Capital Expenditure Policy

Transcription

1 Capital Expenditure Plicy Versin: Final v1.0 Date: 12 June 2013 Plicy Owner: Deputy Directr Financial Cntrl n behalf f Directr f Finance Apprved by: QMSE n: 26 March subject t changes nted (updated in Draft v0.9) Finance and Investment Cmmittee n: 15/04/13 subject t cmments (updated in Draft v0.10) and apprval by Audit and Risk Cmmittee Audit and Risk Cmmittee: 11 June 2013 (Draft v.11) Capital Expenditure Plicy Final V1.0 Apprved

2 Versin cntrl Versin Circulatin Cmments Draft v0.9 Apprved by QMSE 26/03/13 subject t changes nted Draft v0.10 Apprved by Finance & Investment Cmmittee 15/04/13 subject t changes nted Draft v.11 Apprved by Audit & Risk Cmmittee 11/06/13 Final V1.0 Published n intranet As apprved by Audit & Risk Cmmittee 11/06/13 T be referenced during Capital Expenditure training Capital Expenditure Plicy Final V1.0 Apprved

3 Cntents 1 Intrductin Gvernance and funding Capital budgeting prcess Accunting plicies Capital vs revenue Estates and buildings prjects IT prjects Cllege wide capital equipment including Institute and Research equipment Feasibility studies Strategic studies Grants Operating leases Finance leases Accunting fr capital expenditure Mnitring and reprting Dispsal / sale f assets Impairment f assets Further guidance, queries and training Appendix 1 - Glssary f accunting and QMUL terms Capital Expenditure Plicy Final V1.0 Apprved

4 1 Intrductin 1.1 Accunting fr capital is gverned by financial reprting standards under UK GAAP, listed belw, and the assciated accunting guidance fr the Higher Educatin sectr as set ut in the Higher Educatin SORP 2007 (r its successrs): SSAP 4 Accunting fr gvernment grants SSAP 19 Accunting fr investment prperties SSAP 21 Accunting fr leases and hire purchase cntracts FRS 11 Impairment f fixed assets and gdwill FRS 15 Tangible fixed assets FRS 30 Heritage assets The Cllege must adhere t these standards in preparing its accunts and this plicy is cnsistent with these standards. They require that capital expenditure is recrded separately frm revenue expenditure and t this end the Cllege requires that they are budgeted fr and apprved separately in rder that the implicatins fr the incme and expenditure accunt, balance sheet and cashflw can be identified. 1.2 The verall purpse f this plicy is t: Cnfirm and clarify the current plicies in place, which shuld be fllwed n behalf f the Cllege intrduce a new plicy which relates t the capitalisatin f finance csts and ensure that capital expenditure acrss the Cllege is clearly identified, planned, authrised and accunted fr accurately in a timely manner. 1.3 This dcument describes the Capital Expenditure Plicy that must be adhered t n behalf f the Cllege and includes details f what is classed as capital expenditure and the prcess t be fllwed. 1.4 This plicy supprts Queen Mary, University f Lndn Financial Regulatins, sectin 14 Financial Planning, the Scheme f Delegatin f Financial Authrity and the accunting plicies referred t in the Financial Statements, as defined in sectin 2 belw Capital expenditure and assciated csts n land, buildings, equipment and any ther capital spend (e.g. sftware), can nly be apprved as part f the Cllege s Capital Prgramme agreed by Cuncil, as utlined in the Financial Regulatins. 1.6 The Scheme f Delegatin f Financial Authrity utlines the areas f respnsibility and apprval limits related t capital expenditure. Capital Expenditure Plicy Final V1.0 Apprved

