National Municipal Asset Valuation Manual

5/26/2018 National Municipal Asset Valuation Manual

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MODEL NATIONAL MUNICIPAL ASSETVALUATION METHODOLOGY MANUAL

Government of India


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Ministry of Urban DevelopmentGovernment of India

Supported by

Office of the Comptroller & Auditor General of IndiaNational Inst itute of Urban Affairs (NIUA) and Indo-USAID FIRE-D Project

Committee to oversee the development of the Manual

Joint Secretary (UD), Ministry of Urban Development, GoI - Chairman

Director (LB), Office of the Comptroller & Auditor General of India - MemberDirector, Ministry of Urban Development, GoI- MemberDr. Mukesh Mathur - MemberProfessor & Coordinator, Indo-USAID FIRE-D Project, NIUADr. Debjani Ghosh-MemberSenior Research Officer, NIUAMr. Alok Shiromany-MemberSenior Financial Management Specialist

Indo-USAID FIRE-D ProjectMr. Naveen Mathur- Convener of the Committee, NIUA

ConsultantInfrastructure Professional Enterprise [P] Ltd


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ModelNationalMunicipalAssetValuationManual

CONTENTSChapter I: Using this Manual ............................................................................................... 1

Purpose of the Manual ........................................................................................................ 1

Methodology........................................................................................................................ 1

Structure of the Manual ....................................................................................................... 2

Use by ULBs ....................................................................................................................... 2

Chapter II: Definit ion and Categorization of Assets .......................................................... 3

Definition of Fixed Assets.................................................................................................... 3

Concept of Control .............................................................................................................. 3

Accounting Standards for Assets ........................................................................................ 4

Classification of Assets ....................................................................................................... 4

Infrastructure Assets ........................................................................................................... 5

Existing classification by ULBs............................................................................................ 5

Asset Classification as per NMAM...................................................................................... 5

Issues in classification......................................................................................................... 8

Capital Work in Progress..................................................................................................... 9

Suggested coding of Assets................................................................................................ 9

Chapter III: Valuation of Assets General Princ iples ..................................................... 12

Cost Model ........................................................................................................................ 12

Revaluation Model............................................................................................................. 12

Accounting Principles for Fixed Assets ............................................................................. 12

Choice of Model ................................................................................................................ 13


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Chapter IV: Valuation of Assets for Opening Balance Sheet.......................................... 18

Process for Preparation of Opening Balance Sheet.......................................................... 18

Basic Premises.................................................................................................................. 18

Valuation principles ........................................................................................................... 19

Flowchart of valuation ....................................................................................................... 20

Asset received as a gift ..................................................................................................... 22

Historical Cost Based........................................................................................................ 22

Current Standard Cost Method ......................................................................................... 23

Estimated CSC Method..................................................................................................... 24

Case by Case determination............................................................................................. 26

Issues in using CSC.......................................................................................................... 26

Valuing Capital Work in Progress...................................................................................... 27

Chapter V Valuation Of Assets - Ongoing ..................................................................... 28

Depreciation of Assets ...................................................................................................... 28

Accounting Principles........................................................................................................ 28

Rate of Depreciation.......................................................................................................... 29

Closing Book Value........................................................................................................... 29

Amortization ...................................................................................................................... 30

Impairment of Assets......................................................................................................... 30

Creation / purchase of new assets .................................................................................... 30

Ongoing Lifetime costs...................................................................................................... 31

Disposal of Assets............................................................................................................. 33


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Using IT for asset management ........................................................................................ 38

Chapter VII: Issues in Valuation ........................................................................................ 39Freehold Land ................................................................................................................... 39

Buildings............................................................................................................................ 39

Art and Historical items ..................................................................................................... 40

Value of land under Roads................................................................................................ 40

Pipe networks.................................................................................................................... 41

Assets under Hire Purchase / Finance Lease................................................................... 41

Intangible Assets............................................................................................................... 41

Annex 1 - Classi ficat ion and Codificat ion of Assets for Fixed Asset Register ............. 43

Annex 2 -Current Standard Cost (CSC) for Valuing Assets ............................................ 50Annex 3 - Est imated Useful Li fe and Depreciat ion rates................................................. 61

Annex 4 - Inf lat ion Index .................................................................................................... 65

Annex 5 Flow Chart for Maintenance of Fixed Asset Register .................................... 67

Annex 6 Format of Fixed Asset Register ....................................................................... 68


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CHAPTERI:USINGTHISMANUAL

Purposeof

the

Manual

1. ThisModelNationalMunicipalAssetValuationMethodologyManual(henceforthreferredtoas

Manual)hasbeendesignedforusebythestaffofurbanlocalbodies(ULBs)tofacilitate

bringingonrecordthevalueofmunicipalassetsdeterminedduringthecourseofpreparationof

OpeningBalanceSheet.Inparticular,itwillhelpto:

i. determinetheappropriatevalue,usefullifeanddepreciationofmunicipalfixedassets

andtheirreportinginthefinancialstatements;

ii. increasetheeffectivenessofcontrolovermunicipalfixedassets;and

iii. assistULBstowhichtheybelongtopresentitstrueandfairfinancialposition,facilitate

budgetaryplanningandcontroloverresources.

Methodology

2. TheManualhasbeendevelopedbasedontheAccountingPrinciplesFrameworkprovidedbythe

ModelNationalMunicipalAccountingManual(NMAM)releasedbytheGovernmentofIndiaand

AccountingStandardsissuedbyInstituteofCharteredAccountantsofIndia(ICAI).Itseeksto

complementtheNMAMbyprovidingspecificguidanceintheareaoffixedassetvaluation,

treatmentandreporting.Inparticular,itproposestoaddress(i)valuationofassetsforthe

purposeofOpeningBalanceSheetand(ii)thedeterminationofdepreciationratesforannual

depreciation.

3. Theproposedmethodologyhasbeenpreparedafter:

i. reviewandanalysisofexistingmethodologiesandbasesusedacrossIndiafor

determiningthevalueofmunicipalassets1;

ii. reviewandanalysisofthevaluationmethodologyandbasisrecommendedbythe

InternationalValuationStandardsdevelopedbytheInternationalValuationStandards

Committee(IVSC);

iii. reviewandanalysisofcurrentbestpracticesingoodassetmanagementandasset

lifecyclemanagement,includingthemaintenanceofassetregisters;


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4. AdraftversionofthemanualwassharedwithNIUAandotherstakeholdersinJuly2008.This

versiontakesintoconsiderationthefeedbackandsuggestionsreceivedontheearlierdocument.

StructureoftheManual

5. ThereareseveralimportantstepsinfixedassetsmanagementsofarasULBsareconcerned. The

firststepisidentificationandcategorization,thesecondstepislocation,thethirdstepis

valuation,thefourthstepisrecording,thefifth,updating,thesixth,accounting,andthe

seventh,presentation.

6.This

Manual

is

structured

according

to

these

steps.

Additional

guidance

has

been

provided

to

helpmunicipalstafftodealwithsomeoftheverycommonproblemsofMunicipalities.Such

problemsmaycommonlyinclude:

i. thenonavailabilityofrecordspertainingtothevariousfixedassetsincluding

sometimestheiroriginalcost,dateofacquisitionorconstructionetc.;

ii.

the

difficulty

of

locating

a

fixed

asset

for

instance,

a

road

roller

which

had

been

purchasedandappearsonthebooks,butwasphysicallyscrappedalongtimeagoand

norecordofitsdisposalremains;and

iii. thelackofdataoncurrentconditionandremainingusefullife.

7. TheseproblemsarenotnecessarilytypicaltoULBsonly,butsofarasULBsareconcerned,given

thatthereisnowamandatetochangeovertotheaccrualsystemofaccounting,itisimportant

toaddress

these

problems

and

to

put

in

place

aFixed

Assets

Management

System

that

will

becomemoreandmoreaccurateoveraperiodoftime.

UsebyULBs

8. UsersofthisManualwillfinditusefultofirststudythewholeManualandperhapsundergoa

familiarizationprogramwithrespecttothisManual.Oncethesystemisinplace,specific

chaptersoftheManualcanbereferredtofordealingwithspecifickindsofproblems.

9. Itshouldberememberedthatnomanualcanbyitselfeitheranticipateorpresumetoanswerall

possiblequestionsthatmayariseinpractice. Forthatpurpose,itisusefultorefertoexternal

guidance,includingreferralstoexpertsaswellastoauthoritativetexts.


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CHAPTERII:DEFINITIONANDCATEGORIZATIONOFASSETS

DefinitionofFixedAssets

11.Thereareseveraldefinitionsofassetsthatarecommonlyusedinvariouspartsoftheworld,as

differentaccountingandstandardsexistindifferentcountries.AccountingStandard10on

`AccountingforFixedAssets,promulgatedbytheInstituteofCharteredAccountantsofIndia

(ICAI),definesafixedassetas:

An

asset

held

with

the

intention

of

being

used

for

the

purpose

of

producing

and

providing

goodsorservicesandisnotheldforsaleinthenormalcourseofbusiness.

12.ThecontextofUrbanLocalBodiesisdifferentfromcommercialbodestowhomthese

accountingstandardsgenerallyapply.Hence,asetofAccountingStandardsforPublicSector

BodieshavebeendevelopedbytheInternationalPublicSectorAccountingStandardsBoard

(IPSASB),aconstituentoftheInternationalFederationofAccountants(IFAC).TheIPSASB

considerstheInternationalFinancialReportingStandards(IFRS)releasedbytheInternational

AccountingStandardsBoard(IASB)andfollowingadueprocessofconsultation,adaptsthemto

thepublicsectorcontextforusebygovernment.2

13.ThedefinitionofAssetsaspertheIPSASBis:

Assetsareresourcescontrolledbyanentityasaresultofpasteventsandfromwhichfuture

economicbenefitsorservicepotentialareexpectedtoflowtotheentity.3

ConceptofControl

14.Theconceptofcontrolofanassetseconomicbenefitisakeyissueindeterminingwhetherthat

assetshouldbe reported in the financialstatementsofaULB.Thisconceptofcontrol iswhat

leads tononownedassets likeHirePurchase assets, Leaseholdproperty tobe recognizedas

assets.This concept is importantbecausegovernmentsare required tomaintain controlover

publicproperty ina fiduciarycapacityandhenceany lossofcontrol isnotonlya financialbut

alsoafiduciaryloss.

