Tangible Fixed Assets Policy Contents

Transcription

1 Contents Overview 1 Page 1 Summary 2 Further Information 3 Approval 4 Review Definitions 2 2 Initial Measurement 2 3 Classification of Tangible Fixed Assets 3 4 Leased Assets 4 5 Revaluation 4 6 Disposal of Tangible Fixed Assets 5 7 Depreciation 5 8 Accounting Disclosures 5 9 Financial Procedures Capital Budget 6 10 Financial Procedures Capital Additions 6 11 Financial Procedures Capital Disposals 7 12 Financial Procedures Lost or Stolen Assets 7 13 Financial Procedures Movement or Relocation of Assets 7 14 Financial Procedures Accounting Entries 7 This document is available in large print or in an alternative format that meets your needs. Please contact the HR Manager. June R e f:pol0099

2 Overview 1 Summary This policy covers the College's management and measurement of tangible fixed assets, including accounting for costs, valuation and depreciation. 2 Further Information Further information upon this policy is available from the Executive Director of Finance. Other relevant sources of information are: Financial Reporting Standard 15: Tangible Fixed Assets Statement of Recommended Practice: Accounting for Further and Higher Education 3 Approval This policy was first raised in This version was approved by the Senior Management Team on 25 June Review This policy will be reviewed every two years by the Executive Director of Finance in liaison with the Finance Department and the College Senior Management Team. June Page POL00 99

3 1 Definitions Tangible Fixed Assets - Assets that have physical substance and are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes on a continuing basis in the College s activities. Depreciation - The measure of the cost or revalued amount of the economic benefits of the tangible fixed asset that have been consumed during the period. Useful Economic Life - The useful economic life of a tangible fixed asset is the period over which the College expects to derive economic benefit from that asset. 2 Initial Measurement Tangible fixed assets should be initially measured at cost, including irrecoverable VAT. Only those costs that are directly attributable to bringing the asset into working condition for intended use should be included in its measurement. Examples of directly attributable costs include: acquisition costs (such as stamp duty); the cost of site preparation and clearance; initial delivery and handling costs; installation costs; professional fees (such as legal, architects and engineers fees). 2.1 Repairs and Maintenance Expenditure to ensure that a tangible fixed asset maintains its previously recognised standard of performance should be recognised in the income and expenditure account in the period in which it is incurred. 2.2 Enhancement Tangible fixed assets being enhanced should be treated as set out in FRS 15 Tangible Fixed Assets : (a) costs incurred in relation to a tangible fixed asset after its initial purchase or production should be capitalised to the extent that they increase the expected future benefits to the College from the existing tangible fixed asset beyond its previously assessed standard of performance; (b) the cost of any such enhancements should be added to the gross carrying amount of the tangible fixed asset concerned. For the College, where significant expenditure is incurred on tangible fixed assets, it is charged to the income and expenditure account in the period it is incurred, unless it meets one of the following criteria, in which case it is capitalised and depreciated on the relevant basis: Asset capacity increases Substantial improvement in the quality of output or reduction in operating costs June Page POL00 99

4 Significant extension of the asset s life beyond that conferred by repairs and maintenance. 2.3 Website Development Costs Design and content costs for websites that are for the general use of the College and its staff should not be capitalised. Where the College has developed a website to support specific teaching or training courses, or for specific research projects, then any design and content costs may be capitalised in line with UITF Abstract 29 Website development costs, in which the capitalised costs should be amortised over the useful economic life of the courses or projects. Alternatively, such costs should be written off as incurred; this would be appropriate treatment if there were uncertainty over the life of the course or its viability. Maintenance and operating costs relating to such websites should be charged to the income and expenditure account as incurred. 2.4 Recognition of Tangible Fixed Assets Tangible fixed assets should be capitalised and should be included in the balance sheet at cost or valuation. The initial carrying amount of tangible fixed assets received as gifts and donations by the College should be the current value of the assets at the date they are received. 3 Classification of Tangible Fixed Assets Classes of tangible fixed assets should follow the classifications required by the Companies Act. The four classes are: (a) land and buildings; (b) plant and machinery; (c) fixtures, fittings, tools and equipment; and (d) payments on account and assets in the course of construction. 3.1 Land and Buildings Land and buildings inherited at incorporation are stated in the balance sheet at valuation on the basis of depreciated replacement cost as the open market value for existing use is not readily obtainable. The associated credit is included in the revaluation reserve. The difference between depreciation charged on the historic cost of assets and the actual charge for the year calculated on the revalued amount is released to the income and expenditure account reserve on an annual basis. Land and buildings acquired since incorporation are included in the balance sheet at cost. Freehold land is not depreciated. Freehold buildings are depreciated over their expected useful economic life to the College of years. Where land and buildings are acquired with the aid of specific grants they are capitalised and depreciated as above. The related grants are credited to a deferred capital grant account, and are released to the income and expenditure account over the expected useful economic life of the related asset on a basis consistent with the depreciation policy. June Page POL00 99

