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SOP For Capital Expenditures In Hotels

SOP Number: Finance and Accounting – 31

Department: Accounts Payable

Time to Train: 28 Minutes

Purpose of Capital Expenditures:

 To establish guidelines for the purchase and approval process of capital items.

Capital Expenditures SOP Procedures:

During the budgeting process each year a capital budget will be prepared. This will include capital equipment purchases for the upcoming year and a three (3) year major capital plan.

A capital purchase is defined as a purchase of an asset that has a life of at least two (2) years and a value of at least $ 1000.00.

Equipment repairs may also be capitalized if the amount exceeds $5,000.00 and extends the life of the asset by three (3) years or more.

Building repairs and improvements must exceed $2,000.00 and extend the useful life by three (3) years, not just maintain the asset. This would include paving parking lots, repairing sidewalks, pool, etc.

The Capital Requisition must be prepared and approved prior to the expenditure. Three bids, if possible, must be obtained and attached to the Capital Requisition. Once the Capital Requisition is approved, the property may proceed with the expenditure, provided proper funding is available. If replaced equipment is sold, the Capital Requisition should document the sale, and the funds received should be treated based on the property's individual management agreement.

If the major project exceeds the budgeted amount, a written explanation must accompany the Capital Requisition.

Any unbudgeted purchases must have written explanations included with the Capital Requisition.

CAPITAL REQUISITION                                                                                                                                               REQ #_________________


 PROPERTY NAME:_____________________________________________________________________________________________

Description of Capital Asset to be Purchased



Reason for Expenditure



Disposition of Replaced Equipment



Total Cost of Capital Asset

Item Cost                                                                                                                      __________________________________________________

Shipping                                                                                                                        __________________________________________________

Sales Tax                                                                                                                       __________________________________________________


Total Cost                                                                                                                       __________________________________________________

Proceeds from Disposition                                                                                                __________________________________________________

Net Cost                                                                                                                         __________________________________________________



Department Head                                                                                                             __________________________________________________

Controller                                                                                                                        __________________________________________________

General Manager Executive VP of Operations                                                                       __________________________________________________

The original of this form must be maintained in a Capital file with the three bids and a copy of all related invoices. One copy of this form must be attached to the original invoice. This copy will serve as the Purchase Order.

Training Summary Questions:

Q1. What is included in a capital budget?

Q2. What is the definition of a capital purchase?

Q3. What are the requirements once the Capital Requisition is approved?

Q4. What happens if replaced equipment is sold?

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Authored and managed by Augustine, a hotelier with over 20 years of experience in the industry. He has a 3-year diploma with 'honors' from the American Hotel & Lodging Educational Institute and a Bachelor of Computer Application - BCA Degree.