Definitions
Accumulated depreciation
means the aggregate, at a given point of time, of the depreciation expenses made in respect of a particular depreciable asset or class of depreciable assets
Adjustable value
A depreciating asset’s adjustable value at a particular time is its cost (first and second elements) less any decline in value up to that time. The opening adjustable value of an asset for an income year is generally the same as its adjustable value at the end of the previous income year.
Agricultural activity (AASB141)
The management by an entity of the biological transformation and harvest of biological assets for sale or for conversion into agricultural produce or into
additional biological assets.
Agricultural produce (AASB141)
The harvested product of the entity’s biological assets.
Amortisation (AASB138)
The systematic allocation of the depreciable amount of an intangible asset over its useful life.
Asset (AASB138)
A resource: controlled by an entity as a result of past events; and from which future economic benefits are expected to flow to the entity.
A physical or non-physical item that generates future benefits beyond 12 months. An asset can be tangible (like a building) or intangible (such as intellectual property).
An asset can be physical or tangible (e.g. land, buildings, plant, equipment, motor vehicles, Artworks) or intangible (e.g. computer software).
An asset may be acquired directly by purchase, bequest or donation, or result from construction (e.g. a new building or a renovated facility). During the construction phase, the asset is known as a construction-in-progress asset.
Asset Classes
Fixed Assets, which meet the appropriate recognition and useful life are grouped in the following categories:
- Construction in progress
- Land
- Buildings
- Infrastructure
- Plant and equipment (including but not limited to IT Equipment, Motor Vehicles Aircraft, Drones, General and Other Equipment, Fixed Furniture and Fittings)
- Plant and equipment in progress
- Leasehold improvements
- Library collection
- Art collection
- Intangibles
- Intangibles in progress
Asset lifecycle (also known as Period or simply the Life of an asset)
The total period from when an asset is initially created until its final disposal. It includes all activities such as acquisition, maintenance, renewal, upgrade and disposal.
Asset management (ISO 55000)
The coordinated activities of an organisation to realise value from assets. The value that may be delivered by asset management includes, but is not limited to, financial performance, managed risk, services and outputs, corporate/social responsibility, compliance and reputation.
Asset management framework
The policies, processes, controls, systems and governance arrangements put in place aimed at ensuring an appropriate level of service is delivered to the community in the long term in the most cost-effective manner.
Associated costs of a fixed asset
The cost of a fixed asset includes all amounts incurred to acquire the asset and any amounts that are directly attributable to bringing the asset into working condition.
Directly attributable costs may include:
- Delivery, freight costs
- Costs associated with acquiring the asset such as stamp duty and import duties
- Costs of installation of the asset (installation and labour costs)
- Professional fees, such as legal fees and architects' fees (building, land)
If these costs refer to a new asset, please refer to the definition of COMPONENT for additional information on how to receipt related PO lines. If these costs refer to an existing asset, please refer to the definition of BUILT-IN for additional information on how to receipt related PO lines.
The following costs ARE NOT considered directly attributable costs:
- Training
- Maintenance services
- Warranties
Note that general overhead costs or administration costs would not be included as part of the total costs of a fixed asset (e.g. the costs of the factory building in which the asset is kept, or the cost of the maintenance team who keep the asset in good working condition).
The cost of subsequent expenditure on a fixed asset will be added to the cost of the asset provided that this expenditure enhances the benefits of the fixed asset or restores any benefits consumed. This means that major improvements or a major overhaul may be capitalised and included as part of the cost of the asset in the accounts. However, the costs of repairs or overhauls that are carried out simply to maintain existing performance will be treated as expenses of the accounting period in which the work is done and charged in full as an expense in that period.
Balancing adjustment amount
The balancing adjustment amount is the difference between the termination value and the adjustable value of a depreciating asset at the time of a balancing adjustment event.
If an asset’s termination value is greater than its adjustable value, the difference is generally an assessable balancing adjustment amount.
If the termination value is less than the adjustable value, the difference is generally a deductible balancing adjustment amount.
Balancing adjustment event
Generally, a balancing adjustment event occurs for a depreciating asset if you stop holding it (for example, if you sell it) or you stop using it and you expect never to use it again.
