Institutions must maintain adequate capital equipment records and conduct physical inventories to support charges for use allowance and/or depreciation claimed in their federal indirect cost proposals. The physical inventory must determine whether the capital equipment exists and is usable, used and needed.
Use allowance or depreciation cannot be claimed for assets which do not exist or are not being used. Inventory records must include accumulated depreciation when the depreciation method is used. Depreciation should be recorded on a straight-line basis using the useful lives as set forth by this paper (see Attachment G) and cannot be claimed on capital equipment which is fully depreciated. Depreciation or use allowance may be claimed on donated capital equipment based on its fair market value.
Institutions using the long form proposal must maintain inventory records in the detail necessary to allocate the use allowance or depreciation to proper functions. Use allowance or depreciation cannot be claimed on federal property or capital equipment purchased with federal funds.
Institutions using the short form proposal must maintain inventory records necessary to exclude use allowance or depreciation on federally funded and auxiliary enterprise capital equipment.