC - Rp, 2.20.1.1 NMAC, 12/31/2019]
2.20.1.2 SCOPE: This rule applies to all state government
agencies as defined in the "Audit Act," Section 12-6-1 NMSA 1978.
A. The
term "agency" is intended to be all-inclusive as used in the Audit
Act, Section 12-6-2 NMSA 1978.
B. Fixed
assets purchased or owned by agencies are included under the definition
regardless of the method of acquisition or source of the funds used for
purchased assets.
[2.20.1.2 NMAC - Rp, 2.20.1.2 NMAC, 12/31/2019]
2.20.1.3 STATUTORY
AUTHORITY: Section 12-6-10 NMSA 1978
directs the general services department to promulgate regulations to state
agencies for the accounting and control of fixed assets owned by government
agencies.
[2.20.1.3 NMAC - Rp, 2.20.1.3 NMAC, 12/31/2019]
2.20.1.4 DURATION: Permanent.
[2.20.1.4 NMAC - Rp, 2.20.1.4 NMAC, 12/31/2019]
2.20.1.5 EFFECTIVE
DATE: Effective December 31, 2019,
unless a later date is cited at the end of a section or paragraph.
[2.20.1.5 NMAC - Rp, 2.20.1.5 NMAC, 12/31/2019]
2.20.1.6 OBJECTIVE:
A. The
objective of Section 2.20.1 NMAC is to establish standards for the accounting
for and the controlling of the fixed assets acquired and owned by state
agencies as defined under article 2, and to define a uniform system for the
classification of such assets.
B. To
accomplish this, subsequent sections of this rule describe the procedures for
the acquisition of fixed assets, the methods for assigning values to acquired
assets (valuation), the methods of depreciating fixed assets whether required
or optional, the establishment of internal controls on fixed assets, the
procedures for conducting the annual inventory of fixed assets, and the
allowable methods for the disposition of fixed assets.
[2.20.1.6 NMAC - Rp, 2.20.1.6 NMAC, 12/31/2019]
2.20.1.7 DEFINITIONS:
A. "Agency" means any
governmental entity as defined in Section 13-6-2 NMSA 1978. This definition
includes:
(1) any
department, institution, board, bureau, court, commission, district or committee
of the government of the state;
(2) district
courts, magistrate courts, district attorneys;
(3) charitable
institutions for which appropriations are made by the legislature;
(4) every
political subdivision of the state, created under general or special act which
receives or expends public money from whatever source derived, including but
not limited to counties, county institutions, boards, bureaus or commissions,
municipalities; drainage, conservancy, irrigation or other special districts;
(5) every
office or officer of any of these organizations.
B. "Betterment" means a
replacement or major renovation of an existing asset or unit of an existing
asset by an improved or superior asset or unit, the effect of which is to
improve the efficiency of the primary asset or lengthen the remaining service
life.
C. "Classification system" means
the methods and designations used for identifying fixed assets. This should
reflect the object code that was used to acquire the asset and its intended
use. Section 2.20.1.9 nmac of this rule specifies the
classifications to be used.
D. "Component"
means a separately identifiable part of an asset that is more meaningfully
defined as an aggregate assembly.
E. "Depreciation"
means the method applied to allocating the cost of a fixed asset over the
duration of its useful life.
F. "Official
or governing authority" means the person of highest authority within
an agency.
G. "Fixed
asset" means any property or equipment that has an initial value to an
agency, whether in cash or trade value, of more than five thousand dollars (five
thousand dollars ($5,000)). It is not
acquired for subsequent sale or consumption but for utilization in the course
of an agency's normal operations in producing and distributing goods or
rendering services. The asset is
expected to be used or held beyond the fiscal year in which it was acquired
without being consumed by its use. Fixed
assets include those assets constructed by agency personnel. This five thousand dollars ($5,000) threshold
for capitalization is a statutory (Section 12-6-10 NMSA 1978) minimum and does
not preclude agencies from controlling assets of lesser value through their
fixed asset systems when such control is desirable or appropriate.
H. "Fixed asset coordinator"
means the individual within an agency or a section of an agency who is
responsible for controlling and accounting for the fixed assets in the custody
and use of the agency or section.
I. "General fixed assets" means
those assets acquired by governmental funds, and not accounted for directly in
the real accounts of such funds.
