Asset Valuation Manual

Andhra Pradesh Municipal Asset Valuation Methodology Manual
May, 2010
Government of Andhra Pradesh Municipal Administration & Urban Development Department
CENTRE FOR GOOD GOVERNANCE Knowledge Technology People
Preface
As part of ongoing municipal reforms process, Government of Andhra Pradesh has decided to take a number of measures including introduction of accrual based accounting in Urban Local Bodies (ULBs) which is one of the mandatory reforms for ULBs under Jawaharlal Nehru National Urban Renewal Mission (JNNURM) also. Based on National Municipal Accounts Manual (NMAM), Centre for Good Governance (CGG) developed state specific Andhra Pradesh Municipal Accounts Manual (APMAM). Under the accrual based accounting system, the ULB would bring out two financial statements at the end of the year, viz. (a) Income and Expenditure Statement and (b) Balance Sheet, i.e. Statement of Assets and Liabilities. One of the important steps a ULB needs to take before it migrates to the accrual based accounting system is to identify all assets and liabilities. In addition to fixed assets for which values have to be determined, there would be current assets like bank balances, receivables, investments and advances etc and liabilities like dues to contractors, borrowings and advances etc. The ULB has to fairly estimate/value its assets and liabilities for the first or opening balance sheet. As valuation is a complex process, ULBs need detailed guidelines in identifying and valuing assets and liabilities and in preparing opening balance sheet. Government of India (GoI) have prepared a model National Municipal Asset Valuation Methodology Manual (January, 2009) and suggested that the state governments develop state specific asset valuation methodology manual based on the model national manual. Accordingly, it was decided to develop a state specific manual on the lines of model manual developed by GoI with the title Andhra Pradesh Municipal Asset Valuation Methodology Manual The Andhra Pradesh Municipal Asset Valuation Methodology Manual contains detailed guidance on valuation of fixed assets. The preparation of opening balance sheet also requires identification of current assets and liabilities and the accounting and disclosure aspects. For the convenience of ULBs, guidelines in respect of these are incorporated in the Manual as an annexure. The Manual has been developed from the model national manual by a team consisting of Mr. M. Brahmaiah, Director (FMRG), Mr. DV Rao and Mr. SN Murthy, Consultants, Mr. N. Manmadha Rao, Internal Auditor and Ms. Y. Rajeswari, Programmer under the overall guidance of Mr. A. Srinivas Kumar, Deputy Executive Director. It is hoped that the ULBs would find this manual useful. Any suggestions to further improve its content are welcome.
Rajiv Sharma Director General
CONTENTS Page No Chapter 1 1.1 1.2 1.3 1.4 Chapter 2 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 Chapter 3 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 3.11 Using this Manual Purpose of the Manual Methodology Structure of the Manual Use by ULBs Definition and Categorization of Assets Definition of Fixed Assets Concept of Control Accounting Standards for Assets Classification of Assets Infrastructure Assets Existing classification by ULBs Asset Classification as per APMAM Issues in classification Capital Work in Progress Suggested coding of Assets Valuation of Assets - General Principles Cost Model Revaluation Model Accounting Principles for Fixed Assets Choice of Model Recognition of Fixed Assets Historical Cost Self constructed assets Assets acquired under exchange Borrowing Cost Depreciation Process of Valuation 11 11 11 12 12 13 14 14 14 15 16 3 3 4 4 5 5 5 7 8 9 1 1 2 2
Chapter 4 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 Chapter 5 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.10 Chapter 6 6.1 6.2 6.3 6.4 6.5 6.6
Valuation of Assets for Opening Balance Sheet Process for Preparation of Opening Balance Sheet Basic Premises Valuation principles Flowchart of valuation Asset received as a gift Historical Cost Based Current Standard Cost Method Estimated CSC Method Case by Case determination Issues in using CSC Valuing Capital Work in Progress Valuation Of Assets - Ongoing Depreciation of Assets Accounting Principles Rate of Depreciation Closing Book Value Amortization Impairment of Assets Creation / purchase of new assets Ongoing Lifetime costs Disposal of Assets Revaluation of Assets Asset Management Asset Life-cycle Record Keeping - Fixed Asset Register Asset Life-cycle management strategy Asset Management Unit (AMU) Functions of AMU Using IT for asset management 33 34 34 34 36 37 27 27 28 28 28 29 29 30 31 32 17 17 18 20 21 21 22 23 25 25 26
ii
Chapter 7 7.1 7.2 7.3 7.4 7.5 7.6 7.7
Issues in Valuation Freehold Land Buildings Art and Historical items Value of land under Roads Pipe networks Assets under Hire Purchase / Finance Lease Intangible Assets Annexes 38 38 39 39 39 40 40
1 2 3 4 5 6
Further guidelines for preparation of opening balance sheet Current Standard cost rates/Standard schedule of rates for assets in ULBs Estimated useful life (in years)of various assets in ULBs Index for deflating cost for valuation of assets Flow Chart for Maintenance of Fixed Asset Register Formats of Fixed Asset Registers
42 48 54 59 61 62
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Abbreviations ALCM AMU APMAM AS CGG CII CSC CWIP DSC ERP FAR GASB GoI HP IASB ICAI IFAC IFRS IPSAS IPSASB JNNURM IT IVSC MIS NIUA NMAM SLM ULB WDV Asset Life Cycle Management Asset Management Unit Andhra Pradesh Municipal Accounts Manual Accounting Standard Centre for Good Governance Cost of Inflation Index Current Standard Cost Capital Work in Progress Deflated Standard Cost Enterprise Resource Planning Fixed Asset Register Governmental Accounting Standards Board of USA Government of India Hire Purchase International Accounting Standards Board Institute of Chartered Accountants of India International Federation of Accountants International Financial Reporting Standards International Public Sector Accounting Standards International Public Sector Accounting Standards Board Jawaharlal Nehru National Urban Renewal Mission Information Technology International Valuation Standards Committee Management Information System National Institute of Urban Affairs National Municipal Accounts Manual Straight Line Method Urban Local Body Written Down Value
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Chapter 1 Using This Manual
1.1
1.1
Purpose of the Manual

The Andhra Pradesh Municipal Asset Valuation Methodology Manual (henceforth referred to as 'Manual') has been designed for use by the staff of urban local bodies (ULBs) to facilitate bringing on record the value of municipal assets determined during the course of preparation of Opening Balance Sheet. In particular, it will help to: i) ii) iii) determine the appropriate value, useful life and depreciation of municipal fixed assets and their reporting in the financial statements; increase the effectiveness of control over municipal fixed assets; and assist ULBs to present its true and fair financial position, facilitate budgetary planning and control over resources.
1.2
1.2.1
Methodology
The Manual has been developed based on the Accounting Principles Framework provided by the Andhra Pradesh Municipal Accounting Manual (APMAM) published by the Government of Andhra Pradesh and Accounting Standards issued by Institute of Chartered Accountants of India (ICAI). It seeks to complement the APMAM by providing specific guidance in the area of fixed asset valuation, treatment and reporting. In particular, it proposes to address (i) valuation of assets for the purpose of Opening Balance Sheet and (ii) the determination of depreciation rates for annual depreciation.
1.2.2 The proposed methodology has been prepared after: i) ii) review and analysis of existing methodologies and bases used across India for determining the value of municipal assets1; review and analysis of the valuation methodology and basis recommended by the International Valuation Standards developed by the International Valuation Standards Committee (IVSC); review and analysis of current best practices in good asset management and asset lifecycle management, including the maintenance of asset registers;
iii)
In this context, methodology used by the Income Tax Department, Central Public Works department for buildings, and the valuation methodology used by the Municipal Corporation of Delhi, Kolkata Municipal Corporation and state policies for West Bengal, Tamil Nadu and Karnataka have been considered.
iv)
review and analysis of the available information on typology of municipal assets (such as buildings, land, plant and machinery, sewer lines, etc.) used in different size/ classes of ULBs; and review and analysis of existing forms and formats and other documentation regarding asset identification, location and use, etc.
v)
1.3
1.3.1
Structure of the Manual

There are several important steps in fixed assets management so far as ULBs are concerned. The first step is identification and categorization, the second step is location, the third step is valuation, the fourth step is recording, the fifth, updating, the sixth, accounting, and the seventh, presentation. This Manual is structured according to these steps. Additional guidance has been provided to help municipal staff to deal with some of the very common problems of ULBs. Such problems may commonly include: i) ii) the non-availability of records pertaining to the various fixed assets - including sometimes their original cost, date of acquisition or construction etc.; the difficulty of locating a fixed asset - for instance, a road roller which had been purchased and appears on the books, but was physically scrapped a long time ago and no record of its disposal remains; and the lack of data on current condition and remaining useful life.
1.3.2
iii)
1.3..3 These problems are not necessarily typical to ULBs only, but so far as ULBs are concerned, given that there is now a mandate to change over to the accrual system of accounting, it is important to address these problems and to put in place a Fixed Assets Management System that will become more and more accurate over a period of time.
1.4
Use by ULBs
1.4.1 Users of this Manual will find it useful to first study the whole Manual and perhaps undergo a familiarization program with respect to this Manual. Once the system is in place, specific chapters of the Manual can be referred to for dealing with specific kinds of problems. 1.4.2 It should be remembered that no Manual can by itself either anticipate or presume to answer all possible questions that may arise in practice. For that purpose, it is useful to refer to external guidance, including referrals to experts as well as to authoritative texts.
Chapter 2 Definition and Categorization of Assets

2.1
2.1.1
Definition of Fixed Assets

There are several definitions of assets that are commonly used in various parts of the world, as different accounting standards exist in different countries. Accounting Standard 10 on `Accounting for Fixed Assets', promulgated by the Institute of Chartered Accountants of India (ICAI), defines a fixed asset as: An asset held with the intention of being used for the purpose of producing and providing goods or services and is not held for sale in the normal course of business.
2.1.2
The context of ULBs is different from commercial bodies to whom these accounting standards generally apply. Hence, a set of Accounting Standards for Public Sector Bodies have been developed by the International Public Sector Accounting Standards Board (IPSASB), a constituent of the International Federation of Accountants (IFAC). The IPSASB considers the International Financial Reporting Standards (IFRS) released by the International Accounting Standards Board (IASB) and following a due process of consultation, adapts them to the public sector context for use by government.2 The definition of Assets as per the IPSASB is: Assets are resources controlled by an entity as a result of past events and from which future economic benefits or service potential are expected to flow to the entity.3
2.1.3
2.2
Concept of Control
2.2.1 The concept of control of an asset's economic benefit is a key issue in determining whether that asset should be reported in the financial statements of a ULB. This concept of control is what leads to non-owned assets like hire purchase assets, leasehold property, which are otherwise controlled to be recognized as assets. This concept is important because governments are required to maintain control over public property in a fiduciary capacity and hence any loss of control is not only a financial but also a fiduciary loss. 2.2.2 To determine whether a ULB should be reporting an asset, it is necessary to look to the indicators of control. According to AS 26, 'control' is identified when the enterprise has the power to obtain future economic benefits flowing from the underlying resource and also can restrict the access of others to those benefits.
In India, the ICAI has set up a 'Committee on Accounting Standards for Local Bodies' to prescribe standards for local bodies. Adherence to these standards would be needed once they are developed and accepted by the Government. International Public Sector Accounting Standard (IPSAS) 1Presentation Of Financial Statements; Para 7 Definitions
2.2.3 Where the control of the asset has been affected, say where municipal land has been encroached, the 'Technical Guide for Accounting by ULBs' issued by ICAI provides that a provision equal to virtually the entire carrying amount of land shall be provided. Even in such cases, the right to take possession remains with the ULB.
2.3
2.3.1
Accounting Standards for Assets

The Indian accounting standards issued by the ICAI which have a bearing for the purpose of accounting and valuation of assets are: i) ii) iii) iv) v) Accounting Standard 10 - Fixed Assets Accounting Standard 6 - Depreciation Accounting Standard 16 - Borrowing Costs Accounting Standard 28 - Impairment of Assets Accounting Standard 19 - Leases
2.3.2
Although they do not apply in the Indian context, the IPSAS are a useful source of information for public sector accounting. The major IPSAS for Fixed Assets include: i) ii) iii) iv) v) vi) IPSAS 17 - Property, Plant & Equipment IPSAS 16 - Investment Property IPSAS 13 - Leases IPSAS 5 - Borrowing Costs IPSAS 21 - Impairment of Non-Cash Generating Assets IPSAS 26 - Impairment of Cash-Generating Assets
2.3.3
The other source is the Statements issued by the Governmental Accounting Standards Board (GASB) of USA. Specifically, GASB Statement No. 34 deals with the accounting, valuation and treatment of Fixed Assets in Local Bodies of USA. However, except for Delhi, Bangalore and some other ULBs, the GASB model is hardly used in India.
2.4
2.4.1
Classification of Assets
The classification of fixed assets can be done in several ways -'function-wise' for example water works and sewerage and drainage or 'nature-wise' such as plant and machinery, etc. The APMAM provides a structure for fixed assets classification based on a mix of 'function' and 'nature'.
2.4.2 Since this Manual intends to supplement APMAM, it is proposed that the APMAM classification of assets should be extended for use in this Manual.
2.5
2.5.1
Infrastructure Assets
APMAM prescribes fixed assets to be divided into two main categories4: i) ii) Infrastructure Assets; and Other Assets
2.5.2 'Infrastructure assets' are long-lived capital assets associated with governmental activities that are normally stationary in nature and can be preserved for significantly greater number of years than other capital assets (e.g. roads, bridges, tunnels, drainage systems, water and sewer systems, dams, and lighting systems)5. Buildings are excluded from the definition of infrastructure assets, unless they are an ancillary part of a network of infrastructure. 2.5.3 As per IPSAS, 'infrastructure assets' usually display some or all of the following characteristics: i) ii) iii) iv) They are part of a system or network; They are specialized in nature and do not have alternative uses; They are immovable; and They may be subject to constraints on disposal.
2.6
2.6.1
Existing classification by ULBs

Apart from this, several ULBs may have their own classification systems based on local laws (accounting rules) or practices. In some cases, the maintenance of fixed asset registers is done as per these classifications i.e. Tools Register, Plant & Equipment Register, etc.
2.7
2.7.1
Asset Classification as per APMAM