5 3.2 Equipment Equipment costing less than 1,000 (inclusive of VAT) per individual item is written off to the income and expenditure account in the period of acquisition. All other equipment is capitalised at cost. Equipment inherited from the local education authority is included in the balance sheet at valuation. Inherited equipment is depreciated on a straight line basis over its remaining useful economic life to the College of between one and ten years. All other equipment is depreciated over its useful economic life as follows: Motor vehicles and general equipment Computer equipment 10 per cent 20 per cent per annum 20 per cent 25 per cent per annum Where equipment is acquired with the aid of specific grants, it is capitalised and depreciated in accordance with the above policy, with the related grant being credited to a deferred capital grant account and released to the income and expenditure account over the expected useful economic life of the related equipment. 4 Leased Assets Costs in respect of operating leases are charged on a straight line basis over the lease term. Leasing agreements which transfer to the College substantially all the benefits and risks of ownership of an asset are treated as if the asset had been purchased outright and are capitalised at their fair value at the inception of the lease and depreciated over the shorter of the lease term and the useful economic lives of equivalently owned assets. The capital elements of the leasing commitments are shown as obligations under finance leases. The finance charges are allocated over the period of the lease in proportion to the capital element outstanding. Where finance lease payments are funded in full from funding council capital equipment grants, the associated assets are designated as grant funded assets. 5 Revaluation Increases in value should be taken to the revaluation reserve except to the extent that they reverse revaluation losses on the same asset that were previously recognised in the income and expenditure account, in which case they should be recognised in the income and expenditure account. All revaluation losses caused by a clear consumption of economic benefits should be recognised in the income and expenditure account. Other decreases in valuation (not caused by the clear consumption of economic benefits) should first be set against any previous revaluation surplus for that asset. Thereafter, they should be reported in the income and expenditure account unless it can be demonstrated that the recoverable amount of the asset is greater than its revalued amount, in which case the loss should be recognised in the statement of total recognised gains and losses to the extent that the recoverable amount of the asset is greater than its revalued amount. Where applicable, valuations should normally be updated on a regular basis with a professional valuation being undertaken by a qualified valuer at least every five years. An interim valuation should be carried out in the third year after a full valuation by a qualified valuer who may be either internal or external to the College. The College should ensure that the carrying value of assets in the accounting periods between valuations is materially accurate. June Page POL00 99

6 However, for cost/benefit reasons, the College s basis of valuation is as stated below. 5.1 Basis of Valuation Land and buildings were valued in 1994 at depreciated replacement cost by a firm of independent chartered surveyors for the purposes of the financial statements. Other tangible fixed assets inherited from the LEA at incorporation have been valued by the College on a depreciated replacement cost basis with the assistance of independent professional advice. 6 Disposal of Tangible Fixed Assets The gain or loss arising from the disposal of tangible fixed assets is the difference between the carrying amount of the fixed asset and the net sale proceeds whether carried at historical cost or valuation. Gains or losses should be reported in the income and expenditure account in accordance with FRS 3. The net sale proceeds would exclude any proceeds required to be surrendered under the financial memorandum between the College and the relevant Funding Body. Such proceeds should be included in the income and expenditure account and, if material, disclosed separately in line with accounting standards. Any proceeds which the College is required to surrender should be specifically identified and disclosed in the financial statements. 7 Depreciation Depreciation of all tangible fixed assets should be provided for in accordance with FRS 15. Exceptions to charging depreciation may only arise if either the asset is freehold land, or if neither the charge nor the accumulated depreciation is material (but it should be noted that in this latter case, the asset should be subject to an annual impairment review in accordance with FRS 11). Depreciation should be based on the amount at which the tangible fixed asset is included in the balance sheet, (except for freehold land which should not be depreciated). In establishing the estimated useful life of an asset, the level of maintenance expenditure, which may have an effect on the asset life, and the consequent rate of depreciation should be considered. If material, a depreciable asset s anticipated useful economic life must be reviewed annually and the accumulated and future depreciation adjusted in accordance with FRS 15. Subsequent expenditure on a tangible fixed asset which maintains or enhances the previously assessed standard of performance of the asset does not negate the need for depreciation. 8 Accounting Disclosures The following information should be disclosed separately in the College s financial statements for each class of tangible fixed assets: a) the depreciation methods used; b) the useful economic lives or the depreciation rates used; c) total depreciation charged for the period; d) where material, the financial effect of a change during the period in either the estimate of useful economic lives or the estimate of residual values; e) the cost or revalued amount at the beginning of the financial period and at the balance sheet date; June Page POL00 99