5 1.7 This plicy als prvides examples f what shuld nt be capitalised, that is expenditure that is classed as revenue and shuld be charged t incme and expenditure. 1.8 This plicy is wned by the Deputy Directr Financial Cntrl n behalf f the Directr f Finance 1.9 This plicy is supplemented by user guidance and training, as described in sectin Gvernance and funding 2.1 Queen Mary Senir Executive determines the verall capital budget fr the Cllege and retains verall respnsibility fr capital expenditure. 2.2 The capital budget is allcated between: IT expenditure which is managed by the IT Steering Bard and the Capital Prject Bard, which versees the remaining budget. Nte: The versight f estates and facilities activities is currently under review. The Gvernance sectin f this plicy will be amended t reflect the utcme f this review, which includes the future f the Estates and Services Cmmittee. 2.3 Fr grant funded equipment where full grant funding is prvided, the respnsibility fr apprval lies within the relevant Schl. Hwever, the capital must be accunted fr in the same way, as per guidance in this plicy. 2.4 Capital funding fr all capital spend including grant funded equipment is apprved thrugh cmpletin and sign ff f the Applicatin fr Prject Funding (APF) frm, thrugh the relevant gvernance prcess. This includes review and sign ff by Finance. 3 Capital budgeting prcess 3.1 All anticipated capital expenditure, with the exceptin f fully grant funded, shuld be budgeted fr during the budgeting prcess, cvering e.g. majr estates and IT prjects and equipment. Budget guidance is distributed by the Financial Management team. 3.2 The budgeting prcess is nt authrisatin t initiate spend. The Cllege s capital authrisatin prcess must be fllwed, in accrdance with the gvernance described in sectin 2 f this plicy. Capital Expenditure Plicy Final V1.0 Apprved

6 4 Accunting plicies 4.1 The fllwing accunting plicies are extracted frm the Queen Mary, University f Lndn Financial Statements. Tangible fixed assets Tangible fixed assets are stated at histric purchase cst less accumulated depreciatin. Cst includes the riginal purchase price f the asset and the csts attributable t bringing the asset t its wrking cnditin fr its intended use. (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) Freehld land and building and lng leasehld building are stated at cst r valuatin. The Cllege has applied the transitinal rules, cntained in Financial Reprting Standard 15, Tangible Fixed Assets, t retain the previus valuatins f these prperties but nt t adpt a plicy f revaluatin in the future. Since 1 August 2001 all additins t fixed assets have been at cst. Depreciatin n buildings is calculated at 2% per annum using the reducing balance methd. Depreciatin n leased buildings is calculated at 2% per annum r ver the life f the lease if the lease is less than 50 years. N prvisin fr depreciatin is made against the value f land. Assets in the curse f cnstructin are stated at cst and are nt depreciated until they are transferred t the cmpleted asset class when ready fr use. Plant and Machinery is depreciated ver 10 t 15 years. Equipment csting less than 10,000 per individual item r grup f related items is written ff in the year f acquisitin. All ther equipment in capitalised. Capitalised equipment is depreciated ver 3 t 8 years in the cnslidated balance sheet. Expenditure n an asset after it is purchased is capitalised when the expected future benefits frm that asset as a result f the expenditure are greater than thse previusly assessed. Where assets are acquired with the aid f specific grants they are capitalised and depreciated as abve. The related grants are treated as deferred capital grants and released t incme in line with the depreciatin charge. Assets held under finance leases are depreciated ver the perid f the finance lease r their useful ecnmic life whichever is shrter. Where it is cnsidered that there has been any impairment in the value f an asset, the difference between the carrying value and the higher f its net realisable value r value in use is expensed in the incme and expenditure accunt. Circumstances which culd give rise t an impairment are reviewed annually. The Cllege wns heritage assets, nne f which either individually r cllectively are material t these Financial Statements, which have nt been capitalised. Expenditure t ensure that a tangible fixed asset maintains its previusly recgnised standard f perfrmance is recgnised in the incme and expenditure accunt in the year it is incurred. The Cllege has a planned maintenance prgramme which is reviewed annually. Capital Expenditure Plicy Final V1.0 Apprved