J. "General fixed asset account group"
means those accounts used to record and track fixed assets acquired by
"governmental funds." These "funds" include the general
fund, the special revenue fund, and the capital project fund. Assets are
recorded in these accounts, along with any betterments, impairments or
depreciation. Assets are carried in this account group to recognize that they
are not a component of fund balance available for appropriation.
K. "Object code" means the
expenditure accounting code that indicates the category of benefits for which
the money was spent.
L. "Physical inventory" means
the process of verifying that fixed assets owned by the agency are present in
their assigned custody and location, and evaluating their condition.
M. "Proprietary funds" means
those funds used to account for the provision of services by a government
entity to other government entities or to the public. The financial objective of such funds is to
recover through user charges the full cost (including depreciation) of
operations.
N. "Tag" means any label or
marking that is permanently affixed to a fixed asset, including indelible ink
or dyes, numbers physically stamped into the fixed asset, adhesive labels or
barcodes, and metal tags.
[2.20.1.7 NMAC - Rp, 2.20.1.7 NMAC, 12/31/2019]
2.20.1.8 FIXED
ASSET ACCOUNTING SYSTEM:
A. Agencies
should implement systematic and well-documented methods for accounting for
their fixed assets. A computerized
system is recommended, with appropriate controls on access and authorization of
transactions.
B. The
information to be recorded and maintained on its fixed assets, must include at
a minimum the following:
(1) agency
name or commonly used initials used to identify the agency;
(2) fixed
asset number or fixed asset number plus component number;
(3) a
description using words meaningful for identification;
(4) location,
specifically a building and room number. If the asset is movable, the name and
location of the fixed asset coordinator should be used;
(5) manufacturer
name (NOT the vendor's name, unless vendor is the manufacturer);
(6) model
number or model name;
(7) serial
number, or vehicle identification number (VIN) for vehicles in agency's use
& possession. If the fixed asset has
no serial number, e.g., a custom-built asset, absence should be acknowledged by
coding this as "none";
(8) estimated
useful life or units expected to be produced;
(9) date
acquired (month and year);
(10) cost
(according to the valuation methods described in Section 2.20.1.10 NMAC;
(11) fund
and organization that purchased the asset, or to which it was transferred.
C. The
system must be capable of generating lists of fixed assets in sequences useful
for managing them. It must track all transactions including acquisitions,
depreciation (if needed), betterments and dispositions. It must generate all
necessary accounting entries to the agency's general ledger.
[2.20.1.8 NMAC - Rp, 2.20.1.8 NMAC, 12/31/2019]
2.20.1.9 CLASSIFICATION OF FIXED ASSETS:
A. The
type of service that the asset was purchased for must be used to classify fixed
assets. The object code under which it
was purchased is usually a reliable indicator of the service for which it was
purchased.
B. Object
codes from the category for capital outlay may be used. Purchases from other categories
may also be capitalized if appropriate. For example, certain types of repairs
or maintenance may increase the useful life of the asset. These costs should be
added to the cost of the asset.
C. The
recommended classifications and definitions are:
(1) "Land": Only real property is included in this
category. Costs to be included that are
not specifically stated in Subsection B of Section 2.20.1.10 NMAC include fees
for appraisals, title searches, attorney's fees, demolition of structures (less
any salvage) as part of site preparation, and agent's commissions.
(2) "Land Improvements": Improvements subsequent to the acquisition of
land are in this category. Such assets
have a limited economic life. Examples
are roadways, landscaping, utility infrastructure, and fencing. This category may also be used to record
leasehold improvements. Leasehold
improvements should be capitalized to recognize the allocation of the cost of
the improvements for the duration of their useful lives.
(3) "Buildings and Structures": This category shall be used for all buildings
and structures that are permanently fixed to land.
(4) "Furniture and Fixtures": These are assets that are not permanently
fixed to land, but are the contents of a building.
(5) "Information Technology
Equipment" (including software):
This category of equipment includes computers and peripherals, and all
equipment related to electronic communications.
(6) "Equipment and Machinery": Equipment that is related to industrial
production, construction, land or grounds maintenance, food service, public
safety should be recorded in this category.
(7) "Farm Equipment": All equipment related to agricultural or
ranch production should be recorded in this category.
(8) "Livestock and Poultry": This category is only used for farm or ranch
animals that are not purchased for immediate consumption or production of food.
(9) "Library and Museum Acquisitions": Assets in this category only include holdings
of libraries or museum collections. A
publication that is available in a library but that is acquired by an agency
for its private use would be appropriately categorized as furniture and
fixtures. Similarly, a farm museum would
use this classification for tractors and ploughs, even if they are used for
their intended purpose.
