Construction & Renovations
Construction and renovation activities include the acquisition, renewal and replacement of long lived assets for institutional purposes and are recorded in the Plant Funds – 80000 (construction campus) or 80500 (construction hospital), 81000 (construction – info tech), and 81500 (construction – hospital IT). Building assets are created at the completion of a construction or renovation project when the costs meet or exceed $500,000. Financial Operations has compiled Capitalization Guidelines for Campus Use, which are available in the resource section of this webpage, as a tool to help units understand the accounting and financial reporting requirements for their construction projects and capital asset acquisitions. Some excerpts follow for quick reference.
- Expenditures must be correctly identified by the use of account codes to indicate whether the expense should be capitalized or expensed. See Appendix A for a list of accounts commonly used for construction projects.
- Capital expenditures are incurred when resources are expended to buy, repair, or increase the usefulness of an asset.
- Non-capital expenses are considered an expense necessary to complete the project but does not increase the value or usefulness of an asset.
- Units setting aside funds for future construction projects should typically do so in either their Departmental Equipment Fund (82XXX) or their Maintenance Reserve Fund (83000). The Construction Fund (80XXX) should be used to reflect funds transferred for construction projects, which are currently underway, as well as expendable gifts received for construction purposes.
- Construction projects are to be funded up-front when they are established. An end date is required for all construction projects and should be consistent with the expected time period to complete the project with a maximum end date of five years from the start of the project. For any project extensions beyond the expected end date, units should contact Accounting Operations - Plant Fund team at Plant.Fund.Staff@umich.edu to have the end date updated appropriately.
If a project's total budget meets or exceeds $3 million, it requires regental approval before the project can be bid for contract and must be managed by Business & Finance (B&F), typically through the office of Architecture, Engineering & Construction (AEC). Generally, departments have the discretion to manage their own construction projects if the budget is below the regental threshold. Construction projects managed by AEC are typically funded at 20% of the project budget up front with the balance of funds due at the time of award.
Construction projects may be funded in part by an internal loan to an individual unit issued by the U-M Treasurer’s Office. Unit internal loan activity is recorded in Fund 84000 (Debt Service) within the Plant Funds. Outstanding unit internal loan balances are recorded at account 288115 (Due To Treasury-Internal Loans). Semi-annual debt service payments are recorded at chartfields provided by the unit at account 624892 (Principal Repayment) and 624891 (Interest). For additional information, including illustrative journal entries refer to the resource section of this web page.
Any questions regarding accounting for construction projects, internal loans or capitalization of assets should be directed to Plant.Fund.Staff@umich.edu or to the Plant Fund Supervisor at (734) 647-3778.