All staff dealing with fixed assets must comply with the policies and procedures that relate to fixed assets.

Transcription

1 Fixed Assets Policy Purpose The purpose of the policy is to define fixed assets, the policy of capitalising expenditure at fair value and effectively controlling such assets (including contributed assets). The term fixed asset includes (and this policy covers) both tangible items of property, plant and equipment and intangible items such as software and easements. Tangible and intangible fixed assets are recognised separately in the balance sheet. Policy statement This policy is to comply with the Australian equivalents to International Financial Reporting Standards (AIFRS), Treasury Guidelines and Government Policy directives issued from time to time. All staff dealing with fixed assets must comply with the policies and procedures that relate to fixed assets. 1. Fixed Asset Definition A fixed asset is defined as a physical / intangible unit controlled by RailCorp providing service potential or future economic benefits on a continuing basis which is expected on acquisition to be used for more than a year, has a value that can be measured reliably and exceeds the capitalisation threshold. A fixed asset has the following characteristics: An independent operating unit whose components perform a specific function as a cohesive whole to provide services on a continuing basis; The item must be identifiable and measurable; The assets are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes and may include items held for the maintenance, construction or repair of such assets, and are capable of providing a future economic benefit on a continuing basis; The item acquired has a useful life expectancy greater than twelve months and is not intended to be sold in the ordinary course of business or service delivery; The total cost of the item acquired generally exceeds $5,000 or in the case of a network the sum of the components making up the network exceed $5,000. Individual items costing less than $5,000 are classified as 'Minor Equipment' and are covered in the Minor Equipment Policy and the Fixed Asset Procedure). A contributed asset (i.e. one that is not purchased) is a fixed asset as soon as RailCorp gains control over the asset. Contributed or vested assets are recorded at fair value which is usually based on transferor's book value. Page 1

2 A capital spare acquired specifically for a fixed asset, or class of fixed assets, which satisfy the above definition, is to be separately classified and is covered under a separate policy. 2. Capital expenditure Capital expenditure is incurred during the process of acquisition of non current assets. RailCorp acquires its assets as new assets, enhancement to existing assets, contributed and vested assets or Leasehold assets. All approved capital expenditure for acquisition or enhancement must be managed through the Project module in Ellipse. Specific delegations for the approval of capital works are listed in the Delegations Manual. 2.1 Determining expenditure of a capital nature Expenditure of a capital nature (refer to the Fixed Asset Definition in this policy) includes the following: Acquisition or construction of a new asset, including direct costs (which include plant hire and contractors) and allocation of overhead; Overhead costs include variable overheads such as indirect materials and indirect labour which vary in proportion to the capital projects and fixed overheads for construction work, and which may be allocated proportionally to each project. Overhead costs exclude administration and other general overhead costs which, by their nature, can not be directly attributed to preparing the asset for use; Replacement of an existing asset; Enhancement to an existing asset through an increase in service capacity, service quality (including technological advancement) or useful life; Capitalisation of computer software. Expenditure on the acquisition, development and initial configuration of computer software, or on initial data capture, is recognised as a fixed asset only if it can be demonstrated that the benefits of such software will be derived for more than one year. Software licenses for IT applications which are implemented as "enterprise " application systems for RailCorp are capitalised. All land regardless of cost. Leased assets where RailCorp has entered into a finance lease Expenditure which is not of a capital nature includes the following: The cost of feasibility studies, planning, and other preliminary costs incurred before a decision is actually made to acquire or construct a fixed asset. Routine maintenance to rail infrastructure assets. Training expenses. Immaterial inspection costs, e.g. where only sub components of an asset are replaced. Page 2