15.TodeterminewhetheraULBshouldbereportinganasset,itisnecessarytolooktothe

indicatorsofcontrol.AccordingtoAS26,controlisidentifiedwhentheenterprisehasthe

powertoobtainfutureeconomicbenefitsflowingfromtheunderlyingresourceandalsocan


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provisionequaltovirtuallytheentirecarryingamountoflandshallbeprovided.Eveninsuch

cases,therighttotakepossessionremainswiththeULB.

AccountingStandardsforAssets

17.TheIndianaccountingstandardsissuedbytheICAIwhichhaveabearingforthepurposeof

accountingandvaluationofassetsare:

i. AccountingStandard10FixedAssets

ii.

AccountingStandard

6

Depreciation

iii. AccountingStandard16BorrowingCosts

iv. AccountingStandard28 ImpairmentofAssets

v. AccountingStandard19 Leases

18.AlthoughtheydonotapplyintheIndiancontext,theIPSASareausefulsourceofinformation

forpublicsectoraccounting.ThemajorIPSASforFixedAssetsinclude:

i. IPSAS17Property,Plant&Equipment

ii. IPSAS16InvestmentProperty

iii. IPSAS13Leases

iv. IPSAS5BorrowingCosts

v. IPSAS21ImpairmentofNonCashGeneratingAssets

vi. IPSAS26ImpairmentofCashGeneratingAssets

19.TheothersourceistheStatementsissuedbytheGovernmentalAccountingStandardsBoard

(GASB)ofUSA.Specifically,GASBStatementNo.34dealswiththeaccounting,valuationand

treatmentofFixedAssetsinLocalBodiesofUSA.However,exceptforDelhi,Bangaloreand

someotherULBs,theGASBmodelishardlyusedinIndia.

ClassificationofAssets

20 Th l ifi i f fi d b d i l f i i f l


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InfrastructureAssets

22.TheNMAMprescribesfixedassetstobedividedintotwomaincategories4:

i. InfrastructureAssets;and

ii. OtherAssets

23. Infrastructureassetsarelonglivedcapitalassetsassociatedwithgovernmentalactivitiesthat

normallyarestationaryinnatureandcanbepreservedforasignificantlygreaternumberof

years

than

most

capital

assets

(e.g.,

roads,

bridges,

tunnels,

drainage

systems,

water

and

sewer

systems,dams,andlightingsystems)5.Buildingsareexcludedfromthedefinitionof

infrastructureassetsunlesstheyareanancillarypartofanetworkofinfrastructure.

24.AsperIPSAS,infrastructureassetsusuallydisplaysomeorallofthefollowingcharacteristics:

i. Theyarepartofasystemornetwork;

ii.

Theyare

specialized

in

nature

and

do

not

have

alternative

uses;

iii. Theyareimmovable;and

iv. Theymaybesubjecttoconstraintsondisposal.

ExistingclassificationbyULBs

25.Apartfromthis,severalULBsmayhavetheirownclassificationsystemsbasedonlocallaws

(accountingrules)orpractices.Insomecases,themaintenanceoffixedassetregistersisdoneas

pertheseclassificationsi.e.ToolsRegister,Plant&EquipmentRegisteretc.

AssetClassificationasperNMAM

26.However,theaccountcodingstructureprescribedinNMAMdoesnotmaintainthisdistinction

andclassifiesassetsinto11majorgroups,allundertheBroadheadofFixedAssets6:Thechoice

ofminor

heads

is

left

to

states.

The

proposed

classification

of

Fixed

Asset

as

per

NMAM

code

of

accounts(Appendix2ofNMAMCodificationStructure&ChartofAccounts)isinto11categoriesasfollows:

i. Land


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vi. PublicLighting

vii.

Plant&

Machinery

viii. Vehicles

ix. Furniture,Fixtures,FittingsandElectricalAppliances

x. Office&OtherEquipments

xi. OtherFixedAssets

27.Amongthese,items(iii),(iv),(v)and(vi)canbeclassifiedasinfrastructureassets.

28. .Inanotherplace,theNMAMhasclassifiedAssetsintoMovableandNonmovablecategory7.

Thisdistinctionisespeciallyusefulwhentheobjectiveistophysicallyverifytheassets,aswas

thepurposeinthatchapter.

Land

29. Landincludesparks,playgrounds,agriculturalland,Dhobighat,Dumpingground,Tonga,

rickshaw,taxi(otherthanundergroundtaxistands)andcyclestand,parkingplaces(otherthan

thosewhicharecovered)andanyvacantsiteonwhichnoconstructionhastakenplace.Where

assetssuchasbuildings,roads,bridgesetc.areconstructedonland,allland(includingcovered

land)shouldbeshownasunderthishead.

Buildings(including

Structures)

30.BuildingsincludeOfficeBuildings,SchoolBuildings,Publicconveniences,Hospitals,

Dispensaries,Maternity andChildwelfarecenters,Shoppingcomplex,TownHallBuilding,

CommunityCenters,StaffQuarters,Resthouse,MilkDairy,WorkshopBuildings,Firestations,

StoresBuilding,Coveredtaxistands,Coveredparkingareas,LavatoryBlocks,Urinals,Dhalaos

andDustbinsandgarbagevats,etc.

31.Structuresincludepublicfountainsandotherswhichcannotbeclassifiedasbuildingsbutare

neverthelessofapermanentnature.

32. LandunderbuildingsshouldbeseparatedandshowndistinctlyunderLand.


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andbuildingsforseweragewouldbealreadyclassifiedunderLandandBuildingearlier,and

shouldnotbeincludedhere.

WaterWorks

35.Thisincludesallitemsrelatedtowaterworkssuchasborewells,treatmentplants,reservoir,

overheadtanks,pipelines,plantandmachineryforwaterworksetc.Notethatlandandbuildings

forseweragewouldbealreadyclassifiedunderLandandBuildingabove,andshouldnotbe

shownhere.

PublicLighting

36.Thiscoversallassetsrelatedtolightingandincludeselectricalinstallationsliketransformers,

cablesetc,lampsandfittingsandpoles.Anyelectricalinstallationsotherthanforpubliclighting

wouldbecoveredundersubsequentheadofFurniture,Fixture,Fittings&ElectricalAppliances.

PlantandMachinery

37.Plant

and

machinery

include

all

engineering

equipments

like

road

rollers,

bull

dozers

etc.,

medicalequipmentsusedinhospitals,dispensariesandmaternitycenters,scientificequipments,

generators,clocktoweretc.Thiswillnotincludeplantandmachineryusedspecificallyin

waterworks,pumpingstations,seweragetreatmentplantetc.whicharealreadyclassifiedunder

thoseheads.However,plantandmachineryusedforotherpurposesshouldbeincludedunder

thishead.

Vehicles

38.Vehiclesincludealltypesoftrucks,watertankers,buses,jeeps,cars,twowheelers,three

wheelersandloaders,etc.MobilemachinerysuchasRoadRollersandBulldozerswouldnotbe

classifiedasvehiclesastheirprimarypurposeisnottransportation.

Office&OtherEquipments

39.

All

items

of

office

use

such

as

computers,

peripherals,

photocopy

machines,

type

writers,

communicationandtelecomequipmentswouldberecordedunderthishead.Otherequipment

(whichmaynotbeusedinoffice)shouldalsoberecordedunderthishead.

Furniture,Fixture,Fittings&ElectricalAppliances


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OtherFixedAssets

42.Thiswillincludeallotherassetsnotspecificallycoveredinanyoftheearlierheads.Itwillinclude

forinstance,intangibleassetssuchassoftware,rightsetc.

43. Specificassetswithdifferentvaluationorreusenorms(suchasHeritageassets,worksofarts

etc.)mayalsobeclassifiedasseparatesubgroupsunderthishead.

Issuesinclassification

44.Thereareafewfixedassetswhereclassification,attimes,mayleadtoconfusion.Thefollowing

maybeadoptedforsuchassets:

Trafficsignals

45.Trafficsignals,ifany,aretobeclassifiedaspartofOtherFixedAssets.

Networkofpipes

46.There

is

sometimes

aquestion

of

whether

the

network

of

pipes

within

the

total

land

of

awater

worksistobetakenaspartofSewerage&Drainage,oraspartofWaterworks. Whatever

fallswithintheidentifiedareaofthewaterworksistobetakenasapartofit.

Fountainsanddecorativestructures

47.TobetakenunderBuildingswhichincludesallcivilstructures.

Roadover

bridge

48.TobetakenunderRoadsandBridges

Mobilegenerators

49.ShouldbetakenaspartofPlant&Machinery.

Earthmovingequipments

50.ShouldbeincludedunderPlant&Machinery.

StatuesandMonuments

51.Wherethevaluationandreusepolicyissubstantiallydifferentfromotherbuildings,thisshould


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threshold,theyshouldbegroupsappropriatelyunderOfficeEquipment,Plant&Machineryor

OtherAssetsasappropriate.

Standbyequipmentandservicingequipment

54.Machineryspareswhicharenotspecifictoaparticularitemoffixedassetbutcanbeused

generallyforvariousitemsoffixedassetsshouldbetreatedasinventoriesforthepurposeofAS

2andsuchmachinerysparesshouldbechargedtothestatementofprofitandlossasandwhen

issuedforconsumptionintheordinarycourseofoperations;otherwiseitshallbecapitalizedas

perAS10.Standbyequipmentsuchasgeneratororawaterpumpisafixedassetbyitselfand

shouldbetreatedassuch.

MajorSpareParts

55.AS10statesthatifsomesparepartscanbeusedonlyinconnectionwithaspecificitemoffixed

assetsandtheiruseisexpectedtobeirregularthen,theyshouldbecapitalizedseparatelyatthe

timeoftheirpurchase.Sofarasclassificationisconcerned,suchinsurancesparesshouldbe

taggedto

the

item

of

equipment

to

which

they

refer.

