Depreciation Guidance

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Depreciation is the method for allocating the cost of fixed assets owned by the recipient/grantee to periods benefiting from asset use. The recipient/grantee may be compensated for the use of its buildings, capital improvements, equipment, and software projects capitalized in accordance with GAAP, provided that they are used, needed in the recipients/grantees activities, and properly allocated to Federal awards. Such compensation must be made by computing depreciation.  Allocation for depreciation must also be made in accordance with appendices III through IX to Part 75.

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When an entity owns a building and/or office space and it is claimed or contributed to the award, 45 CFR §75.436Visit disclaimer page requires that the building and/or office space must be valued using depreciation, whether claimed as an administrative cost or for cost-sharing purposes.

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When property is donated, per 45 CFR §75.434(b), Visit disclaimer pagethe value of the property donated may not be charged to the Federal award either as a direct or indirect (F&A) cost. The value of donated property may be used to meet cost sharing or matching requirements at 45 CFR §75.306Visit disclaimer page. Depreciation on donated assets is permitted in accordance with 45 CFR §75.436Visit disclaimer page, so long as the donated property is not counted towards cost sharing or matching requirements.

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Computing Depreciation

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In accordance with 45 CFR §75.436,Visit disclaimer page depreciation is computed applying the following rules. The computation of depreciation must be based on the acquisition cost of the assets involved. For an asset donated to the recipient/grantee by a third party, its fair market value at the time of the donation must be considered as the acquisition cost. Such assets may be depreciated or claimed as matching but not both.

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For the purpose of computing depreciation, per 45 CFR §75.436(c), Visit disclaimer pagethe acquisition cost will exclude:

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1. The cost of the land.
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2. Any portion of the cost of the building paid or donated by the Federal government, irrespective of where title was originally vested or where it is presently located.
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3. Any portion of the cost of the building contributed by or for the recipient/grantee, where law or agreement prohibits recovery.
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4. Any asset acquired solely for the performance of a non-federal award.
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When computing depreciation charges per 45 CFR §75.436(d), Visit disclaimer pagethe following must be observed:

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1. The period of useful service or life established in each case must take into account:_x000D_
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   • Type of construction.
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   • Nature of asset.
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   • Technological developments in particular area.
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   • Historical data.
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   • The renewal and replacement policies followed for the individual item or classes of assets involved.
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2. Depreciation method used to charge the cost of an asset (or group of assets) to accounting periods must reflect the pattern of consumption of the asset during its useful life.
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3. Entire building, including the shell and all components, may be treated as a single asset and depreciated over a single useful life. A building may also be divided into multiple components. Each component item may then be depreciated over its estimated useful life.
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4. No depreciation may be allowed on any assets that have outlived their depreciable lives.
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5. The total amount of use allowance and depreciation for an asset (including imputed depreciation applicable to periods prior to the conversion from the use allowance method as well as depreciation after the conversion) may not exceed the total acquisition cost of the asset.
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   Charges for depreciation must be supported by adequate property records, and physical inventories must be taken at least once every two years to ensure that the assets exist and are usable, used, and needed. Statistical sampling techniques may be used in taking these inventories. In addition, adequate depreciation records showing the amount of depreciation taken each period must also be maintained.

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Depreciation Records

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Depreciation charges must be supported by adequate property record. Physical inventories must be taken at least once every two years to ensure that the assets exist and are usable, used, and needed. Statistical sampling techniques may be used in taking these inventories. Depreciation records showing the amount of depreciation taken each period must be maintained.