Borrowing costs (AASB123)
Interest and other costs that an entity incurs in connection with the borrowing of funds.
Built-in (of an asset)
Similar to a component but specifically refers to the acquisition of an item that is considered an essential part of an existing core asset, either because it enhances the core assets’ capabilities/functionalities or extends the asset’s useful life.
This term is specifically used in the context of receipting purchase orders for costs in relation to the purchase of new equipment, or other associated costs, that have to be consolidated under an existing core asset that is already listed on the Assets Register (E.g. Pump for an existing cryogenic chamber or additional freight costs for a piece of equipment that has already been receipted and made an asset).
Capital expenditure (capex)
Expenditure that, based on its existing condition, either extends the useful life of an asset or leads to an increase in its remaining service potential.
Car limit
If the first element of cost of a car exceeds the car limit for the financial year in which you start to hold it, that first element of cost is generally reduced to the car limit. The car limit for 2018–19 is $57,581.
Carrying amount (AASB116), (AASB136)
Carrying amount (AASB140), (AASB141)
The amount at which an asset is recognised after deducting any accumulated depreciation (amortisation) and accumulated impairment losses thereon.
The amount at which an asset is recognised in the statement of financial position.
Cash-generating unit CGU (AASB136)
The smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.
Commencement of the lease term (AASB117)
The date from which the lessee is entitled to exercise its right to use the leased asset. It is the date of initial recognition of the lease—that is, the recognition of the assets, liabilities, income or expenses resulting from the lease, as appropriate. Component A significant part of a complex asset that has a different useful life or pattern of consumption of future economic benefit from the other significant parts.
Component (of an asset)
Specific part of a core asset having an independent physical or functional identity but is considered an essential part of that asset, without which the core asset could not function according to its specifications. Also refers to a part of an asset which may be separately removed and replaced to extend the life of that asset. (e.g. Finisher unit for a multi-function printer; measuring instrument for a centrifuge; or a roof as a component of a building).
Comprehensive valuation
A revaluation that entails significant levels of physical inspection and evaluation of all appropriate aspects such as methodology, assumptions and unit rates.
Condition-based depreciation
Depreciation method used to determine physical deterioration and based on a correlation between the physical characteristics and condition of an asset.
Consumables
These are products that you would buy recurrently, for example items which "get used up" through use of equipment such as paper (for printers), stationery, toner or ink cartridges etc. Here, the equipment’s capacity to operate is not affected, but needs the consumable to operate. These costs are not to be consolidated under an asset but coded to consumables (goods).
Consumption-based depreciation
Depreciation method used to determine economic consumption and based on consideration of holistic (functionality, capacity, utilisation, obsolescence) as well as the physical characteristics and condition of an asset.
Contingent rent (AASB117)
The portion of the lease payments that is not fixed in amount but is based on the future amount of a factor that changes other than with the passage of time (for example, the percentage of future sales, amount of future use, future price indices and future market rates of interest).
Control
The potential to contribute, directly or indirectly, to the delivery of relevant goods or services in accordance with the entity’s objectives of a particular volume, quantity and quality to its beneficiaries including the ability to restrict access of others to those benefits.
Core Asset
This term is used to describe the main functional part of the asset that components and built-ins get added
to. Details of the core asset are recorded and tracked in the asset management system.
Corporate assets (AASB136)
Assets other than goodwill that contribute to the future cash flows of both the cash- generating unit under review and other cash-generating units.
Corporate governance
Everything that you do in order to achieve your objectives. Typically this includes such things as policies, procedures, processes, organisation structure and plans.
Cost (AASB116), (AASB140)
The amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire an asset at the time of its acquisition or construction or, where applicable, the amount attributed to that asset when initially recognised in accordance with the specific requirements of other AASBs—for example, AASB 2 Share-based Payment.
Cost approach (AASB 13)
A valuation technique that reflects the amount that would be required currently to replace the service capacity of an asset (often referred to as replacement cost).