CapitalWorkinProgress

56. Inadditiontotheabovecategories,onemorecategoryisimportantCapitalWorksinProgress.

Thisincludescostsofconstructingfixedassetsbeforeconstructionissubstantiallycomplete.The

identificationofanitemsofconstructionasCapitalWorkinProgressmeansthattheitemis

intendedtobecapitalizedonceitiscomplete/putintouse.

57.CapitalWorkinProgress(CWIP)isincludedintheFixedAssetsgroupofassetsbutisonlyan

interimaccount,untiltheassetisputintouse.Inparticular

a. CWIPisnotrecordedinanyoftheassetregisters.Instead,aseparateCWIPRegisteris

maintainedtorecordprogressivebillsforconstruction;

b. Anyamountpaidforpurchase/constructionofanassetwhichhasnotbeencompleted

/put

to

use

should

be

shown

as

CWIP

and

recorded

in

CWIP

Register;

c. NodepreciationischargedonCWIPsincetheassethasnotbeenputtouse;

d. TheassetshouldbetransferredfromCWIPtoFixedAssetRegisterwhenitisputinto

H CWIP i t h ld b i d l l f h it


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PrimaryGroup Code8

i. Land 10

ii. Buildings 20

iii. Roads&Bridges 30

iv. Sewerageanddrainage 31

v. WaterWorks 32

vi.Public

Lighting

33

vii. PlantandMachinery 40

viii. Vehicles 50

ix. Office&otherequipments 60

x. Furniture,fixtures,fittingsandElectricalappliances 70

xi.Other

Fixed

Assets

80

59.FurtherclassificationtogroupheadscanbemadebasedontheneedoftheULB,andshouldbe

alignedtotheaccountingmanualandFixedAssetRegisters.Thesuggestedstructureofcodingis

asfollows9:

i. PrimaryGroupCode XX

ii.

SecondaryGroup

Code

XX

iii. TertiaryGroupCode XX

iv. WardLocationCode XXX

v. SerialNumberCode XXXX

60.The

secondary

group

code

gives

further

sub

classification

of

the

primary

head.

The

third

level

detailssubtypesofthesecondarysubgrouptypes,thefourthleveldetailsthelocation(Ward

wise)andthefifthlevelistheserialnumberoftheasset.

61.AnillustrativelistofcodesforAssetsisgiveninAnnex1.


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Example2:CodingSystemOfficeBuilding

An

office

building

is

owned

by

the

municipality

in

Ward

No.

11.

The

building

faces

the

road

and

thereareadjoiningbuildingsonthesideandaservicelaneatthebackofthebuilding. Thecodefor

thiswillbe2001010110002. Thefirst`20referstoBuilding,thenext`01referstotheappurtenant

landlessthan50%ofgroundcoveredarea,thenext01referstotheOfficeBuilding.`011refersto

theserialnumberofthewardandthelastfourdigitsrefertotheserialnumberofbuilding.

Example3:CodingSystemRoadRoller

Aroad

roller

which

is

garaged

in

the

Ward

Office

of

Ward

No.9

will

have

the

code

4004010090003.

Thefirst`40referstoPlant&Machinery,thenext`01referstoEngineeringEquipment,`01refers

toRoadRollers,`09referstoserialnumberoftheWard,andthenextfourdigitsrefertoserial

numberoftheroadroller.

62.FixedAssetcodificationisessentiallyacontroltoolforULBlevelmanagement.Hencethe

structureoftheFixedAssetCodeshouldbesuchthatitenablestheULBtoknowenoughdetails

andmaintain

sufficient

control

over

its

assets.

For

example,

some

large

cities

may

feel

the

need

toaddmorecodestofurtherdetailthelocation.

63.ULBshavethefreedomtoaddorsubtractfromthislisttosuittheirspecificrequirements.Itis

importanttorememberthatnocodingstructurecanfullydescribeagivenasset.Forexample,

whileitiscertainlypossibletohavemorecodesindicating,forexample,howmanyfloorsa

buildinghas,thiswillmakethecodemuchmorecumbersome.

64.Thepurposeofthecodingsystemistogrouptheassetssothatthetotalvalueofthegroupcan

becalculated,wherenecessary,agewiseanalysisofitemswithinagroupcanbedoneandhigh

valueandlowvalueassetswithinagroupcanbeidentifiedforassetmanagementpurposes.


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CHAPTERIII:VALUATIONOFASSETSGENERALPRINCIPLES

65.

In

general,

there

are

two

models

for

valuation

of

fixed

assets:

TheCostModel;and

TheRevaluationModel

CostModel

66.TheCostModel requiresthat:

Afterrecognitionasanasset,anitemofproperty,plantandequipmentshallbecarriedat

itscostlessanyaccumulateddepreciationandanyaccumulatedimpairmentlosses.10

67.Thisisthetraditionalhistoricalcostmodelbasedonwhichassetsaregenerallyvaluedfor

financialreportingpurposesinIndia.

RevaluationModel

68.Undertherevaluationmodel,thevaluationofassetsiscontinuallyreviewedtoreflectthefair

marketvalueasmuchaspossible.Themodelisdescribedbelow:

Afterrecognitionasanasset,anitemofproperty,plantandequipmentwhosefairvalue

canbemeasuredreliablyshallbecarriedatarevaluedamount,beingitsfairvalueatthe

dateoftherevaluationlessanysubsequentaccumulateddepreciationandsubsequent

accumulatedimpairment

losses.

11

69.Thefairvalueofitemsofassetsisusuallydeterminedfrommarketbasedevidencebyappraisal.

However,manyULBshaveassetsforwhichitmaybedifficulttoestablishmarketvaluebecause

oftheabsenceofmarketfortheseassets.Insuchcases,thefairvalueoftheitemmaybe

establishedbyreferencetootheritemswithsimilarcharacteristics,insimilarcircumstancesand

location.

AccountingPrinciplesforFixedAssets

70.UndertheNMAM,principlesforfixedassetaccounting/valuationare12:

a. AllFixedAssetsshallbecarriedatcostlessaccumulateddepreciation.Thecostoffixed

h ll i l d i d/ i i i i lli i


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c. AllassetscostinglessthanRs.5,000(RupeesFivethousands)wouldbeexpensed/

chargedtoIncome&ExpenditureAccountintheyearofpurchase

d. Interestonborrowingsdirectlyattributabletoacquisitionorconstructionofqualifying

fixedassetsuptothedateofcommissioningoftheassetsshallbecapitalized.13

ChoiceofModel

71.Therecommendedvaluationmodelforfixedassetsisthat:

a.

Assets

should

be

valued

at

initial

(historical)

cost

paid

to

acquire

them;

b. Depreciationshouldbechargedperiodicallytoreflectthewrittendownvalueofthe

asset;

c. Revaluationwouldbepermitted,withsomerestrictions.

RecognitionofFixedAssets

72.The

principle

for

determining

capitalization

is

given

below:

Thecostofanitemshallberecognizedasafixedassetif:

(a)theassetisheldforproducingorprovidinggoodsorservicesandisnotheldforsalein

thenormalcourseofbusiness;

(b)thefutureeconomicbenefitsorservicepotentialassociatedareexpectedtoflowto

theentity;

(c)Theestimatedusefullifeoftheassetisbeyondoneyear;and

(d)Isbeyondtheminimumthresholdlimitforrecognitionasfixedasset.

73.TheNMAMaccountingprinciplesprovideacutoffforrecognizingassetsinthefinancial

statements.

As

per

this,

assets

below

Rs.5,000

should

be

charged

off

to

the

Income

&

Expenditureaccount.Hence,anyassetbeyondthisvalueshouldberecognizedasaFixedAsset

inthefinancialstatementsaswellasinthesupportingrecords.

74.ThethresholdofRs.5,000isbasedontheprincipleofmaterialityandistobeappliedonthe

historical cost of the asset (not the depreciated value) Hence any asset whose original cost is


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75. Incaseanassetisbeingconstructedandtheconstructiontakestime,theassetshouldbe

recognizedasspecificfixedasseti.e.buildingetc.onlywhentheconstructioniscomplete.Until

then,the

amounts

paid

should

be

kept

under

Capital

Work

in

Progress.

76.Therearemanyinstanceswherethenatureofatransactionmakesitdifficulttodistinguish

whetheritisrevenueexpenditureoracapitalexpenditure.Guidanceinthisregardisprovidedin

ChapterIVfollowing.

HistoricalCost

77.This

is

the

bedrock

of

the

valuation

principle

and

is

stated

as

follows:

FixedAssetsaretobereportedatHistoricalCost.Thecostofafixedassetincludesnot

onlyitspurchasepriceorconstructioncostbutalsorelatedchargesnecessarytoplacethe

assetinitsintendedlocationandconditionforuse.Sincethehistoricalcostofdonated/

giftedassetsisNIL,theyaretobevaluedatanominalcostofRs.1/

TherationaleofvaluationatRe.1/

ItmayappearthataRe.1/ valuationisofnosignificanceintheoverallfixedassetblockoftheULB

whichmayrunintocrores.Hence,itwouldperhapsmakenodifferenceiftheassetwasvaluedat

NIL.Thisiserroneous.ThereasonforvaluingassetsatRe.1/ istoensurethattheassetisidentified

andtrackedinthefixedassetsystem.NonrecognitionoftheassetorNILvaluationwouldnotallow

theassettoappearintheFixedAssetRegister.

Hencemunicipal

managers

and

auditors

should

particularly

pay

attention

to

the

transaction

of

assetswhicharevaluedatRe.1/ fortechnicalreasons,butmaybeworthmorethanmanyother

assets.

