3. Develop Standard Replacement Costs for Components Standardised - - PDF document

• 3. Develop Standard Replacement

Costs for Components

Standardised replacement costs

 Include all costs to bring asset to working condition for intended use  Estimate standard replacement costs for components on modern

equivalent asset basis & adjusted for difference in service potential

 Costs based on the modern equivalent asset (replacing or renewing

service capacity of asset in current environment shown in AM Plans)

 Project overheads (design, supervision, etc) spread over all assets  Design costs based on reproducing rather than creating the asset  External borrowing costs included for qualifying (takes time) asset  Material pricing and labour rates to reflect typical and sustainable

market conditions

 Exchange rates and interest rate fluctuations considered if material

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Source: AIFMG: Sec 12.15.5 , p 12.82

Asset Replacement Costs Modern Equivalent Asset

Timber Bridge

 Replacement cost in timber

$100k

 Replacement cost in concrete

$120k

 Replacement cost as box culvert

$80k Replacement Values (same level of service)

 Case 1 replace with concrete bridge $120k

(value of modern equivalent asset)

 Case 2 replace with box culvert

$80k

(value of modern equivalent asset)

Evidenced by renewal strategies in AM Plans

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Asset Replacement Costs Modern Equivalent Asset

2 coat flush seal

 Replace with 2 coat seal

$6 /m2

 Replace with single coat seal

$4 /m2 Replacement Values (same level of service)

 Case 1 replace with 2 coat seal

$6 /m2

(value of modern equivalent asset)

 Case 2 replace with single coat seal $4 /m2

(value of modern equivalent asset)

Evidenced by renewal strategies in AM Plans

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• 4. Assess Residual Value for

Components

Residual Value

 Estimated amount that an organisation would obtain

from disposal of an asset less estimated costs of disposal, if assets was already at the age and condition expected at end of its useful life

 Applicable where infrastructure can be sold/traded to a

third party and amount received from sale is greater than cost of sale

 For infrastructure components, residual value is

generally zero and has no effect in calculation of depreciable amount

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Source: AIFMG: Sec 12.15.6 , p 12.84

Recognising ‘optimal’ Renewals

Use componentisation and valuation as modern equivalent assets

 Gives same result without use of residual

value

 Avoids possible non-compliance with

Accounting Standards

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Assessing Useful Life

Useful life used should reflect the actual service performance of the asset rather than an ‘ideal’ or preferred timeframe

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Consumption of Future Economic Benefits

 FEB for infrastructure assets = entity’s ability to

provide services to its customers/community in the future

 Methodology for determining consumption of

FEB

1.

Define services

2.

Identify measure of consumption of services

3.

Identify pattern of consumption

4.

Select depreciation method

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“Show me how you determined”

• 1. Asset quantities
• 2. Unit rates
• 3. Residual value
• 4. Remaining life
• 5. Useful life

Auditing of Infrastructure

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(1 x 2) – 3 = Depreciable Amount e.g. Sale invoice less costs of sale

A common Technical and Financial view through Asset Management Plans & Long Term Financial Plans

Taking a long term view to Infrastructure Financial Management

Allen Mapstone, JRA M 0439 347 437 E allen.jra@bigpond.com Jeremy McAnally, JRA M 0467 642 391 E jmcanally@jr.net.au Jim Dixon, GAAP Consulting M 0400 098 515 E jimdixon@iprimus.com.au John Comrie, JAC Comrie P/L M 0414 516 566 E john@jaccomrie.com.au

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