However, the account coding structure prescribed in APMAM does not maintain this distinction and classifies assets into 11 major groups, all under the broad head of 'Fixed Assets'6: The classification of Fixed Asset as per APMAM code of accounts into 11 categories is as follows: i) ii) iii) iv) v) vi) Land Buildings Roads & Bridges Sewerage and Drainage Water Works Public Lighting
4 5
Andhra Pradesh Municipal Accounts Manual, 2008, Chapter 8 - Assets (Para 8.6) Similar definition has been used in the United Kingdom in the context of resource accounting 6 Andhra Pradesh Municipal Accounts Manual, 2008, Chapter 3- Codification Structure Account Codes - Assets
vii) viii) ix) x) xi) 2.7.2 2.7.3
Plant & Machinery Vehicles Office & Other Equipments Furniture, Fixtures, Fittings and Electrical Appliances Other Fixed Assets
Among these, items (iii), (iv), (v) and (vi) can be classified as 'infrastructure assets'. Land: Land includes parks, playgrounds, agricultural land, dhobighat, dumping ground, cart / rickshaw / taxi (other than underground taxi stands) / cycle stand, parking places (other than those which are covered) and any vacant site on which no construction has taken place. Where assets such as buildings, roads, bridges, etc. are constructed on land, all land (including covered land) should be shown under this head. Buildings (including Structures): Buildings include office-buildings, school-buildings, public-conveniences, hospitals, dispensaries, maternity and child welfare centers, shopping-complexes, town hall buildings, community centers, staff quarters, resthouses, workshop buildings, stores buildings, covered taxi stands, covered parking areas, lavatory blocks, urinals, garbage collection points, etc. Structures include public fountains and others which cannot be classified as buildings, but are nevertheless of a permanent nature. Land under buildings should be separated and shown distinctly under 'Land'.
2.7.4
2.7.5
Roads & Bridges: This includes several types of assets including roads, pavements, footpaths, bridges, subways, over bridges, flyovers, culverts, and causeways. Sewerage and Drainage: This includes items like roadside drains, underground drains, sewerage network etc. Plant and machinery for pumping stations including pumps would be classified under this head. If land and buildings for sewerage are already classified under 'Land' and 'Building earlier, they should not be included here. Water Works: This includes all items related to water works such as bore wells, treatment plants, reservoir, overhead tanks, pipelines, plant and machinery for water works etc. If land and buildings for Water Works are already classified under 'Land' and 'Building' earlier, they should not be shown here. Public Lighting: This covers all assets related to lighting and includes electrical installations like transformers, cables, lamps, fittings and poles. Any electrical installations other than for public lighting would be covered under the head 'Furniture, Fixtures, Fittings & Electrical Appliances'.
2.7.6
2.7.7
2.7.8
2.7.9
Plant and Machinery: Plant and machinery include all engineering equipments like road rollers, bull dozers etc. medical equipments used in hospitals, dispensaries and maternity centers, scientific equipments, generators etc. This will not include plant and machinery used specifically in water works, pumping stations, sewerage treatment plants etc. which are already classified under those heads. However, plant and machinery used for other purposes should be included under this head.
2.7.10 Vehicles: Vehicles include all types of trucks, water tankers, buses, jeeps, cars, two-wheelers, three-wheelers and loaders, etc. Mobile machinery such as Road Rollers and Bulldozers would not be classified as vehicles, as their primary purpose is not transportation. 2.7.11 Office & Other Equipments: All items of office use such as computers, peripherals, photocopy machines, type-writers, communication and telecom equipments would be recorded under this head. Other equipment (which may not be used in office) should also be recorded under this head. 2.7.12 Furniture, Fixtures, Fittings & Electrical Appliances: They include metal as well as wooden chairs, tables, racks, cupboards, water coolers, fans, air-conditioners, refrigerators, TVs, etc. Items which can be classified as Office and Other Equipment should be first classified under that head, else, should be included here. It would also include all types of installation cables, lamp posts, mercury vapor lamps, sodium vapor lamps, light fittings, power points, etc. used in the buildings and other premises used by the ULB (other than those used for street-lighting as they are included under the heading 'Public Lighting'). 2.7.13 Other Fixed Assets: This will include all other assets not specifically covered in any of the earlier heads. It will include for instance, intangible assets such as software, rights etc. Specific assets with different valuation or re-use norms (such as heritage assets, works of arts etc.) may also be classified as separate sub-groups under this head. 2.8 Issues in classification There are a few fixed assets where classification, at times, may lead to confusion. The following may be adopted for such assets: 2.8.1 2.8.2 Traffic signals: Traffic signals, if any, are to be classified as part of 'Other Fixed Assets'. Network of pipes: There is sometimes a question of whether the network of pipes within the total land of a water works is to be taken as part of 'Sewerage & Drainage', or as part of 'Water works'. Whatever falls within the identified area of the 'water works' is to be taken as a part of it.
2.8.3
Fountains and decorative structures: To be taken under 'Buildings' which includes all civil structures. Road over-bridge: To be taken under 'Roads and Bridges' Mobile generators: It should be taken as part of 'Plant & Machinery. Earth moving equipments: It should be included under 'Plant & Machinery'. Statues and Monuments: Where the valuation and re-use policy is substantially different from other buildings, this should be shown as a separate sub-group under 'Other Assets'. Works of Art and History: Assets like paintings, manuscripts etc. should be taken under 'Other Assets'. Heritage Buildings and structures, if they are different in nature from 'Buildings' may also be classified in 'Other Assets'. Minor Movable Assets: Like office phones, calculators, tools etc. If these are below the threshold for capitalization as per the accounting policies (see next chapter), they should not be capitalized. If they are beyond the threshold, they should be grouped appropriately under 'Office Equipment', 'Plant & Machinery or 'Other Assets'.
2.8.4 2.8.5 2.8.6 2.8.7
2.8.8
2.8.9
2.8.10 Stand-by equipment and servicing equipment: Machinery spares which are not specific to a particular item of fixed asset but can be used generally for various items of fixed assets should be treated as inventories for the purpose of AS 2 and such machinery spares should be charged to the statement of income and expenditure as and when issued for consumption in the ordinary course of operations; otherwise it shall be capitalized as per AS 10. Stand-by equipment such as generator or a water pump is a fixed asset by itself and should be treated as such. 2.8.11 Major Spare Parts: AS 10 states that if some spare parts can be used only in connection with a specific item of fixed assets and their use is expected to be irregular, then, they should be capitalized separately at the time of their purchase. So far as classification is concerned, such spares should be tagged to the item of equipment to which they refer. 2.9 2.9.1 Capital Work in Progress In addition to the above categories, one more category is important 'Capital Works in Progress'. This includes costs of constructing fixed assets before construction is substantially complete. The identification of an item of construction as 'Capital Work in Progress ' means that the item is intended to be capitalized once it is complete / put into use.
2.9.2
Capital Work in Progress (CWIP) is included in the 'Fixed Assets' group of assets but is only an interim account, until the asset is put into use. In particular i) ii) iii) iv) CWIP is not recorded in any of the 'asset' registers. Instead, a separate CWIP Register is maintained to record progressive bills for construction; Any amount paid for purchase / construction of an asset which has not been completed / put to use should be shown as CWIP and recorded in CWIP Register; No depreciation is charged on CWIP since the asset has not been put to use; The asset should be transferred from CWIP to Fixed Asset Register when it is put into use. Hence, CWIP register should be reviewed regularly for such items.
2.10
Suggested coding of Assets
2.10.1 A proper classification of fixed assets should employ a code for each asset. By using the code, a ULB becomes ready for computerization of its Fixed Assets Management System. Further, with such a code, it is easy to cross-classify data and to roll up categories to have the possibility of making a wide variety of reports. The classification code is for the group of fixed assets:
Group i) ii) Land Buildings Minor Head Code7 10 20 30 31 32 33 40 50 60 70
iii) Roads & Bridges iv) Sewerage and drainage v) Water Works
vi) Public Lighting vii) Plant and Machinery viii) Vehicles ix) Office & other equipments x) Furniture, fixtures, fittings and Electrical appliances
xi) Other Fixed Assets
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This classification and coding is as per the minor head codes prescribed in Chart of Accounts under APMAM Chapter 3 Account Codes Assets.
2.10.2 Further classification to group heads can be made based on the need of the ULB, and should be aligned to the Accounting Manual and Fixed Asset Registers. The suggested structure of coding is as follows8: i) ii) iii) iv) v) Major Head Code Minor Head Code . xxx ............ xx
Detailed Head Code ........... xx Ward Location Code ........... xxx Serial Number Code ............ xxx
2.10.3 The minor head code and detailed head code for the group of assets are provided in the APMAM. The ward location code is the location of asset with 3 digits and the last level would be the serial number of the asset with 3 digits. 2.10.4 Examples for coding of Fixed Assets.
Example 1: Coding System - Office Building An office building is owned by the municipality. This should be coded as 410-20-01-054001. The first 410 refers Fixed Assets. Next 20 refers to Building, the next 01 refers the Office Building, the next 054 refers to ward number and `001' refers to the serial number of the office building. Example 2: Coding System - Concrete Road A Concrete Road should be coded as 410-30-01-076-009. The first 410 refers Fixed Assets. Next 30 refers to Roads & Bridges, the next 01refers the Concrete Road, the next 076 refers to ward number and finally `009' refers to the serial number of the concrete road
2.10.5 Fixed Asset codification is essentially a control tool for ULB level management. Hence the structure of the Fixed Asset Code should be such that it enables the ULB to know enough details and maintain sufficient control over its assets. 2.10.6 The purpose of the coding system is to group the assets so that the total value of the group can be calculated, where necessary, high value and low value assets within a group can be identified for asset management purposes. 2.10.7 If a gram panchayat or a municipality which is maintaining code numbers to assets is merged in a municipality or a municipal corporation, the code numbers given by the former local body should be revised as per the suggested code structure by the latter local body
APMAM has already determined major, minor and detailed head codes for fixed assets and that classification is used. Chapter 3 Codification Structure - Account Codes Assets
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Chapter 3 Valuation of Assets - General Principles

In general, there are two models for valuation of fixed assets: The Cost Model; and The Revaluation Model
3.1
3.1.1
Cost Model
The Cost Model requires that: After recognition as an asset, an item of property, plant and equipment shall be carried at its cost less any accumulated depreciation and any accumulated impairment losses.9
3.1.2
This is the traditional 'historical cost' model based on which assets are generally valued for financial reporting purposes in India.
3.2
3.2.1
Revaluation Model
Under the revaluation model, the valuation of assets is continually reviewed to reflect the fair market value as far as possible. The model is described below: After recognition as an asset, an item of property, plant and equipment whose fair value can be measured reliably shall be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses.10
3.2.2
The fair value of items of assets is usually determined from market-based evidence by appraisal. However, many ULBs have assets for which it may be difficult to establish market value because of the absence of market for these assets. In such cases, the fair value of the item may be established by reference to other items with similar characteristics, in similar circumstances and location.
3.3
Accounting Principles for Fixed Assets

Under the APMAM, principles for fixed asset accounting/valuation are11: a. All Fixed Assets shall be carried at cost less accumulated depreciation. The cost of fixed assets shall include cost incurred/money spent in acquiring or installing or constructing fixed asset and other incidental and indirect expenses incurred upto that date.
International Public Sector Accounting Standard (IPSAS) 17Property, Plant & Equipment; Para 43 Ibid - para 44 11 Andhra Pradesh Municipal Accounts Manual, Chapter 8 Assets Accounting Principles (Para 8.9)
10
11
b. Any Fixed Asset, which has been acquired free of cost or in respect of which no payment has been made, shall be recorded at nominal value of Rupee One. c. All assets costing less than Rs.5,000 (Rupees Five thousands) would be expensed / charged to Income & Expenditure Account in the year of purchase. d. Interest on borrowings directly attributable to acquisition or construction of qualifying fixed assets upto the date of commissioning of the assets shall be capitalized.
3.4
Choice of Model
The recommended valuation model for fixed assets is that: a. b. c. Assets should be valued at initial (historical) cost paid to acquire them; Depreciation should be charged periodically to reflect the net value of the asset; Revaluation would be permitted, with some restrictions.
3.5
3.5.1
Recognition of Fixed Assets

The principle for determining capitalization is given below: The cost of an item shall be recognized as a fixed asset if: a. b. c. d. the asset is held for producing or providing goods or services and is not held for sale in the normal course of business; the future economic benefits or service potential associated are expected to flow to the entity; The estimated useful life of the asset is beyond one year; and The cost / value is above the minimum threshold limit for recognition as fixed asset.
3.5.2 The APMAM accounting principles provide a cut-off for recognizing assets in the financial statements. As per this, assets below Rs.5,000 should be charged off to the Income & Expenditure Account. Hence, any asset beyond this value should be recognized as a Fixed Asset in the financial statements as well as in the supporting records. 3.5.3 The threshold of Rs.5,000 is based on the principle of materiality and is to be applied on the historical cost of the asset (not the depreciated value). Hence, any asset whose original cost is estimated to be below Rs.5,000 should be a. b. 3.5.4 Charged to Income & Expenditure Account, if it occurs during the year; Omitted while considering the assets being collated / valued for the Opening Balance Sheet.
In case an asset is being constructed and the construction takes time, the asset should be recognized as specific fixed asset i.e. building etc. only when the construction is complete. Until then, the amounts paid should be kept under 'Capital Work in Progress'.
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3.5.5 There are many instances where the nature of a transaction makes it difficult to distinguish whether it is revenue expenditure or a capital expenditure. Guidance in this regard is provided in Chapter 4 (Valuation of Assets for Opening Balance Sheet).
3.6
3.6.1
Historical Cost
This is the bedrock of the valuation principle. Fixed Assets are to be reported at Historical Cost. The cost of a fixed asset includes not only its purchase price or construction cost but also related charges necessary to place the asset in its intended location and condition for use. Since the historical cost of donated / gifted assets is NIL, they are to be valued at a nominal cost of Rupee One.
The rationale of valuation at Rupee One. It may appear that a Rupee One valuation is of no significance in the overall fixed asset block of the ULB which may run into crores of rupees. Hence, it would perhaps make no difference if the asset was valued at NIL. This is erroneous. The reason for valuing assets at Rupee One is to ensure that the asset is identified and tracked in the fixed asset system. Non-recognition of the asset or NIL valuation would not allow the asset to appear in the Fixed Asset Register. Hence municipal officers and auditors should particularly pay attention to the transaction of assets which are valued at Rupee One for technical reasons, but may be worth more than many other assets.
3.6.2
The cost of a fixed asset includes: a. b. c. d. e. f. g. h. i. j. purchase price, less trade discounts and rebates, if any; import duties; other taxes or levies which are non-refundable in nature; transportation cost, if charged separately from the purchase price; cost of inspection, if paid separately; handling costs; cost of site preparation; installation cost, including cost of such permanent or temporary structures that are considered necessary for installation; professional fees for engineers or architects or inspectors, etc.; and any other cost incurred to put the asset at its location and use.
3.6.3 Any expenditure that is made by the ULB on test runs or experimental production is to be capitalized and added to the cost of the asset. For example, the oil and bitumen necessary for the test run of an asphalt plant is to be added to the cost of the plant. 3.6.4 Cost of the asset should include all costs incurred to bring the asset to a working condition. For example, if a large pump is to be installed at a water treatment plant, not only the cost of pump but also the transportation cost, where charged separately, should be included.
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3.7
3.7.1
Self constructed assets