78.Thecostofafixedassetincludes:

a. purchaseprice,lesstradediscountsandrebates,ifany;

b. importduties;

c. othertaxesorlevieswhicharenonrefundableinnature;

d. transportationcost,ifchargedseparatelyfromthepurchaseprice;


22/86


79.AnyexpenditurethatismadebytheULBontestrunsorexperimentalproductionistobe

capitalizedandaddedtothecostoftheasset.Forexample,theoilandbitumennecessaryfor

thetest

run

of

an

assaulting

plant

is

to

be

added

to

the

cost

of

the

plant.

80.Costoftheassetshouldincludeallcostsincurredtobringtheassettoaworkingcondition.For

example,ifalargepumpistobeinstalledatawatertreatmentplant,notonlythecostofpump

butalsothetransportationcost,wherechargedseparately,shouldbeincluded.

Selfconstructedassets

81.In

cases

where

aULB

constructs

the

asset

itself

(school

building,

primary

health

clinic,

etc.),

the

costofconstructionofthatbuildingandothercostswhicharedirectlyattributableshouldbe

takenintoconsiderationinarrivingatthevalueofthebuilding.Thismeansthatallthematerial

costsofconstruction,paymentsmadetothevariouscontractors,etc.,shouldbeincluded.For

example,iftheULBappointsanAssistantEngineerwhoseonlyworkistolookafterthe

constructionofthebuilding,thenthesalaryoftheAssistantEngineerfortheconstructionperiod

shouldalsobeadded.

82.AsperAS10,administrationandgeneraloverheadareexcludedfromcostoffixedassetasthey

donotrelatetospecificfixedasset.However,ifsuchexpensesarerelatedtoconstructionor

acquisitionofaparticularfixedasset,thenitshouldbecapitalized.

Assetsacquiredunderexchange

83.Sometimes,aULBmayacquiresomefixedassetsinexchangeforsomeotherfixedassets. This

canhappen

for

instance,

when

old

office

machinery

is

exchanged

for

anewer

model.

Where

the

assetsexchangedaresimilar,thenetbookvalueoftheasset(theofficemachinery)whichis

exchangedshouldbetaken,andtoittheextraamountthatispaid,ifany,isadded. Ifinsteadof

anextrapayment,arefundisinvolved,thenecessaryadjustmentwillhavetobemade.Incase

ofdissimilarassets,theassetsacquiredshouldberecognizedatitsfairvalue.

84. Incertainspecialcases,aULBmayacquireconstructedfloorareainabuildingforthe

constructionof

which

the

ULB

has

given

development

rights

to

adeveloper.

In

such

acase,

the

constructedfloorareawillberecordedatthefairmarketvalueoftheproperty.

FairMarketValue

A AS 10 F i M k t V l i th i th t ld b d t i d t i t d


23/86


87.Aqualifyingassetisanassetthatnecessarilytakesasubstantialperiodoftimetogetreadyforitsintendeduseorsale.AsperASforULBSissuedbyICAIonBorrowingCostitisspecifiedthat

atime

period

of

12

months

is

asubstantialperiodoftimeunlessshortertimeperiodcanbe

justifiedonthebasisoffactsandcircumstancesofthecase.

88. Incaseanyborrowingcostsi.e.interestonloanetc.canbeidentifiedwiththeasset,theycanbe

capitalized.Thegeneraltestfordeterminingwhetheraloancanbeidentifiedwithanassetisto

askthequestion,Wouldtheseborrowingcostshavebeenavoidediftheoutlaysonthe

qualifyingassethadnotbeenmade?Ifyes,thentheborrowingcostcanbecapitalized,else

not.

89.Thecapitalizationofborrowingcostsshouldcommencewhen:

a. Outlaysfortheassetarebeingincurred;

b. Borrowingcostsarebeingincurred;and

c.

Activities

that

are

necessary

to

prepare

the

asset

for

its

intended

use

or

sale

are

in

progress

90.Capitalizationofborrowingcostsshouldbesuspendedduringextendedperiodsinwhichactive

developmentisinterrupted,andexpensed.Capitalizationofborrowingcostsshouldceasewhen

substantiallyallactivitiesnecessarytopreparetheassetforitsintendeduseorsaleare

complete.

91.The

capitalization

of

interest

cost

is

applicable

only

for

new

assets

being

developed

/

constructedbyaULB.ThisprincipleshouldnotbeappliedforvaluationofexistingassetsforthepurposeofpreparingtheFirstBalanceSheet.

Depreciation

92. Depreciationisthechargeofafairproportionofthedepreciableamountineachaccountingperiodduringtheexpectedusefullifeoftheasset.14

93. Depreciableamountofanassetisitshistoricalcost,orotheramountsubstitutedforhistorical

costinthefinancialstatements,lesstheestimatedresidualvalue.15

94.Theresidualvalueofanassetistheestimatedamountthatanentitywouldcurrentlyobtain


24/86


b. Thenumberofproductionorsimilarunitsexpectedtobeobtainedfromtheassetbyan

entity.

96.Thevalueofanassetinfutureyears(afterrecognitioninfinancialstatements)istheBookValue,

whichiscalculatedbydeductingAccumulatedDepreciationfromtheHistoricalCostoftheasset.

ProcessofValuation

97.Theprocessofvaluationofassetsisrequired:

a. Whenthefirst(openingbalancesheet)isbeingprepared;and

b. Atthetimeofpreparingannualfinancialstatements

98.Thisisdiscussed,inthebackgroundoftheseprinciples,inthefollowingchapters.


25/86


CHAPTERIV:VALUATIONOFASSETSFOROPENINGBALANCE

SHEET

ProcessforPreparationofOpeningBalanceSheet

99.ThefollowingstepsneedtobefollowedforpreparationofOpeningBalanceSheet:

a. IdentificationofAssets usingvarioussourcesofdata,andcompiledintheforms

providedinChapter34oftheNMAM;

b. VerificationofAssetsThisisprescribedtobecarriedoutascurrentidentification

initiativesmayeithermissoutexistingassetsortakeinassetswhichdonotbelongto

theULB.Hencesometestchecksorverification,withrecordsandphysicalinspectionare

recommended;

c. IdentificationofAssetsthatrequireValuation Thisshortliststheassetswhichneedto

bevaluedinaccordancewiththefollowingproceduresandhavenotoutlivedtheir

usefullife

in

which

case

asummary

valuation

of

Re.1/

can

be

made;

d. ValuationofAssetsThisisthesubjectmatterofthismanual.Althoughaccounting

norms/policiesfortheseareprovided,ULBslackguidanceinpracticalmattersofasset

valuation.ThisrequiresdeterminationofappropriateBookValue(usinghistoricalcost)

forincorporationintheOpeningBalanceSheet;

e.Passing

of

opening

entries

This

is

the

process

for

preparation

of

First

(Opening)

BalanceSheet.Takingcognizanceoftheassetsvalueintheaccountingrecordsbringsit

withinthepurviewofthenewaccrualbaseddoubleentryaccountingsystem.

f. MaintenanceandupdatingoffixedassetrecordsThedetailsofassetsarealso

recordedinappropriateFixedAssetRegistersandasystemhastobedevelopedthrough

whichtheseregistersarecontinuallyupdatedwithanyaddition,modificationordisposal

ofthese

assets.

100. ThischapterdealswiththebasesforvaluationofassetsintheOpeningBalanceSheetofa

ULB.

Basic Premises


26/86


d. Someassetspresentproblemsintermsofidentificationbecauseoftheirnaturefor

example,undergrounddrainscannotbeeasilyverifiedwhilepreparingassetlist;

e. ManyassetsofULBspresentproblemsintermsofresaleorreuse.Forexample,roads

whichhavebeenconstructedcannotgenerallybedisposedoff,sold,norreused.

f. EvenvaluationatanominalpriceRe1/ isrecommendedformaintainingtheasseton

thefixedassetregister.Hence,thevalueisnotasimportantastheidentificationand

correctrecordingofthenatureoftheasset.

102.

Keepingthese

concerns

in

mind,

the

premise

for

valuation

is

as

follows:

a. Encouragethoroughidentificationofassetsthismustbedonetoensurethatnot

evenoneasset,nomatterhowsmall,isleftout;

b. SimplifyvaluationConsideringthepremisesmentioned,itwouldbesufficienttohave

areasonablevaluationratherthanaperfectone;

c.Ensure

updating

Ensure

that

after

the

one

time

exercise

on

identification

and

valuation,theassetsarerecordedintheassetregisterandtheregisterisregularly

updatedthereafter.

Valuationprinciples

103. TheidentifiedassetsoftheULBmayhavebeengiftedtoitorpurchased/constructedbyit

overtheyears.Thevaluationprocesshastobecarriedoutforassetsasonaparticulardate(for

exampleonthelastdayofthepreviousfinancialyear,say31.3.2008).Allreferencestovaluation

shouldbemadewithrespecttothisdate.Theprocessofvaluationshallbeasfollows:

104. Iftheassetwasreceivedasgift:

a. ValueatRe.1/.Allparticularsoftheassetshouldberecordedintheprescribedforms.

105.

Ifthe

asset

was

purchased

/constructed,

it

will

be

valued

as

per

the

following

order

of

preference:

a. Ifboththecostanddateofpurchase/constructionisavailable/ascertainable:

i. Original cost less depreciation provided from the date of purchase / construction


27/86


ii. Iftheassethasoutliveditsestimatedusefullife,thenitwillbevaluedatRe.1/.

Estimationofusefullifewillbebasedonthelistusedforestimationof

depreciationfor

ULBs.

This

is

given

in

the

following

chapters.

iii. Iftheassethasnotoutliveditsusefullife,then

1. ValuationwillbedonebasedontheCurrentStandardCost(CSC)ratesprescribed.TheULBwillusethispersq.feetrateorarearateandapply

ittothequantitativeparameteroftheasset.Thiswillgivetheestimated

currentstandardcostoftheasset.

2. Inordertoreflectthecostoftheassetintheyearinwhichitwas

purchases/constructed,theCSCwillneedtobedeflatedbyan

appropriateinflationindex(discussedahead)togivetheDeflatedStandardCost(DSC)oftheasset.