3 2.1.3 Capital expenditure is incurred to acquire, replace or enhance a fixed asset. Enhancement extends the asset s useful life or improves its capacity or quality. Maintenance expenditure is incurred to ensure the fixed asset operates throughout its assessed useful life at its predetermined capacity and level of quality While most capital expenditure is funded from the capital works program, it may also be funded from the major periodic maintenance (MPM) program. In some cases a particular project entails both capital and maintenance expenditure. Capital expenditure must always be distinguished and capitalised. Therefore, the Finance Manager of each division is responsible to ensure adequate controls are in place to identify such capital expenditure including the identification of MPM jobs that are capital in nature the categorisation of Infrastructure standard jobs which are capital in nature will assist in this process. Refer also to the procedure on Capitalisation of Rail Infrastructure Assets. 2.2 Capitalisation process Expenditure of a capital nature or a contributed asset must be capitalised as an asset if it complies with the following terms and conditions: Expenditure is to be capitalised as a fixed asset on the practical day of completion if the following conditions are met: The expenditure is identifiable, reliably measurable and it exceeds the threshold value of $5000, and The useful life expectancy of an item/expenditure capitalised as an asset is greater than twelve months and it is not intended to be sold in the ordinary course of business or service delivery, and An item of expenditure capitalised as an asset is commissioned for use in the production or supply of goods or services Where fixed assets form part of a network, their individual acquisition costs (or values) should be aggregated when applying the capitalisation threshold All contributed and vested assets should be capitalised as fixed assets when RailCorp gains control over those assets. In the case of vested assets, the date when the Minister issued the vesting order is the date assets were vested to RailCorp An asset created by incurring expenditure should be capitalised when it is commissioned for use unless a header project is incomplete. This may be the case in large projects which have several sub projects. When the header project (e.g. a turnback), is not complete it is not practicable to capitalise each component sub project (e.g. wiring) which may be completed because the entire project can not be commissioned until all sub projects are completed All assets or capital expenditure shall be capitalised exclusive of GST An item having an acquisition cost (or acquisition value) below the capitalisation threshold is recognised as minor equipment and charged to working expenses. See the Minor Equipment Policy In the case of uncertainty about the definition of capital expenditure the Group General Manager, Finance shall determine whether the fixed asset definition has been met. Page 3

4 3. Valuation of Fixed Assets 3.1 All fixed assets of RailCorp are measured at fair value, however, a purchased fixed asset is initially recorded at its historical cost (this is the cost of purchase plus any incidental costs required to make it ready for use) as this equates to fair value. Vested assets are recorded at written down value as that usually equates to fair value. 3.2 A constructed fixed asset is initially recorded at its historical cost. This is the aggregate cost of materials and direct labour expended in constructing it, together with associated labour on costs and overheads capable of being reliably attributed to it on a reasonable basis. 3.3 Interest and other finance costs incurred in acquiring a fixed asset are included in the acquisition cost if they can be reliably attributed to that fixed asset. Such costs are not capitalised if they are incurred after the fixed asset is held ready for use and has been commissioned. 3.4 In respect of not-for-profit entities, such as RailCorp, where an asset is acquired at no cost, for a nominal cost, the cost is its fair value as at the date of acquisition. For non-specialised assets such as some properties (vacant land and non-specialised building), used motor vehicles, and some forms of plant and equipment where an active and liquid market is available, fair value is measured at market buying price. 3.5 Fixed assets should be valued in accordance with NSW Treasury s accounting policy on Valuation of Physical Non-Current Assets at Fair Value. 3.6 Where current market prices cannot be determined, the fair value is the depreciated optimised replacement cost. Infrastructure assets including tunnels, stations, Rollingstock are valued on the basis of the depreciated replacement cost principle. 3.7 Depreciated optimised replacement cost is the current replacement cost of an asset less, where applicable, accumulated depreciation calculated on the basis of such cost to reflect the already consumed or expired future economic benefits of the asset. 3.8 Optimised replacement cost is the lowest cost of replacing a technologically modern equivalent optimised asset, having regard to differences in the quality and quantity of outputs and operating costs, and adjusting for over-design over capacity and redundant components, i.e. the minimum cost of an optimised modern equivalent asset. 3.9 All classes of property plant and equipment must be revalued at least every five years Each class is revalued separately in a systematic manner Revaluations are made with sufficient regularity to prevent the carrying value of the fixed asset class differing materially from its fair value as at 30 June in any year. Some fixed asset classes may experience more significant and volatile changes in fair value, thus necessitating more frequent revaluation. Where changes in value of a fixed asset class are insignificant they only need to be revalued every five years Any increment on revaluation must be credited to the asset revaluation reserve unless the increment reverses a previously recognised decrement in the valuation of the same class of asset, in which case the increment is credited to the income statement to the extent it reversed the previous loss recognised in the income statement. Page 4