7 Nte: This paper clarifies (vi) abve - Capitalised equipment includes IT equipment and sftware, is depreciated ver 3 t 8 years in the cnslidated balance sheet. Leases (i) (ii) Finance Leases which transfer substantially all the benefits and risks f wnership f an asset t the Cllege, are treated as if the asset was purchased utright. The assets are included in fixed assets and the capital elements f the leasing cmmitments are shwn as bligatins under finance leases. The lease rentals are treated as cnsisting f capital and interest elements. The capital element is applied t prvide the utstanding bligatin at the next ptin date and the interest element is charged t the Incme and Expenditure Accunt s as t give a cnstant peridic rate f charge f the remaining balance utstanding at the end f each accunting year. Rental csts under perating leases are charged t expenditure in equal annual amunts ver the perid f the lease. Recgnitin f incme (i) Grants r dnatins received in respect f expenditure n fixed assets are treated as deferred capital grants and released t the incme and expenditure accunt in line with depreciatin ver the life f the asset. 5 Capital vs revenue What is capital? 5.1 Capital expenditure is mney spent n acquiring, upgrading and building assets. It is generally used t purchase r develp prperty, furniture r fixtures, cmputer hardware and sftware, labratry and ther equipment. 5.2 The Cllege defines capital expenditure (as per the Scheme f Delegatin f Financial Authrity) as: any expenditure ver 10,000 n an item r grup f related items which has a life f mre than 1 year and has a use in the teaching f students, research, the care f patients r fr administrative purpses. This cvers all cnstructin and imprvements which increase the value and useful ecnmic life f a building, majr equipment purchases, sftware, and expenditure related t research, cnsultancy and ther areas f knwledge transfer. Capital Expenditure Plicy Final V1.0 Apprved

8 5.3 Capitalised items are written ff t the incme and expenditure accunt, ver the perid f their useful ecnmic life, thrugh the depreciatin charge (definitin see sectin 20 Appendix 1 Glssary). 5.4 Csts shuld be cnsidered as grss csts including VAT and Finance will review the VAT treatment n a prject by prject basis. Due t the mix f ur activities the Cllege is nt able t recver all VAT and cnsequently shuld cnsider it t be a cst. 5.5 Examples f what wuld be included as capital: New cnstructin (new buildings r majr additins) Building renvatins, demlitin prir t cnstructin r upgrades (capital imprvements) Prperty acquisitins and lng-term leases New r replacement equipment r furniture (replacement nly where any existing asset has been fully depreciated r dispsed f) Telecmmunicatin and infrmatin technlgy hardware Heating, ventilatin and air-cnditining (new r replacement where any existing assets have been substantially depreciated) 5.6 The cst f a fixed asset is its purchase price and any csts directly attributable t bring it int wrking cnditin fr its intended use. These csts include: Acquisitin csts Site preparatin and clearance Delivery and installatin csts Prfessinal fees i.e. architect fees, quantity surveyr (but nt Prcurement) 5.7 Fr a repair r replacement t be capitalised, it must increase the value and useful ecnmic life f the asset (see 5.9 belw). 5.8 A replacement may als be capitalised if the new item / part is f significantly imprved quality and higher value cmpared t the ld item. 5.9 The fllwing examples wuld be capitalised: Replacing a lift by enlarging the shaft and increasing the carrying capacity frm 5 t 20 peple Building an extensin t a lecture theatre Replacing a flat rf with a pitched rf if it increases the useful life f the building Extending a nursery t increase capacity Fr mre specific guidance refer t the relevant sectins cvering Estates and Building Prjects, IT Prjects, Institute and Research Equipment Nte: Please als refer t sectin 9 Feasibility Studies and sectin 10 Strategic Studies. Capital Expenditure Plicy Final V1.0 Apprved

9 What is revenue? 5.10 Replacement r restratin f the riginal functinality even if ver 10,000 wuld nt qualify as capital expenditure, where it is bringing the asset back t its riginal state (n enhancement) The fllwing maintenance examples wuld nt be capitalised, as they nly bring the asset back t the riginal state (n enhancement): General repairs and maintenance (e.g. repair f pthles) Repainting ffice / nursery Plumbing r electrical repairs (e.g. burst pipe, replacing lights, heating and ventilatin system repairs) 5.12 Csts nt directly related t the cnstructin f the prject such as administratin and general verhead csts wuld be classed as revenue. Nte: Please als refer t sectin 9 Feasibility Studies and sectin 10 Strategic Studies. 6 Estates and buildings prjects 6.1 If the asset is cnstructed by the Cllege, the capital csts will include: Labur csts f wn emplyees r building cntractr, arising directly frm the cnstructin f the tangible fixed asset Prfessinal fees directly related t the cnstructin f the asset (e.g. architect, emplyer s agent, prject manager, quantity surveyr) Delivery and installatin f heating, lighting, lifts and air cnditining 6.2 The fllwing csts will nt be included as capital csts: Csts nt directly related t the cnstructin f the prject such as administratin and general verhead csts including unspecified and percentage based design ffice csts Csts incurred by, r n behalf f thse staff, wh are directly wrking n the prject but are nt directly related t the cnstructin r acquisitin f the asset e.g. training, general advice (finance, prcurement) and cnsumables. Csts f mving int a new building. 6.3 Plant and machinery r furniture installed in a new r refurbished building shuld be distinguished frm the cnstructin r refurbishment and depreciated ver its estimated useful life. 6.4 Maintenance csts which include elements f tangible imprvements / betterment t the asset can be capitalised. Fr example repainting a lecture theatre wuld be classed as revenue (and nt capitalised). Hwever, refurbishment f the lecture theatre which included an extensin t increase capacity wuld be classed as capital. Capital Expenditure Plicy Final V1.0 Apprved