3. Thereafter,thevaluewillhavetobedepreciatedbasedonthe

recommendedrate

of

depreciation

(discussed

ahead)

in

order

to

arrive

attheEstimatedBookValueoftheasset,whichwillbecarriedtotheOpeningBalanceSheetasGrossBlock.

c. Ifneitherthecostnorthedateofpurchase/constructionisavailable:

i. Iftheassetisbeyonditsestimatedusefullife,itwillbevaluedatRe.1/

ii.If

the

asset

is

within

its

useful

life,

estimation

shall

be

made

of

its

year

of

purchase/constructionandtheproceduresprescribedincaseof(ii)aboveshall

beappliedi.e.itsestimatedCSC,DSCandCurrentBookValueshallbededucedusingthestandardratesandthedeflationindices.

d. Incaseitisimpossibletoassesstheyearofpurchase/constructionortheassetis

uniqueinnature,notappearinginthestandardlist,itsvaluationwillhavetobedoneon

acase

by

case

basis

after

taking

into

account

the

condition

and

obsolescence

factor.

The

ULBSmayusespecialistvaluerstoassessthevalueofsuchassetsinsuchcases.

Flowchartofvaluation

106 This decision making and valuation process is explained in the following flowchart:

M d l N i l M i i l A V l i M l


28/86


FlowchartforvaluationofFixedAssetsforOpeningBalanceSheet

Was the asset

received as a

gift?

Is the cost of

the asset

available?

Can we

estimate year?

Does it appear

to be beyond

Is the year of

purchase

available?

Is it beyond

useful life?

Value at Re.1

Use Historical

Cost

Value on a

case to case

basis

Value at Re.1

Value at Re.1

Use CSC

Method

START

Yes

Yes

No

Yes

No

No

Yes

No

Yes

No

Yes

M d l N ti l M i i l A t V l ti M l


29/86


Assetreceivedasagift

107. Ifevidenceexists,oritisknownthatanassetwasreceivedbytheULBasagifti.e.without

anyconsiderationbeingpaid,itshouldberecognizedatRe.1/.Thisisinlinewiththebasic

policyofhistoricalcostreportingi.e.toreportanassetattheconsiderationpaidforit.

108. However,theseassetsmaybeofconsiderablevalueinthemarketandhence,theirnominal

valuationshouldnottakeawaytheimportancetomaintainandmonitorthemappropriately.

109. Itisnotnecessarythatthereshouldbeadocumentestablishingthegiftmereknowledge

wouldsuffice.

HistoricalCostBased

110. Wherethedetailsofpurchaseareavailable(thiswillusuallyhappenincaseofrecentyears

assets),theamountofpurchasecostanddateofpurchasewouldbeavailable.Insuchacase

valuationshouldbedoneasfollows:

a.Step

1:

Determine

Historical

cost

as

on

the

date

of

purchase

(refer

previous

chapter

for

details);

b. Step2:Determinedepreciationtillvaluationdate(thisiscoveredsubsequently);

c. Step3:Deductdepreciation(b)fromhistoricalcost(a)toarriveatthebookvalueonthe

dateofvaluation.

111.

Thisis

the

closest

we

can

get

to

the

historical

cost

of

the

asset.

All

other

methods

are

improvisationstoovercomedeficientinformationabouttheexistingassets.

112. Althoughpoliciesforcapitalizingassetsrequireinclusionofancillaryexpensessuchas

borrowingcost,theserequiresignificantanalysisandareelaborate.Unlesstheamountofsuch

expenseislikelytobesignificant,theycanbeignoredforvaluationofexistingassetsinthe

openingBalanceSheet.

IllustrationonuseofHistoricalCostMethod

AULBdeterminesthatanMSSteelTankwasinstalledatacostofRs.1,50,000andstartedoperationon

13.4.2006.TheHistoricalCostbasedValuationon31.3.2008wouldbeasfollows:

Model National Municipal Asset Valuation Manual


30/86


CurrentStandardCostMethod

113. Wherethehistoricalcostisnotavailable,butthedate(oryear)isknown,wecanapply

appropriatestandardized

valuation

techniques

to

estimate

the

Current

book

Value

of

the

asset.

114. UndertheCurrentStandardCost(CSC)method,weestimatecurrentcost(asonthedateof

valuationforexample31.3.2008)atwhichequivalent(new)assetscanbepurchasedor

constructed.Theyarecalculatedintermsofappropriateunitsofmeasurementsuchasrateper

squaremeter,rateperrunningfeetetc.andthenappliedtothedetailsoftheasset.

115.

Rates

are

calculated

for

each

assets

unit

of

measurement

such

as:

Group Unit

Land Sqmeters

Buildings Sqmeters

Roadsofstandardwidth Perkm

Pipelines DiameterXlength

Drainsofstandarddimensions Runningmeters

Pumps HorsePower

Basedonthesestandardrates,thevalueoftheassetcanbedetermined.Forinstance,a

Buildingof1500sqmeterscanbevaluedbymultiplyingtherateprescribedforonemeter

cubeby1500.

116.

Ideally,every

state

would

have

its

own

valuation

process

and

with

appropriate

engineers,

ULBrepresentativesandaccountingspecialists,beabletodeterminetheRateforeachunitof

measurement17.AmodellistofCurrentStandardCostforvariousassetsisgiveninAnnex2.

117. Theprocessofvaluationwouldbeasfollows:

a. Step1:Collectappropriatedetailsabouttheasset(includinglocation,quantitative

detailssuchasarea,lengthetc.)

b. Step2:ClassifytoappropriateheadintheCSClist.Ifexactdescriptionisnotavailable,

usetheclosestmatchpossible.

c. Step3:Checkiftheusefullifeisover(referDepreciationratelist).Ifso,valueatRe.1/.



31/86


ofindicesfrom198182to200708isgiveninAnnex418.Anyassetknowntohavebeen

procuredbefore198182shouldbedeflatedusingthe198182index.

f. Step6:Calculatedepreciationfromtheyearofpurchasetillvaluationdate,assuming

thisvalue(Step5)wastheoriginalhistoricalcost.

g. Step7:Deductthedepreciation(Step6)fromHistoricalCost(Step5)toarriveatthe

CurrentBookValueoftheasset.

IllustrationonuseofCSCMethod

AULBdeterminesthataClass1CivilStructureBuildingwasconstructedin1976withthefollowing

specifications:

Type:RCCframedstructurewithmosaicflooringandteakdoors

Height:Ground+2floors

Area:GroundFloor500sqm, FirstFloor320sqm,SecondFloor240sqm

TheCSCbasedValuationon31.3.2008wouldbeasfollows:

CurrentStandardCost* 62,36,000 (Valueason31.3.2008)

DeflatedStandardCost(DSC)** 11,31,760 (EstimatedValuein1976)

Less:Depreciation*** 7,24,327 (Depreciationtill2008)

BookValueon31.3.2008 4,07,433

* GroundFloor(500X6,200)+First(320X5,600)+Second(240X5600)=Rs.62,36,000.RatesforCSCtaken

asperAnnex2.

** (62,36,000/551)*100=11,31,760.Indexfor200708is551;indexfor19882andearlieris100.Index

takenfromAnnex4.

*** DepreciationiscalculatedontheDSCfor32years(19762008)@2%p.a.(sinceusefullifeis50years,

notyetexhausted)

EstimatedCSCMethod

118. Wheretheyearofpurchase/constructioncannotbeestimated,therewillbedifficultyin

deflatingandapplyingdepreciationrates.However,keepinginviewtheobjectiveofhaving

bl l ti i i l it i t d th t E ti t d CSC th d b d Thi ill



32/86


c. Step3:Estimateyearofpurchase.Thisbecomessubjectivebutispossibletobecarried

outbytheULBitself.Thisprocessissimplerandfasterthanavaluationappraisal.The

yearsmay

be

estimated

even

within

ranges

for

e.g.

10

15

years

old.

In

this

case,

the

maximumlifecanbetakeni.e.15yearsago.

d. Step4:Checkiftheusefullifeisover(referDepreciationratelist).Ifso,valueatRe.1/.

Else,gotoStep5.

e. Step5:CalculateCSCbymultiplyingthequantitativeunitswiththerateprovided.Thisis

theCSCoftheasseti.e.thevalueofpurchasing/constructinganewassetasondate.

f. Step6:DeflatethisindextotheestimatedyearofpurchasegivingtheDeflatedStandard

Cost(DSC).Thisisdonetoestimatethehistoricalcostintheestimatedyearofpurchase.

Usestandardlistofindicesfrom198182to200708giveninAnnex419.Anyasset

knowntohavebeenprocuredbefore198182shouldbedeflatedusingthe198182

index.

g.Step

7:

Calculate

depreciation

from

the

year

of

purchase

till

valuation

date,

assuming

thisvalue(Step6)wastheoriginalhistoricalcost.

h. Step8:Deductthedepreciation(Step7)fromHistoricalCost(Step6)toarriveatthe

CurrentBookValueoftheasset.

IllustrationonuseofEstimatedCSCMethod

AULB

identifies

aClass

1Civil

Structure

Building.

The

year

of

construction

cannot

be

estimated

but

it

is

expectedtohavebeenmade2530yearsago.Thespecificationsare:

Type:RCCframedstructurewithmosaicflooringandteakdoors

Height:Ground+2floors

Area:GroundFloor500sqm, FirstFloor320sqm,SecondFloor240sqm

TheEstimatedCSCbasedValuationon31.3.2008wouldbeasfollows:

CurrentStandardCost* 62,36,000 (Valueason31.3.2008)

EstimatedDSC** 11,31,760 (EstimatedValuein78)

Less:Depreciation*** 6,79,056 (Depreciationtill2008)



33/86

p

CasebyCasedetermination

119. Incasethecostaswellastheyearisnotdeterminable,therewouldhavetobeacaseby

casedetermination

of

value.

However

it

should

be

remembered

that

the

purpose

is

to

determinetheBookValueratherthantheFairMarketValueasondate.Hence,thefollowing

orderofprocessmaybefollowed:

a. Step1:Istheassetsusefullifeover?(ReferAnnex3forUsefullife).Ifso,valueatRe.1/.

