To request an official copy of this policy, contact:

The Office of the Governing Council
Room 106, Simcoe Hall
27 King's College Circle
University of Toronto
Toronto, Ontario
M5S 1A1

Phone: 416-978-6576
Fax: 416-978-8182
E-mail: governing.council@utoronto.ca
Website: http://www.utoronto.ca/govcncl/

Preamble

At the University of Toronto recent years have witnessed a rapid increase in the use of computers as most effective tools to assist in teaching, research and administration. In the same period technological developments have produced a wide variety of computers, ranging from very large and expensive (multi million dollar) ones to a variety of small (mini) computers.

Computer services at the University are highly centralized, mainly in the University of Toronto Computing Services (UTCS).

The periodic requirement to re-equip UTCS with large computers, has created funding problems due to the present accounting practice of the University under which the entire purchase cost of all equipment (including computers) is "expensed" at the time of acquisition. In addition, in UTCS, large non-recurring expenses representing computer purchases seriously disrupt its charge-out system under which it attempts to operate on an annual "break-even" basis.

Such problems in the past, in some instances, have been met by more costly leasing or instalment purchases rather than outright purchase because sufficient funds were in the UTCS annual operating budget to fund the lease payments or the installment payments but not the outright purchase.

Financial Policy and Accounting Practice

Against this background, and with the objectives in respect of all major computer mainframe acquisitions by UTCS of

• ensuring appropriate approval, and the most beneficial financial arrangements,
• facilitating funding, and
• providing for more consistent UTCS computing expenses from year to year

the following financial policy and accounting practice, applicable to all computer mainframe acquisitions by UTCS of a purchase value in excess of $500,000 each, (herein referred to as "major computer mainframe acquisitions") have been developed:

1. (a) As far as practicable all of UTCS' major computer mainframe acquisition proposals, properly documented and justified, including recommendations of appropriate technical and user advisory committees, will be submitted for review and approval as part of the annual budget process.

(b) All of UTCS' unbudgeted major computer mainframe acquisitions require, in addition to the appropriate advisory committee recommendations, the approval of the Business Affairs Committee and the Planning & Resources Committee.

2. The appropriate method of financing such approved acquisitions (purchase versus lease) will be determined by the Vice-President, Business Affairs and approved by the President.

3. In respect of UTCS' major computer mainframe purchases or purchase equivalent (e.g. capital leases) the following accounting practices apply:

i) The purchase cost of UTCS' major computer mainframes will be set up as a deferred charge and amortized into a Central Computer Equipment expense account on a straight-line basis, over a maximum of 7 years or such shorter period as may appear appropriate due to the risk of technological obsolescence at the time of acquisition.

ii) User department funding for major computer mainframe purchases will be provided based upon equal annual payments of combined principal and interest, payable in advance, with interest at rates established from time to time by the Vice-President, Business Affairs, having regard to the prime lending rate charged by the University's bankers, payable over a maximum of 7 years or such lesser periods as may be determined under 3 i).

The principal portion of such payments will be credited against the Central Computer Equipment account.

The interest portion of such payments will be credited to University interest income (to help offset the reduction in University income due to use of invested funds for such purchases)

Both amortization and departmental funding will be pro-rated within fiscal years from the month following that in which the computer goes into service on acquisition and preceding that in which the computer goes out of service on disposal.

iii) Mid-life mainframe enhancements of $500,000 or more each will be amortized to the end of the amortization period of the enhanced computer and departmental funding provided over the same period.

iv) Mid-life replacement of a major mainframe component of a value of $500,000 or more within a computer will be accounted for in the Central Computer Equipment Fund under normal industrial accounting practice i.e. determine a profit or loss on disposal (i.e. write off the unamortized value of the component against the proceeds), defer the cost of the new major component and amortize to the life of the computer of which it is part. Any adjustment to departmental funding would be agreed at the time of the replacement.

v) Gains or losses on disposal of major computer mainframes will accrue to the Central Computer Equipment Fund and be so recorded at the time of disposal.

NOTE: Under these practices, UTCS is shielded from gain or loss on disposal of its major computer mainframes which accrue to the Central Computer Equipment Fund unless specific arrangements to the contrary are made as an integral part of the replacement proposal.

All of UTCS' individual computer mainframe purchases to a value of less than $500,000 will continue to be expensed under the University’s regular accounting policy for equipment.

In addition, all of UTCS' operating leases will be accounted for by recording the lease payments as an operating expense of UTCS.

M.E. Dedrick
Director of Finance

December 13, 1978