Quick answer
Reconcile gross asset additions and disposals separately from depreciation expense, then map capital-related costs to the applicable cost centers. Retain fully depreciated assets still in use, distinguish lease maintenance from eligible rental cost, and review supplier arrangements under the CMS definitions. Bridge book balances to cost-report treatment with explicit adjustments; an invoice labeled equipment or a net book value alone does not establish the reporting amount.
Separate the asset roll-forward from the expense schedule
A fictional SNF's asset export shows $900,000 of gross assets and $310,000 of net book value. The preparer receives the net figure with a note saying “capital total.” That single number cannot reconcile additions, retirements, accumulated depreciation and current capital-related expense.
CMS-2540-24 Transmittal 3, effective for reporting periods ending on or after June 30, 2026, gives separate instructions for Worksheet A capital-related cost centers and Worksheet A-7 asset and cost reconciliation. The form's original September 30, 2025 applicability date is distinct from this later instruction version.
The completed package needs two linked views: the gross asset movement and the cost-center expense bridge. Neither substitutes for the other, and neither by itself establishes an actual Medicare payment.
Build the gross movement from identifiable assets
Assume the example's $900,000 beginning balance is gross asset cost, not net book value. The original six-item review below shows why a procurement list is not an asset roll-forward.
| Item reviewed | Evidence and reporting question | Gross movement in this example |
|---|---|---|
| Building improvement completed and placed in service | Completion record, ownership and approved basis | $100,000 addition |
| New movable equipment placed in service | Invoice, asset identifier and location | $20,000 addition |
| Retired equipment | Disposal approval and original recorded cost | $40,000 reduction |
| Fully depreciated equipment still used for care | Original cost $30,000 already in opening register | No removal and no new addition |
| Equipment rental agreement | Period expense and maintenance terms | Separate expense review, not an assumed owned-asset addition |
| Repair invoice | Restores existing equipment; reviewed as repair in this example | No capital addition under the stated facts |
The gross ending balance is $900,000 plus $120,000 of additions less $40,000 of disposals, or $980,000. The $30,000 fully depreciated asset remains within that total. Adding it again would overstate assets; removing it merely because net book value is zero would understate the gross register.
The A-7 instructions call for a reconciliation to the relevant Worksheet G fixed assets, with specified home-office or related-organization allocations and exclusions for assets outside the Worksheet B cost-finding method. Keep those reconciling items identifiable rather than forcing the totals to agree through an unexplained plug.
Classify current expense using the arrangement
Section 4902.10 includes specified depreciation, rental, acquisition-interest, asset-insurance and property-tax costs in the capital-related categories. It excludes such items as repair or maintenance, working-capital interest and general liability insurance from those categories. Related-organization costs retain their capital or operating nature, subject to the relevant allowable-cost rules.
Assume an unrelated equipment lease costs $24,000 for the year and explicitly identifies $4,000 of maintenance. Under the stated facts, the preparer reviews $20,000 as rental cost and $4,000 as maintenance in the proper operating classification. If the lease does not identify a maintenance amount, the CMS instructions do not require inventing a carve-out; the entire lease payment is treated as capital-related subject to the referenced regulation.
An unrelated service vendor's invoice mentioning equipment is different. The instructions address whether the charge is capital-related in nature and, for the specified supplier arrangement, whether equipment is rented or leased by the provider, is on qualifying premises, and has a separately specified capital portion. Do not classify a bundled service fee as capital merely because the supplier owns expensive machines.
Explain a book-to-report difference without changing the wrong ledger
Suppose the book expense schedule contains $70,000 depreciation, the $24,000 rental invoice and $6,000 of repairs, all grouped in a broad “equipment” account. The reviewed capital-related expense in this simplified example is $90,000: $70,000 plus the $20,000 rental portion. The remaining $10,000 consists of $4,000 identified maintenance and $6,000 repairs assigned to the appropriate operating costs.
The $100,000 total expense has not disappeared. The difference is classification, assuming all amounts otherwise satisfy the applicable requirements. This example does not determine allowable depreciation methods, useful lives, related-party exceptions or treatment of a particular acquisition. Those questions require the actual records and qualified preparation.
Retain the book account, cost-report destination, adjustment or reclassification reference and reviewer rationale. A reporting reclassification must not automatically change the vendor payable or create a cash transaction.
Verify both reconciliations before handoff
The reviewer checks the $980,000 gross roll-forward against asset identifiers, confirms the retired asset no longer generates future depreciation, and confirms that the fully depreciated asset remains identifiable without new depreciation. Separately, the reviewer traces the $90,000 capital-related expense and $10,000 operating classification to the same source records.
In a platform demonstration, use the lease with explicit maintenance and the fully depreciated equipment as the exceptions. The useful result is a linked, balanced asset and cost-center package that explains the reporting decisions. A dashboard showing only net book value would leave the central cost-report work unfinished.
Questions & answers
Should fully depreciated assets still used for care disappear from the register?
No. CMS-2540-24 Worksheet A-7 instructions retain them in the asset analysis and identify their original acquisition cost, while no further depreciation expense is recorded after full depreciation.
Is every equipment-related supplier invoice capital-related?
No. The nature of the service and arrangement matters. CMS specifies conditions for unrelated supplier charges and separate treatment for repair and maintenance.
Should a lease always have an estimated maintenance amount carved out?
No. The instructions distinguish identified repair or maintenance amounts and say a maintenance carve-out is not required when no amount is identified in the lease agreement, subject to the cited regulatory provisions.
Primary sources
Use the cited source and its applicable version when making a facility-specific decision. These guides explain operational evaluation methods; they are not individualized clinical, coding, or legal advice.