5 3.13 Any decrement on revaluation must first be written-off against the revaluation reserve of that class of asset before being written-off in the income statement Any changes to the carrying value of assets as a result of revaluation can only be made with the approval of the Board. 4. Depreciation of Fixed Assets 4.1 All fixed assets when available for use or first put into service, other than land, must be depreciated over their useful life. Land, while meeting the definition of a fixed asset, has an unlimited useful life and is, therefore, not subject to depreciation. 4.2 Useful life of an asset is the period of time over which the fixed asset is expected to provide service or economic benefit to RailCorp. Any changes to the useful life of a class of asset will result in a change in the rate of depreciation of that class. 4.3 The rate of depreciation is the inverse of the useful life of an asset and, therefore, is determined on the approved useful life of a class of assets and must take account of the net recoverable amount on ultimate disposal. 4.4 The useful life of various classes of assets approved by the Board is subject to annual review. 4.5 An annual review of depreciation should be completed with regard to such factors as fixed asset usage and the rates of technical and commercial obsolescence reflect the remaining useful life. 4.6 If an asset is fully depreciated, and is in use, the asset should be revalued to reflect the remaining useful life. 4.7 The rate of depreciation must be updated in the Fixed Asset Register to calculate the depreciation charge for the financial period or the period in use whichever is lower. 4.8 The depreciation charge is calculated on a straight-line basis on the cost or fair value of the asset. If the asset is revalued, depreciation charge is calculated on a straight-line basis on the remaining useful life of the revalued amount. 4.9 Any addition or extension to an existing depreciable fixed asset is depreciated over the remaining useful life of that fixed asset The depreciation charge of an asset is treated as the expenditure for the division/ cost centre which is the custodian of the asset Capital spares are depreciated over the remaining useful life of the individual asset, group or category to which they relate If an asset identified for disposal was not disposed of at the end of the reporting period, the value in the Fixed Asset Register should be adjusted. The asset is valued at fair value less estimated cost for disposal and disclosed separately. Page 5

6 4.13 Depreciation is to commence from the date the asset is first commissioned and charged to its operating statement for the balance of days in the month of commissioning. 5. Fixed Asset Control 5.1 All fixed assets are assigned to a custodian group. The assignment may be on an item by item basis or a group of assets. The custodian is the Officer who is responsible for an asset or a group of assets, i.e. the custodian is accountable for ownership of the fixed asset item. 5.2 In some instances, however, a fixed asset may be owned by the custodian but regularly used by someone else, e.g. the motor vehicle fleet may be under the custody of one Officer but the vehicles may be assigned to and used by others. 5.3 The custodian has the responsibility to ensure that: all assets in his/her custody are recorded in the Fixed Asset Register, all assets disposed of during the period are correctly removed from Fixed Asset Register, all assets are appropriately maintained, safeguarded against damage and physical protection is provided, a verification of the existence of the asset (other than the infrastructure assets, which are controlled through the Equipment Register, and Asset Maintenance Plan) is completed at least once a year and also assist the authorised party to perform any verification of assets, appropriate records are maintained for auditing purposes to record all actions taken in respect of the asset control function, all significant assets are adequately insured against all risk by coordinating with the General Manager Risk and Insurance. 6. Disposal and Retirement of Assets 6.1 Each division should perform assessment on an ongoing basis to determine an obsolete or surplus asset of property, plant and equipment. 6.2 When an asset is no longer fit for use (obsolete) or no longer required (surplus) for the business operation of RailCorp, the status of that asset is to be identified and reported to management for disposal and removal from the Fixed Asset Register when disposed. 6.3 The component or the section of an asset removed during MPM of a capital nature and during replacement of assets as part of the Capital program should be correctly determined and retired. 6.4 All identified surplus/obsolete assets should be approved for disposal before the end of the accounting period. 6.5 The disposal of an asset must be approved as per the delegation of authority. 6.6 Assets identified for disposal and which are not in use should not be depreciated. Page 6

7 6.7 The division responsible for the asset should either dispose of surplus or obsolete assets or transfer the asset to the division managing similar assets for disposal. 6.8 All assets should be disposed of at best market price available at the time and the most cost effective method of disposal is to be used. 6.9 The Road Fleet Management unit (RFM) manages the disposal of all Rail Corp road vehicles When an asset is disposed of or retired the manager of the division must ensure that they comply with the environmental policy and the contamination policy of RailCorp The elements of cost of an item of property, plant and equipment include the initial estimate for dismantling and removing the item and restoring the site where there is a legal or constructive obligation to do so. References The table below lists material that supports or is referred to in this document. Number Title Minor Equipment Policy Capital Spares Policy Capital Expenditure Procedure Fixed Assets Procedure Delegations Manual Business Case Manual Document control information The current status of this document is shown below. Title Document number Fixed Asset Policy RF24Y01 Version 1.0 Effective date 1 June 2006 Publisher Authorised by File name Finance RailCorp Board Fixed Asset Policy Last Review Date 1 Nov 2011 Next Review Date 1 Nov 2014 Page 7