Costs of disposal (AASB136)
Incremental costs directly attributable to the disposal of an asset or cash-generating unit, excluding finance costs and income tax expense.
Costs to sell for a group of biological assets (AASB141)
The incremental costs directly attributable to the disposal of an asset, excluding finance costs and income taxes.
Current assets
means cash or other assets of the entity that would in the ordinary course of operations of the entity be consumed or converted into cash within twelve months after the end of the last reporting period of the entity.
Current replacement cost
The gross replacement cost less any accumulated depreciation. It reflects the level of remaining service potential embodied in an asset based on the replacement cost.
Custody
All assets purchased are owned until they are disposed of. Assets must be acquired, recorded, safeguarded, transferred and disposed of in an accountable manner, and are to be controlled and safeguarded against misuse, loss, theft or damage.
Cyclical maintenance and renewal assets
Assets whose life and service potential are regularly extended through ongoing maintenance and renewal.
Days held
Days held is the number of days you held the asset in the income year in which you used it, or had it installed ready for use for any purpose.
Decline in value
Deductions for the cost of a depreciating asset are based on the decline in value.
For most depreciating assets, you have the choice of two methods to work out the decline in value of a depreciating asset: the prime cost method or the diminishing value method.
Depreciable amount
means the historical cost of a depreciable asset, or other revalued amount substituted for historical cost, in the financial report, less in either case the net amount expected to be recovered on disposal of the asset at the end of its useful life
Depreciable asset
means a non-current asset having a limited useful life.
Depreciating asset
A depreciating asset is an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used.
Some assets are specifically excluded from the definition of depreciating asset; see What is a depreciating asset?
Depreciation expense
means an expense recognised systematically for the purpose of allocating the depreciable amount of a depreciable asset over its useful life.
Depreciation rates
The rate at which the value of an asset is reduced each year, usually expressed as a percentage or by Units of Use. Fixed assets should generally be depreciated differently taking into account your local tax jurisdiction rules (e.g. IRD, ATO, IRS) than for accounts (book or balance sheet value). See this related article: https://www.asset.accountant/blog/accounting-vs-tax-depreciation-why-do-both/
Depreication rate is also known as tax rate and is usually derived from Cost ÷ Life, so for a 7 year tax life, the rate would be 100% ÷ 7 = 14.286% - Rate is the primary driver for depreciation calcu
Depreciated optimised replacement cost (DORC)
A method used to value assets based on an assumption that the asset is efficient with no excess or surplus capacity and based on current costs after allowing for consumed service potential.
Discounted cash flow (DCF)
An income approach method used to calculate market value. It is based on analysis of cash inflows and outflows, discount rates, beta risk and alternative scenarios.
Depreciable amount, (AASB116), (AASB136), (AASB138)
The cost of an asset, or other amount substituted for cost less its residual value.
Depreciation (amortisation) (AASB116), (AASB136)
The systematic allocation of the depreciable amount of an asset over its useful life. The two most common methods in Australia are straight line and diminishing value.
Development (AASB138)
The application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services before the start of commercial production or use.
Economic entity
means a group of entities comprising the parent entity and each of its subsidiaries
Economic life (AASB117)
Either:
- the period over which an asset is expected to be economically usable by one or more users; or
- the number of production or similar units expected to be obtained from the asset by one or more users.
Effective life
Generally, the effective life of a depreciating asset is how long it can be used by any entity for a taxable purpose or for the purpose of producing exempt income or
non-assessable non-exempt income:
- having regard to the wear and tear from your expected circumstances of use,
- assuming it will be maintained in reasonably good order and condition, and
- having regard to the period within which it is likely to be scrapped, sold for no more than scrap value or abandoned.
Elements of Cost
In accordance with AASB 116 Property, Plant & Equipment paragraph 16 the cost of an item of property, plant and equipment comprises:
- its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates,
- any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management, and
- the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which an entity incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period.