10 7 IT prjects 7.1 Fr IT related prjects, the fllwing can be capitalised (if ver 10,000): Purchased sftware Hardware Training fr implementatin Direct cnsultancy csts and internal staff csts (up t the pint f implementatin) 7.2 The fllwing shuld nt be included: Any margins Staff training, sftware and hardware maintenance csts and sftware licences nce the prject has been cmpleted Csts related t Finance r Prcurement staff Annual sftware licences 8 Cllege wide capital equipment including Institute and Research equipment 8.1 Equipment csting 10,000 r mre per individual item r grup f related items, and where the ecnmic benefit f the asset has a useful life f mre than ne year, shuld be capitalised. Example 1 - micrscpes, slide scanners, centrifuges. Example 2 - a cmputer lab where all cmputers are replaced may cst 50,000, but the individual cmputers cst less than 10,000 each wuld nt be capitalised. Example 3 where purchasing a number f cmpnent parts t build a piece f equipment (an asset) which verall csts mre than 10,000 wuld be capitalised. Nte: It is imprtant t be aware that it is nt always what is inviced. Need t take int accunt all the part payments fr the related items e.g. 3 x payments f 8,000 = 24,000. The 24,000 wuld be capitalised. In such cases, Finance will rely n Faculties t prvide infrmatin, t help determine and ensure these assets are identified and capitalised. Fr further advice and guidance, please cntact Finance (see sectin 19). 9 Feasibility studies 9.1 Feasibility studies fr ptential capital prjects are capitalised by default. Where a prject des nt receive apprval frm the apprpriate Cllege Cmmittee, the feasibility study csts (initially charged t capital), cannt be capitalised and must be charged back t incme and expenditure, t the department initiating the study. Capital Expenditure Plicy Final V1.0 Apprved

11 9.2 All prjects in prgress, will be reviewed in Nvember and May, t ensure they are likely t prvide value by the year end and will be cntinuing. Otherwise, csts cannt be capitalised. If the prject has nt been started, a cmmitment will need t be prvided frm QMSE / Finance and Investment Cmmittee that a prject will prceed. 10 Strategic studies 10.1 Strategic studies may nt be capitalised e.g. csts incurred t prduce an IT Strategy, as these d nt directly relate t a specific asset. 11 Grants 11.1 Where assets are acquired with the aid f a specific grant, the grant is attributed t the relevant asset and capitalised. The related grants are treated as deferred capital grants and released t incme in line with the depreciatin charge. 12 Operating leases 12.1 An perating lease is a cntract agreement fr the use f an asset and tends t be shrt term (but nt always), cmpared t the useful life f the asset r piece f equipment. Fr example, a piece f equipment may have an ecnmic useful life f 25 years, but may be leased under an perating lease t an rganisatin (lessee) fr 5 years Csts incurred as part f an perating lease are classed as revenue and nt capital With an perating lease, the title f the asset des nt generally pass t the lessee (rganisatin using the asset), but remains with the lessr (rganisatin prviding the asset) When cnsidering purchasing vs perating vs finance leases, a business case shuld be put frward t cnsider the benefits f bth ptins fr the Cllege e.g. becmes a financing decisin The accunting fr perating leases is verseen by Financial Accunting and the Capital and Estates Accuntant. 13 Finance leases 13.1 A finance lease is a cntract agreement fr the use f an asset and tends t be mre lnger term (but nt always). Capital Expenditure Plicy Final V1.0 Apprved

