Depreciation and Use Allowance Clause Samples
The Depreciation and Use Allowance clause defines how the costs associated with the wear and tear or usage of tangible assets are allocated over time for accounting or reimbursement purposes. Typically, this clause outlines the methods for calculating depreciation or use allowance, such as straight-line or accelerated depreciation, and specifies which assets are eligible, like equipment or buildings used in a project. Its core function is to ensure that asset costs are fairly and systematically distributed over their useful life, promoting accurate cost reporting and compliance with financial or contractual requirements.
Depreciation and Use Allowance. Unless otherwise approved by the COUNTY, compensation for the use of buildings and other capital improvements may be made through depreciation, or a use allowance: The computation of depreciation/use allowance is based on the acquisition cost of the asset(s). The computation should exclude the cost of land, buildings, and equipment donated by federal, State or COUNTY governments and the cost of buildings and land contributed by the CONTRACTOR to satisfy funding matching requirements. For depreciation, an appropriate useful life must be established for the asset(s) which considers factors such as the nature of the asset used, susceptibility to technological obsolescence, etc. Appendix B to IRS Publication 946, “How to Depreciate Property”, contains guidelines for establishing an asset’s useful life. A use allowance is computed as an annual rate that may not exceed an annual rate of two-percent of the acquisition cost if the asset is a building or improvement. A use allowance in excess of the ceiling percentage must be justified by the CONTRACTOR.
Depreciation and Use Allowance. ▇. ▇▇▇▇▇- ees may be compensated for the use of their own buildings, capital improvements, and equipment through use allowances or depre- ciation. Use allowances are the means of pro- viding compensation in lieu of depreciation or other equivalent costs. However, a com- bination of the two methods may not be used in connection with a single class of fixed as- sets.
b. The computation of depreciation or use allowance will be based on acquisition cost. Where actual cost records have not been maintained, a reasonable estimate of the original acquisition cost may be used in the computation. The computation will exclude VerDate Sep<11>2014 12:28 Jun 22, 2023 Jkt 259088 PO 00000 Frm 00950 Fmt 8010 Sfmt 8002 Q:\25\25V1.TXT PC31 the cost or any portion of the cost of build- ings and equipment donated or borne di- rectly or indirectly by the Federal Govern- ment through charges to Federal grant pro- grams or otherwise, irrespective of whether title was originally vested or where it pres- ently resides. In addition, the computation will also exclude the cost of land. Deprecia- tion or a use allowance on idle or excess fa- cilities is not allowable, except when specifi- cally authorized by the grantor Federal agency.
c. Where the depreciation method is fol- lowed, adequate property records must be maintained, and any generally accepted method of computing depreciation must be consistently applied for any specific asset or class of assets for all affected Federally sponsored programs and must result in equi- table charges considering the extent of the use of the assets for benefit of such pro- grams.
d. In lieu of depreciation, a use allowance for buildings and improvements may be com- puted at an annual rate not exceeding two percent of acquisition cost. The use allow- ance for equipment (excluding items prop- erly capitalized as building cost) will be computed at an annual rate not exceeding six and two-thirds percent of acquisition cost of usable equipment.
e. No depreciation or use charge may be al- lowed on any assets that would be considered as fully depreciated, provided, however, that reasonable use charges may be negotitated for any such assets if warranted after taking into consideration the cost of the facility or item involved, the estimated useful life re- maining at time of negotiation, the effect of any increased maintenance charges or de- creased efficiency due to age, and any other factors pertinent to utilization of the facil- ity or item for the pur...