Examples of directly attributable costs are:
- costs of employee benefits (as defined in AASB 119 Employee Benefits) arising directly from the construction or acquisition of the item of property, plant and equipment,
- costs of site preparation,
- initial delivery and handling costs,
- installation and assembly costs,
- costs of testing whether the asset is functioning properly, after deducting the net proceeds from selling any items produced while bringing the asset to that location and condition (such as samples produced when testing equipment), and
- professional fees
Entity
means any legal, administrative, or fiduciary arrangement, organisational structure or other party (including a person) having the capacity to deploy scarce resources in order to achieve objectives.
Entity-specific value (AASB116), (AASB138)
The present value of the cash flows an entity expects to arise from the continuing use of an asset, and from its disposal at the end of its useful life or expects to incur when settling a liability.
Entry price (AASB 13)
The price paid to acquire an asset or received to assume a liability in an exchange transaction.
Equity
is the residual interest in the assets of the entity after deduction of its liabilities
Exit price (AASB 13)
The price that would be received to sell an asset or paid to transfer a liability.
Expected cash flow (AASB 13)
The probability-weighted average (that is, the mean of the distribution) of possible future cash flows.
Expenses
are consumptions or losses of future economic benefits in the form of reductions in assets or increases in liabilities of the entity, other than those relating to distributions to owners, that result in a decrease in equity during the reporting period.
Fair value (AASB 13)
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Fair value less costs to sell (AASB136)
The amount obtainable from the sale of an asset or cash-generating unit in an arm’s length transaction between knowledgeable, willing parties, less the costs of disposal.
Finance lease (AASB117)
A lease that transfers substantially all the risks and rewards incidental to ownership of an asset. Title may or may not eventually be transferred.
First element of cost
The first element of cost is, broadly, the amount paid (money or the market value of property given) or the amount taken to have been paid to hold the asset. It also includes amounts incurred after 30 June 2005 that are taken to have been paid for starting to hold the asset. The amounts must be directly connected with holding the asset.
Future economic benefit
The potential to contribute, directly or indirectly, to the delivery of goods and services in accordance with the entity’s objectives of a particular volume, quantity or quality to its beneficiaries.
Gross replacement cost (GRC)
The cost of replacing the total potential future economic benefit of the existing asset using either reproduction or modern equivalents after taking into account any differences in the utility of the existing asset and the modern equivalent.
Government grants (AASB141), (AASB120)
Assistance by government in the form of transfers of resources to an entity in return for past or future compliance with certain conditions relating to the operating activities of the entity. They exclude those forms of government assistance which cannot reasonably have a value placed upon them and transactions with government which cannot be distinguished from the normal trading transactions of the entity
Gross investment in the lease (AASB117)
The aggregate of the minimum lease payments receivable by the lessor under a finance lease; and any unguaranteed residual value accruing to the lessor.
Gross replacement cost
The value of an asset based on replacement cost prior to the deduction of any accumulated depreciation.
Guaranteed residual value (AASB117)
For a lessee, that part of the residual value that is guaranteed by the lessee or by a party related to the lessee (the amount of the guarantee being the maximum amount that could, in any event, become payable). For a lessor, that part of the residual value that is guaranteed by the lessee or by a third party unrelated to the lessor that is financially capable of discharging the obligations under the guarantee.
Harvest (AASB141)
The detachment of produce from a biological asset or the cessation of a biological asset’s life processes.
Highest and best use (AASB 13)
The use of a non-financial asset by market participants that would maximise the value of the asset or the group of assets and liabilities (for example, a business) within which the asset would be used.
Holder
Only a holder of a depreciating asset may deduct an amount for its decline in value. In most cases, the legal owner of a depreciating asset will be its holder.
see Who can claim deductions for the decline in value of a depreciating
asset? on page 4.
Impaired Asset
A condition in which an asset’s market value falls below its carrying amount and is not expected to recover. This means that an asset’s market value is less than its Net Book Value (NBV). For assets, the NVB is calculated on the total acquisition cost of the asset less any depreciation or impairment costs made against the asset. This can happen when an asset is faulty or has become obsolete owing to advances in new technologies.
Impairment loss (AASB116), (AASB138), (AASB136)
The amount by which the carrying amount of an asset or a cash-generating unit exceeds its recoverable amount.