In cases where a ULB constructs the asset itself (school building, dispensary, shopping complex etc.), the cost of construction of that building and other costs which are directly attributable should be taken into consideration in arriving at the value of the building. This means that all the material costs of construction, payments made to various contractors, etc. should be included. For example, if the ULB appoints an Assistant Engineer whose only work is to look after the construction of the building, then the salary of the Assistant Engineer for the construction period should also be added. As per AS 10, administration and general overhead are excluded from cost of fixed asset as they do not relate to specific fixed asset. However, if such expenses are related to construction or acquisition of a particular fixed asset, then it should be capitalized.
3.7.2
3.8
3.8.1
Assets acquired under exchange

Sometimes, a ULB may acquire some fixed assets in exchange for some other fixed assets. This can happen, for instance, when old office machinery is exchanged for a newer model. Where the assets exchanged are similar, the net book value of the asset (the office machinery) which is exchanged should be taken, and to it the extra amount that is paid, if any, is added. If instead of an extra payment, a refund is involved, the necessary adjustment will have to be made. In case of dissimilar assets, the assets acquired should be recognized at their fair value. In certain special cases, a ULB may acquire constructed floor area in a building for the construction of which the ULB has given development rights to a developer. In such a case, the constructed floor area will be recorded at the fair market value of the property.
Fair Market Value As per AS 10, Fair Market Value is the price that would be agreed to in an open and unrestricted market between knowledgeable and willing parties dealing at arm's length who are fully informed and are not under any compulsion to transact.
3.8.2
3.8.3
It is pertinent to note that this use of Fair Market Value does not vitiate the Historical Cost Concept as it merely determines what would have been the historical cost paid for the property, but for the exchange transaction.
3.9 3.9.1
Borrowing Cost
Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset should be capitalized as part of the cost of that asset. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. As per AS for ULBs issued by ICAI on 'Borrowing
3.9.2
14
Cost' it is specified that a time period of 12 months is a substantial period of time unless shorter time period can be justified on the basis of facts and circumstances of the case. 3.9.3 In case any borrowing costs i.e. interest on loan etc. can be identified with the asset, they can be capitalized. The general test for determining whether a loan can be identified with an asset is to ask the question, "Would these borrowing costs have been avoided if the outlays on the qualifying asset had not been made?" If yes, then the borrowing cost can be capitalized, else not.
3.9.4 The capitalization of borrowing costs should commence when: a. b. c. 3.9.5 Outlays for the asset are being incurred; Borrowing costs are being incurred; and Activities that are necessary to prepare the asset for its intended use or sale are in progress
Capitalization of borrowing costs should be suspended during extended periods in which active development is interrupted, and expensed. Capitalization of borrowing costs should cease when substantially all activities necessary to prepare the asset for its intended use or sale are complete.
3.9.6 The capitalization of interest cost is applicable only for new assets being developed / constructed by a ULB. This principle should not be applied for valuation of existing assets for the purpose of preparing the First Balance Sheet.
3.10 Depreciation
3.10.1 'Depreciation' is the charge of a fair proportion of the depreciable amount in each accounting period during the expected useful life of the asset.12 3.10.2 'Depreciable amount' of an asset is its historical cost, or other amount substituted for historical cost in the financial statements, less the estimated residual value.13 3.10.3 The 'residual value' of an asset is 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.14 3.10.4 'Useful life' is: a. b. 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 use of the asset by an entity.
12 13
ICAI Accounting Standard 6 - Depreciation Accounting - para 3.1 Ibid - para 3.4 14 International Public Sector Accounting Standard (IPSAS) 17Property, Plant & Equipment; Para 13
15
3.10.5 The value of an asset in future years (after recognition in financial statements) is the Book Value, which is calculated by deducting Accumulated Depreciation from the Historical Cost of the asset.
3.11 Process of Valuation

3.11.1 The process of valuation of assets is required: a. b. When the first (opening balance sheet) is being prepared; and At the time of preparing annual financial statements
3.11.2 This is discussed, in the background of these principles, in the following chapters.
16
Chapter 4 Valuation of Assets for Opening Balance Sheet

4.1
4.1.1
Process for Preparation of Opening Balance Sheet

The following steps need to be followed for preparation of Opening Balance Sheet: a. b. Identification of Assets - Using various sources of data, and compiled in the forms provided in Chapter 10 of the APMAM; Verification of Assets - This is prescribed to be carried out as current identification initiatives may either miss out existing assets or take in assets which do not belong to the ULB. Hence some test checks or verification with records and physical inspection are recommended; Identification of Assets that require Valuation - This shortlists the assets which need to be valued in accordance with the following procedures and have not outlived their useful life in which case a summary valuation of Rupee One can be made; Valuation of Assets - This is the subject matter of this Manual. Although accounting norms / policies for these are provided, ULBs lack guidance in practical matters of asset valuation. This requires determination of appropriate Book Value (using historical cost) for incorporation in the Opening Balance Sheet; Passing of opening entries - This is the process for preparation of First (Opening) Balance Sheet. Taking cognizance of the assets value in the accounting records brings it within the purview of the new accrual based double entry accounting system. Maintenance and updating of fixed asset records - The details of assets are also recorded in appropriate Fixed Asset Registers and a system has to be developed through which these registers are continually updated with any addition, modification or disposal of these assets.
c.
d.
e.
f.
4.1.2
This chapter deals with the bases for valuation of assets in the Opening Balance Sheet of a ULB.
4.2
4.2.1
Basic Premises
The basic premises proposed for the valuation methodology are: a. b. Considering the current practices in asset record maintenance, most ULBs do not have readily available records about existing assets; The purpose of valuation is not to determine the 'correct value' of an asset. It is to get a reasonable estimate of the book value for the purpose of including in a statement which reflects the 'true and fair' financial position of the ULB;
17
c.
Unlike other entities where valuation of assets affects share prices and / or prospective takeovers based on valuation of the company, this concern is not relevant to ULBs; Some assets present problems in terms of identification because of their nature for example, underground drains cannot be easily verified while preparing asset list; Many assets of ULBs present problems in terms of resale or reuse. For example, roads which have been constructed cannot generally be disposed off, sold, nor reused. Even valuation at a nominal price of Rupee One is recommended for maintaining the asset on the fixed asset register. Hence, the value is not as important as the identification and correct recording of the nature of the asset.
d.
e.
f.
4.2.2
Keeping these concerns in mind, the premise for valuation is as follows: a. b. c. Encourage thorough identification of assets - this must be done to ensure that not even one asset, no matter how small, is left out; Simplify valuation - it is sufficient to get a 'reasonable valuation' rather than a 'perfect' one; Ensure updating - Ensure that after the one time exercise on identification and valuation, the assets are recorded in the Asset Register and the register is regularly updated thereafter.
4.3
Valuation principles
4.3.1 The identified assets of the ULB may have been gifted to it or purchased / constructed by it over the years. The valuation process has to be carried out for assets as on a particular date (for example on the last day of the previous financial year, say 31-3-08. All references to valuation should be made with respect to this date. The process of valuation shall be as follows: 4.3.2 If the asset was received as gift: Value at Rupee One. All particulars of the asset should be recorded in the prescribed forms. 4.3.3 If the asset was purchased / constructed, it will be valued as per the following order of preference: a. If both the cost and date of purchase/ construction is available / ascertainable: i. Original cost less depreciation provided from the date of purchase / construction to the date of valuation.
18
b.
If cost is not available /unascertainable, but the date or year of construction/ purchase is ascertainable: i) In case of land where the original documents are not available, valuation can be ascertained from relevant records of the Registration Department or transaction value of a similar plot in the similar area around the estimated year of transaction
ii) If the asset has outlived its estimated useful life, then it will be valued at Rupee One. Estimation of useful life will be based on the list used for estimation of depreciation for ULBs. This is given in the following chapters. iii) If the asset has not outlived its useful life, then Valuation will be done based on the Current Standard Cost (CSC) rates prescribed. The ULB will use this per sq. foot rate or area rate and apply it to the quantitative parameter of the asset. This will give the estimated current standard cost of the asset. In order to reflect the cost of the asset in the year in which it was purchased / constructed, the CSC will need to be deflated by an appropriate inflation index (discussed below) to give the Deflated Standard Cost (DSC) of the asset. Thereafter, the value will have to be depreciated based on the recommended rate of depreciation (discussed below) in order to arrive at the Estimated Book Value of the asset, which will be carried to the Opening Balance Sheet as Gross Block. c. If neither the cost nor the date of purchase/ construction is available: i) ii) If the asset is beyond its estimated useful life, it will be valued at Rupee One. If the asset is within its useful life, estimation shall be made of its year of purchase / construction and the procedures prescribed in case of b (iii) above shall be applied i.e. its estimated CSC, DSC and Estimated Book Value shall be deduced using the standard rates and the deflation indices.
d.
In case it is impossible to assess the year of purchase / construction or the asset is unique in nature, not appearing in the standard list, its valuation will have to be done on a case by case basis after taking into account the condition and obsolescence factor. The ULBs may use specialist valuers to assess the value of such assets in such cases.
19
4.4
Flowchart of valuation
This decision making and valuation process is explained in the following flowchart: Flow chart for valuation of Fixed Assets for Opening Balance Sheet
START
Was the asset received as a gift?
Yes
Value at Re.1
No
Is the cost of the asset available?
Yes
Use Historical Cost
No
Value at Re.1
Yes
Is it beyond useful life?
Yes
Is the year of purchase available?
No
Use CSC Method
No No
Value on a case to case basis
Can we estimate year?
Yes
Does it appear to be beyond useful life?
Yes
Value at Re.1
No
Use Estimated CSC Method
20
4.5
4.5.1
Asset received as a gift

If evidence exists, or it is known that an asset was received by the ULB as a gift i.e. without any consideration being paid, it should be recognized at Rupee One. This is in line with the basic policy of historical cost reporting i.e. to report an asset at the consideration paid for it. However, these assets may be of considerable value in the market and hence, their nominal valuation should not take away the importance to maintain and monitor them appropriately. It is not necessary that there should be a document establishing the gift - mere knowledge would suffice.
4.5.2
4.5.3
4.6
4.6.1
Historical Cost Based

Where the details of purchase are available (this will usually happen in case of assets purchased recently), the amount of purchase cost and date of purchase would be available. In such a case valuation should be done as follows: Step 1: Take the actual cost as per particulars of purchase (refer previous chapter for details); Step 2: Determine depreciation till valuation date (this is covered subsequently); Step 3: Deduct depreciation (b) from historical cost (a) to arrive at the book value on the date of valuation.
4.6.2 4.6.3
This is the closest we can get to the historical cost of the asset. All other methods are improvisations to overcome deficient information about the existing assets. Although policies for capitalizing assets require inclusion of ancillary expenses such as borrowing cost, these require significant analysis and are elaborate. Unless the amount of such expense is likely to be significant, they can be ignored for valuation of existing assets in the opening Balance Sheet.
Illustration Use of Historical Cost Method A ULB determines from available documents that Play equipment in a Park was installed at a cost of Rs.1,50,000/- and started operation on 13-4-2006. The Historical Cost based Valuation on 31-3-2008 would be as follows: Rs. Historical Cost 1,50,000 Less: Depreciation *60,000 Book Value on 31-3-2008 90,000
* Depreciation is calculated on the Original Cost for 2 years (2006-07 and 2007-08) @ 20% p.a. of Historical Cost. Note: As per Depreciation policy, use of asset beyond six months in a year would lead to full year's depreciation. Hence in this case, full year depreciation is charged for 2006-07.
21
4.7
Current Standard Cost Method
4.7.1 Where the historical cost is not available, but the date (or year) is known, we can apply appropriate standardized valuation techniques to estimate the Current Book Value of the asset. 4.7.2 Under the Current Standard Cost (CSC) method, we estimate current cost (as on the date of valuation for example 31.3.2008) at which equivalent (new) assets can be purchased or constructed. They are calculated in terms of appropriate 'units of measurement' such as rate per square meter, rate per running foot etc. and then applied to the details of the asset. Rates are calculated for each asset's 'unit of measurement' such as: Group Land Buildings Roads of standard width Pipelines Drains of standard dimensions Pumps Unit Sq meters Sq meters Per km Diameter x length Running meters Horse Power
4.7.3
Based on these standard rates, the value of the asset can be determined. For instance, a Building of 1500 sq meters can be valued by multiplying the rate prescribed for one sq.meter by 1500. 4.7.4 A list of Current Standard Cost for various assets is given in Annex 2. The rates are applicable for the financial year 2008-09
4.7.5 The process of valuation would be as follows: Step 1: Collect appropriate details about the asset (including location, quantitative details such as area, length etc.) Step 2: Classify to appropriate head in the CSC list. If exact description is not available, use the closest match possible. Step 3: Check if the useful life is over (refer Depreciation rate list). If so, value at Rupee One. Else, go to Step 4. Step 4: Calculate CSC by multiplying the quantity with the rate provided. This is the CSC of the asset i.e. the value of purchasing / constructing a new asset as on date.
22
Step 5: Deflate this index to the year of purchase giving the Deflated Standard Cost (DSC). This is done to estimate the cost in the year of purchase. A standard list of indices from 1981-82 to 2007-08 is given in Annex 415. Any asset known to have been procured before 1981-82 should be deflated using the 1981-82 index. Step 6: Calculate depreciation from the year of purchase till valuation date, assuming this value (Step 5) was the original cost. Step 7: Deduct the depreciation (Step 6) from Cost (Step 5) to arrive at the Current Book Value of the asset.
Illustration Use of CSC Method A ULB determines that a Civil Structure Building was constructed in 1976 with the following specifications: Type: RCC framed posh structure Height: Ground + 2 floors Area: Ground Floor - 500 sq m, First Floor - 320 sq m, Second Floor -240 sq m The CSC based Valuation on 31.3.2008 would be as follows: Current Standard Cost* Deflated Standard Cost (DSC)** Less: Depreciation*** Book Value on 31.3.2008 Rs. 62,36,000 (Value as on 31.3.2008) Rs. 11,31,760 (Estimated Value in 1976) Rs. 7,24,327 (Depreciation till 2008) Rs. 4,07,433
* Ground Floor (500 x 6,200) + First Floor (320 x 5,600)+ Second Floor (240 x 5600) = Rs. 62,36,000. Rates for CSC taken as per Annex 2. ** (62,36,000/551)*100 = 11,31,760. Index for 2007-08 is 551; index for 1981-82 and earlier is 100. Index taken from Annex 4. *** Depreciation is calculated on the DSC for 32 years (1976 - 2008) @ 2% p.a. (since useful life is 50 years, not yet exhausted)
4.8
Estimated CSC Method

