To qualify as a fixed asset and be subject to capitalization in accordance with the class life categories listed below, the unit of property must have (1) an economic useful life that extends beyond 1 year; and (2) an acquired cost of $1,000 or more. The acquired cost includes the purchase price of the unit of property, transportation costs, installation costs, and any other direct expenses incurred by the Hotel in obtaining the asset.
Bulk purchases of similar items with an individual cost of $15 or more that have an aggregate value of $1,000 or greater are also captured as a fixed asset. For example, should a hotel purchase 70 hair dryers at $15 each, resulting in a total purchase price of $1,050, this would be considered a fixed asset purchase.
At the time a fixed asset is acquired, its cost is capitalized and subsequently depreciated utilizing the straight-line method over the asset’s estimated useful life.
Note: Depreciable lives of assets generally range from 3 (technology related assets) to 40 years for buildings. The following are the ranges per company policy:
• Hotel building and improvements………………………………………….25 – 40 years (maximum)
• Hotel site improvements………………………………………………….………5 – 15 years
• Hotel furniture, fixtures and equipment…………………………………..5 – 7 years
• Office furniture, fixtures and equipment………………………………….3 – 5 years
Each hotel property is divided into two separate entities – the Propco (hotel real property ownership) and the Opco (hotel operating equipment ownership). Asset ownership will be recorded in these entities as reflected below.
• Linens
Record Linens purchased due to a renovation or brand initiative to a prepaid account. Amortize Terry (bath towels, hand towels, washcloths, bathmats, uniforms etc.) over one year. Amortize Bedding (sheets, blankets, bedspreads, duvet covers, pillows, pillowcases, etc.) for up to three years.
• Construction In Progress
During renovations or other major hotel improvement projects, when fixed assets are under construction, the costs are recorded in the Construction in Progress (CIP) general ledger account. Costs are accumulated for items purchased from vendors, transportation, and other expenses to make the asset ready for use. When a project is completed and all vendor payments have been recorded, the CIP account is relieved, and costs are transferred to the respective property, plant and equipment account(s).
• Capitalization vs. Repairs
Major improvement projects that will extend the useful life of the asset, increase the efficiency, or add new capabilities will be capitalized. An example of this would be adding a new roof. All costs, including parts and labor, will be included in the total cost of the project.
Materials, parts and labor utilized to perform minor repairs to an existing asset of the Hotel are considered period costs and expensed in the period incurred. This type of work is considered routine maintenance, even if only completed during a PIP. Examples of this type of maintenance would be striping and sealing the parking lot, repair and cleaning PTAC units, pressure washing concrete, parking lot repairs that are less than 25% of the total square footage of the entire parking lot, or repair of bathtub chips and non-slip surfaces.
• Accounting for an Opco acquiring a Propco Asset
If Opco purchases Propco Assets (or vice versa) then the Propco portion should be coded to an intercompany on Opco, to the Fixed Asset on Propco and the intercompany is to be settled.
• Disposal of Assets
Contingent on whether assets are accounted for individually or as a bulk non asset specific category, the disposal is to be completed as follows:
1. If assets are specifically accounted for (asset by asset), then on a monthly basis, dispose of asset by asset, or
2. If assets are accounted for non-specifically, then with each addition, a corresponding disposal entry is to be made amounting to the cost of the new asset less a CPI average over the based upon the acquisition date of the existing asset times the number of years. For example, if an asset is acquired at $1,000, the original asset was acquired five years ago and the CPI over the five years averaged 2%, then the corresponding asset disposition would be $1,000 – (1,000 x 2% x 5) or a $900 disposal entry to the cost basis of the FA and corresponding percentage amount to the AD for the oldest assets on record in that category. When calculating for building, the number of years of ownership is used for the CPI years calculation, not the asset life.
3. If assets were (Larkspur only):