Inception of the lease (AASB117)
The earlier of the date of the lease agreement and the date of commitment by the parties to the principal provisions of the lease. As at this date: a lease is classified as either an operating or a finance lease; and in the case of a finance lease, the amounts to be recognised at the commencement of the lease term are determined.
Income approach (AASB 13)
Valuation techniques that convert future amounts (for example, cash flows or income and expenses) to a single current (that is, discounted) amount. The fair value measurement is determined on the basis of the value indicated by current market expectations about those future amounts.
Indexation
Indexation is a methodology used in calculating a cost for capital gains tax for depreciating assets acquired before 21 September 1999 that have been used partly for a private purpose.
Initial direct costs (AASB117)
Incremental costs that are directly attributable to negotiating and arranging a lease, except for such costs incurred by manufacturer or dealer lessors.
Inputs (AASB 13)
The assumptions that market participants would use when pricing the asset or liability, including assumptions about risk, such as the following:
- the risk inherent in a particular valuation technique used to measure fair value (such as a pricing model); and
- the risk inherent in the inputs to the valuation technique.
Inputs may be observable or unobservable.
Intangible asset (AASB138)
An identifiable non-monetary asset without physical substance.
A non-physical asset, for example, computer software program forming part of an overall IT system. In contrast, computer machines and wiring are physical or tangible assets.
Interest rate implicit in the lease (AASB117)
The discount rate that, at the inception of the lease, causes the aggregate present value of:
- the minimum lease payments; and
- the unguaranteed residual value to be equal to the sum of:
- the fair value of the leased asset; and
- any initial direct costs of the lessor.
Interim revaluation by indexation
Also referred to as a desktop valuation. This type of valuation is based purely on indexation rates and adjustments for additions, deletions and changes in condition (for example, impairment). It should be limited to a maximum of two or three years between comprehensive valuations.
Inventories (AASB102)
Assets held:
- for sale in the ordinary course of business;
- in the process of production for such sale; or
- in the form of materials or supplies to be consumed in the production process or in the rendering of services.
Investment property (AASB140)
Property (land or a building—or part of a building—or both) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both, rather than for:
- use in the production or supply of goods or services or for administrative purposes; or
- sale in the ordinary course of business.
International valuation standards (IVS)
Valuation standards issued by the International Valuation Standards Committee.
Land under roads (AASB 1051)
Land under roadways, and road reserves, including land under footpaths, nature strips and median strips.
Lease (AASB117)
An agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time.
Lease term (AASB117)
The non-cancellable period for which the lessee has contracted to lease the asset, together with any further terms for which the lessee has the option to continue to lease the asset, with or without further payment, when at the inception of the lease it is reasonably certain that the lessee will exercise the option.
Lessee’s incremental borrowing rate of interest (AASB117)
The rate of interest the lessee would have to pay on a similar lease or, if that is not determinable, the rate that, at the inception of the lease, the lessee would incur to borrow over a similar term, and with a similar security, the funds necessary to purchase the asset.
Level 1 inputs (AASB 13)
Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.
Level 2 inputs (AASB 13)
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 inputs (AASB 13)
Unobservable inputs for the asset or liability.
Level of service
The defined service quality for a particular service against which its service performance can be measured. Service levels usually relate to quality, quantity, reliability, responsiveness, environmental impact, acceptability and cost.
Liabilities
are the future sacrifices of economic benefits that the entity is presently obliged to make to other entities as a result of past transactions or other past events.
Maintenance expenditure
Expenditure that either does not result in an increase in useful life or service potential or is immaterial and enables the asset to keep performing on its typical lifecycle path.
Market approach (AASB 13)
A valuation technique that uses prices and other relevant information generated by market transactions involving identical or comparable (that is, similar) assets, liabilities or a group of assets and liabilities, such as a business.
Market participants (AASB 13)
Buyers and sellers in the principal (or most advantageous) market for the asset or liability that have all of the following characteristics: They are independent of each other; that is, they are not related parties as defined in AASB 124, although the price in a related party transaction may be used as an input to a fair value measurement if the entity has evidence that the transaction was entered into at market terms.
