Section 75-04-05-15 - Depreciation1. The principles of payment for provider agency costs require that payment for services include depreciation on depreciable assets that are used to provide allowable services to clients. This includes assets that may have been fully or partially depreciated on the books of the provider agency, but are in use at the time the provider agency enters the program. The useful lives of these assets are considered not to have ended and depreciation calculated on the revised extended useful life is allowable. Likewise, a depreciation allowance is permitted on assets that are used in a normal standby or emergency capacity. Depreciation is recognized as an allocation of the cost of an asset over its estimated useful life. If any depreciated personal property asset is sold or disposed of for an amount different than its undepreciated value, the difference represents an incorrect allocation of the cost of the asset to the facility and must be included as a gain or loss on the statement of costs. The facility shall use the sale price in computing the gain or loss on the disposition of assets.2. Special assessments in excess of one thousand dollars paid in a lump sum must be capitalized and depreciated. Special assessments not paid in a lump sum may be expensed as billed by the taxing authority.3. Depreciation methods: a. A provider agency shall use the straight-line method of depreciation. All accelerated methods of depreciation, including depreciation options made available for income tax purposes, such as those offered under the asset depreciation range system, may not be used. A provider agency shall apply the method and procedure for computing depreciation on a basis consistent from year to year and shall maintain detailed schedules of individual assets. If the books of account reflect depreciation different than that submitted on the statement of costs, a provider agency shall prepare a reconciliation.b. For all assets obtained prior to August 1, 1997, a provider agency shall compute depreciation using a useful life of ten years for all items except vehicles, which must be depreciated over four years, and buildings, which must be depreciated over twenty-five years or more. For assets other than vehicles and buildings obtained after August 1, 1997, a provider agency may use the depreciation guidelines , to determine the useful life or the composite useful life of ten years. For all assets, other than vehicles and buildings, obtained prior to April 1, 2018, a provider agency's prior depreciation schedule must be used. A provider agency shall use a useful life of ten years for all equipment not identified in the depreciation guidelines.c. A provider agency acquiring assets as an ongoing operation shall use as a basis for determining depreciation: (1) The estimated remaining life, as determined by a qualified appraiser, for land improvements, buildings, and fixed equipment; and(2)(a) A composite remaining useful life for movable equipment, determined from the seller's records; or (b) The remaining useful life for movable equipment, determined from the seller's records.4. Acquisitions are treated as follows:a. If a depreciable asset has, at the time of its acquisition, a historical cost of at least five thousand dollars, its cost must be capitalized and depreciated in accordance with subdivision b of subsection 3. A provider agency shall capitalize as part of the cost of the asset, costs incurred during the construction of an asset, such as architectural, consulting and legal fees, and interest.b. A provider agency shall capitalize major repair and maintenance costs on equipment or buildings if they exceed five thousand dollars per project and will be depreciated in accordance with subdivision b of subsection 3.5. A provider agency shall maintain records that provide accountability for the capital assets and other assets and also provide adequate means by which depreciation can be computed and established as an allowable client-related cost.6. The basis for depreciation is the lower of the purchase price or fair market value at the time of purchase. If the provider agency's cash payment for a purchase is reduced by a trade-in, fair market value will consist of the sum of the book value of the trade-in plus the cash paid. 7. For depreciation and payment purposes, a provider agency may record and depreciate donated depreciable assets based on the asset's fair market value. If the provider agency's records do not contain the fair market value of the donated asset, as of the date of the donation, an appraisal must be made. An appraisal made by a recognized appraisal expert will be accepted for depreciation.8. Provision for increased costs due to the sale of a facility may not be made.N.D. Admin Code 75-04-05-15
Effective July 1, 1984; amended effective June 1, 1985; June 1, 1995;August 1, 1997; July 1, 2001; May 1, 2004; May 1, 2006; January 1, 2013.Amended by Administrative Rules Supplement 2017-363, January 2017, effective 1/1/2017.Amended by Administrative Rules Supplement 368, April 2018, effective 4/1/2018.General Authority: NDCC 25-01.2-18, 50-06-16
Law Implemented: NDCC 25-18-03, 50-24.1-01