At times, equipment for a service center is purchased using non-3E funding sources. When this occurs, the annual depreciation expense associated with those assets may still be included in the rate calculation in order to recover the cost over time. At the end of each fiscal year, the recovered depreciation may then be transferred to a plant fund.
What is a Plant Fund?
A plant fund is a fund established to support the acquisition, improvement, renovation, or remodeling of long-lived assets. It essentially serves as a reserve fund for future equipment purchases, facility renovations, remodeling projects, or new construction initiatives.
When a plant fund is established, it is approved for a specific purpose and should only be used for that designated purpose. Plant funds should not be used for miscellaneous or unrelated purchases.
System Government Costing reviews these plant fund transfers to make sure they are appropriate. UAFR reviews all plant fund transfers made from 3E self-supporting fund types to ensure the transferring fund has sufficient available resources to support the transfer. The following calculation is typically reviewed for both the current and prior fiscal years to gain a complete understanding of the fund's normal activity:
- Add: Cash and Cash Equivalents
- Less: Accounts Payables and Accrued Expenses
- Less: Unearned Revenue
Plant Fund Transfer Example
Assume Service Center B, with a $0 fund balance, purchases $50,000 of capital equipment using state funds and includes $5,000 of annual depreciation expense in its rate calculation.
By fiscal year-end, the service center has recovered an additional $5,000 through its rates, even though no corresponding expense was charged to the 3E fund because the equipment was purchased using state funds.
As a result, the fund balance used in the rate calculation would normally be reduced by $5,000 to remove the surplus generated from the recovered depreciation expense. However, if a plant fund transfer is completed for that same amount in the analyzed base fiscal year, the adjustment to the rate calculation fund balance would not be necessary.
If the transfer is not made in the base year, the rate calculation fund balance is adjusted to $0, even though Banner reflects a $5,000 year-end surplus. After the rate calculation, a plant fund transfer can be made to reserve the recovered depreciation for future equipment replacement.
Contact
Feel free to reach out to our staff or email us at obfsgcocosting@ullinios.edu. You can also sign up for our Service Activity Advanced training to learn more!