ElsegotoStep2.

b.

Step2:

If

the

asset

is

within

its

useful

life,

determine

book

value

by

reference

to

other

assetswithsamecharacteristicsorproperties.Assumptionscanbemadeinthiscase

theobjectiveistohaveareasonedjustificationforthevalue.

c. Step3:Usetherateofsimilarassetforcalculatingthevalueofthisasset.

ImportantCaveatMaintenanceofGrossBlockandAccumulatedDepreciation

Theabove

processes

are

required

to

provide

aGross

Block

Value

(Historical

Cost)

and

Accumulated

Depreciationtilldate.Itisimportanttomaintainboththesevalues;merelyusingtheNetBookValue

i.e.GrossBlocklessdepreciationwillcreateproblemsinchargingannualdepreciationusingStraight

LineMethod.Fore.g.Inthelastillustration:

HistoricalCost(GrossBlock)is Rs.11,31,760

AccumulatedDepreciationis Rs.6,79,056(@2%for30years)

AndNetBookValueis Rs.4,52,704

Now,ifonlytheNetBookValueisrecordedi.e.4,52,704,annualdepreciationwillbechargedonthis

i.e.Rs.9,054(2%)p.a.andtheassetsvaluewillbeextinguishedonlyafteranother50years.

However,usingtheoriginalhistoricalcostofRs.11,31,760resultsinanannualdepreciationofRs.

22,635(2%) whichwillensurethattheassetwillhavebeenfully

depreciated

in

another

20

years.

IssuesinusingCSC

120. TheuseofCSCandDSC,aswellaschoiceofratescanobviouslybedebated.Thepurposeof

proposingtheseratesisinlinewiththelargerobjectiveofreasonablevaluationandalsoto



34/86

ItemsnothavingCSC

prescribedrates

Suggestedmethod

Land

UseGuidance

Value

prescribed

under

the

Stamp

Duty

Act

for

thelocation,typeoflandanddate.

LaboratoryEquipment Checkiftheusefullifeisovergenerally10years,thenvalue

atRe.1/

Ifwithinusefullife,userecentpurchasecostforsimilarassets

anddeflateusingindex.Depreciatetoarriveatcurrentbook

value.

Vehicles

The

year

will

be

available

by

reference

to

registration

document.Ifitisbeyondusefullife,valueatRe.1/.

Otherwisedeterminerateofparticularcarinthatyearfrom

dealer/manufacturer.Valueanddepreciateaccordingly.

Furniture,fixture,fittings,

electricalappliances

Checkiftheusefullifeisovergenerally10years,thenvalue

atRe.1/



value.

Office&OtherEquipment

includingComputer,

peripheralsetc.

Checkiftheusefullifeisovergenerally10years,thenvalue

atRe.1/.



value.

ValuingCapital

Work

in

Progress

123. TheinformationwithregardtoCapitalWorkinProgress(CWIP)shallhavetobepreparedon

thedateoftheopeningBalanceSheetfromtherecordssuchasBillsRegister,Measurement

Book,GrantsRegisteretc.SinceassetsrepresentedbytheCapitalWorkinProgresswouldbe

underconstructionontheprescribeddate,itshouldbeeasiertoidentifytheseassetsandthen

todetermineitscosts.

124.

Amountsare

to

be

booked

based

on

the

gross

amount

of

bill

received

by

the

ULB

pertaining

toworkdonebeforetheBalanceSheetdate.Acutoffdateof2monthsbeyondtheopening

BalanceSheetmaybetakentoincludeallbillswhichmayhavebeenreceivedafterwardsbut

pertaintoworkdonebeforetheBalanceSheetdate.Thismaybedonebycarryingoutpost

vouching (i.e. checking of vouchers for at least two months after the Balance Sheet date, to



35/86

CHAPTERVVALUATIONOFASSETS- ONGOING

126. OncetheassethavebeenvaluedandincludedintheBalanceSheet,theircarryingvalue

needstobeperiodicallyrecomputedtoprovidefordepreciationandothertransactions.

127. Aspectssuchasrevaluationofassets,depreciationofassetsetc.whichariseonaregular

basisintheULBarediscussedinthischapter.

DepreciationofAssets

128. Depreciationhasasignificanteffectonthedeterminationandpresentationofthefinancial

positionofaULB.Depreciationischargedineachaccountingperiodbyreferencetotheextent

ofthedepreciableamount.

129. ULBsneedtoreportdepreciationaccuratelyintheirfinancialstatementsfortwomain

reasons.

a. tomatchexpenseswiththeincomesgeneratedbecauseoforwith,thoseexpensesand;

b. toensurethattheassetvaluesinthebalancesheetarenotoverstated.Anasset

acquiredinYear1isunlikelytobeworththesameamountinYear5.

AccountingPrinciples

130. ThebasicprinciplesunderNMAMwithregardtodepreciationare:

a.

Depreciation

shall

be

provided

at

the

rates

prescribed

by

the

state.

Depreciation

on

all

fixedassetsistobeprovidedconsistentlyoneitherWrittendownValueorStraight

LineMethod.TheAccountingStandardaswellasNMAMallowsanyofthesetwo

methodstobeused.Itonlystatesthatwhatevermethodisused,itshouldbeapplied

consistently.

b. Depreciationshallbeprovidedatfullratesforassets,whicharepurchased/

constructedbeforeOctober1ofanAccountingYear.Depreciationshallbeprovidedat

halftheratesforassets,whicharepurchased/constructedonorafterOctober1ofan

AccountingYear.

c. Depreciationshallbeprovidedatfullratesforassets,whicharedisposedonorafter

October 1 of an Accounting Year Depreciation shall be provided at half the rates for



36/86

WrittenDownValueMethod

132. TheWDVmethodisatypeofaccelerateddepreciationbecauseitrecognizesahigher

depreciationcost

earlier

in

the

asset's

lifetime.

Under

this

method,

each

years

depreciation

is

appliedtotheopeningnetbookvalueoftheassetratherthanoriginalcostoftheasset.This

processcontinuesuntilwereachtheresidual/salvagevalueortheendoftheasset'susefullife.

133. ResidualorSalvagevalueistheamountwhichanenterpriseexpectstoobtainforanasset

attheendofitsusefullifeafterdeductingtheexpectedcostsofdisposal.

134.

It

should

also

be

noted

that

the

book

value

of

the

asset

being

depreciated

is

never

brought

belowitssalvagevalue,regardlessofthemethodused.

135. WherethesalvagevalueisdeterminedatNIL,theassetvalueshouldalwaysberetainedata

nominalvalueofRe.1/

RateofDepreciation

136.

State

governments

would

be

best

placed

to

determine

applicable

depreciation

rates

for

ULB

assets.Theimportantthingstorememberare:

a. Theclassificationofassetsfordepreciationshouldfollowtheaccountingcodification

structure;

b. Themethodofdepreciationi.e.SLMorWDVshouldbedeterminedupfront;20

c.

Usefullife

and

residual

value

of

various

assets

should

be

determined

in

consultation

withengineers,valuersandmunicipalstaff.Itisimportanttorememberthatthereisno

perfectrateandalldepreciationratesareonlyanestimation;

d. DetermineratesforvariousclassesofassetsusingSLMorWDV;

e. ProvidetheseforusebytheULBs.

137.

Thismanual

provides

an

estimation

of

useful

life

for

various

assets

and

applicable

SLM

depreciationrates.ThisisgiveninAnnex321.

ClosingBookValue

138 Once these rates have been applied to the assets the Closing Book Value is determined by



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Amortization

139. Inthecaseofanintangibleasset,thetermamortizationisgenerallyusedinsteadof

depreciation.Both

terms

have

the

same

meaning.

140. Theperiodofamortizationwilldependontheasset. AccountingStandard26prescribesfor

arebuttablepresumptionof10yearsforthelifeofintangibleassets.However,incaseofitems

likesoftwarewheretechnologicaladvanceswillresultinaquickerobsolescence,atimeframeof

35yearsisrecommended.

141. IntangibleassetsbelowRs.25,000canbeexpensedandneednotbecapitalized.Thehigher

limit(comparedtotangibleassets)isprescribedtoavoiddetailedrecordingandamortizationof

minoritemslikesoftwarewhichgenerallycostbelowRs.25,000.

ImpairmentofAssets

142. Impairmentisalossinthefutureeconomicbenefitsorservicepotentialofanasset,over

andabovethesystematicrecognitionofthelossoftheassetsfutureeconomicbenefitsor

servicepotential

through

depreciation.

22

143. Inotherwords,ifthecarryingamountofanassetismorethantheamountthatistobe

recoveredthroughuseorsaleoftheasset,thentheassetissaidtobeimpaired.Itbasically

meansthatalthoughtheremaybeusefullifeleftofanasset,theproductivityoftheassethas

gonedownsharply.Forexampleifbypolicyofthegovernment,certainitemsaredecidednotto

beproducedbytheULB,thefuturecashflowswouldbeaffectedthattheexistingrecoverable

valueof

assets

used

in

the

production

could

go

below

its

carrying

amount.

144. ULBsarerequiredtoidentifyimpairedassetsateveryBalanceSheetdateandtodisclosethe

same.However,thatapplicationoftheAccountingStandard23

isfairlycomplexandwillrequire

thetakingofdecisionsoncasetocasebasisforthecalculationoftherecoverableamounts,

usefullivesandsoforth.ULBsareadvisedtotakethehelpofprofessionalaccountantsforthe

identificationofimpairedassetsanddeterminationoftheextentofimpairment.

Creation/purchaseofnewassets

145. Theongoingconstruction/purchaseoffixedassetswouldbevaluedathistoricalcostandas

andwhenthetransactionisundertaken.Nospecificspecialtreatment/processisprescribedin

thisregard.TheprocessprescribedinNMAMwouldsufficetorecordassetsasandwhenthey



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fixedasset,interestonborrowingsdirectlyattributabletoacquisitionorconstructionof

qualifyingfixedassetsuptothedateofcommissioningoftheassetsandotherincidental

and

indirect

expenses

incurred

up

to

that

date.