They are knowledgeable, having a reasonable understanding about the asset or liability and the transaction using all available information, including information that might be obtained through due diligence efforts that are usual and customary. They are able to enter into a transaction for the asset or liability. They are willing to enter into a transaction for the asset or liability; that is, they are motivated but not forced or otherwise compelled to do so.
Market value
The price that would be exchanged between a willing buyer and a willing seller in an open and liquid market.
Market-corroborated inputs (AASB 13)
Inputs that are derived principally from, or corroborated by, observable market data by correlation or other means.
Minimum lease payments (AASB117)
The payments over the lease term that the lessee is or can be required to make, excluding contingent rent, costs for services and taxes to be paid by and reimbursed to the lessor, together with:
- for a lessee, any amounts guaranteed by the lessee or by a party related to the lessee; or
- for a lessor, any residual value guaranteed to the lessor by the lessee; a party related to the lessee; or
- a third party unrelated to the lessor that is financially capable of discharging the obligations under the guarantee.
However, if the lessee has an option to purchase the asset at a price that is expected to be sufficiently lower than fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception of the lease, that the option will be exercised, the minimum lease payments comprise the minimum payments payable over the lease term to the expected date of exercise of this purchase option and the payment required to exercise it.
Monetary assets (AASB138)
Money held and assets to be received in fixed or determinable amounts of money.
Most advantageous market (AASB 13)
The market that maximises the amount that would be received to sell the asset or minimises the amount that would be paid to transfer the liability, after taking into account transaction costs and transport costs.
Net investment in the lease (AASB117)
The gross investment in the lease discounted at the interest rate implicit in the lease.
Net realisable value (AASB102)
The estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
Non-cancellable lease (AASB117)
A lease that is cancellable only: upon the occurrence of some remote contingency; with the permission of the lessor; if the lessee enters into a new lease for the same or an equivalent asset with the same lessor; or upon payment by the lessee of such an additional amount that, at inception of the lease, continuation of the lease is reasonably certain.
Non-Capitalised Asset
Items owned for less than 12 months or with a total acquisition cost less than $5,000 are not capitalised for financial reporting. These items are expensed but may be recorded on the Assets Register for tracking purposes.
Non-current assets
means all assets other than current assets
Non-performance risk (AASB 13)
The risk that an entity will not fulfil an obligation. Non-performance risk includes, but may not be limited to, the entity’s own credit risk.
Net present value (NPV)
Refer: Discounted cash flow.
Observable inputs (AASB 13)
Inputs that are developed using market data, such as publicly available information about actual events or transactions, and that reflect the assumptions that market participants would use when pricing the asset or liability.
Operating lease (AASB117)
A lease other than a finance lease.
Orderly transaction (AASB 13)
A transaction that assumes exposure to the market for a period before the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities. It is not a forced transaction (for example, a forced liquidation or distress sale).
Owner-occupied property (AASB140)
Property held (by the owner or by the lessee under a finance lease) for use in the production or supply of goods or services or for administrative purposes.
Parent entity
means an entity which controls another entity.
Pattern of consumption of future economic benefit
The pattern in which the asset’s future economic benefits are expected to be consumed by the entity. This may be constant, increasing, decreasing or variable.
Principal market (AASB 13)
The market with the greatest volume and level of activity for the asset or liability.
Property, plant and equipment (AASB116)
Tangible items that: are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and are expected to be used during more than one period.
Public sector
The term “public sector” refers to national governments, regional (e.g., state, provincial, territorial) governments, local (e.g., city, town) governments and related governmental entities (e.g., agencies, boards, commissions and enterprises); Typically their financial reporting requirements will be specified by Treasury or some form of prescribed requirement backed by legislation.
Qualifying asset (AASB123)
An asset that necessarily takes a substantial period of time to get ready for its intended use or sale.
Recognised
means reported on, or incorporated in amounts reported on, the face of the profit and loss or other operating statement or of the statement of financial position
Recognition Criteria
In accordance with AASB 116 Property, Plant & Equipment paragraph 7 the cost of an item of property, plant and equipment shall be recognised as an asset if, and only if:
- it is probable that future economic benefits associated with the item will flow to the entity, and
- the cost of the item can be measured reliably.
