10 things you need to know about CAPITAL

1. 10 things you need to know aboutCAPITAL

2. 1. AASB 116 – Property, Plant & Equipment Objective: • Prescribe the accounting treatment for property, plant and equipment (PP&E). • Allow users of the financial statements to discern information about an entity’s investment in its PP&E, and the changes in such investment.

3. AASB 116 (Cont’d). Recognition of an Asset The cost of an item of PP&E shall be recognised as an asset if, and only if: • (a) it is probable that future economic benefits associated with the item will flow to the entity; and • (b) the cost of the item can be measured reliably. (Source: AASB 116: Property, Plant and Equipment)

4. 2. C-Funds and Z-Codes • ANU generally uses C-Funds to record capital projects. • Each project is allocated a Z-project code (e.g. Z105) • Benefits: • Allows for whole-of-life reporting on the project • ESP Financials Reports on Z-codes return any transaction that used that project, regardless of Fund, Department or Natural Account combination. • Allows for control on invoice processing and approvals. • Disadvantage: • See above ‘Benefits’

5. 3. ANU Property ‘Property’ is broadly defined by the University as: • land; • buildings; • site works and services including; • roads • bridges • footpaths • Carparks • Computer Networks, • capital improvements to previously capitalised assets. (Source: ANU Website, F&BS)

6. ANU Plant & Equipment ‘Plant & Equipment’ is broadly defined by the University as: • Office Equipment, • Research Equipment, • Teaching Equipment, • Computer Equipment, • Motor Vehicles, • Musical Instruments, • Works of Art, and • the Rare Library Collection. (Source: ANU Website, F&BS)

7. 4. ANU Capitalisation Principles (TBC) New buildings • Costs include: • Feasibility studies and design • Demolition of existing building on the site allocated • Construction • Fit-out • Not included in cost: • GST (residential accommodation may be excepted) • Furniture • Lunches • Tuxedo hire for Building Award Ceremony

8. ANU Capitalisation Principles (Cont’d) Existing buildings • The nature (with regards to capitalisation) of refurbishment, fitout, update, etc, taking place assists in determining whether costs are to be capitalised or expensed. • Where work is predominantly of a ‘capital’ nature, then relevant ‘expense’ work in the project will alsobe capitalised, • Where work is predominantly of ‘expense’ nature, however some items (which are clearly measurable), are of ‘capital’ nature, a split will be done to treat those costs according to their nature.

9. ANU Capitalisation Principles (Cont’d) • Determining the nature of a project (with regard to capital or expense) is assisted by examining the existence of the following factors (non-exhaustive): • Work that is probable to increase the future economic benefit to the ANU or the useful life of the asset • Fitout / works to change of use/purpose of the space – Capital • Changes to partitions & walls - imply improve of space use – Capital • Work that enables higher number staff to occupy the space – Capital • Improving functionality of the area – Capital • Plant & Equipment purchased/installed as a ‘set’ with value exceeding the $5,000 threshold will be capitalised.

10. Examples: • Refurbishment work included new carpets, paint and new air-conditioning, where evaporative cooling was used before: • Expense: Carpets, painting • Capitalise: Air-conditioning (improvement, measurable) • Lecture theatre converted to Laboratory – Capitalise • Fitout configuration was altered by changing partitions – Capitalise • Also capitalise carpet, painting and other expenses. • Projector was purchased for lecture room, including components suc as screen, receiver, speakers, other peripherals. This is considered a ‘set’. • If complete ‘set’ cost >$5,000 – Capitalise.

11. 5. Capital Works Funding • ANU uses several funding sources, some are regular, while others are non-recurring: - Non-Recurring • Federal Government Grants, e.g.: • EIF – Education Investment Fund – 2009 - $90m, Colleges of Science • BURF – Better Universities Renewal Fund – 2008 - $23.973m –Refurb of libraries, labs, lecture theatres, accommodation, etc. • ACT Government Grants, e.g.: • Fenner School Building - $2.5m • Bonds issued to the Market • Funds multiple Capital projects

12. Capital Works Funding (Cont’d) • Recurring: • ISF – International Student Fee – Capital Component - Funds BIF (below) Note: ISF Cannot be used to pay directly for Capital Works costs. It only a reimbursement source for other GLC’s which incur these costs. • BIF – Building Infrastructure Fund (a new Fund), funding • Capital Works, • Maintenance, and • Backlog Maintenance. • CMP II Loans • Funding from ANU for capital projects in the form of a loan • Application is required, including a business case, • Approval by VC. • Usual terms are: • Principle + Interest (10-year Commonwealth Government Bond rate) • Term – 15 years, quarterly repayment • No individual CMP II loan to exceed $25 million

13. 6. Project’s Life • Demand (Master Plan, user groups, etc), • Feasibility Study undertaken (for major projects), • Approval by OVC, including funding sources, • Authorities Approval, • Selection of Project Manager (PM), • Tender & selection • Construction • Certificate of Occupancy => Capitalisation • Insurance, • Commence use, and • Maintenance & Depreciation.

14. 7. Important External Parties • Project Manager (PM) • Overall responsibility to achieve desired outcome on time and on budget. • Oversees tendering, sub-contractor’s work, payments, liaison with authorities, etc • Receives a fee for service. • Quantity Surveyor (QS) • Employed by the ANU to act on it’s behalf to certify that: • Work is performed according to the contract, Building regulation and Standards, etc • Progress Claims made by PM are corrects.

15. 8. Retentions • Retentions are agreed sums of money withheld from the sub-contractor invoice/claim while they are performing their work. • Retentions are used as a form of guarantee that the sub-contractor will complete their work, and do so to a satisfactory level. • The project’s GLC is grossed up by the retention. • Once ANU is satisfied with the work performed, the retention funds are released back to the sub-contractor. • Retentions are not held in the project code, but centrally, in a special GLC. They also get paid out from that GLC on completion. Therefore, a release does not ‘reduce’ the project total cost.

16. 9. (Some of the..) Current Projects • Colleges of Science • Total Budget - $240,000,000 • 4 years duration • 8 new buildings • Multiple sub-projects – Carparking, Equipment Storage, ground infrastructure, numerous staff relocations. • Highest monthly claim – November 2010 - $8.6 million excl GST

17. Current Projects (Cont’d) • Student Accommodation – Stage #4 (SA4) • Total Budget - $106.5 million • Expected Completion – January 2012 • Number of Apartments: 485 • Number of Beds - 558 (not necessarily equate to number of persons in the beds) • Highest monthly claim – August 2011 - $9.4 million excl GST • Flythrough

18. 10. Capital Works Accounting – Move to F&S • As of the First week on November 2011, the Capital Works Accounting function has been moved back to F&S Division • The function will operate as part of the general Finance area of the Division. • Main responsibility – Cost side of projects. • Funding responsibility – F&BS Division.

19. Questions.