A Capital Expenditure Programme is an integral part of the annual budgeting process, and contains the following elements:

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1 3 Capital Expenditure 1. Introduction A Capital Expenditure Programme is an integral part of the annual budgeting process, and contains the following elements: a) Major Capital Works Programme building works with a value exceeding 1,000,000 b) Minor Capital Works Programme building works with a value up to 1,000,000 c) Capital Equipment and Furniture Programme The Finance and Development Committee are required to approve the proposed Capital Expenditure Programme on an annual basis. For the committee to approve the spend management must demonstrate that sufficient financial resources are available to cover the cost and that all expenditure is in accordance with the current University strategy (e.g. the accommodation strategy). 2. Land and Buildings 2.1 Land and Buildings Existing Assets Land and purchased buildings are capitalised (e.g. the act of spreading out the cost over the assets estimated life) at the cost of purchase, plus any incidental expenses incurred in the purchase, typically legal and estate agents fees. Expenditure incurred in relation to the day to day repair and maintenance of existing buildings is treated as expenditure in the period it is incurred and not capitalised in the balance sheet. However where expenditure results in the assets value significantly increasing or results in the expected life of the asset being extended then the expenditure may be capitalised. Only expenditure exceeding 5,000 on existing buildings will be considered for capitalisation. 2.2 Land and Buildings New Assets If the University undertakes a major building project to construct a capital asset, all directly attributable costs incurred in bringing the asset into existence are capitalised. These costs may include: a) Professional fees (architect and engineers fees) b) Labour costs (internal and external) incurred specifically on the relevant project c) Legal and other acquisition costs d) Cost of site preparation, demolition and clearance e) Costs of initial equipping with physically attached fixtures and fittings These costs are shown on the balance sheet under fixed assets Assets in the Course of Construction. They are not depreciated until such time as the capital asset first comes into use. Once the capital asset is substantially completed and comes into productive use, it will be shown as fixed assets Land and Buildings.

2 To comply with Financial Reporting Standard FRS 15, capitalisation of any further expenditure in relation to it will then be determined by the standard fixed asset accounting policy for land and buildings. No costs which relate to any preliminary or speculative work may be capitalised. 2.3 Land and Buildings Depreciation The depreciation charge is designed to reflect that through usage the value of an asset is reduced. The University s general accounting polices on depreciation are as follows. Land Existing Buildings and Improvements Construction new Buildings Car parks, paths and fences not depreciated Depreciated over remaining useful life of the building Depreciated over estimated useful life of 40 years Depreciated over estimated useful life of 10 years Depreciation is calculated monthly, commencing the month after the construction is completed and brought into use. It is calculated by dividing the total amount originally capitalised by the expected life of the asset (normally in years). If the University capitalises any expenditure on existing buildings, it undertakes a review of the carrying value and the useful life of the building to ensure this is still appropriate. 2.4 Land and Buildings Revaluation In accordance with Financial Reporting Standard 15, the University has adopted a transitional arrangement policy of retaining the book values of Land and Buildings at the date of implementation of the Standard (1999). This includes land and buildings held at July 1997 being shown at an amount determined by a previous valuation. When land and buildings are revalued without being sold, the difference on revaluation is taken to the revaluation reserve unless it represents a permanent diminution in value when it will be charged to revenue in the year the diminution is identified. 3. Furniture and Equipment 3.1 Furniture and Equipment Definition Expenditure on assets to be considered for capitalisation must fulfil the following basic conditions: a) The asset must be intended for use on a continuing basis in the University s activities b) The asset must have physical substance c) The asset must have a cost or valuation exceeding 5,000 (including VAT if this is not recoverable) 3.2 Furniture and Equipment Grouped Assets

3 In some circumstances, the University will capitalise a group of assets individually costing less than 5,000 but are interdependent components of a grouped asset with a value exceeding 5,000. A grouped asset will only be identified and capitalised where the following criteria are met: a) The items are purchased as part of one particular capital project b) They are all purchased within a short span of time c) The items are functionally interdependent

4 3.3 Furniture and Equipment IT Equipment The University does not treat IT equipment as a separate class of capital asset, it is capitalised and depreciated in accordance with the rules for any other plant and equipment. Installation of new IT systems (including hardware, software, licences and consultancy to bring the system into use) will be capitalised when the total cost of the system exceeds 5,000. However, any training costs and consultancy costs incurred after the system has come into use will be charged to revenue when they are incurred. 3.4 Furniture and Equipment Depreciation Depreciation of furniture and equipment is calculated as follows; Equipment and Furniture IT Equipment Equipment and Furniture (projects) five years five years over the life of the project Depreciation is calculated monthly, and commences in the month after purchase. 3.5 Furniture and Equipment for Research When undertaking research, furniture and equipment may be purchased to support the achievement of the aims of a research project. Such items are capitalised in accordance with the standard capitalisation policy stated above, provided they exceed 5,000 in value. The University s policy for Furniture and Equipment used in research projects is that all such expenditure goes directly to profit and loss account for any projects expected to run for less than two years after the end of the financial year in which the expenditure is incurred. For longer running projects, capital items above the valuation threshold are capitalised and depreciated over the estimated life of the project. The income received to fund the fixed asset is transferred to the deferred capital grant, and is released over the remaining life of the project at the same rate as the depreciation charge. For capital expenditure on research, the University s policy is that the capital item will have a net book value of zero upon completion of the project. 4. Other Issues 4.1 Other Issues Inherited Assets Assets transferred to the University by the Local Education Authority have been capitalised in the accounts, as Land and Buildings or Equipment as appropriate. These assets were capitalised at the amount of the loan outstanding on each asset, and this amount was shown upon capitalisation as a long term creditor. Inherited Assets are depreciated over their useful life as per University policy. 4.2 Other Issues Disposals of Capital Assets

5 The Finance and Development Committee approve a strategic framework for disposals of tangible fixed assets. If the University identifies tangible fixed assets held as surplus to requirements, the carrying value of such assets will be reviewed to ensure they are shown at the lower of cost or valuation and net realisable value (e.g. what the asset could be sold for). Gain or loss on disposal of tangible fixed assets is calculated as the difference between the net sale proceeds (deducting any costs incurred in the sale) and asset carrying value in the accounts. This will take into account the net book value of the asset on the balance sheet, as well as release of the revaluation reserve relating to this asset where appropriate. August 2006.