Question: Why does our organization now have to start recording its capital assets?

As this is your first year having an audit completed, your organization will be adopting Accounting Standards for Not-for-Profit Organizations (ASNPO). This includes recognizing both your organization’s assets as well as liabilities to ensure compliance with these accounting standards.

Once a Not-for-profit Organization (NPO)’s average revenues exceed $500,000 for both the current and prior period it must account for capital assets. This will still be applicable in future years. For instance, if your organization’s revenue levels were to decrease below the $500,000 limit, you must continue to recognize capital assets.

For capital assets to be recognized, they must meet all of the following criteria:

  • Be held for use
  • Have been acquired, constructed, or developed with the intention of continuous use
  • Are not intended for sale in the ordinary course of operations or held as part of a collection

Capital assets will then be expensed over the life of the asset using an amortization calculation. This can be calculated using either of the following methods:

  1. The cost less salvage value over the life of the asset
  2. The cost less residual value over the useful life of the asset

For organizations whose average revenues do not exceed $500,000 for both the current and prior period, disclosure only is required in their annual financial statements. This would include:

  • Policy followed for tangible capital assets
  • Information about any major capital assets that are not recorded
  • The amount of any capital assets expensed in the current period.

If you have any questions, please reach out to your RLB contact. We can assist your organization with developing a capital asset policy. As you will want to set thresholds for when a capital asset will be recognized, as well as how you will calculate the related amortization expense.