In accordance with AASB 138 Intangibles paragraph 21 an intangible asset shall be recognised if,
and only if:
- it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity, and
- the cost of the asset can be measured reliably.
Recoverable amount (AASB116), (AASB136)
The higher of an asset’s fair value less costs to sell and its value in use.
Renewal Expenditure that extends the useful life or increases the service potential of the asset beyond its current condition but not exceeding its current maximum design level (for example, re-sealing of a road).
Remaining useful life (RUL)
The time remaining until an asset ceases to provide the required level of service or reaches the end of its economic usefulness.
Service potential Refer: Future economic benefit.
Renewals annuity
A method of depreciation that uses the annualised cost of future renewal costs as a proxy for depreciation expense. This method is not allowed under the AASB as it assumes the assets will be maintained in a constant state and the calculation is not based on the depreciable amount of the asset. However, this method is an ideal tool for asset management planning purposes.
Repairs & Maintenance
Repairs & Maintenance involves fixing a part of an equipment to bring it up to its current working capacity. When a piece of equipment is faulty and needs fixing, the replacement of a worn-out part would be classified as maintenance rather than consumables. As a result of this replacement, the expected remaining ‘useful’ ‘life of the overall equipment does not change.
These costs are not to be consolidated under an asset but as repairs & maintenance (services).
Reporting entity
means an entity (including an economic entity) in respect of which it is reasonable to expect the existence of users dependent on general purpose financial reports for information which will be useful to them for making and evaluating decisions about the allocation of scarce resources
Research (AASB138)
Original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding.
Residual value (AASB116)
The estimated amount that an entity would currently obtain from disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life.
Revenues
are inflows or other enhancements, or savings in outflows, of future economic benefits in the form of increases in assets or reductions in liabilities of the entity, other than those relating to contributions by owners, that result in an increase in equity during the reporting period subsidiary means an entity which is controlled by a parent entity useful life means:
- the estimated period of time over which the future economic benefits embodied in a depreciable asset are expected to be consumed by the entity, or
- the estimated total service, expressed in terms of production or similar units, that is expected to be obtained from the asset by the entity.
Risk premium (AASB 13)
Compensation sought by risk-averse market participants for bearing the uncertainty inherent in the cash flows of an asset or a liability; also referred to as a risk adjustment.
Replacement (Part / Component of Asset)
This refers to a component or part which needs replacing in order for the asset to continue functioning in its current capacity. The replacement of the faulty part/component will have no effect on the remaining ‘useful’ life of the overall asset. Costs related to the replacement of parts/components should be expensed under maintenance and repairs (services).
Replacement (whole Asset)
This refers to the replacement of an existing asset, either because the equipment has reached its useful life span, has ceased to function or has become obsolete due to new technologies. In this instance, the existing asset would need to be retired following the appropriate disposal process and the new equipment would be recorded as a separate asset.
Revaluation
The adjustment in value of an asset (up or down) based upon a fair value valuation. Note that the adjustment process can be different for different asset types.
Second element of cost
The second element of cost is, broadly, the amount paid (money or the market value of property given) or the amount taken to have been paid to bring the asset to its present condition and location at any time, such as the cost incurred to improve the asset. It also includes expenses incurred after 30 June 2005 on a balancing adjustment event occurring for the asset, such as advertising or commission expenses.
Start time (also known as First Use, Date in Service)
A depreciating asset’s start time is generally when you first use it (or install it ready for use) for any purpose, including a private purpose. First use date is also known as "Date in Service".
Stock-take
A count of all assets/equipment/stationery etc in an organisation. It must be done annually (but often more regularly). Once the stock-take has been completed the value of stock held goes into the financial accounts as stock-on-hand.
Straight-line depreciation
Depreciation method used to determine the current replacement cost where the pattern of consumption of future economic benefit is considered to be constant over a period of time, and the calculation is based on age and remaining useful life.
Tangible Assets
An asset you can physically touch i.e. a car or building.
