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Threshold Method

The term has two meanings:

1.  One of several methods for distinguishing between capital costs (Capex) and non-capital costs.

2.  A method for determining which assets should be included in the scope of a reserve study

  • This method establishes that any repair or replacement expenditure over a certain amount is a capital cost. For example, some clients set $5,000 as their threshold, below which costs are expended from the operating budget. Also referred to as the capital cost threshold.
  • This method determined which assets are to be included in the scope of a study based on the service life of the assets and replacement interval. For example, assets with a service life of less than 30 years are often considered legitimate consideration for a reserve study.   

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