Where the year of purchase / construction cannot be estimated, there will be difficulty in deflating and applying depreciation rates. However, keeping in view the objective of having reasonable valuation principles, it is suggested that Estimated CSC method may be used. This will be done as follows:
15
There can be several price indices which can be used for this. However, since this related to Capital Assets, we recommend the Cost of Inflation Index (CII)released by the Income Tax Department to calculate Capital Gains Tax.
23
Step 1: Collect appropriate details about the asset (including location, quantity details such as area, length etc.) Step 2: Classify to appropriate head in the CSC list. If exact nomenclature is not available, use the closest specification possible. Step 3: Estimate year of purchase. This becomes subjective but is possible to be carried out by the ULB itself. This process is simpler and faster than a valuation appraisal. The years may be estimated even within ranges for e.g. 10-15 years old. In this case, the maximum life can be taken i.e. 15 years. Step 4: Check if the useful life is over (refer Depreciation rate list). If so, value at Rupee One. Else, go to Step 5. Step 5: Calculate CSC by multiplying the quantitative units with the rate provided. This is the CSC of the asset i.e. the value of purchasing / constructing a new asset as on date. Step 6: Deflate this index to the estimated year of purchase giving the Deflated Standard Cost (DSC). This is done to estimate the historical cost in the estimated year of purchase Use standard list of indices from 1981-82 to 2007-08 given in Annex 416. Any asset known to have been procured before 1981-82 should be deflated using the 1981-82 index. Step 7: Calculate depreciation from the year of purchase till valuation date, assuming this value (Step 6) was the original historical cost. Step 8: Deduct the depreciation (Step 7) from Historical Cost (Step 6) to arrive at the Current Book Value of the asset.
Illustration Use of Estimated CSC Method A ULB identifies a Civil Structure Building. The year of construction cannot be estimated but it is expected to have been made 25-30 years ago. The specifications are: Type: RCC framed posh structure Height: Ground + 2 floors Area: Ground Floor - 500 sq m, First Floor - 320 sq m, Second Floor - 240 sq m The Estimated CSC based Valuation on 31.3.2008 would be as follows: Current Standard Cost* Estimated DSC** Less: Depreciation*** Book Value on 31.3.2008 Rs. 62,36,000 (Value as on 31.3.2008) Rs. 11,31,760 (Estimated Value in 78) Rs. 6,79,056 (Depreciation till 2008) Rs. 4,52,704
16
There can be several price indices which can be used for this. However, since this related to Capital Assets, we recommend the Cost of Inflation Index (CII)released by the Income Tax Department to calculate Capital Gains Tax.
24
Ground Floor (500 x 6,200)+ First (320 x 5,600)+ Second (240 x 5600) = Rs. 62,36,000. Rates for CSC taken as per Annex 2. ** (62,36,000/551)*100 = 11,31,760. Index for 2007-08 is 551; index for 1981-82 and earlier is 100. Index taken from Annex 4. *** Depreciation is calculated on the DSC for 30 years estimated @ 2% p.a. (since useful life is 50 years, not yet exhausted)
4.9
Case by Case determination

In case the cost as well as the year is not determinable, a case by case determination of value has to be taken. However it should be remembered that the purpose is to determine the Book Value rather than the Fair Market Value as on date. Hence, the following order of process has to be followed: Step1: Is the asset's useful life over? (Refer Annex 3 for Useful life). If so, value at Rupee One. Else go to Step 2. Step2: If the asset is within its useful life, determine book value by reference to other assets with same characteristics or properties. Assumptions can be made in this case - the objective is to have a reasoned justification for the value. Step 3: Use the rate of similar asset for calculating the value of this asset.
Important Caveat - Maintenance of Gross Block and Accumulated Depreciation The above processes are required to provide a Gross Block Value (Historical Cost) and Accumulated Depreciation till date. It is important to maintain both these values; merely using the Net Book Value i.e. Gross Block less depreciation will create problems in charging annual depreciation using Straight Line Method. For e.g. In the last illustration: Historical Cost (Gross Block) is Accumulated Depreciation is And Net Book Value is Rs. 11,31,760 Rs. 6,79,056 (@ 2% for 30 years) Rs. 4,52,704
Now, if only the Net Book Value is recorded i.e. Rs.4,52,704, annual depreciation will be charged on this i.e. Rs.9,054 (2%) p.a. and the assets value will be extinguished only after another 50 years. However, using the original historical cost of Rs.11,31,760 results in an annual depreciation of Rs.22,635 (2%) which will ensure that the asset will have been fully depreciated in another 20 years.
4.10 Issues in using CSC

a. The use of CSC and DSC, as well as choice of rates can obviously be debated. The purpose of proposing these rates is in line with the larger objective of 'reasonable' valuation and also to achieve a certain sense of uniformity in asset valuation across ULBs in the state. However, some assets may not have prescribed CSC. In such cases, the valuation can be made as follows:
b.
25
Items not having CSC prescribed rates Land
Suggested method Use 'Market Value' prescribed by the Registration Department for the location and type of land; and date. Check if the useful life is over - generally 10 years, then value at Rupee One. If within useful life, use recent purchase cost for similar assets and deflate using index. Depreciate to arrive at current book value.
Laboratory Equipment
Vehicles
The year will be available by reference to registration document. If it is beyond useful life, value at Rupee One. Otherwise determine rate of particular car in that year from dealer / manufacturer. Value and depreciate accordingly.
Furniture, fixtures, fittings, Check if the useful life is over - generally 10 years, then value electrical appliances at Rupee One. If within useful life, use recent purchase cost for similar assets and deflate using index. Depreciate to arrive at current book value. Office & Other Equipment including Computer, peripherals etc. Check if the useful life is over - generally 10 years, then value at Rupee One. If within useful life, use recent purchase cost for similar assets and deflate using index. Depreciate to arrive at current book value.
4.11 Valuing Capital Work in Progress

4.11.1 The information with regard to Capital Work in Progress (CWIP) shall have to be prepared on the date of the Opening Balance Sheet from the records such as Bills Register, Measurement Book, Grants Register etc. Since assets represented by the Capital Work in Progress would be under construction on the prescribed date, it should be easier to identify these assets and then to determine its costs. 4.11.2 Amounts are to be booked based on the gross amount of bill received by the ULB pertaining to the work done before the Balance Sheet date. A cut-off date of 2 months beyond the opening Balance Sheet may be taken to include all bills which may have been received afterwards but pertain to work done before the Balance Sheet date. This may be done by carrying out post vouching (i.e. checking of vouchers for at least two months after the Balance Sheet date, to identify payments being made for CWIP). 4.11.3 Borrowing cost for CWIP will also be included if it satisfies the requirements as per Accounting Standards 16 on Borrowing Costs.
26
Chapter 5 Valuation of Assets Ongoing

Once the assets have been valued and included in the Balance Sheet, their carrying value needs to be periodically recomputed to provide for depreciation and other transactions. Aspects such as revaluation of assets, depreciation of assets etc. which arise on a regular basis in the ULB are discussed in this chapter.
5.1
Depreciation of Assets
5.1.1 Depreciation has a significant effect on the determination and presentation of the financial position of a ULB. Depreciation is charged in each accounting period by reference to the extent of the depreciable amount. 5.1.2 ULB need to report depreciation accurately in their financial statements for three main reasons. a. The cost of fixed asset concerned during the period for which accounts are being prepared becomes reduced due to wear and tear and efflux of time. b. To ensure that an asset depicted in the balance sheet is not over estimated since the value of the asset is much less than its original value. c. The amount debited towards depreciation in the income & expenditure account would be retained in the ULB because of non-cash expenditure and which can became available for replacement of asset when its life is over.
5.2
Accounting Principles
5.2.1 The basic principles under APMAM with regard to depreciation are: a. Depreciation shall be provided at the rates prescribed by the government. Depreciation on all fixed assets is to be provided consistently on either Written Down Value or Straight Line Method. The Accounting Standard as well as APMAM allows any of these two methods to be used. It only states that whatever method is used, it should be applied consistently. Depreciation shall be provided at full rates for assets, which are purchased / constructed before October 1 of an Accounting Year. Depreciation shall be provided at half the rates for assets, which are purchased / constructed on or after October 1 of an Accounting Year. Depreciation shall be provided at full rates for assets, which are disposed on or after October 1 of an Accounting Year. Depreciation shall be provided at half the rates for assets, which are disposed before October 1 of an Accounting Year.
b.
c.
5.2.2 Written Down Value (WDV) Method: The WDV method is a type of accelerated depreciation because it recognizes a higher depreciation cost earlier in the asset's lifetime. Under this method, each year's depreciation is applied to the opening net book value of the asset rather than original cost of the asset. This process continues until we reach the residual/salvage value or the end of the asset's useful life.
27
a.
Residual or Salvage value is the amount which an enterprise expects to obtain for an asset at the end of its useful life after deducting the expected costs of disposal. It should also be noted that the book value of the asset being depreciated is never brought below its salvage value, regardless of the method used. Where the salvage value is determined at NIL, the asset value should always be retained at a nominal value of Rupee One.
b. c.
5.2.3 Straight-Line Method (SLM): Straight-line depreciation is the simplest and most often used technique, in which the ULB estimates the "salvage value" of the asset after the length of time over which it will be used to generate revenues or provide service (useful life), and will recognize a portion of that original cost in equal increments over its useful life.
5.3
5.3.1
Rate of Depreciation
State governments would be best placed to determine applicable depreciation rates for ULB assets. The important things to remember are: a. b. c. The classification of assets for depreciation should follow the accounting codification structure; The method of depreciation i.e. WDV or SLM should be determined upfront;17 'Useful life' and 'residual value' of various assets should be determined in consultation with engineers, valuers and municipal staff. It is important to remember that there is no 'perfect' rate and all depreciation rates are only an estimation; Determine rates for various classes of assets using WDV or SLM; Provide these for use by the ULBs.
d. e. 5.3.2
This Manual provides an estimation of useful life for various assets and applicable SLM depreciation rates. This is given in Annex 3.
5.4
Closing Book Value

Once these rates have been applied to the assets, the Closing Book Value is determined by reducing the depreciation charge for the year from the Opening Book Value. This is the 'carrying amount' of the assets at the end of the period.
5.5
5.5.1
Amortization
In the case of an intangible asset, the term 'amortization' is generally used instead of depreciation. Both terms have the same meaning. 5.5.2 The period of amortization will depend on the asset. Accounting Standard 26 prescribes for a rebuttable presumption of 10 years for the life of intangible assets. However, in case of items like software where technological advances will result in a quicker obsolescence, a time frame of 3 - 5 years is recommended.
17
SLM is determined-Annex 3
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5.5.3
Intangible assets below Rs.25,000 can be expensed and need not be capitalized. The higher limit (compared to tangible assets) is prescribed to avoid detailed recording and amortization of minor items like software which generally cost below Rs.25,000.
5.6
Impairment of Assets
5.6.1 'Impairment' is a loss in the future economic benefits or service potential of an asset, over and above the systematic recognition of the loss of the asset's future economic benefits or service potential through depreciation.18 5.6.2 In other words, if the carrying amount of an asset is more than the amount that is to be recovered through use or sale of the asset, then the asset is said to be 'impaired'. It basically means that although there may be useful life left of an asset, the productivity of the asset has gone down sharply. For example if by policy of the government, certain items are decided not to be produced by the ULB, the future cash flows would be affected that the existing recoverable value of assets used in the production could go below its carrying amount. 5.6.3 ULBs are required to identify impaired assets at every Balance Sheet date and to disclose the same. However, that application of the Accounting Standard19 is fairly complex and will require the taking of decisions on case-to-case basis for the calculation of the recoverable amounts, useful lives and so forth. ULBs are advised to take the help of professional accountants for the identification of impaired assets and determination of the extent of impairment.
5.7
5.7.1
Creation / purchase of new assets

The ongoing construction / purchase of fixed assets would be valued at historical cost and as and when the transaction is undertaken. No specific special treatment / process is prescribed in this regard. The process prescribed in APMAM would suffice to record assets as and when they are purchased / constructed.
5.7.2 Accounting Principles: Some significant accounting treatments for creation /

purchase of assets are: a. All Fixed Assets shall be carried at cost less accumulated depreciation. The cost of fixed assets shall include cost incurred/money spent in acquiring or installing or constructing fixed asset, interest on borrowings directly attributable to acquisition or construction of qualifying fixed assets upto the date of commissioning of the assets and other incidental and indirect expenses incurred upto that date20:
18
International Public Sector Accounting Standard (IPSAS) 21Impairment of non-cash generating assets; Para 14.23 19 AS 28 of Indian Accounting Standard 20 Andhra Pradesh Municipal Accounts Manual, Chapter 8 Assets - Para 8.9
29
b.
Assets under erection/installation on existing projects and capital expenditures on new projects (including advances for capital works and project stores) shall be shown as "Capital Work-in-Progress"21 Any Fixed Asset, which has been acquired free of cost or in respect of which no payment has been made, shall be recorded at nominal value of Rupee One. All assets costing less than Rs.5,000 (Rupees Five thousands) would be expensed / charged to Income & Expenditure Account in the year of purchase Interest on borrowings directly attributable to acquisition or construction of qualifying fixed assets upto the date of commissioning of the assets shall be capitalized.22
c. d.
e.
5.8
Ongoing Lifetime costs

After the asset has been acquired, certain costs are incurred during its lifetime for maintenance, repair and improvement. The treatment of these expenses often cause confusion as some of them may merit capitalization i.e. addition to the value of fixed assets. This section provides guidance on the issues of classification of expenses as revenue or capital.
5.8.1 Maintenance and repairs: a. b. c. The terms 'maintenance' and 'repairs' generally are used interchangeably. However, they are slightly different. Maintenance is defined as 'the keeping of property in operable condition' Repair is defined as 'the restoration of a capital asset to its full productive capacity, or a contribution thereto, after damage, accident, or prolonged use, without increase in the asset's previously estimated service life or productive capacity'.23 Since ordinary maintenance and repairs expenditures are regarded as operating costs, they are to be charged directly to expense when incurred.
d.
5.8.2 Extraordinary Repairs: a. Extraordinary repairs are repairs that: '... occur infrequently, involve relatively large amounts of money, and tend to increase the economic usefulness of the asset in the future because of either greater efficiency or longer life, or both. They are represented by major overhauls, complete reconditioning, and major replacements and betterments'.24 Because expenditures for extraordinary repairs increase the future economic usefulness of an asset, they benefit future periods and are therefore capital expenditures.
b.
21 22
Andhra Pradesh Municipal Accounts Manual, Chapter 8 Assets Andhra Pradesh Municipal Accounts Manual, Chapter 8 Assets 23 Eric Louis Kohler, Kohler's Dictionary for Accountants 24 Glenn A. Welsch, Robert N. Anthony, and Daniel G. Short, Fundamentals of Financial Accounting
30
5.8.3 Replacements, Improvements and Additions: a. b. c. Replacements, improvements, and additions are related concepts. Replacement is defined as 'the substitution of one fixed asset for another, particularly of a new asset for an old, or of a new part for an old part.'25 An improvement (or betterment) is 'an expenditure having the effect of extending the useful life of an existing fixed asset, increasing its normal rate of output, lowering its operating cost, increasing rather than merely maintaining efficiency or otherwise adding to the worth of benefits it can yield.' Improvements ordinarily do not increase the physical size of the productive facility. Such an increase is called an 'addition'. The accounting for replacement, improvement and addition - all three is substantially the same. As per the APMAM, any addition to or improvement to the fixed asset that results in increasing the utility or useful life of the asset shall be capitalized and included in the cost of fixed asset. The cost of existing assets that are replaced, together with their related accumulated depreciation accounts, are required to be eliminated from the accounts.
Illustration Upgradation of a 10 meters road to 30 meters This is an 'improvement' and would need to be capitalized in the accounts. However, when the 30 m road is capitalized the existing book value of the 10 m road would need to be eliminated i.e. de-capitalized from the books
d. e.
f.
5.8.4
Rehabilitation: Expenditures to rehabilitate buildings or equipment purchased in a rundown condition with the intention of using them should be capitalized. Normally the acquisition price of a rundown asset is less than that of a comparable new asset, and the rehabilitation expenditures benefit future periods. Such expenditures can therefore be capitalized.
5.9
Disposal of Assets
When an asset is retired from service, it should be treated in accordance with the procedures provided in the APMAM. In particular: a. b. c. d. No depreciation should be charged after disposal / retirement of the asset; In case the disposal happens before October 1, 50% of the depreciation should be charged. If it is on or after October 1, full depreciation should be charged; The assets which are out of service should be recorded in a separate register; Once an asset is disposed, its movement should be updated in the Fixed Asset Register
25
Eric Louis Kohler, Kohler's Dictionary for Accountants
31
5.10
Revaluation of Assets
Here again the treatment is specified in detail under APMAM. The recommended policies are: a. An increase in net book value arising on revaluation shall be credited to a 'Revaluation Reserve Account' under the Municipal Fund. A decrease in net book value arising on revaluation of fixed assets should be charged to Income and Expenditure Account except to the extent that such a decrease is related to a previous increase in revaluation in which case it should be set off from the Revaluation Reserve Account. If an asset is revalued, the entire class to which that asset belongs shall be revalued. A class is generally a category of similar assets which differs substantively from other similar groups of assets. For example, the category 'Land' would signify a class of asset, different from say 'Buildings' or 'Vehicles'. Revaluation of a class of assets shall not result in the net book value of that class being greater than the recoverable amount of the assets of that class. Revaluation reserve shall be reduced by transfer of equivalent amount of depreciation charged on the revalued portion of the cost of the fixed assets.
b.
c. d.
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Chapter 6 Asset Management

