Current through Supplement No. 394, October, 2024
1. Ratesetting principles require that
payment for services should include depreciation on all depreciable type assets
that are used to provide necessary services. This includes assets that may have
been fully or partially depreciated on the books of the center, but are in use
at the time the center enters the program. The useful lives of such assets are
considered not to have ended and depreciation calculated on the revised
extended useful life is allowable. Likewise, a depreciation allowance is
permitted on assets that are used in a normal standby or emergency capacity. If
any depreciated personal property asset is sold or disposed of for an amount
different than its undepreciated value, the difference represents an incorrect
allocation of the cost of the asset to the center and must be included as a
gain or loss on the cost report.
2. Depreciation methods.
a. The straight-line method of depreciation
must be used. All accelerated methods of depreciation including depreciation
options made available for income tax purposes, such as those offered under the
asset depreciation range system, are unacceptable. The method and procedure for
computing depreciation must be applied on a basis consistent from year to year,
and detailed schedules of individual assets must be maintained. If the books of
account reflect depreciation different than that submitted on the cost report,
a reconciliation must be prepared by the center.
b. Centers must use a composite useful life
of ten years for all equipment and land improvements, and four years for
vehicles. Buildings and improvements to buildings are to be depreciated over
the length of the mortgage or a minimum of twenty-five years, whichever is
greater.
3.
Acquisitions.
a. If a depreciable asset has
at the time of its acquisition historical cost of at least one thousand dollars
for each item, its cost must be capitalized and depreciated over the estimated
useful life of the asset except as provided for in subsection 3 of section
75-03-20-11. Costs, such as
architectural, consulting and legal fees, and interest, incurred during the
construction of an asset must be capitalized as a part of the cost of the
asset.
b. All repair or
maintenance costs in excess of five thousand dollars per project on equipment
or buildings must be capitalized and depreciated over the remaining useful life
of the equipment or building or one-half of the original estimated useful life,
whichever is greater.
4. Proper records must provide accountability
for the fixed assets and also provide adequate means by which depreciation can
be computed and established as an allowable client-related cost. Tagging of
major equipment items is not mandatory, but alternate records must exist to
satisfy audit verification of the existence and location of the assets.
5. For purposes of this chapter,
donated assets may be recorded and depreciated based on their fair market
value. In the case where the center's records do not contain the fair market
value of the donated asset as of the date of the donation, an appraisal must be
made. The appraisal will be made by a recognized appraisal expert and will be
accepted for depreciation purposes. The center may elect to forego depreciation
on donated assets thereby negating the need for a fair market value
determination.
6. Basis for
depreciation.
a. Determination of the cost
basis of a center and its depreciable assets, which have not been involved in
any programs which are funded in whole or in part by the department, depends on
whether or not the transaction is a bona fide sale. Should the issue arise, the
purchaser has the burden of proving that the transaction was a bona fide sale.
Purchases where the buyer and seller are related organizations are not bona
fide.
(1) If the sale is bona fide, the cost
basis will be the actual cost of the buyer.
(2) If the sale is not bona fide, the cost
basis will be the seller's cost basis less accumulated depreciation.
b. Cost basis of a center and its
depreciable assets which are purchased as an ongoing operation will be the
seller's cost basis less accumulated depreciation.
c. Cost basis of a center and its depreciable
assets which have been used in any programs which are funded in whole or in
part by the department will be the cost basis used by the other program less
accumulated depreciation.
d. Sale
and leaseback transactions will be considered a related party transaction. The
cost basis of a center and its depreciable assets purchased and subsequently
leased to a provider who will operate the center will be the seller's cost
basis less accumulated depreciation.
General Authority: NDCC
25-03.2-10,
50-06-16
Law Implemented: NDCC
25-03.2