(10) "Motor Vehicles and Aircraft": This category is for all such vehicles that
the agency owns. Vehicles and aircraft
acquired under the terms of an operating lease should not be recorded as fixed
assets.
D. Agencies
may use these fixed asset classifications for the purpose of pooling assets for
depreciation, for publication in financial statements, or other management
objectives.
[2.20.1.9 NMAC - Rp, 2.20.1.9 NMAC, 12/31/2019]
2.20.1.10 VALUATION
OF ASSETS:
A. All
fixed assets should be acquired in compliance with the procurement ("Procurement
Code Regulations") and applicable statutes.
B. Fixed
assets acquired through purchase shall be recorded at cost. In most cases cost is equal to monetary value
exchanged, plus associated costs to prepare the asset for its intended use. These costs include freight or shipping,
taxes, site preparation and installation, testing, reconditioning and other
similar costs. If considerations other
than cash are exchanged for the assets, the fair market value of such
consideration at the time of the transaction is the proper measure of the cost
of the assets so acquired.
C. Fixed
assets include those assets constructed by agency personnel. Construction costs for such assets include
direct labor (salary including overtime), materials, equipment usage
(depreciation, rental, supplies, etc.), and overhead that can be distributed on
the basis of direct labor such as employee benefits.
D. Fixed
assets that are donated to the agency should be recorded at fair market value
at the time of donation. Fair market value may require a professional appraisal
of the property. If there is any doubt
about the rights to the property, it should not be recorded until such rights
are clearly established. Such doubts include any conditions or restrictions on
the use or future disposition of the property. Should any restrictions adversely affect the
value, they should be recognized in the final determination of the valuation to
be recorded.
E. Fixed
assets may also be acquired through governmental reorganization (including
those that result in residual equity transfers), specific legislation, mutual
agreement between agencies, or a capital project. These shall be placed in an
agency's fixed asset inventory at the time the assets are transferred to the
agency. The transfer will require the
entity transferring the fixed asset to provide information that properly
identifies the asset(s) being transferred. The information, in addition to the
requirements of Section 2.20.1.9 NMAC above should include estimated service
life and accumulated depreciation.
F. Agencies
may acquire fixed assets through a capital project fund. Assets transferred may include land and new
construction, renovated or remodeled buildings, furniture, fixtures and
equipment. If the assets are transferred
from another agency, e.g., the facilities management division of the New Mexico
general services department, the transferring agency will provide the
capitalized costs to record in the receiving agency's books.
G. In
certain instances agencies may enter into lease agreements that are properly
classified as capital leases. In a
capital lease, the result is that the agency either acquires or has the right
to acquire the property at the end of the lease. In addition, for accounting purposes the
property is considered to be purchased if:
(1) the
present value of the lease payments is ninety percent or more of the purchase
price,
(2) the
lease extends for at least seventy-five percent of the asset's useful life,
(3) the
lease contains a bargain purchase clause, or
(4) if
title passes to the lessee at the end of the lease.
[2.20.1.10 NMAC - Rp, 2.20.1.10
NMAC, 12/31/2019]
2.20.1.11 GENERAL
ACCOUNTING PROCEDURES:
A. Property,
and equipment acquired by general, special revenue, and capital projects funds
are brought under accounting control by the creation of a "general fixed
asset account group." In accordance
with generally accepted accounting principles, general fixed assets are
recorded at acquisition cost. If the
cost of fixed assets was not recorded when the assets were acquired and is
unknown when accounting control over the assets is established, it is
acceptable to record them at estimated cost. The offset to the fixed asset accounts is the
set of equity accounts that indicate the sources from which the fixed assets
were acquired.
B. Internal
service funds account for all fixed assets similar to private sector business
enterprises. That is, fixed assets are
used to generate revenues to be used in their operations; therefore, they are
accounted for in the internal service fund in which they reside. Fixed assets are depreciated based on their
cost and expected service life. Depreciation
methodologies and charges to depreciation expense should be consistent with
generally accepted accounting principles.
C. Fixed
assets in nonexpendable trust funds are accounted for directly in their
respective financial statements.
[2.20.1.11 NMAC - Rp, 2.20.1.11
NMAC, 12/31/2019]
2.20.1.12 DEPRECIATION:
A. Depreciation
is a set of methods for allocating the cost of an asset over its economic life.