Although this Manual is primarily intended to help in the valuation of fixed assets, a necessary corollary would be the maintenance of proper fixed assets records and good asset management practices. This is encompassed in the term 'Asset Life Cycle Management' and is briefly covered in this chapter.
6.1
6.1.1
Asset Life-cycle
An asset proceeds through a number of sequential phases during its life cycle acquisition, operation and maintenance, refurbishment or enhancement, and, finally, disposal. The life cycle of an asset begins with a planning process that identifies the need for that asset and determines how and when it is to be procured. The asset is then acquired - either an existing asset is purchased or a new one is created. The asset then enters its operational phase. As the asset ages, it may deteriorate or become obsolete, at which stage a decision is made to either refurbish, enhance or dispose of it. If the need still exists for the service provided by the asset, the cycle recommences. There are essentially three broad stages in the life cycle of an asset: a. b. c. Acquisition; Operation and Maintenance; and Disposal.
6.1.2
6.1.3
These various stages are illustrated below26:

ACQUISITION OPERATION
Strategy Development & Review ASSET DISPOSAL Asset Improvement
MAINTENANCE MANAGEMENT SYSTEM
Maintenance Planning
Maintenance Evaluation
Maintenance Execution
26
Adapted from Maintenance Engineering Society of Australia
33
6.2
6.2.1
Record Keeping - Fixed Asset Register

Once the assets have been identified, listed and valued by the ULB, their record needs to be maintained and continually updated. This is achieved through the Fixed Asset Register (FAR). If the FAR is not continually updated, the efficacy of the entire asset identification, valuation and management will be greatly reduced. The FAR will form the basis for further planning and maintenance under the Asset Life Cycle Management (ALCM) strategy for the ULB. Hence, this document will have a record keeping and planning function. The process of recording and updating of fixed assets data is shown in the Flow chart at Annex 5. The formats of various fixed asset registers are given in Annex 6.
6.2.2
6.2.3
6.3
6.3.1
Asset Life-cycle management strategy

Asset Life Cycle Management (ALCM) is a strategic, integrated approach to maintenance that considers all the elements that affect the productive life of an asset from design to disposal. It is a proactive process that compliments existing policies by providing strategic focus and perspective. Asset-intensive organizations including ULBs which successfully adopt asset life cycle management will reduce maintenance costs and improve productivity through superior planning. From design to disposal, an asset's life cycle includes the following stages: a. b. c. d. e. f. Clarify the need or requirement to be satisfied by the asset; Identify the type of asset suitable for the requirement and fulfill the need; Determine the maintenance strategy, cycle and plan for the life of the asset; Purchase the asset; Commission, operate and maintain the asset; and Dispose of the asset at the end of its economical life.
6.3.2
6.3.3
To achieve ALCM, organizations need visibility into three main areas of maintenance planning; short term planning, and long term planning. These planned maintenance strategies improve reliability, overall productivity, the length of an assets life, and ultimately reduce the total cost of asset ownership.
6.4
Asset Management Unit (AMU)

It would be clear from the foregoing discussions that ALCM would greatly enhance the productivity and performance of ULBs. However, currently there is no unified department in ULBs which looks at all aspects of asset management. In most ULBs, the acquisition of fixed assets is the responsibility of the Stores and Purchase Department. Similarly, the accounts department normally records
6.4.1 (a)
34
only the financial transaction and is not concerned with the maintenance and management of the asset. (b) For these reasons, it may be useful for the ULBs to set up an Asset Management Unit (AMU) so that various aspects of asset life cycle are properly managed. This AMU may be centrally located and under the charge of the head of Finance or the Commissioner. The justification for the cell to report directly to the Commissioner arises from the fact that the use of many of the fixed assets such as land and building has policy overtones, and the alternatives in these respects may have to be examined from a larger perspective. In this connection, it is also to be noted that planning for assets (capital budgeting) is a specialized and time consuming exercise by itself, and most departments of finance and accounts in ULBs do not have the wherewithal in terms of either time or human resources to spare for it. Hence, the AMU can have specialized and dedicated staff for exclusively focusing on these issues.
(c)
6.4.2 Structure of AMU: The AMU could consist of the following staff and officers: a. b. c. Head, AMU - preferably a person with Asset Management experience, including MIS and computer systems; Procurement Plan Officer- responsible for purchase planning, scheduling and design; Recording Officer - for review / maintenance of Fixed Asset Registers. Also to keep track of disposed assets, sales and preparation of various reports including depreciation schedules; Maintenance Plan Officer - To oversee all scheduled, planned maintenance, to co-ordinate with relevant departments to ensure all assets are in working condition and serviced in time; Other staff as may be needed
d.
e.
The AMU staff and officers must all be computer literate and reasonably proficient in working with electronic spreadsheets. If capacity building measures are necessary in these regards, the ULB must speedily plan for the same and implement necessary programs. Attention is to be paid to the qualifications and experience of the officers deputed to the AMU. At the minimum, officers should have formal accounting qualifications, with in-service training or external diplomas or other qualifications in information technology. Head of AMU should have at least ten years of work experience of which at least five years should have been in the area of evaluation of proposals, procurement, MIS, and asset accounting. Officer in charge of asset planning must have procurement as well as materials planning and capital budgeting experience. Staff should be appropriately chosen with regard to experience in accounting, procurement, and MIS.
35
6.5
Functions of AMU
6.5.1 The functions of the AMU shall be, without any loss of generality, as follow: i) Procurement Planning a. To prepare short and medium term asset acquisition plans in consultation with the proposer /user departments and to present the same with due financial impact exercises and alternatives for consideration of Competent Authority; b. To prepare general Procurement Plan for fixed assets before the beginning of the financial year in terms of the approved asset acquisition plans and to lay out necessary timelines, parameters and benchmarks; ii) Asset Acquisition c. To assist and facilitate the Purchase department in the process of acquisition of assets as per Asset Procurement Plan; d. To assist and facilitate the other execution departments to carry out the Procurement Plan; iii) Recording and Reporting e. To develop, update and maintain an asset tracking database with respect to the location, condition, and other parameters with respect to fixed assets; f. To develop, update and maintain a Capital Works in Progress database and to generate necessary MIS therefrom; g. To develop, update and maintain the Fixed Assets Register and to record all fixed asset related transactions which add to or subtract from the book-value of the asset; h. To separately maintain the register of impaired assets and assets scheduled for disposal with due attention to computation of value in use and recovery/salvage values. To also assure that due process is followed in determination of fair values and market prices; i. To prepare evaluative and analytical reports for the management from time to time; and j. To prepare depreciation schedules iv) Maintenance k. To prepare, in consultation with other departments, planned maintenance schedules and to oversee their implementation; l. To prepare, in consultation with concerned departments, schedules for conditional assessment and plans for major renovations, repairs, and modifications;
36
v) Disposal of Assets m. To prepare and follow through on the annual disposal plan for fixed assets; n. To prepare Asset renewal plan which would be fed into the capital procurement plan; 6.5.2 A separate list of reports to be prepared by the AMU and submitted to the Management should be drawn up. Such reports may include the following: a. b. c. d. e. f. g. h. i. j. Annual Procurement Plan; Short term and medium term capital budgets showing construction and acquisition of fixed assets; Review of Annual Procurement Plans with respect to targets and achievements quarterly and half-yearly; Annual Disposal and Salvage Plans and review of progress - quarterly and halfyearly; Fixed Assets Register; Planned Maintenance Schedule Conditional Assessment Schedule and Reports; Report on major repairs and renovations carried out on fixed assets and the effect thereof on remaining useful lives; Depreciation Schedules; and Such others as may deemed necessary from time to time
6.6
6.6.1
Using IT for asset management

Since most ULBs will have a large number of assets, it would be most efficient to use appropriate IT tools for their management. Asset tracking can be done through FARs which can be maintained on databases. Maintenance plans and schedules can be best managed through project management and resource scheduling software. Preparation of various reports should be automated and schedules (such as for depreciation) generated through software.
6.6.2 Most of these functions can be achieved through basic computer applications and minimal programming. It is strongly emphasized that ULBs should not, at the initial stages at least, look to use complex ERP systems which are difficult to implement.
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Chapter 7 Issues in Valuation

7.1 Freehold Land
All land ownership of which vests with the ULB should be included in the opening balance sheet. 7.1.1 Land acquired through purchase: The land will be recorded at the purchase price paid/payable and other incidental costs such as registration charges incurred to bring the asset to its present location and condition 7.1.2 Lands acquired through compulsory acquisition: The land will be recorded at the total compensation paid/ payable for the acquisition of the land. a. b. Compensation paid: It shall be valued at compensation actually paid. No Compensation Paid: If the asset was acquired without paying any compensation, then it shall be valued at Rupee One. However, any developmental work done should be capitalized at cost. Compensation in dispute: The amount paid will be recorded as the asset value. Any extra amount that may be payable, if determinable, should be shown as contingent liability. When any further amount is paid to the previous owner, it will be added to the asset in the year of payment.
c.
7.1.3 Vested government lands: Vested government lands are those lands which are neither owned by the ULBs nor does any economic benefit accrue to the ULB. The ownership of these lands vest with the State / Central government and the ULB merely acts as a trustee for these lands. As per Technical Guide issued by ICAI for ULBs, vested government land shall not be recorded as asset as neither ownership nor economic benefits is with ULBs. The description of such lands shall form a part of the notes to the balance sheet. 7.1.4 Land improvement: Original cost of any improvement to land, such as land development and land filling should be capitalized as an improvement to the land. 7.1.5 Land acquired through government grants: If the ULB has purchased land from government grants, then the cost of the land will be shown at gross value i.e. cost paid/ payable or as determined. The grant received should be shown as Capital Reserve in the Balance Sheet.
7.2
Buildings
The valuation of buildings shall be carried out as follows:
7.2.1 Buildings purchased: The purchase cost of the building shall include the purchase price cost and incidental costs such as registration charges and other costs incurred to bring the asset to its present location and condition.
38
7.2.2 Buildings constructed: If the building has been constructed, then the cost of construction will be taken as the cost. 7.2.3 Grants received in respect of buildings a. As per Technical Guide on Accounting for ULBs and AS 12 'Accounting for Grants' issued by ICAI, government grants related to specific fixed assets should be presented in the balance sheet by showing the grant as a deduction from the gross value of the assets concerned in arriving at their book value. Alternatively the building can be shown at gross value and the grant recognized as deferred income. Further, the income should be recognized in the income and expenditure account out of the deferred income account in the proportion of depreciation charged on the buildings in view of the requirements of AS 12.
b.
7.2.4 Heritage Buildings: Heritage buildings are generally to be valued in the same manner as other buildings. However, they are to be disclosed separately under the Head 'Heritage Assets' under Other Assets. The purpose is to distinguish the assets for their historical, cultural and / or religious significance and to recognize the restrictions on their use or sale.
7.3
7.3.1
Art and Historical items

ULBs should capitalize works of art, historical treasures, and similar assets at their historical cost. These items can be classified under 'Heritage Assets' under 'Other Assets'.
7.3.2 Government should disclose information about their works of art and historical collections. Capitalized collections or individual items that are exhaustible, such as exhibits whose useful lives are diminished by display or educational or research applications, should be depreciated over their estimated useful lives. Depreciation is not required for collections or individual items that are inexhaustible.
7.4
7.4.1 7.4.2
Value of land under Roads

Roads are generally built on property that is owned by the ULB. Hence, apart from the road, the land under the road also needs to be valued and accounted. Such land is to be kept under 'Land' and not included in 'Roads & Bridges'. The value of such land should be taken at the historical cost i.e. if any amount is paid to acquire it then at the compensation paid etc. If the amount cannot be ascertained, a nominal value of Rupee One should be considered for the land under each road.
7.5
7.5.1
Pipe networks
Networks will normally have trunks, mains, and sub-mains. This is equally valid for water supply as well as sewerage network.
7.5.2 Those parts of network which are relatively stand-alone should be considered separate assets on their own. The criterion to be also used is that failure of the smaller network is not critical to the continued operation of the larger one.
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7.5.3
While computing historical costs, original costs of digging an earth work should be included.
7.5.4 Any major cost for improvement of network functioning (for instance, removal of sediments and coating from mains or trunks) should be added to the book value.
7.6
Assets under Hire Purchase / Finance Lease