7 f) the cumulative amount of provisions for depreciation or impairment at the beginning of the financial period and at the balance sheet date; g) a reconciliation of the movements, separately disclosing additions, disposals, revaluations, transfers, depreciation, impairment losses, and reversals of past impairment losses written back in the financial period; and the net carrying amount at the beginning of the financial period and at the balance sheet date. 9 Financial Procedures - Capital Budget The capital budget is set alongside the Revenue Budget between April and July each year by the Principal and Executive Director of Finance. Budget holders are requested to submit requirements for the following year as detailed below. Type of Expenditure IT Furniture Building Refurbishments Other Equipment Director of Strategy & Information Associate Director Campus & Projects Associate Director Campus & Projects Director of Area After consideration by the Principal and Senior Management Team with regards affordability and strategic fit, the budget will be presented to the Finance and General Purposes Committee for their comments and then to the full Corporation Board for their approval. Once the budget has been approved, the budget holders will be informed in writing of their budget for the year. 10 Financial Procedures - Capital Additions Budget holders may proceed with the purchase of new capital items that were approved in the budget (subject to compliance in purchasing with the College s Financial Procedures Manual). Budget holders may apply in writing to the Executive Director of Finance for approval for a virement of funds between the Revenue budget and the Capital budget. Requests for capital expenditure not included in the approved budget (and not to be vired from the Revenue budget) must be made in writing by the relevant budget holder to the Executive Director of Finance and the Principal, after discussing with their Director. The submission must outline the reason for the required capital expenditure, the expected costs and the consequences of not having the item approved. On agreement by the Principal, the unbudgeted capital expenditure must be forwarded to the Finance and General Purposes Committee for final approval. Budget holders must provide the Management Accountant with a budget profile regarding the expenditure. June Page POL00 99

8 11 Financial Procedures - Capital Disposals The request for the disposal of a fixed asset must be made in writing to the Executive Director of Finance using the standard form available on the Intranet. All items for disposal (other than dangerous or broken items) will, if appropriate, be offered to other Departments in the College, at nil cost, before requesting disposal. The request must include all information available regarding the assets, including: make, model, original purchase date, original purchase price and asset register ID (if possible). In addition the request should also set out the method of disposal. If the item is to be sold, then the item must be offered to the highest bidder and must be an arms length transaction. On receipt of a disposal request the Executive Director of Finance will identify the asset on the fixed asset register (if possible) to ascertain the net book value. The Executive Director of Finance or Principal will provide final approval before any fixed asset disposal is made. Any profit or loss on the sale of a fixed asset (after deducting any net book value) will be credited/debited to the budget holder s account. The budget holder may dispose of the asset once authorisation has been signed. 12 Financial Procedure - Lost or Stolen Assets The disappearance of assets from their place of use must be reported to the Principal and the Executive Director of Finance immediately on discovery of the loss. The budget holder must provide as much information as possible regarding the loss e.g. make, model, original purchase date, original purchase price, asset register ID (if possible) and date and place last seen. The Executive Director of Finance will ascertain any net book value held on the asset register for the item and will charge this to the budget holder s account. 13 Financial Procedure - Movement or Relocation of Assets Assets moved from one location to another on a permanent or semi-permanent basis must be reported to the Management Accountant to enable the up-dating of the fixed asset register. 14 Financial Procedure - Accounting Entries The Management Accountant will ensure that the asset register is complete and updated for each approved acquisition or disposal, and that depreciation is calculated and accounted for at the agreed rates. The Management Accountant will also ensure that the capital additions, capital disposals and depreciation entries on the general ledger have been correctly coded and that it reconciles with the entries on the asset register. He/she will ensure that physical checks of assets to the details in the register are made periodically. Only items that have a life in excess of one year and that are in excess of 1,000 (inclusive of VAT) are included on the asset register. June Page R e f:pol0099