The term "equipment" as defined in 2 CFR 200, which is part of the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, is crucial for understanding the financial and administrative responsibilities associated with federal grants and cooperative agreements. This regulation, often referred to as the "Uniform Guidance," provides a comprehensive framework for managing federal funds efficiently and effectively.

Definition of Equipment under 2 CFR 200

According to 2 CFR 200.33, equipment is defined as tangible personal property (including information technology systems) having a useful life of more than one year and a per-unit acquisition cost which equals or exceeds the lesser of the capitalization level established by the non-Federal entity for financial statement purposes, or $5,000. This definition is critical because it determines how costs related to equipment are treated in the context of federal awards.

Key Components of the Definition

1. Tangible Personal Property: Equipment refers to physical assets that are not permanently affixed to a building or structure. Examples include computers, laboratory instruments, vehicles, and machinery.

2. Useful Life of More Than One Year: The asset must be expected to provide utility for more than one year. This distinguishes equipment from consumable supplies, which are typically used up within a short period.

3. Acquisition Cost Threshold: The cost of the item must meet or exceed the lesser of:

   • The capitalization threshold set by the non-Federal entity (e.g., a university, nonprofit, or state agency) for its financial reporting purposes, or
   • $5,000.

   For example, if an organization sets its capitalization threshold at $2,000, any item costing $2,000 or more would be classified as equipment under 2 CFR 200.

4. Information Technology Systems: The definition explicitly includes IT systems, recognizing the importance of technology in modern operations.

Importance of the Definition

The definition of equipment under 2 CFR 200 has significant implications for federal award recipients:

1. Cost Allocation: Equipment costs are treated differently from other types of expenses. For example, equipment purchases are typically capitalized and depreciated over their useful lives, rather than expensed in the year of purchase.

2. Title and Disposition: Federal regulations often dictate who holds title to equipment purchased with federal funds and how it must be disposed of once it is no longer needed. For instance, title may vest with the non-Federal entity, but the federal agency may impose restrictions on its use or require approval before disposal.

3. Audit and Compliance: Proper classification of equipment is essential for compliance with federal regulations. Misclassifying equipment as a supply or another type of expense could lead to audit findings and potential disallowance of costs.

4. Indirect Costs: Equipment purchases may affect the calculation of indirect cost rates, as they are typically excluded from the indirect cost base.

Practical Examples

1. University Research Lab: A university purchases a microscope for $6,000 using federal grant funds. Since the cost exceeds $5,000 and the microscope has a useful life of more than one year, it is classified as equipment. The university must track the microscope, ensure it is used for the intended purpose, and follow federal guidelines for its eventual disposition.

2. Nonprofit Organization: A nonprofit buys a laptop for $1,200. If the organization's capitalization threshold is $2,000, the laptop would not be classified as equipment under 2 CFR 200. Instead, it would be treated as a supply or expense.

3. State Agency: A state agency acquires a fleet of vehicles for $50,000 each. These vehicles meet the definition of equipment and must be accounted for accordingly, including tracking their use and ensuring compliance with federal regulations.

Special Considerations

1. Fabricated Equipment: In some cases, equipment may be fabricated rather than purchased. For example, a research institution might assemble a custom piece of laboratory equipment. The costs associated with fabrication, including materials and labor, must be carefully documented and may be subject to specific federal guidelines.

2. Shared Use: Equipment purchased with federal funds may sometimes be used for multiple projects or purposes. Recipients must ensure that the use aligns with the terms of the federal award and that costs are appropriately allocated.

3. Software: While software is not explicitly mentioned in the definition of equipment, it may be treated as equipment if it meets the criteria (e.g., a perpetual software license with a cost exceeding the capitalization threshold).

Conclusion

The definition of equipment under 2 CFR 200 is a foundational concept for organizations that receive federal funding. It ensures consistency in how tangible assets are classified, accounted for, and managed across different entities. By adhering to this definition, recipients of federal awards can maintain compliance, avoid audit issues, and make informed decisions about the acquisition and use of equipment. Understanding and applying this definition is essential for effective financial management and stewardship of federal resources.