Hire Purchase / Finance Lease shall be treated as follows27: a. b. The purchase price shall be capitalized as the cost of fixed assets Hire Purchase (HP) installments shall be apportioned between the finance charge and the reduction of the principal outstanding. The finance charge shall be allocated so as to produce a constant periodic rate of interest on the remaining balance of the liability; The total amount of interest portion out of the 'HP Payable' shall be accounted by debiting to a control account under current assets. This amount will be adjusted on accounting of finance charges The depreciation policy for assets purchased under HP should be consistent with that for owned assets.
c.
d.
7.7
7.7.1
Intangible Assets
Intangible assets in ULBs will generally be in the nature of expenditure on software. The ULB will assess the expenditure made in development or purchase of the intangible asset in the last two years and capitalize it as fixed asset. In case the intangible asset has been provided free of cost, on a sharing basis, it should not be shown in the balance sheet. Expenditure below Rs.25,000/- should be charged to revenue and not capitalized. The process of valuation of intangible asset would be as follows: a. If Purchased: The cost of an intangible asset comprises its purchase price, including any import duties and other taxes (excluding recoverable amount from the taxing authorities), and any directly attributable expenditure like professional fees for legal services etc. on making the asset ready for its intended use. Any trade discounts and rebates are deducted in arriving at the cost. If Internally Generated: The cost of internally generated assets28 such as software should be determined in line with AS 26 'Intangible Assets'. Where the asset meets the criteria for recognition, its cost will comprises all
7.7.2
b.
27 28
Andhra Pradesh Municipal Accounts Manual, Chapter 8 Assets para 8.143 As per AS 26, an internal intangible asset should be recognised only if there is reasonable evidence of future economic benefit. For instance, no research expenditure is allowed to be capitalized. Further, internally generated brands, mastheads, publishing titles etc. are not permitted to be recognised as intangible assets since they cannot be distinguished from the cost of developing the business as a whole.
40
expenditure that can be directly attributed or allocated on a reasonable and consistent basis to create the asset / software for its intended use. Costs include (i) expenditure on materials and services used in developing the asset, (ii) salaries, wages and other employment related costs of personnel directly engaged in developing the asset, (iii) any expenditure that is directly attributable to generating the asset. However, it excludes (i) selling, administrative and other general overhead expenditure unless this expenditure can be directly attributed to making the asset ready for use; (ii) clearly identified inefficiencies and initial operating losses and (iii) expenditure on training the staff to operate the asset. c. d. If Gifted/Donated: If the asset was acquired without paying any price and gifted to ULB (or if it is donated): then it shall be valued at Rupee One. If Acquired though exchange: An intangible asset may be acquired in exchange or part exchange for old intangible asset. Where the assets exchanged are similar, the net book value of the asset which is exchanged should be taken, and to it the extra amount that is paid, if any, is added. If instead of an extra payment, a refund is involved, the necessary adjustment will have to be made. In case of dissimilar assets, the assets acquired should be recognized at its fair value.
7.7.3
The residual value of an intangible asset in ULBs should be assumed to be zero. Hence, the full cost should be 'amortized' over the estimated useful life of the asset. Subsequent expenditure on intangible assets should be generally recognized as an expense unless it increases the capacity or the life of asset.
7.7.4
41
Annexure 1 Further Guidelines for Preparation of Opening Balance Sheet

After valuing the fixed assets, the next step in this exercise is identification of investments, current assets and liabilities. 1. Investments
Investment means assets held not for operational purposes or for rendering services; and they include financial assets resulting from investments of cash surpluses. ULBs invest surplus funds in instruments like government securities, fixed deposits, debentures etc. The details are available in the Register of Investments (Form 16 under chapter 10 of APMAM). One hundred percent physical verification of the original certificates / instruments has to be made before recording them in the opening balance sheet. Value of investments will include acquisition costs such as fees, brokerage and duties. If any long term investment has any diminution in value, the reduced value should be considered. 2. Current assets include the following and shall be valued at the amount expected to be received by the ULB. 2.1 Cash on hand: The cash balance shown on the closing day of the financial year shall be included in the balance sheet. This is reflected in Form 17 under chapter 10 of APMAM. Cheques received, but not deposited in the bank should be shown in the opening balance as cheques in hand. Cash at bank: Cash at bank consists of balances with different banks in different accounts. The information should be made in Form 18 under chapter 10 of APMAM. The ULB should ensure that all bank accounts are listed and a comprehensive list of balances is prepared. The bank accounts should be classified appropriately into various major and minor head groups such as Municipal Funds Nationalised Banks or Special Funds Scheduled Banks or Grant Funds - Cooperative Banks etc. Balances as per ULB records shall be taken to the balance sheet. The balances in the ULB records should be reconciled with the bank balances on the date of opening balance sheet. 2.3 Prepaid expenses: Expenses that have been paid in advance and relate to a period after the date of opening balance sheet should be recognized as prepaid expense. Such expenses have to be classified as relating to (i) establishment, (ii) administration and (iii) operation and maintenance. No formats have been prescribed under APMAM. ULBs may make suitable records and list out the prepaid expenses. Details of prepaid expenses have to be prepared from the cash/bank books and other records. The prepaid expenses will be recorded as an asset under prepaid expenses schedule (B-16) Loans and advances: Loans and advances may be advances paid to contractors, suppliers and employees. These advances need be recovered or adjusted against bills. The information would be available in the Register of Advances (Form Gen-16).
2.2
2.4
42
Loans paid to staff such as festival loan, marriage loan, motor cycle loan etc. may or may not carry interest. Similarly, the staff are paid advances, viz. TA, TTA, LTC, advance pay etc. The interest on loans and advances should be accounted on accrual basis. While the information in respect of loans and advances to employees is available in the Register of Employee Loans / Advances (Form ES-2), the interest on loans to employees will be available in the Register of interest on loans to employees (Form ES-3). The information should be consolidated in Form 19 and 20 under chapter 10 of APMAM. 2.5 Receivables of taxes: ULB should determine the receivables for the tax income, which are to be recorded as current assets in the opening balance. The amounts receivable from these heads are the balances as per the Demand Registers (Form Gen 20), and Demand Notices (Form Gen-21) etc. The amounts receivable for these heads of income should be determined year-wise, segregating separately for atleast five years preceding the date of opening balance sheet. All amounts outstanding for a period beyond five years may be recorded under one head. (This arrangement facilitates the provisioning only; and for the purpose of filing prosecutions, suits etc. the period prescribed therefor may be followed). 2.6 Receivables of fees and rental income: This will include all receivables other than taxes and cover trade licence fees, rental income from markets, shopping complexes, and other remunerative enterprises which are amenable to accrual and which are entered in demand registers. If the fees or rentals warrant penalty or belated interest, they should also be included in the receivables. The total amount receivable from these heads of income can be obtained from Demand Register (Form Gen 20) of various items, and Demand Notices (Form Gen-21) etc. The amounts receivable from these heads of income is to be determined year-wise, segregating separately for atleast three years preceding the date of opening balance sheet. All amounts outstanding for a period beyond three years may be recorded under one head. (This arrangement facilitates the provisioning only; and for the purpose of filing prosecutions or suits etc, the yearwise segregation is different) Provisions shall be made for all receivables in accordance with the norms prescribed under chapter 5 of APMAM. 2.7 2.8 Interest receivable on investments/bank deposits: Interest on investments will be accounted on accrual basis. The information could be gathered from Investment Ledger/Register (Form IN-1). Stores and stock in hand: The stores involve activities like procurement, storage, issue, disposal and finally stock in hand at the end of the financial year. These activities may either be performed centrally at central stores (municipal store) or individual section-wise stores like public works, water works, street lighting, public health, medical etc. On delivery of material (from supplier) to ULB, the Stores in-charge will prepare a Material Receipt Note (Form ST-1). On the basis of Material Receipt Note, the Stores in-charge prepares a Stores Ledger (Form ST-2).
43
After various transactions in the stores like receipt of material (from suppliers), issue of material (to contractors) and return of material (if any from contractors) during the year, a statement of closing stock at the end of the year would be prepared in Form ST-3. At the end of the financial year, the stock in hand should be physically verified to the extent of 100%. Stores shall be valued at cost. While making valuation, First In First Out (FIFO) method should be followed. The consolidated stock in hand (inventory) shall be made in Form 23 A under chapter 10 of APMAM 2.9 Recoverable deposits: ULB may have kept deposits with third parties like Electricity Department, Telephone Department or any government department to fulfill certain obligations. If such amount can reasonably be classified as a refundable deposit (to the ULB), it should be shown as recoverable and current asset. Liabilities
3.
The liabilities include (i) Loans payable, (ii) Unutilised grants, (iii) Reserve funds, and (iv) current liabilities. (Deposits received and Payables) 3.1 3.2 Loans payable: ULB borrows funds from various lending agencies, mostly with guarantee of Government. Loans payable have to be recorded in Form 25 under chapter 10 of APMAM. Unutilised grants: Grants, if they are not utilized for the purpose for which they are given becomes a liability to the ULB. All such details should be recorded in Form 26 under chapter 10 of APMAM. Reserve Funds: Reserve Fund in the ULB represents amounts set aside and earmarked for meeting specific obligations and commitments. Details of Reserve Fund balances have to be recorded in Form 27 under chapter 10 of APMAM. Current liabilities
3.3
4.
Current liabilities comprise of the claims of external parties on ULB on account of any dues or other payables. These details can be gathered in Form 28 (Details of deposits received), and Form 29 ( Bills and other payable details ) under chapter 10 of APMAM 4.1 Deposits received: ULB receives various kinds of deposits from contractors and suppliers in the form of earnest money deposit (EMD) and security deposit. The ULB also receives security deposit from designated municipal officials like Bill Collectors and Cashiers etc. All the deposits need to be refunded to them at the completion of relevant obligation. Bills and other payables: ULBs, many a times, owe various amounts to various agencies and all the dues (payables) constitute liabilities. Some of the major items of liabilities include Dues payable to contractors and suppliers (bills received and payments not made), Salaries due to employees, Pensionary benefits due to pensioners Amounts deducted from payments made (by ULB) to contractors/employees on behalf of other agencies, but not paid like income tax, sales tax, profession tax, insurance
4.4
44
premium, bank loan recovery etc. 5. Library cess payable to Library Dept Electricity consumption charges payable to AP Transco Pensionary contribution payable to Pension Fund (municipalities in Coastal and Rayalaseema regions) Pensionary contribution payable to state funds (municipalities in Telangana region)
Fund balance
Once the values of all assets and liabilities are arrived, ULB shall record the net value or the balancing figure under the head Fund Balance. It has to be worked out in each of the Funds. The total of various Funds, either the net value or the balancing figure would become that of Municipal Fund. 6. Accounting entries The entry to be passed for incorporating the opening balances is given below:
Account Code 410-(b) 412- (b) 420/ 421- (b) 460-40-(a) 460-(b) 430-(b) 431- (b) 440- (b) 450-(b) 310-10-(a) 311-(b) 312- (b) 320- (b) 330/331 (b) 340-(b) 411- (b) Description Fixed Assets (Specify the name of the assets for e.g. Buildings) Dr Capital Work in progress Dr Investments (Specify the name of the relevant fund also) Dr Advance to Suppliers Dr Loans and advances Dr Stock in hand Dr Sundry Debtors Dr Prepaid expenses Dr Cash and Bank Accounts Dr To Municipal fund (General fund) To Earmarked funds To Reserves To Grants To Loans payable To Deposits (specify the nature of deposits) To Accumulated depreciation Fixed assets (Specify the name of the asset for e.g. Buildings) To Provision for Sundry Debtors To Provision for Loans & Advances To Provision for expenses To Other liabilities Amount (Rs.) Debit 5,00,000 3,00,000 1,00,000 50,000 30,000 25,000 1,00,000 10,000 60,000 3,54,000 80,000 1,20,000 1,00,000 1,50,000 25,000 3,00,000 Credit Books to be entered into Journal Book, Ledger
432- (b) 15,000 461- (b) 2,000 360-10-(a) 8,000 350-(b) 21,000 TOTAL 11,75,000 11,75,000 Narration: Being incorporation of Assets and Liabilities in the Opening Balance Sheet a. Insert Detailed Head Codes of Account as applicable b. Insert Minor and Detailed Head Codes of Account as applicable Note: The individual accounts within the major account heads listed above shall be debited/credited. A Journal Voucher shall be prepared for incorporation of account balances in the Opening balance sheet.
45
7.
Approval by Standing Committee/Council
After opening balance sheet is prepared, it shall be placed before the Standing Committee, in case of Municipal Corporation; or Council in case of Municipality and get its approval for adoption 8. Revision of Opening Balance Sheet
There may exist possibilities that certain assets and liabilities are identified after preparation of Opening Balance Sheet or even after Balance Sheets have been drawn up. In such case, the original balance sheet cannot be altered, but adjustments can be incorporated through the Adjustments to Opening Balance Sheet account in the period when asset or liability is newly identified. The amount of asset or liability should not be routed through the Income and Expenditure Account. An illustrative list of accounting entries required to be passed for incorporation of newly identified assets and liabilities are as under: 8.1 Incorporation of Land (e.g. ground, open market, etc.)
Account Code Description Amount (Rs.) Debit Credit
Books to be entered into Journal Book Ledger
410-10-(a) 310-10-(a)
Land a/c ................................... Dr To Adjustments to Opening balance sheet
1,00,000 1,00,000
Narration: Being incorporation of Land in the subsequent Opening Balance Sheet (a) 8.2 Insert Detailed Heads Codes of Account as applicable
Incorporation of Buildings (e.g. Art Gallery Building, Auditorium Building, etc.)