24

:

b. Assetsundererection/installationonexistingprojectsandcapitalexpendituresonnew

projects(includingadvancesforcapitalworksandprojectstores)shallbeshownas

"CapitalWorkinProgress"25

c. AnyFixedAsset,whichhasbeenacquiredfreeofcostorinrespectofwhichnopayment

hasbeenmade,shallberecordedatnominalvalueofRe.1/.

d. AllassetscostinglessthanRs.5,000(RupeesFivethousands)wouldbeexpensed/

chargedtoIncome&ExpenditureAccountintheyearofpurchase

a. Interestonborrowingsdirectlyattributabletoacquisitionorconstructionofqualifying

fixedassetsuptothedateofcommissioningoftheassetsshallbecapitalized.26

OngoingLifetimecosts

147. Aftertheassethasbeenacquired,certaincostsareincurredduringitslifetimefor

maintenance,repairandimprovement.Thetreatmentoftheseexpensesoftencauseconfusion

assomeofthemmaymeritcapitalizationi.e.additiontothevalueoffixedassets.Thissection

providesguidanceontheissuesofclassificationofexpensesasrevenueorcapital.

Maintenanceandrepairs

148.

Theterms

maintenance

and

repairs

generally

are

used

interchangeably.

However,

they

areslightlydifferent.

149. Maintenanceisdefinedas

thekeepingofpropertyinoperablecondition

150. Repairisdefinedas

therestorationofacapitalassettoitsfullproductivecapacity,oracontribution

thereto,afterdamage,accident,orprolongeduse,withoutincreaseintheassets

previouslyestimatedservicelifeorproductivecapacity.27



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...occurinfrequently,involverelativelylargeamountsofmoney,andtendto

increasetheeconomicusefulnessoftheassetinthefuturebecauseofeithergreater

efficiency

or

longer

life,

or

both.

They

are

represented

by

major

overhauls,

complete

reconditioning,andmajorreplacementsandbetterments.28

153. Becauseexpendituresforextraordinaryrepairsincreasethefutureeconomicusefulnessof

anasset,theybenefitfutureperiodsandarethereforecapitalexpenditures.

Replacements,ImprovementsandAdditions

154.

Replacements,

improvements,

and

additions

are

related

concepts.

155. Replacementisdefinedas

thesubstitutionofonefixedassetforanother,particularlyofanewassetforanold,

orofanewpartforanoldpart.29

156. Animprovement(orbetterment)is

anexpenditurehavingtheeffectofextendingtheusefullifeofanexistingfixedasset,

increasingitsnormalrateofoutput,loweringitsoperatingcost,increasingratherthan

merelymaintainingefficiencyorotherwiseaddingtotheworthofbenefitsitcan

yield.

157. Improvementsordinarilydonotincreasethephysicalsizeoftheproductivefacility.Suchan

increaseiscalledanaddition.

158. Theaccountingforreplacement,improvementandadditionallthreeissubstantiallythe

same.AspertheNMAM,anyadditiontoorimprovementtothefixedassetthatresultsin

increasingtheutilityorusefullifeoftheassetshallbecapitalizedandincludedinthecostof

fixedasset.

159. Thecostofexistingassetsthatarereplaced,togetherwiththeirrelatedaccumulated

depreciationaccounts,

are

required

to

be

eliminated

from

the

accounts.

IllustrationUpgradationofa10mroadto30meters

Thisisanimprovementandwouldneedtobecapitalizedintheaccounts.However,whenthe30m

f



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assetislessthanthatofacomparablenewasset,andtherehabilitationexpendituresbenefit

futureperiods.Suchexpenditurescanthereforebecapitalized.

DisposalofAssets

161. Whenanassetisretiredfromservice,itshouldbetreatedinaccordancewiththe

proceduresprovidedintheNMAM.Inparticular:

a. Nodepreciationshouldbechargedafterdisposal/retirementoftheasset;

b. IncasethedisposalhappensbeforeOctober1,50%ofthedepreciationshouldbe

charged.If

it

is

on

or

after

October

1,

full

depreciation

should

be

charged;

c. Theassetswhichareoutofserviceshouldberecordedinaseparateregister;

d. Onceanassetisdisposed,itsmovementshouldbeupdatedintheFixedAssetRegister

RevaluationofAssets

162. HereagainthetreatmentisspecifiedindetailunderNMAM.Therecommendedpoliciesare:

a. AnincreaseinnetbookvaluearisingonrevaluationshallbecreditedtoaRevaluation

ReserveAccountundertheMunicipalFund.Adecreaseinnetbookvaluearisingon

revaluationoffixedassetsshouldbechargedtoIncomeandExpenditureaccountexcept

totheextentthatsuchadecreaseisrelatedtoapreviousincreaseinrevaluationin

whichcaseitshouldbesetofffromtheRevaluationReserveAccount.

b.If

an

asset

is

revalued,

the

entire

class

to

which

that

asset

belongs

shall

be

revalued.

A

classisgenerallyacategoryofsimilarassetswhichdifferssubstantivelyfromother

similargroupsofassets.Forexample,thecategoryLandwouldsignifyaclassofasset,

differentfromsayBuildingsorVehicles.

c. Revaluationofaclassofassetsshallnotresultinthenetbookvalueofthatclassbeing

greaterthantherecoverableamountoftheassetsofthatclass.

d.Revaluation

reserve

shall

be

reduced

by

transfer

of

equivalent

amount

of

depreciation

chargedontherevaluedportionofthecostofthefixedassets.



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CHAPTERVI:ASSETMANAGEMENT

163. Althoughthismanualisprimarilyintendedtohelpinthevaluationoffixedassets,a

necessarycorollarywouldbethemaintenanceofproperfixedassetsrecordsandgoodasset

managementpractices.ThisisencompassedinthetermAssetLifeCycleManagementandis

brieflycoveredinthischapter.

AssetLifecycle

164. Anassetproceedsthroughanumberofsequentialphasesduringitslifecycleacquisition,

operation

and

maintenance,

refurbishment

or

enhancement,

and,

finally,

disposal.

The

life

cycle

ofanassetbeginswithaplanningprocessthatidentifiestheneedforthatassetanddetermines

howandwhenitistobeprocured.Theassetisthenacquired eitheranexistingassetis

purchasedoranewoneiscreated.Theassetthenentersitsoperationalphase.

Astheassetages,itmaydeteriorateorbecomeobsolete,atwhichstageadecisionismadeto

eitherrefurbish,enhanceordisposeofit.Iftheneedstillexistsfortheserviceprovidedbythe

asset,thecyclerecommences.

165. Thereareessentiallythreebroadstagesinthelifecycleofanasset:

a. Acquisition;

b. OperationandMaintenance;and

c. Disposal.

166. Thesevariousstagesareillustratedbelow30:

MAINTENANCEMANAGEMENT

SYSTEM

OPERATIONACQUISITION

StrategyDevelopmentandReview



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RecordKeeping FixedAssetRegister

167. Oncetheassetshavebeenidentified,listedandvaluedbytheULB,theirrecordneedstobe

maintainedand

continually

updated.

This

is

achieved

through

the

Fixed

Asset

Register

(FAR).

If

theFARisnotcontinuallyupdated,theefficacyoftheentireassetidentification,valuationand

managementwillbegreatlyreduced.

168. TheFARwillformthebasisforfurtherplanningandmaintenanceundertheALCMstrategy

fortheULB.Hence,thisdocumentwillhavearecordkeepingandplanningfunction.

169. TheprocessofrecordingandupdatingoffixedassetsdataisshownintheFlowchartat

Annex5.TheformatofvariousfixedassetregistersisgiveninAnnex6.

AssetLifecyclemanagementstrategy

170. AssetLifeCycleManagement(ALCM)isastrategic,integratedapproachtomaintenancethat

considersalltheelementsthataffecttheproductivelifeofanasset fromdesigntodisposal.It

isaproactiveprocessthatcomplimentsexistingpoliciesbyprovidingstrategicfocusand

perspective.

171. AssetintensiveorganizationsincludingULBswhichsuccessfullyadoptassetlifecycle

managementwillreducemaintenancecostsandimproveproductivitythroughsuperior

planning.Fromdesigntodisposal,anassetslifecycleincludesthefollowingstages:

a. Clarifytheneedorrequirementtobesatisfiedbytheasset;

b.Identify

the

type

of

asset

suitable

for

the

requirement

and

fulfill

the

need;

c. Determinethemaintenancestrategy,cycleandplanforthelifeoftheasset;

d. Purchasetheasset;

e. Commission,operateandmaintaintheasset;and

f.

Disposeof

the

asset

at

the

end

of

its

economical

life.

172. ToachieveALCM,organizationsneedvisibilityintothreemainareasofmaintenance

planning;shortterm,outageandlongtermplanning.Theseplannedmaintenancestrategies

improvereliability,overallproductivity,thelengthofanassetslife,andultimatelyreducethe



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174. Forthesereasons,itmaybeusefulfortheULBstosetupanAssetManagementUnit(AMU)

sothatvariousaspectsofassetlifecycleareproperlymanaged.ThisAMUmaybecentrally

locatedandunderthechargeoftheheadofFinanceortheCommissioner.Thejustificationfor

thecelltoreportdirectlytotheCommissionerarisesfromthefactthattheuseofmanyofthe

fixedassetssuchaslandandbuildinghaspolicyovertones,andthealternativesintheserespects

mayhavetobeexaminedfromalargerperspective.

175. Inthisconnectionitisalsotobenotedthatplanningforassets(capitalbudgeting)isa

specializedandtimeconsumingexercisebyitself,andmostdepartmentsoffinanceand

accountsinULBsdonothavethewherewithalintermsofeithertimeorhumanresourcesto

spareforit.Hence,theAMUcanhavespecializedanddedicatedstaffforexclusivelyfocusingon

theseissues.