Assets owned by proprietary funds and
nonexpendable trust funds are required to be depreciated. Assets held in the general fixed assets
account group may, at the option of the fund's managers, be depreciated.
B. Depreciation
normally should not be recorded until the asset is ready for use.
C. Depreciation
reduces the net book value of an asset as its economic usefulness is consumed. Depreciation expense should normally be closed
to fund balance at year-end.
D. The
offset to the depreciation account is accumulated depreciation. This is a
contra-account to assets, whose net value is historical cost less accumulated
depreciation.
[2.20.1.12 NMAC - Rp, 2.20.1.12
NMAC, 12/31/2019]
2.20.1.13 BETTERMENTS
AND REPLACEMENTS:
A. Betterments
to assets should be capitalized. If the asset consists of identifiable and
separately valued components, and a component is improved, the old component
should be removed from the asset account, and the new component added to the
asset account.
B. Replacements
of components, which simply increase the useful life of the asset, should be
substituted for the previous component, and the useful life and amount then
used for depreciation. The new component
should be recorded inclusive of all costs as described in of Section 2.20.1.10
NMAC. For example, an aircraft has its
engines replaced at a cost of three hundred thousand ($300,000). The old engines should be removed from the
books along with accumulated depreciation and the gain or loss on disposal. The new engines are then recorded, and added
to the asset with a new useful life and basis for depreciation.
C. Reinstallation
and rearrangement costs of machinery, rearrangement of partitions, renovation
of buildings, and similar outlays on fixed assets purchased in used condition
should be capitalized as part of the cost. Overhead items such as insurance, taxes,
salaries and other incidentals directly related to the asset during a period of
renovation also should be capitalized.
[2.20.1.13 NMAC - Rp, 2.20.1.13
NMAC, 12/31/2019]
2.20.1.14 EXPENDITURES
FOR MAINTENANCE AND REPAIRS:
A. Repairs
and maintenance on fixed assets, which are routine and necessary for continued
safe and productive operation, should be charged to maintenance expense in the
period in which they occur.
B. The
expense should be recorded in the appropriate expenditure object code based on
the nature of the expense. Repairs and
maintenance do not increase the value of the asset, nor prolong its life, but
the expenses should be matched to the benefits received.
[2.20.1.14 NMAC - Rp, 2.20.1.14
NMAC, 12/31/2019]
2.20.1.15 FIXED
ASSET CONTROLS:
A. Each
agency shall establish controls over its fixed assets for the primary purposes
of safeguarding them and establishing accountability for their custody and use.
Such controls will apply to:
(1) Authorization
to acquire fixed assets: Controls on the
acquisition of fixed assets shall include procedures for requesting their
purchase, and a requirement for approval to purchase by a representative of
agency management who can determine that the requested purchase is consistent
with the business objectives of the agency and is economically reasonable.
(2) Receiving
procedures: The delivery of goods or
services should be accepted by an individual who can attest to such delivery
and has no access to accounting system records.
(3) Tagging
the assets and components: Newly
received fixed assets shall be tagged at the time they are received. At the time that a request to purchase a fixed
asset is approved, the purchase order shall be returned to the requester along
with a tag or tags to identify the asset(s).
(4) Assigned
location: A basic control over fixed
assets is information about their physical location. Agencies shall record the original assigned
location of fixed assets. When a fixed
asset is reassigned, the new location and fixed asset coordinator should be
updated in the fixed asset system records.
(5) Fund
and organizational unit that originally purchased the asset: Fixed assets must be associated with the fund
and governmental entity that purchased them for the purpose of accurately
reporting financial performance. If an
asset is transferred the fixed asset and accounting records should be updated.
(6) Individual(s)
responsible for tracking their use and location: Agencies shall assign specific individuals
within their organizational units to be responsible for tracking the fixed
assets in their units.
B. All
fixed assets shall be marked with tags. Each
tag shall identify the agency owning the asset followed by a unique sequential
fixed asset number so that each item may be positively identified. An agency may establish blocks of numbers for
its sub-units to improve controls and avoid duplication of numbers.
[2.20.1.15 NMAC - Rp, 2.20.1.15
NMAC, 12/31/2019]
2.20.1.16 ANNUAL
INVENTORY:
A. At
the end of the fiscal year, each agency shall conduct a physical inventory of
its fixed assets consisting of those with a historical cost of five thousand
dollars ($5000) or more, under the control of the governing authority.