12 13.2 Drawdwns under capital leases shuld be capitalised. The regular mnthly / quarterly leasing charges will need t be split between repayment f capital and the interest charge. The interest charge is a cst t the revenue budget ver the life f the lease. Financial Accunting will prvide a schedule f interest charges ver the life f the lease Fr assets held under finance leases, the Cllege has a plicy t depreciate the assets ver the perid f the finance lease r their useful ecnmic life, whichever is shrter The lessr (prviding the asset) is usually the legal wner f the asset during the curse f the lease. Hwever, the lessee (using the asset) has cntrl ver the asset, prviding the benefits and risks f ecnmic wnership With a finance lease, the lessee may have the ptin t acquire wnership f the asset (e.g. paying the last rental amunt, bargain ptin purchase price) When cnsidering perating vs finance leases, a business case shuld be put frward t cnsider the benefits f bth ptins fr the Cllege e.g. becmes a financing decisin The accunting fr finance leases is verseen by Financial Accunting and the Capital and Estates Accuntant. 14 Accunting fr capital expenditure 14.1 Capital expenditure must be allcated t the relevant capital accunt cdes at the time f cmmitment e.g. when a Purchase rder is raised. Relevant accunt cdes will be advised by the Financial Management team Finance will have verall respnsibility fr determining the distinctin between capital and revenue and treatment f leases, in line with the UK accunting rules, based n infrmatin prvided by faculties and departments. If in dubt, Finance shuld be cnsulted t discuss prpsed items f spend, t ensure decisins are made abut the crrect treatment Purchase requisitins shuld be raised n Agress fr planned capital expenditure, after the gvernance prcess has been fllwed, t get the spend apprved Cmmitted capital expenditure - purchase requisitins shuld be raised, cded t the relevant capital accunt cdes as advised by Finance and apprved, fr all cmmitted capital funds. This ensures the Cllege has visibility f its cmmitments thrughut the financial year Accruals fr e.g. equipment shuld be included in the mnthly management accunts. Receipting f gds / services against purchase rders related t capital spend shuld be actined n a timely basis nce the gds / services have been Capital Expenditure Plicy Final V1.0 Apprved

13 received as per requirements in the riginal rder, t ensure accruals can be included in the mnthly management accunts Accruals fr e.g prjects - Prject Managers shuld infrm the Capital and Estates Accuntant abut wrk executed t date, s that the value f this can be taken int accunt, where the invice has nt yet been received and / r paid Assets under cnstructin will remain under wrk in prgress until cmpleted. Prjects Managers and the Capital and Estates Accuntant will regularly review prjects and anticipated cmpletin dates. Cmpleted assets must be flagged and included n the Fixed Asset Register Depreciatin - shuld be charged frm the time an asset cmes in t use, at the start f its useful life (e.g. building cmes in t use). The Capital and Estates Accuntant must be ntified when an asset cmes in t use, s that it can be included n the Fixed Asset Register and depreciatin charged accrding t QMUL s plicy Depreciatin will be charged mnthly in the management accunts in line with the agreed depreciatin plices utlined in sectin Retentins a Register f Retentins is maintained and infrmatin is included in the ntes t the accunts. Retentins are accrued mnthly by Financial Management team, thrugh the cnstructin phase f the prject. These will be reviewed peridically and released in the event that they are nt due t be paid. 15 Mnitring and reprting 15.1 Capital expenditure will be mnitred and reprted n mnthly, c-rdinated by the Financial Management Team and will cver spend verseen by: Prject Bard IT Steering Grup Faculties / Prfessinal Services 16 Dispsal / sale f assets 16.1 If an asset, that has previusly been designated as a capital item (e.g. piece f equipment, building), cmes t the end f its useful life r is dispsed f (e.g. given away, scrapped r sld), Finance must be ntified via the Capital and Estates Accuntant, s that the Fixed Asset Register can be updated and the relevant accunting entries actined. 17 Impairment f assets 17.1 In the event f any impairment (lss) in the value f an asset ver and abve nrmal wear and tear (e.g. change in use f the asset r ecnmic life is shrtened), Finance Capital Expenditure Plicy Final V1.0 Apprved