StructureofAMU

176. TheAMUcouldconsistofthefollowingstaffandofficers:

a. Head,AMUpreferablyapersonwithAssetManagementexperience,includingMIS

andcomputersystems;

b. ProcurementplanOfficerresponsibleforpurchaseplanning,schedulingand

design;

c. RecordingOfficerforreview/maintenanceofFixedAssetregisters.Alsotokeep

trackofdisposedassets,salesandpreparationofvariousreportsincluding

depreciationschedules;

d. MaintenanceplanOfficerTooverseeallscheduled,plannedmaintenance,toco

ordinatewithrelevantdepartmentstoensureallassetsareinworkingconditionand

servicedintime;

e. Otherstaffasmaybeneeded

177.

TheAMU

staff

and

officers

must

all

be

computer

literate

and

reasonably

proficient

in

workingwithelectronicspreadsheets.Ifcapacitybuildingmeasuresarenecessaryinthese

regards,theULBmustspeedilyplanforthesameandimplementnecessaryprograms.

178 Attention is to be paid to the qualifications and experience of the officers deputed to the



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ProcurementPlanning

a. Toprepareshortandmediumtermassetacquisitionplansinconsultationwiththe

proposer/userdepartments

and

to

present

the

same

with

due

financial

impact

exercisesandalternativesforconsiderationofCompetentAuthority;

b. TopreparegeneralProcurementPlanforfixedassetsbeforethebeginningofthe

fiscalyearintermsoftheapprovedassetacquisitionplansandtolayoutnecessary

timelines,parametersandbenchmarks;

Asset

Acquisition

c. ToassistandfacilitatethePurchasedepartmentintheprocessofacquisitionof

assetsasperAssetProcurementPlan;

d. Toassistandfacilitatetheotherexecutiondepartmentstocarryoutthe

ProcurementPlan;

Recording

and

Reporting

e. Todevelop,updateandmaintainanassettrackingdatabasewithrespecttothe

location,condition,andotherparameterswithrespecttofixedassets;

f. Todevelop,updateandmaintainaCapitalWorksinProgressdatabaseandto

generatenecessaryMIStherefrom;

g. Todevelop,updateandmaintaintheFixedAssetsRegisterandtorecordallfixed

assetrelatedtransactionswhichaddtoorsubtractfromthebookvalueoftheasset;

h. Toseparatelymaintaintheregisterofimpairedassetsandassetsscheduledfor

disposalwithdueattentiontocomputationofvalueinuseandrecovery/salvage

values.Toalsoassurethatdueprocessisfollowedindeterminationoffairvalues

andmarketprices;

i.

toprepare

evaluative

and

analytical

reports

for

the

management

from

time

to

time;

and

j. topreparedepreciationschedules



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180. AseparatelistofreportstobepreparedbytheAMUandsubmittedtotheManagement,

shouldbedrawnup.Suchreportsmayincludethefollowing:

AnnualProcurement

Plan;

Shorttermandmediumtermcapitalbudgetsshowingconstructionandacquisition

offixedassets;

ReviewofAnnualProcurementPlanswithrespecttotargetsandachievements

quarterlyandhalfyearly;

AnnualDisposalandSalvagePlansandreviewofprogressquarterlyandhalfyearly;

FixedAssetsRegister;

PlannedMaintenanceSchedule

ConditionalAssessmentScheduleandReports;

Reportonmajorrepairsandrenovationscarriedoutonfixedassetsandtheeffect

thereofonremainingusefullives;

DepreciationSchedules;and

Suchothersasmaydeemednecessaryfromtimetotime

UsingIT

for

asset

management

181. SincemostULBswillhavealargenumberofassets,itwouldbemostefficienttouse

appropriateITtoolsfortheirmanagement.AssettrackingcanbedonethroughFARswhichcan

bemaintainedondatabases.Maintenanceplansandschedulescanbebestmanagedthrough

projectmanagementandresourceschedulingsoftware.Preparationofvariousreportsshouldbe

automatedandschedules(suchasfordepreciation)generatedthroughsoftware.

182.

Mostof

these

functions

can

be

achieved

through

basic

computer

applications

and

minimal

programming.ItisstronglyemphasizedthatULBsshouldnot,attheinitialstagesatleast,lookto

usecomplexERPsystemswhicharedifficulttoimplement.



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CHAPTERVII:ISSUESINVALUATION

FreeholdLand

183. AlllandownershipofwhichvestswiththeULBshouldbeincludedintheopeningbalance

sheet.

Landacquiredthroughpurchase

184. Thelandwillberecordedatthepurchasepricepaid/payableandotherincidentalcostssuch

asregistrationchargesincurredtobringtheassettoitspresentlocationandcondition

Landsacquiredthroughcompulsoryacquisition

185. Thelandwillberecordedatthetotalcompensationpaid/payablefortheacquisitionofthe

land.

Compensationpaid:Itshallbevaluedatcompensationactuallypaid.

NoCompensation

Paid:

If

the

asset

was

acquired

without

paying

any

compensation

then

it

shallbevaluedatRe.1/.However,anydevelopmentalworkdoneshouldbecapitalizedat

cost.

Compensationindispute:Theamountpaidwillberecordedastheassetvalue.Anyextra

amountthatmaybepayable,ifdeterminable,shouldbeshownascontingentliabilities.

Whenanyfurtheramountispaidtothepreviousowner,itwillbeaddedtotheassetinthe

yearof

payment.

Vestedgovernmentlands

186. VestedgovernmentlandsarethoselandswhicharenotownedbytheULBsnordoesany

economicbenefitaccruetotheULB.TheownershipoftheselandsvestwiththeState/Central

governmentandtheULBmerelyactsasatrusteefortheselands.AsperTechnicalGuideissued

byICAIforULBs,vestedgovernmentlandshallnotberecordedasassetasneitherownership

noreconomicbenefitsiswithULBs.Thedescriptionofsuchlandsshallformapartofthenotes

tothebalancesheet.

Landimprovement



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Buildingspurchased

190. Thepurchasecostofthebuildingshallincludethepurchasepricecostandincidentalcosts

suchas

registration

charges

and

other

costs

incurred

to

bring

the

asset

to

its

present

location

andcondition.

Buildingconstructed

191. Ifthebuildinghasbeenconstructed,thenthecostofconstructionwillbetakenasthecost.

Grantsreceivedinrespectofbuildings

192. AsperTechnicalGuideonAccountingforULBsandAS12AccountingforGrantsissuedby

ICAI,governmentgrantsrelatedtospecificfixedassetsshouldbepresentedinthebalancesheet

byshowingthegrantasadeductionfromthegrossvalueoftheassetsconcernedinarrivingat

theirbookvalue.

193. Alternativelythebuildingcanbeshownatgrossvalueandthegrantrecognizedasdeferred

income.Further,theincomeshouldberecognizedintheincomeandexpenditureaccountoutof

thedeferredincomeaccountintheproportionofdepreciationchargedonthebuildingsinview

oftherequirementsofAS12.

HeritageBuildings

194. Heritagebuildingsaregenerallytobevaluedinthesamemannerasotherbuildings.

However,theyaretobedisclosedseparatelyundertheHeadHeritageAssetsunderOther

Assets.The

purpose

is

to

distinguish

the

assets

for

their

historical,

cultural

and

/or

religious

significanceandtorecognizetherestrictionsontheiruseorsale.

ArtandHistoricalitems

195. ULBsshouldcapitalizeworksofart,historicaltreasures,andsimilarassetsattheirhistorical

cost. TheseitemscanbeclassifiedunderHeritageAssetsunderOtherAssets.

196. Governmentsshould

disclose

information

about

their

works

of

art

and

historical

collections.

Capitalizedcollectionsorindividualitemsthatareexhaustible,suchasexhibitswhoseuseful

livesarediminishedbydisplayoreducationalorresearchapplications,shouldbedepreciated

overtheirestimatedusefullives.Depreciationisnotrequiredforcollectionsorindividualitems

that are inexhaustible.



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Pipenetworks

199. Networkswillnormallyhavetrunks,mains,andsubmains. Thisisequallyvalidforwater

supplyas

well

as

sewerage

network.

200. Thosepartsofnetworkwhicharerelativelystandaloneshouldbeconsideredseparate

assetsontheirown. Thecriteriontobealsousedisthatfailureofthesmallernetworkisnot

criticaltothecontinuedoperationofthelargerone.

201. Whilecomputinghistoricalcosts,originalcostsofdigginganearthworkshouldbeincluded.

202.

Anymajor

cost

for

improvement

of

network

functioning

(for

instance,

removal

of

sediments

andcoatingfrommainsortrunks)shouldbeaddedtothebookvalue.

AssetsunderHirePurchase/FinanceLease

203. HirePurchase/FinanceLeaseshallbetreatedasfollows31:

a. Thepurchasepriceshallbecapitalizedasthecostoffixedassets

b. HirePurchase(HP)installmentsshallbeapportionedbetweenthefinancechargeand

thereductionoftheprincipaloutstanding.Thefinancechargeshallbeallocatedsoasto

produceaconstantperiodicrateofinterestontheremainingbalanceoftheliability;

c. ThetotalamountofinterestportionoutoftheHPPayableshallbeaccountedby

debitingtoacontrolaccountundercurrentassets.Thisamountwillbeadjustedon

accountingoffinancecharges

d. ThedepreciationpolicyforassetspurchasedunderHPshouldbeconsistentwiththatfor

ownedassets.

IntangibleAssets

204. IntangibleassetsinULBswillgenerallybeinthenatureofexpenditureonsoftware.TheULB

willassesstheexpendituremadeindevelopmentorpurchaseoftheintangibleassetinthelast2

yearsandcapitalizeitasfixedasset.Incasetheintangibleassethasbeenprovidedfreeofcost,

onasharingbasis,itshouldnotbeshowninthebalancesheet.ExpenditurebelowRs.25,000/

shouldbechargedtorevenueandnotcapitalized.



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b. If Internally Generated: The cost of internally generated assets32

such as software

shouldbedeterminedinlinewithAS26IntangibleAssets.Wheretheassetmeetsthe

criteria for recognition, its cost will comprises all expenditure that can be directly

attributed or allocated on a reasonable and

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