Books to be entered into Journal Book Ledger
410-20-(a) 310-10-(a)
Buildings a/c ........................... Dr To Adjustments to Opening balance Sheet
10,00,000 10,00,000
Narration: Being incorporation of Buildings in the subsequent Opening Balance Sheet (a) Insert Detailed Heads Codes of Account as applicable
46
8.3
Incorporation of Contractor Bills Payable in respect of maintenance of road

Books to be entered into Journal Book , Ledger
310-10-(a) 350-10-(a)
Adjustments to Opening balance sheet .....Dr To Contractors Control Account
10,00,000 10,00,000
Narration: Being incorporation of Contractors Bills Payable in the subsequent Opening Balance Sheet (a) Insert Detailed Heads Codes of Account as applicable.
This account Adjustments to Opening Balance Sheet will be shown as an addition to the Municipal Fund at the time of preparation of the Balance Sheet. While incorporating the value of newly identified assets and liabilities in the Balance Sheet, it should be ensured that details of these assets and liabilities have also been incorporated in the relevant registers such as Fixed Assets Register, etc.
47
Annexure 2 Current Standard Cost Rates / Standard Schedule of Rates for Assets in ULBs
1. Buildings
Cost per unit plinth area of building (in rupees) Ground First Floor Floor and above 4 5 6,200 5,600 5,000 4,400 3,200
No.
Classification of building
Unit
1 1 2 3
2 3 RCC framed - posh structure Sqm RCC framed - ordinary structure Sqm Madras terrace/ Mangalore tiles/ AC Sqm sheet roof
Note: Other small civil structures the standard cost may be arrived at based on standard schedule of rates (SSR) and market rates. 2. Roads, pavements, footpaths and drains
S. No. 1 Roads and pavements CC 1 CC Road / pavement of carriage width 3.75 m Km without reinforcement CC Road / pavement of carriage width 3.75 m Km with nominal reinforcement 36.00 lakhs Item 2 Unit 3 Cost per unit (in rupees) 4
45.00 lakhs
Roads and pavements BT roads Sub grade 3 Sub surface of 150 mm thickness gravel with Km granular sub base (WBM) of 225 mm thickness for carriage width 3.75 m 22.00 lakhs
Roads and pavements BT roads Wearing surface 4 Wearing surface, chip carpet of 20 mm Km thickness and type B seal coat for carriage width 3.75 m Wearing surface of bituminous macadam (BM) Km of 50 mm thickness and wearing course of semi dense bituminous concrete of 25 mm thickness with carriage width 3.75 m 8.00 lakhs
13.50 lakhs
48
S. No. 1 Road dividers 6
Item 2
Unit 3
Cost per unit (in rupees) 4
RCC median pre-casted concrete blocks as per Km IRC standard
3.00 lakhs
Foot paths 7 BS slab footpath of 1 m width with kerb stone Km of 10 cm thick and 30 cm height CC footpath of 1 m width with kerb stone of Km 10 cm thick and 30 cm height Footpath of I m width with interlocking cement Km concrete blocks pavement (cobble stone) 5.90 lakhs
7.65 lakhs
9.00 lakhs
Note CC Roads and pavements: The CC roads are considered as rigid pavements for roadways as per ICR-58-2000. The cost is calculated, considering the laying of roads without reinforcement. The unit cost is calculated for a nominal thickness of 0.25 m on a prepared sub surface without reinforcement for a unit width of 3.75 m carriage way and a length of one km. Roads with metal sub grade and bituminous wearing surface: The roads have sub base course of gravel, laterite, kankar, brick metal, crushed stone, crushed slag, crushed concrete or combination of these base course of conventional water bound macadam (WBM), wet mix macadam or other equivalent granular construction conforming to IRC, which termed it as flexible pavement as per IRC-37-2001. The unit construction cost of sub-grade for a nominal minimum thickness of 225 mm is worked out for a unit width of 3.75 m carriage way and a length of one km. The costs referred above are worked out for standard dimensions specified thereat. Actuals have to be worked out based on site dimensions and pro-rata basis.
49
3. Culverts, bridges, subways, flyovers and storm water drains

S. No. 1 Culverts and causeways 1 2 Item 2 Unit 3 Each Cost per unit (in rupees) 4 22,000 30,000
Culvert with hume pipe of 1 m dia for a road with parapet walls
Culvert of size 1 sq. m. of masonry walls with RCC deck slab and Each parapet wall Sqm Sqm Sqm Sqm Sqm Rm Rm Rm Rm Rm Rm Rm Rm Rm Rm Km Km Km
Bridges 3 Major bridge 4 5 Minor bridge Small bridge
19,500 23,000 28,000 19,000 22,500 2,300 3,200 6,100 9,500 11,000 5,300 7,000 11,600 16,400 18,300 4.30 lakhs 9.70 lakhs 20.00 lakhs
Flyovers 6 Flyovers, Grade separators of all types and spans Subway 7 RCC pedestrian subway Storm water drains 8 9 10 11 12 13 14 15 16 Size stone masonry drains of size range upto 1 cum Size stone masonry drains of size range of 1 cum to 3 cum Size stone masonry drains of size range of 3 cum to 6 cum Size stone masonry drains of size range of 6 cum to 10 cum Size stone masonry drains of size range of above 10 cum Reinforced Cement Concrete (RCC) of size range upto 1cum Reinforced Cement Concrete (RCC) of size range of 1cum to 3 cum Reinforced Cement Concrete (RCC) of size range of 3cum to 6 cum Reinforced Cement Concrete (RCC) of size range of 6 cum to 10 cum
17 Reinforced Cement Concrete (RCC) of above 10 cum Road side drains 10 11 12 BS slab (box type) drains of size RCC drain of size 0.6 m x 0.6 m 0.6 m x 0.6 m Size stone masonry box drain of size 0.6 m x 0.6 m
Note Classification of culverts and bridges is made as per IRC-SP-13-2004 Culvert is a cross drainage structure having a total length of 6 m or less between the inner faces of abutment. Major bridge is a structure having a total length of more than 60 m between the inner faces of abutment.
50
Minor bridge is a structure having a total length of more than 30 m and upto 60 m between the inner faces of abutment. Small bridge is a structure having a total length of more than 6 m and upto 30 m between the inner faces of the abutment; and individual span is not more than 10 m. Storm water drains are normally designed for maximum flood discharge over a period of time. Normally, they do not have standard cross section. The cost of construction of storm water drains therefore should be calculated based on the cross sectional areas of vents. The estimates of standard drain size of 0.6m x 0.6 m are furnished. Linear variations have to be adopted for calculating costs for different sizes of drains.
4. Water supply and sewerage pipelines.

S. No. 1 Water source system 1 Item 2 Dia size 3 length 4 Cost (in rupees) 5 As per valuation of building Same as storm water drain 15,000 per ton 9,000 each meter meter meter meter meter meter meter meter meter meter 9.95 6.81 2.94 2.57 4.58 7.14 6.48 6.77 4.20 3.47
Overhead tank / Ground level reservoir Channel
Water transmission system 1
Water distribution system 1 MS steel tanks 2 Hand pumps Water supply lines (main and distribution system) 1 CI Pipes 10 mm 2 3 4 5 6 7 GI Pipes PVC Pipes RCC Pipes PSC Pipes MS Pipes HDPE 10 mm 10 mm 10 mm 10 mm 10 mm 10 mm 10 mm 10 mm 10 mm
8 AC Pipes Sewerage lines 9 10 SWG Pipes RCC Pipes
Note -
The cost of different pipes are calculated by reference to the pipe material factor given in the table and its length and diameter as below: Cost of pipes = Factor x diameter (mm) x length (m). This includes all costs such as supply of pipes, excavation, laying of pipes and refilling trenches
51
5. Electrical installations
S. No. 1 1 2 5 6 7 8 3 Description 2 Structure including cross arm/braces etc. for 25 to 63 KVA Structure including cross arm/braces etc. for 100 to 250 KVA Transformer cost 25 KVA Transformer cost 63 KVA Transformer cost 100 KVA Transformer cost 250 KVA Cost of line material, distribution system, earthing, oils, paintings etc. Unit 3 One One One One One One One Cost (in rupees) 4 15,000 18,00 45,000 60,000 75,000 1,53,000 56,500
Electrical installation HT transformer
Electrical installation LT transformer 10% less than transformer costs Transformer distribution box 16 Upto 10 KVA 17 18 19 20 21 22 23 24 25 26 27 28 29 Above 100 KVA upto 250 KVA RCC poles Tubular steel poles CI poles SV lamp fitting 125 W SV lamp fitting 250 W SV lamp fitting 400 W MV lamp fitting 125 W MV lamp fitting 250 W MV lamp fitting 400 W Tube light fitting Single tube Lamp posts all lengths upto 9 m One One One One One One One One One One One One One One 5,500 7,500 9,000 3,500 6,800 7,100 3,100 6,200 6,300 1,700 2,000 3.00 lakhs 3.75 lakhs 4.00 lakhs One One HT
48,000 76,000
Electrical fittings including holders, necessary fixtures and lamp cost
Tube light fitting Double tube High mast fitting pole height 12 m / 5 fittings with 5 x 2 lamps 30 High mast fitting pole height 15 m / 8 fittings with 8 x 2 lamps 31 High mast fitting pole height 16 m / 8 fittings with 8 x 2 lamps Electrical installations cables - HT or LT cables 32 33 HT cables LT cables
Meter Meter
1,400 500
52
6. Pumps
S. No. 1 1 2 3 4 Description 2 Pumps based on 5 to 10 HP Pumps based on 10 to 25 HP Pumps based on 25 to 50 HP Pumps based on more than 50 HP HP HP HP HP Unit 3 Cost (in rupees) 4 17,000 13,000 11,000 10,000
Note The above rates are inclusive of all mechanical and electrical equipment
General 1. In respect of assets relating to water supply source and transmission system, the following procedure be adopted 2. For valuation of OHT/GLR, structure to house the plant and machinery and the reservoirs, the current standard cost of rates for civil structures be adopted. For valuation of channels, current standard cost rates of storm water drains are applicable For valuation of conduits (main lines), the current standard cost rates of water supply mains and distribution system be adopted For valuation of plant and machinery, and laboratory equipment under water supply and sewerage shall be valued on case-to-case basis.
For valuing heavy vehicles, light vehicles and other vehicles, plant, machinery, equipment, furniture, fixture and office equipment, the current market value has to be applied and deflated with reference to the age of the asset. Wherever, ULB records regarding expenditure incurred on the fixed assets are available, they should be adopted as value of assets. When records are not available, the current standard cost has to be adopted. The actual expenditure incurred by ULB or current standard cost provided in respect of the fixed assets have to be adopted, only when the assets are not outlived their useful life/estimated life. In case, the assets have outlived their useful life/estimated life as prescribed, a nominal value of rupee one has to be adopted. In all cases, where current standard cost rates are not provided, the cost has to be worked out on case-to-case basis; and the cost has to be approved by the Steering Committee/Council of the ULB constituted for the purpose.
3.
4.
5.
53
Annexure 3 Estimated Useful Life (in Years) of Various Assets in ULBs

Broad category of Assets 2 SLM rate per annum 5 Nil
S. No 1
Assets which can be included in the category 3 Vacant land on which no construction is made Layout open spaces Roads Parks and play grounds Burial grounds Main office building Circle/ward office buildings School buildings Hospitals/dispensaries Maternity and child welfare centres Commercial/shopping complexes Travelers bunglows Officers quarters Staff quarters Town halls/ theatres/ function halls Stadia etc
Estimated life in years 4 Infinite
Lands 1 Land
Buildings 1 Buildings with RCC roof Buildings with other than RCC roof 50 years 2.0%
20 years Market sheds Open air theatres Bus shelters Public conveniences Community halls / anganwadis / balwadis etc Bus shelters Fountains Seats in parks Compound walls CC Roads 10 years
5.0%
Small civil constructions CC Roads (including lanes) BT Roads (including lanes) -
10.0%
Roads 1 10 years 10.0%
BT Roads
5 years
20.0%
54
S. No 1 3
Broad category of Assets 2 Stone / metal roads (including lanes) Pavements/ Footpaths -
Assets which can be included in the category 3 Stone / shabad stone/metal roads
Estimated life in years 4 3 years
SLM rate per annum 5 33.3%
Concrete Others
10 years 3 years 40 years
10.0% 33.3% 2.5%
Bridges, culverts and fly-overs 1 Bridges, culverts and fly-overs 2 Subways, causeways and footbridges Storm water drains Road side drains Storm water drains (open or covered of any size)
15 years
6.6%
Drains 1 2 15 years 10 years 6.6% 10.0%
- Open mason drains
Water Supply & Sewerage 1 Water supply pipelines main/distribu tion 2 Water supply pipelines main/distribu tion Distribution lines Sewerage lines Water supply -
MS/GI/CI
40 years
2.5%
AC/plastic/polythene/PVC
20 years
5.0%
3 4 5
PVC, MDP/HDPE, Metal pipes MS/GI/CI Summer storage tanks Channels Service reservoirs Ground level Service reservoirs Elevated/Overhead Motor connected Hand - bore wells
20 years 30 years 50 years 25 years 40 years 30 years 5 years
5.0% 3.3% 2.0% 4.0% 2.5% 3.3% 20.0%
Bore wells
55
S. No 1 7
Broad category of Assets 2 Deep borewells Street light posts Street lighting installations (mostly central lighting) Street lights -
Assets which can be included in the category 3 Ground water well/deep borewells
Street lighting 1 2 30 years Cables Transformers 20 years 3.3% 5.0%
Street light fittings
MV lamps SV lamps Tube lights MV lamp fittings SV lamp fittings High mast lamp fittings Tube light fittings Play equipment Gym equipment
2 years
50.0%
10 years
10.0%
3 years 5 years
33.3% 20.0%
Play equipment 1 Play equipment in parks/play grounds -
Plant and machinery 1 Plant, machinery and equipment (Engineering related)
Road rollers Bull dozers Mechanical sweepers CC mixers BT mixers Civil engineering/town planning equipment Medical equipment School equipment etc Pumps / motors /machinery Submersible pumps etc Pumps / motors /machinery
10 years
10.0%
2 3
Water works installations Sewerage works installations Lab equipment
10 years 10 years
10.0% 10.0%
10 years
10.0%
56
S. No 1
Broad category of Assets 2 Heavy vehicles -
Assets which can be included in the category 3 Lorry Tractor Tipper Water Tanker etc. Earth moving vehicles Car Jeep Mini lorry Auto rickshaw Motor cycle etc Carts Bicycles Tricycles etc
Vehicles 1
Light vehicles
8 years
12.5%
Other vehicles Wheel borrows Furniture and fixtures
5 years
20.0%
Wheel borrows (sanitation and engineering 3 years sections) Steel/wooden chairs Steel/wooden tables Steel/wooden racks Steel/wooden cupboards etc. Typewriters Duplicating machines Photo copying (Xerox) machines Telephones Air conditioners Water coolers Refrigerators Ceiling fans Electric fittings Radios TVs Office equipment Public address system etc Computers Peripherals like printers, UPS, CDs, mouse etc. 10 years
33.3%
Furniture, fixtures and equipment 1 10.0%
Office equipment
5 years
20.0%
Computers
5 years
20.0%
57
Note: In case the estimated useful life of the asset need revision or becomes lower than the one specified in column (4), the depreciation shall be calculated by dividing the written down value of the asset as on date with the remaining useful life of the asset
58
Annexure 4 Index for Deflating Cost for Valuation of Assets

For the purpose of valuating assets, ULBs should determine the standard current cost of assets, and using a deflator, represent its cost in the year of purchase. For the purpose of arriving at its cost in the year of purchase, the following inflation index should be adopted
Financial Year 1981-82 and earlier 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 Inflation Index 100 109 116 125 133 140 150 161 172 182 199 223 244 259 281 305 331 351 389 406 426 447 463 480 497 519 551
59
Illustration A building belonging to ULB is identified. Using the current standard cost rate, the value is determined in 2007-08 at Rs.5,00,000. The building is known to have been completed in the year 1996-97. Then, the deflated standard cost of the building in the year 1996-97 would be 5,00,000 x (305/551)= 2,76,770 This represents the estimated cost of the building, if it was constructed in the year 1996-97, derived from it current standard cost. In order to arrive at its current estimated value, i.e., on 1-4-2008, depreciation should be provided on this for the period from 1996-97 to 2007-08, ie., 12 years. Hence the cost of the building to be included in the balance sheet as on 1-4-2008 would be as follows: Rs. Current standard cost of building 5,00,000 2,76,770 Deflated standard cost in 1996-97 Depreciation till 2007-08 (12 Years) Estimated current value (for opening balance) 66,425
@ 2% per annum
2,10,345
(2,76,770 minus, 66,425)
60
Annexure 5 Flow Chart for Maintenance of Fixed Asset Register
Prepare Capital Procurement Plan
Issue Procurement / Works Order
Procurement of Works (contract)
Procurement of Goods (supply)
Running Bills based on Work done Till Final Bill Approved of Bills
Material Received and Stored
Issued for use
Asset Put
CWIP REGISTER
Remove
into Use
Record
FIXED ASSET REGISTER
Periodic Evaluation of Condition
Asset Retired from Use / disposed
Annual
Depreciation Schedule
Remove from Register
61
Annexure 6 Formats of Fixed Asset Registers