Taxable purpose
A taxable purpose is the purpose of producing assessable income, the purpose of exploration or prospecting, the purpose of mining site rehabilitation, or environmental protection activities.
Termination value
Generally, the termination value is what you receive or are taken to receive for an asset as a result of a balancing adjustment event. For example, the proceeds from selling an asset would be the asset’s termination value.
Trade-in (of an asset)
This refers to the sale of one asset, with the proceeds of this sale going towards the purchase price of the new asset. In this instance, the existing asset would need to be retired following the appropriate disposal process and the new equipment would be recorded as a separate asset. The trade-in value (i.e. sale proceeds/discount amount) will be deducted from the remaining NBV of the old asset when disposed of and added to the acquisition cost of the new equipment.
Transaction costs (AASB13)
The costs to sell an asset or transfer a liability in the principal (or most advantageous) market for the asset or liability that are directly attributable to the disposal of the asset or the transfer of the liability and meet both of the following criteria: They result directly from and are essential to that transaction. They would not have been incurred by the entity had the decision to sell the asset or transfer the liability not been made (similar to costs to sell, as defined in AASB 5).
Transport costs (AASB 13)
The costs that would be incurred to transport an asset from its current location to its principal (or most advantageous) market.
Unearned finance income (AASB117)
The difference between the gross investment in the lease; and the net investment in the lease.
Unguaranteed residual value (AASB117)
That portion of the residual value of the leased asset, the realisation of which by the lessor is not assured or is guaranteed solely by a party related to the lessor.
Unit of account (AASB 13)
The level at which an asset or a liability is aggregated or disaggregated in a standard for recognition purposes.
Unobservable inputs(AASB 13)
Inputs for which market data is not available and that are developed using the best information available about the assumptions that market participants would use when pricing the asset or liability.
Upgrade Expenditure that extends the useful life or increases the service potential of the asset beyond its current maximum design level—for example, widening a road to add an extra traffic lane or improve safety.
Upgrade
In general terms, this is the process of replacing a product with a newer or better version of the same product. When this process refers to the replacement of a whole asset, please refer to the definition of ‘Replacement (whole Asset) and treat it as a new asset acquisition.
When this refers to the upgrade of a component that is part of an existing asset, the existing component is replaced with a newer or better version, in order to bring the asset up to date, improve its characteristics and/or extend the remaining useful life of the asset.
Costs related to this type of upgrade would normally be consolidated under the existing asset where the equipment is not fully depreciated.
Useful life (AASB116), (AASB136), (AASB138)
Either
- the period over which an asset is expected to be available for use by an Entity, or
- the number of production or similar units expected to be obtained from the asset by an entity.
Useful life (AASB117)
The estimated remaining period, from the commencement of the lease term, without limitation by the lease term, over which the economic benefits embodied in the asset are expected to be consumed by the entity.
Useful Life of a fixed asset
An asset may be seen as having a physical life and an economic life.
Most fixed assets suffer physical deterioration through usage and the passage of time. Although care and maintenance may succeed in extending the physical life of an asset, typically it will, eventually, reach a condition where the benefits have been exhausted.
However, a business may not wish to keep an asset until the end of its physical life. There may be a point when it becomes uneconomic to continue to use the asset even though there is still some physical life left.
The economic life of the asset will be determined by such factors as technological progress and changes in demand. For purposes of calculating depreciation, it is the estimated economic life rather than the potential physical life of the fixed asset that is used.
Valuation
The function of obtaining an independent value of an asset or business.
Value in use (AASB136)
The present value of the future cash flows expected to be derived from an asset or cash-generating unit.
Write-offs or retirements (of assets)
When assets have been identified as needing to be taken off the books (i.e. they no longer have any value in the financial system) they need to be written-off. This could occur if they are damaged or broken beyond economic repair, obsolete, no longer required or have been stolen.
Written down value (also known as Book Value or Net Book Value) (WDV)
Refer: Carrying amount. Written Down Value is also known as Net Book Value or in the case of tax reference, Tax Net Book Value.
Whole-of-lifecycle cost
All the costs associated with control of an asset. They include the costs of acquisition, operation, maintenance, renewal, upgrade and disposal.