§ 4300.105. Depreciation allowances.
The Department will participate in a usage payment for fixed assets which were not expensed to the Department or paid for with Departmental funds. To claim a depreciation allowance, the following conditions shall be met:
(1) The straight-line method of depreciation shall be used. The amount of annual depreciation shall be determined by first reducing the cost of the asset by a salvage value and then dividing by the number of years of useful life of the asset. The useful life may be shorter than the physical life depending upon the usefulness of the particular asset to the provider. A useful life may not be less than the relevant useful life published by the Internal Revenue Service or the Uniform Chart of Accounts and Definitions for Hospitals published by the American Hospital Association for the particular asset on which the depreciation is claimed. Once the agency selects using the information published by the Internal Revenue Service or the Uniform Chart of Accounts and Definitions for Hospitals, it shall be consistently applied for assets.
(2) For the year of acquisition and the year of disposal, the number of months of depreciation may not exceed the number of months that the asset was in service.
(3) The method and procedure, including the assigned useful lives, for computing depreciation shall be applied from year-to-year on a consistent basis and may not be changed, even if the agency is purchased as an ongoing operation.
(4) Assets shall be recorded at cost. Donated assets shall be recorded at the current appraisal value. If an asset is acquired by a trade-in, the cost of the new asset is the sum of the book value of the old asset and cash or issuance of debt as consideration paid.
(5) Agencies that previously did not maintain fixed asset records and did not record depreciation in prior years may be reimbursed for straight-line depreciation of the remaining useful life of the asset. The depreciation shall be based on the cost of the asset at the time of original purchase. No depreciation may be taken on an asset that would have been fully depreciated if it had been properly recorded at the time of acquisition.
(6) Gains on the sale of assets are considered to be equal to the salvage value which shall be established prior to the sale of the item. Gains on the sale of assets shall offset the agency’s total depreciation expense for the last 12 months prior to the date the asset was sold or retired from service. Losses incurred on the sale or disposal of assets may be reimbursed.
(7) The cost basis for depreciable assets is determined as follows:
(i) The cost basis for assets acquired as used shall be computed as follows:
(A) The lower of the purchase price or the fair market value shall be established at the time of sale based on the lowest of two or more bona fide appraisals at the time of sale.
(B) Depreciation that was taken or could have been taken by prior owners shall be subtracted.
(ii) The cost basis for assets of an agency transferred between related parties shall be the net book value of the seller at the date of transfer.
(iii) The cost basis for assets of an agency acquired through stock purchase will remain unchanged from the cost basis of the previous owner.
Cross References This section cited in 55 Pa. Code § 4300.81 (relating to applicability); 55 Pa. Code § 4300.102 (relating to fixed asset); 55 Pa. Code § 4300.106 (relating to title to fixed assets); 55 Pa. Code § 4300.111 (relating to applicability); 55 Pa. Code § 4300.114 (relating to agency schedule of charges); 55 Pa. Code § 4300.115 (relating to Department established fees); and 55 Pa. Code § 4300.116 (relating to county negotiated fees).
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