Registers have been prescribed for 11 categories of assets viz. I. 3. 5. 7. 9. 11. Register of Land Register of Roads & Bridges Register of Water Work Assets Register of Plant and Machinery Register of Office & other equipments Register of Other Fixed Assets 2. 4. 6. 8. 10. Register of Buildings Register of Sewerage and drainage Assets Register of Public Lighting Assets Register of Vehicles Register of Furniture, fixtures, fittings and Electrical appliances
General Instructions for use of the Fixed Assets Register: i. All the assets should be categorized into relevant asset class. Unique asset identification numbers are to be provided for all assets. Separate Registers shall be maintained for each class of structures owned by the ULB. ii. Each asset shall be recorded on a separate page in the register. iii. At the end of the accounting year, the 'Closing / depreciated value' in respect on the current year shall be entered as 'Opening Value' of the next year (next row). iv. In the year in which there is any acquisition / improvement to the asset, show such cost in the current year's 'Opening / acquisition' column. v. For each entry made, record the Name, Designation and Signature of the person making entry in the register and the person checking the entry. vi. Totals should be taken at the end of each year in respect of total cost incurred on acquisition / construction / improvement (from the date of acquisition/construction) for each of the assets owned by the ULB. vii. In Remarks column, indicate whether the ULB has the ownership right to the property or have only utilization rights.
62
1. REGISTER OF LAND Name of ULB Sketch the Boundaries of the Land: Asset No.: Description of the Land: Location of the Land: Survey No. of the Land: Area (sq. mtr.): Title documents available: Mode of acquisition:
Date of Acquisition / Improvement Description of Expense Opening Value Entry Ref. in /Amount of Cash Book Acquisition (Rs.) Use of Land Date of Disposal To whom disposed Amount of Disposal (Rs.) Entry Ref. in Cash Book Remarks
Total for the year 20**-20** Total for the year 20**-20**
Total for the year 20**-20**
63
2. REGISTER OF BUILDINGS Name of ULB Asset No.: Location of the Structure: Survey No. of the land on which Structure is located: Area of land on which constructed (sq. mtr.): Reference to Land Register:
Date of Acquisition / Description construction / of Expense Improvement Opening Value Entry Ref. /Amount of Use of in Cash acquisition Building Book (Rs.)
Description of the Structure: Title documents available: Mode of acquisition: Dimensions of the Structure: Rate of Depreciation
Annual Depreci ation (Rs.)
Closing/ Depreciated Value (Rs.)
Date of Disposal
To whom disposed
Amount of Entry Ref. Disposal in Cash (Rs.) Book
Remarks
64
3. REGISTER OF ROADS & BRIDGES Name of ULB Asset No.: Location of the Road / Bridge: Footpath / Flanks: Length: Width: Area of land on which constructed (sq. mtr.) Rate of Depreciation: Date of Description construction / of Expense Improvement Description: (Type of Road / Bridge): Total area of Road / Bridge (sq m): Carriageway: Length: Width: Reference to Land Register: Amount Entry Details of on Ref. in disposal / Remarks Disposal Cash conversion (Rs.) Book
Closing/ Opening Value Entry Ref. Type of Annual Depreciate /Amount of in Cash Road/ Depreciat construction d Value Book Bridge ion (Rs.) (Rs.) (Rs.)
Date of Disposal / conversion
Total for the year 20**-20** Total for the year 20**-20** Total for the year 20**-20**
65
4. REGISTER OF SEWERAGE & DRAINAGE ASSETS Name of ULB
Asset No.: Location of the Asset: Measure of Asset (Length etc. Date of Description construction / of Expense acquisition Opening Value Entry Ref. /Amount of in Cash acquisition Book (Rs.)
Type of Asset: Description of Asset: Rate of Depreciation: Annual Depreciat ion (Rs.) Closing/ Depreciated Value (Rs.) Amount Entry on Ref. in Remarks Disposal Cash (Rs.) Book
Use of Asset
Date of Disposal
Details of disposal
66
5. REGISTER OF WATER WORK ASSETS Name of ULB
Asset No.: Location of the Asset: Measure of Asset (Length etc. Date of Description construction / of Expense acquisition Opening Value Entry Ref. /Amount of in Cash acquisition Book (Rs.)
Type of Asset: Description of Asset: Rate of Depreciation: Annual Depreciat ion (Rs.) Closing/ Depreciated Value (Rs.) Amount Entry on Ref. in Remarks Disposal Cash (Rs.) Book
Use of Asset
Date of Disposal
Details of disposal
67
6. REGISTER OF PUBLIC LIGHTING Name of ULB Asset No.: Location of the Asset: Details of Streetlight: Date of Description construction / of Expense acquisition Opening Value Entry Ref. /Amount of in Cash acquisition Book (Rs.) Type of Asset: Description of Streetlight: Rate of Depreciation: Annual Depreciat ion (Rs.) Closing/ Depreciated Value (Rs.) Amount Entry on Ref. in Remarks Disposal Cash (Rs.) Book
Use of Asset
Date of Disposal
Details of disposal
68
7. REGISTER OF PLANT & MACHINERY Name of ULB Asset No.: Location of the Asset: Technical Specifications Date of Description construction / of Expense acquisition Opening Value Entry Ref. /Amount of in Cash acquisition Book (Rs.) Type of Asset: Description of Asset: Rate of Depreciation: Annual Depreciat ion (Rs.) Closing/ Depreciated Value (Rs.) Amount Entry on Ref. in Remarks Disposal Cash (Rs.) Book
Use of Asset
Date of Disposal
Details of disposal
69
8. REGISTER OF VEHICLES Name of ULB Asset No.: Location Base: Specification of Vehicle (Regn No.) Date of purchase/ acquisition Opening Value Entry Ref. /Amount of in Cash acquisition Book (Rs.) Type of Vehicle: Description of Vehicle: Rate of Depreciation Annual Depreciat ion (Rs.) Closing/ Depreciated Value (Rs.) Amount Entry on Ref. in Remarks Disposal Cash (Rs.) Book
Description of Expense
Use of Asset
Date of Disposal
Details of disposal
70
9. REGISTER OF OFFICE & OTHER EQUIPMENT Name of ULB Asset No.: Location of the Asset: Details of Asset (Model No. Serial No. etc.)
Date of purchase/ acquisition Opening Value Entry Ref. Description of /Amount of in Cash Expense acquisition (Rs.) Book
Type of Asset: Description of Asset: Rate of Depreciation:

Annual Depreciat ion (Rs.) Closing/ Depreciated Value (Rs.) Amount on Disposal (Rs.) Entry Ref. in Cash Book
Use of Asset
Date of Disposal
Details of disposal
Remarks
71
10. REGISTER OF FURNITURE, FIXTURES, FITTINGS AND ELECTRICAL APPLIANCES Name of ULB Asset No.: Location of the Asset: No. of units:
Date of purchase/ acquisition Opening Value Entry Ref. Description of /Amount of in Cash Expense acquisition (Rs.) Book
Type of Asset: Description of Asset: Rate of Depreciation

Annual Depreciat ion (Rs.) Closing/ Depreciated Value (Rs.) Amount on Disposal (Rs.) Entry Ref. in Cash Book
Use of Asset
Date of Disposal
Details of disposal
Remarks
72
11. REGISTER OF OTHER FIXED ASSETS Name of ULB Asset No.: Location of the Asset: No. of units: Date of purchase/ acquisition Opening Value Entry Ref. Description /Amount of in Cash of Expense acquisition Book (Rs.) Type of Asset: Description of Asset: Rate of Depreciation Annual Depreciat ion (Rs.) Closing/ Depreciated Value (Rs.) Amount Entry on Ref. in Remarks Disposal Cash (Rs.) Book
Use of Asset
Date of Disposal
Details of disposal
73
GOVERNMENT OF ANDHRA PRADESH ABSTRACT MA & UD Department Accounting Reforms Implementation of Double Entry Accounting System in Urban Local Bodies Andhra Pradesh Municipal Asset Valuation Methodology Manual Approved Orders Issued. -x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x
MUNICIPAL ADMINISTRATION AND URBAN DEVELOPMENT (UBS) DEPARTMENT
G.O.Ms.No. 217
,MA
Dated:18.05.2010 Read the following:
1. From the Managing Director, APUFIDC Limited Lr.No.5676/DEABAS/ 2007 Dated: 02.03.2009. 2. Govt. Memo No.4767/UBS/2009 dated:23.03.2009. 3. From Director General, CGG., Lr.No.RIF No.05-1007-003/2008-09 dated 09.04.2009. 4. From Director General, CGG., Lr.No.CGG/PRG/CON/2405/2009-10 dated 03.02.2010. 5. Govt. Memo No.4767/UBS/2009 dated 06.03.2010. 6. From Director General, CGG., Lr.No.CGG/PRG/CON/2405/2009-10 dated 20.03.2010. *** *** O R D E R: The Government has been taking several initiatives towards Good Urban Governance and making Urban Local Bodies (ULBs) self sustaining viable entities of local self governance. Implementation of key municipal reforms including accounting reforms is an important element of these initiatives. 2. The Government of India, Ministry of Urban Development developed a Model National Municipal Asset Valuation Methodology Manual which can be referred by Urban Local Bodies (ULBs) for valuation of their assets and preparation of Financial Statements and this manual is developed to introduce a uniform methodology for asset valuation in the context of implementation of accounting reforms. The Managing Director, Andhra Pradesh Urban Finance and Infrastructure Development Corporation Limited (APUFIDC) has requested to consider adoption of manual for the use of Local Bodies in evaluation of the assets for implementation of opening balance sheet vide reference 1st read above. 3. In the reference 4th read above, the Centre for Good Governance (CGG) has developed Andhra Pradesh Municipal Assets Valuation Methodology Manual and suggested that the manual may be discussed with all stake holders and obtain their views. The Managing Director, Andhra Pradesh Urban Finance and Infrastructure Development Corporation Limited (APUFIDC) has obtained and forwarded the views and suggestions of Expert Management Cell and the Regional Chartered Accountant firms on the draft manual. 4. In the reference 6th read above, the Director General, Centre for Good Governance (CGG) has informed that the remarks of Urban Governance Expert have been incorporated in the manual and submitted final version of Andhra Pradesh Municipal Asset Valuation Methodology Manual for approval of Government. 5. Government after careful examination, hereby approve the Andhra Pradesh Municipal Asset Valuation Methodology Manual developed by Centre for Good Governance and direct that this Manual shall be adopted by all the Urban Local Bodies in the State. The Director General, Centre for Good Governance (CGG) will separately send required number of copies of the manual for distribution to the Urban Local Bodies (ULBs) to Commissioner and Director of Municipal Administration, Hyderabad. Contd2..
:: 2 :: 6. The Commissioner and Director of Municipal Administration, Hyderabad and Managing Director, Andhra Pradesh Urban Finance and Infrastructure Development Corporation Limited (APUFIDC) shall take further necessary action in the matter.
(BY ORDER AND IN THE NAME OF THE GOVERNOR OF ANDHRA PRADESH)
T.S.APPA RAO PRINCIPAL SECRETARY TO GOVERNMENT To The Commissioner and Director of Municipal Administration, Hyderabad. The Managing Director, APUFIDC Limited, Hyderabad. All Municipal Corporations in the State through C&DMA., Hyderabad. All Municipalities in the State through C&DMA., Hyderabad. Copy to: The Director General, Centre for Good Governance, Road No.25, Jubilee Hills, Hyderabad. The P.S. to M(MA) The P.S. to Principal Secretary (UD) to Government, MA & UD Department. The P.S. to Principal Secretary (MA) to Government, MA & UD Department. The Law (A) Department. Sf/Sc
//FORWARDED BY ORDER//
RESEARCH OFFICER

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Andhra Pradesh Municipal Asset Valuation Methodology Manual

Government of Andhra Pradesh Municipal Administration & Urban Development Department

CENTRE FOR GOOD GOVERNANCE Knowledge Technology People

Rajiv Sharma Director General

Andhra Pradesh Municipal Asset Valuation Methodology Manual

Andhra Pradesh Municipal Asset Valuation Methodology Manual

Andhra Pradesh Municipal Asset Valuation Methodology Manual

Chapter 7 7.1 7.2 7.3 7.4 7.5 7.6 7.7

Andhra Pradesh Municipal Asset Valuation Methodology Manual

Andhra Pradesh Municipal Asset Valuation Methodology Manual

Chapter 1 Using This Manual

Purpose of the Manual

Andhra Pradesh Municipal Asset Valuation Methodology Manual

Structure of the Manual

Andhra Pradesh Municipal Asset Valuation Methodology Manual

Chapter 2 Definition and Categorization of Assets

Definition of Fixed Assets

Andhra Pradesh Municipal Asset Valuation Methodology Manual

Accounting Standards for Assets

Andhra Pradesh Municipal Asset Valuation Methodology Manual

Existing classification by ULBs

Asset Classification as per APMAM

Andhra Pradesh Municipal Asset Valuation Methodology Manual

vii) viii) ix) x) xi) 2.7.2 2.7.3

Andhra Pradesh Municipal Asset Valuation Methodology Manual

Andhra Pradesh Municipal Asset Valuation Methodology Manual

2.8.4 2.8.5 2.8.6 2.8.7

Andhra Pradesh Municipal Asset Valuation Methodology Manual

Suggested coding of Assets

xi) Other Fixed Assets

Andhra Pradesh Municipal Asset Valuation Methodology Manual

Andhra Pradesh Municipal Asset Valuation Methodology Manual

Chapter 3 Valuation of Assets - General Principles

Accounting Principles for Fixed Assets

Andhra Pradesh Municipal Asset Valuation Methodology Manual

Recognition of Fixed Assets

Andhra Pradesh Municipal Asset Valuation Methodology Manual

Andhra Pradesh Municipal Asset Valuation Methodology Manual

Self constructed assets

Assets acquired under exchange

Andhra Pradesh Municipal Asset Valuation Methodology Manual

Andhra Pradesh Municipal Asset Valuation Methodology Manual

3.11 Process of Valuation

Andhra Pradesh Municipal Asset Valuation Methodology Manual

Chapter 4 Valuation of Assets for Opening Balance Sheet

Process for Preparation of Opening Balance Sheet

Andhra Pradesh Municipal Asset Valuation Methodology Manual

Andhra Pradesh Municipal Asset Valuation Methodology Manual

Andhra Pradesh Municipal Asset Valuation Methodology Manual

Was the asset received as a gift?

Use Historical Cost

Is it beyond useful life?

Is the year of purchase available?

Can we estimate year?

Does it appear to be beyond useful life?

Andhra Pradesh Municipal Asset Valuation Methodology Manual

Asset received as a gift

Historical Cost Based

Andhra Pradesh Municipal Asset Valuation Methodology Manual