Expensing the total cost of equipment in the year of purchase is not in accordance with Generally Accepted Accounting Principles (GAAP) which requires the cost of an asset to be spread over its expected useful life. (source: January 12, 1994, DHHS, Office of Inspector General Audit Report)
OMB Circular A-21 allows universities to be compensated for the use of their equipment through depreciation or use allowance. It specifically states that charges for the use of specialized services should be designed to recover not more than the aggregate cost of the services. Including a markup in the billing rates to accumulate a reserve in excess of equipment depreciation for equipment replacement and additions results in an overstatement of costs. The university may not charge recharge services users more than the actual costs incurred. (source: January 12, 1994, DHHS, Office of Inspector General Audit Report).
For the accounting treatment associated with depreciation and the transfer of funds from Currents Funds to Reserve Funds, please refer to the Tempbudg Retirement Process file at the bottom off the website.