14 must be ntified via the Capital and Estates Accuntant, s that the Fixed Asset Register can be updated and the relevant accunting entries actined Circumstances which culd give rise t an impairment are als reviewed annually by the Capital and Estates Accuntant. 18 Further guidance, queries and training 18.1 This plicy is supprted by user guidance and training arranged and prvided by Finance If yu require any further guidance r have any queries related t this plicy r abut capital expenditure, please cntact: yur Finance Manager r the Capital and Estates Accuntant Cntact details can be fund n the Finance intranet page If yu have any queries abut raising purchase requisitins / rders r gds receipting, please cntact: Prcurement Team Cntact details can be fund n the Prcurement intranet page Capital Expenditure Plicy Final V1.0 Apprved

15 19 Appendix 1 - Glssary f accunting and QMUL terms Term Accruals cncept Definitin The principle that revenue and csts are recgnised as they are earned r incurred, are matched with ne anther, and are dealt with in the incme and expenditure accunt f the perid t which they relate, irrespective f the perid f receipt r payment. Accruals at QMUL The Cllege fllws accruals accunting. This is when incme and expenses are recrded as they ccur, regardless f when cash is exchanged. This means that assets are recrded in the accunts when they are acquired r csts incurred. A Purchase Order example fr the purchase f equipment: the schl raised a purchase rder fr a micrscpe csting 15,000 and placed the rder with the supplier in September the supplier delivered the micrscpe in December as per the rder but the rganisatin has nt yet received and paid the invice. the schl has gds receipted the Purchase Order fr the micrscpe, as the micrscpe has been delivered as per the specificatin requested. Finance can accrue (recrd in the accunts) the 15,000 amunt wed (the liability) t the supplier fr the micrscpe delivered, which will be paid at a later date nce the invice has been received. This means the accunts reflect the amunt wed t the supplier, which prvides a mre accurate frecast. Fr prjects we take int accunt the value f wrk executed t date but where the invice has nt been received and / r paid. Capital expenditure The cst f acquiring, prducing r enhancing fixed assets. Capital cmmitments The estimated amunt f capital expenditure: purchase rder raised against a capital accunt cde and rder placed with supplier cntracted fr but nt yet prvided fr authrised by directrs but nt yet cntracted fr Purchase rder example fr purchase f equipment a schl decides it needs t purchase a new micrscpe and raises a purchase requisitin in Capital Expenditure Plicy Final V1.0 Apprved

16 Term Definitin September fr 15,000, which is apprved and a purchase rder created. the purchase rder is sent t the supplier t place the rder, with the delivery date being in December. The schl is nw cmmitted t spending the mney, frm its allcated budget. the funds remain cmmitted until the gds r services are received and paid fr, when it becmes actual expenditure. Majr prjects example a cntract has been signed fr a new building prject but it has nt been cmpleted yet. the funds fr the new building have been agreed frm the budget and set aside t spend n the new building, but n actual expenditure has been incurred. Depreciatin The measure f wearing ut, cnsumptin r ther lss f value f a fixed asset whether arising frm use, the passing f time, r it becmes bslete thrugh technlgy r market changes. It is an accunting entry (nn-cash), and indicates hw much f an asset s value has been used up. Finance are respnsible fr the accunting entries, which writes dwn the asset cst in the balance sheet and are charged t the incme and expenditure accunt. Financial Reprting Standard (FRS) A UK accunting standard issued frm 1 August 1990, when the Accunting Standards Bard succeeded the Accunting Standards Cmmittee. Fixed asset An asset that is nt cnsumed r sld during the nrmal curse f business, such as land, buildings, equipment, machinery, vehicles. Any asset expected t last, r be in use fr, mre than ne year is cnsidered a fixed asset and has a cst ver 10,000. Impairment f an asset Fr example lss in the value f the asset, purpse n lnger exists. SORP Statement f Recmmended Practice; a set f clarificatins f hw FRS / SSAPs apply t a specific sectr e.g. Higher Educatin. Capital Expenditure Plicy Final V1.0 Apprved

17 Term Statement f Standard Accunting Practice (SSAP) Definitin A UK accunting standard issued by the Accunting Standards Cmmittee. Capital Expenditure Plicy Final V1.0 Apprved