B. This
inventory shall include all property procured through the capital projects fund
which are assigned to the agency designated by the director of the property
control division as the user agency.
C. All
passenger vehicles must be included in the inventory process. This includes all vehicles leased from the
transportation services division of the general services department as required
by the "auditor's rule" Paragraph (8) of Subsection A of Section 2.2.2.12 NMAC.
D. The
inventory process shall produce a list of the property and the date and cost of
acquisition. The annual physical
inventory checks against losses not previously revealed and brings to light
errors in records of accountability, but more importantly, a systematic
physical inventory of fixed assets provides an opportunity for surveying their
physical condition, with respect to their need for repairs, maintenance or
replacement.
E. The
results of the physical inventory shall be recorded in a written inventory
report, certified as to correctness and signed by the governing authority of
the agency. In the process of conducting
their fieldwork, the state auditor or independent public accountant under a
contract approved by the state auditor may test the correctness of the
inventory by generally accepted auditing procedures (Section 12-6-10A NMSA
1978).
[2.20.1.16 NMAC - Rp, 2.20.1.16
NMAC, 12/31/2019]
2.20.1.17 IMPAIRMENT:
A. An
asset is considered impaired if its estimated life has been reduced, or its
ability to generate revenue has been reduced.
B. On
finding that an asset has been impaired, the accounts for the fund or group to
which the asset belongs should be posted with the appropriate entries to adjust
its value to the new estimate.
[2.20.1.17 NMAC - Rp, 2.20.1.17
NMAC, 12/31/2019]
2.20.1.18 DISPOSITION
OF FIXED ASSETS:
A. Sections
13-6-1 through 13-6-2 NMSA 1978, and the procurement code govern the
disposition of fixed assets.
B. For
property whose fair market value is under five thousand dollars ($5,000) and
obsolete, or unusable, disposition may be made by:
(1) negotiated
sale to any governmental unit of an Indian nation, tribe or pueblo in New
Mexico, or by negotiated sale or donation to other state agencies, local public
bodies, school districts, state educational institutions or municipalities,
(2) sale
at public auction,
(3) destruction,
(4) disposal
of hazardous materials in compliance with environmental regulations, and
(5) sale
through solicitation of written bids through the state purchasing division.
C. For
property whose fair market value is over five thousand dollars ($5,000),
disposition may be made only through written approval by the state budget
division.
D. As
a prerequisite to the disposition of any items of personal property, state
agencies shall designate a committee of at least three officials of the
governing authority to approve and oversee the disposition. They must give
notification at least 30 days prior to its action of making the deletion by
sending a copy of its official finding and the proposed disposition of the
property to the office of the state auditor (OSA).
E. All
dispositions must be recorded in the fixed asset inventory records. Appropriate entries must also be made in the
financial accounts to reflect the disposition of the property. Gains or losses on disposal must be recorded
in funds where such accounting is required.
F. Dispositions
of property whose method is found to be theft or embezzlement should be
recorded in the inventory and financial accounts. Associated documentation such as police and
insurance reports should be kept as part of the audit trail of the disposition.
[2.20.1.18 NMAC - Rp, 2.20.1.18
NMAC, 12/31/2019]
HISTORY OF 2.20.1 NMAC
Pre-Nmac History: The material in this sub-part is derived from
that previously filed with the State Records Center and Archives under:
GSD 86-507, Standard Fixed Asset
Control And Accounting Regulation, 7/10/1986.
GSD 88-101, Standard Fixed Asset
Control And Accounting 3/1/1988.
History
of Repealed Material:
2.20.1 NMAC - Accounting And
Control Of Fixed Assets Of State Government, Accounting For Acquisitions And
Establishing Controls filed 9/16/199, Repealed 12/31/2019.
Other History:
GSD
88-101, Standard Fixed Asset Control and Accounting (filed 3/1/88) renumbered,
reformatted and replaced by 1 NMAC 1.2.1, Accounting and Control of Fixed
Assets of State Government - Accounting for Acquisitions and Establishing
Controls, effective 9/30/1999.
2.20.1 NMAC - Accounting And Control Of Fixed Assets Of
State Government, Accounting For Acquisitions And Establishing Controls was
replaced by 2.20.1 NMAC - Accounting
And Control Of Fixed Assets Of State Government, Accounting For Acquisitions And
Establishing Controls effective 12/31/2019.