Capitalization Threshold

The capitalization threshold is the dollar amount that determines the proper financial reporting of the asset. Asset acquisition costs that are below the threshold are to be expensed. Asset acquisition costs that are greater than the threshold are to be capitalized on the Balance Sheet and depreciated over the asset’s useful life.

In fiscal year 2013, the Property and Equipment Policy (P&EP) Office conducted a capitalization threshold analysis at the request of the OUSD(Comptroller) Deputy Chief Financial Officer (DCFO) and OUSD (Comptroller), Accounting and Finance Policy (A&FP). The objective of this study was to determine whether the capitalization threshold for General Property, Plant and Equipment (GPP&E) could be raised for the Department of Defense (DoD). There were two primary reasons for conducting this study. The first reason was the current $100,000 threshold when established did not take into consideration the high per unit value of Military Equipment (ME). The second reason is DoD is eliminating the definition of ME and consolidating it with General Equipment (GE). These factors coupled with the desire for operational efficiencies expressed by DoD Components and Agencies were the catalyst for the DCFO and A&FP leadership requesting this study.

Based upon the results of this study, policy changes were made for new acquisitions effective October 1, 2013, policy changes were made for new acquisitions. The changes are:

  1. Combine Military Equipment (ME) (previously reported as a separate line item for General Property, Plant, and Equipment (GPP&E)) and General Equipment (GE) into a single category entitled "General Equipment." The current definition of ME, established by USD(AT&L) Memorandum, "Military Equipment Definition," January 24, 2007, is rescinded. An update to Note 10 of the financial statements will reflect this change.
  2. Increase the capitalization threshold from $100,000 to $1 million for Department of the Air Force and Department of the Navy GE general fund assets. Increase the capitalization threshold from $100,000 to $250,000 for all internal use software (IUS) and other GE assets for all other general and working capital funds.
  3. Increase the capitalization threshold for Real Property from $20,000 to $250,000.

Property acquired prior to October 1, 2013 will follow the financial reporting rules under which the assets were acquired. All property is subject to audit, and so use of the capitalization threshold for applying appropriate valuation techniques becomes very important.

For more information on capitalization, refer to DoD Financial Management Regulation (FMR) 7000.14-R, Volume 4, Chapter 6, (Property, Plant, and Equipment). The changes to the capitalization threshold can be found in the memorandum, "Elimination of Military Equipment Definition and Increase to Capitalization Thresholds for General Property, Plant, and Equipment," dated September 20, 2013.


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