Every component counts mind the gap! 24 March 2011

Transcription

1 Every component counts mind the gap! Presented by: Maria Hallows 24 March 2011

2 Programme Where are we now? The future... SORP 2010 Practical implications

3 Where are we now? current practice Not widely applied Guidance in FRS 15 Guidance in RSL SORP 2008 SORP 2010, Technical Notes

4 SORP 2010 Technical Note Component Accounting (Appendix A) Aims to give practical advice Applicable accounting periods beginning 1 April 2011 or earlier!

5 FRS 15 Subsequent expenditure should be capitalised... where a component of the tangible fixed asset that has been treated separately for depreciation purposes and depreciated over its individual useful economic life, is replaced or restored

6 Para 176 SORP 2008 Where ahousing property comprises two or more major components with substantially different useful economic lives, each component should be accounted for separately and depreciated over its individual useful economic life

7 Para 126C SORP 2010 A housing property will always comprise several components with substantially different useful economic lives, each component should be accounted for separately and depreciated over its individual useful economic life

8 IAS 16 Each significant part of an item of PPE (property plant and equipment) should be depreciated separately Group assets with the same useful economic lives and depreciation methods Use an appropriate depreciation method for the remainder of the asset Option to adopt component accounting for the individually insignificant components

9 10 key steps 1. Identify and agree components to be accounted for SORP suggested list Own records Asset management strategy

10 SORP Example components Land Lifts Structure Heating/boiler systems Roofs Kitchens Windows Bathrooms Source: SORP 2010

11 10 key steps 2. Agree life assumption for each component Standard lifetimes? DETR document on the Major Repairs Allowance RICS build cost data Estimations consistent... Will still have inconsistency

12 10 key steps 3. Agree method for allocating original cost to individual components Costs of individual components may be difficult to identify Allocation based on Estimation techniques OR Asset management software Treatment of directly attributable overheads may be contentious Managementcosts

13 Estimation techniques Use own data/records for similar schemes/properties NHF/Savills national matrix of property components Use in exceptional circumstances when all other reasonable sources of internally generated information have been exhausted

14 NHF matrix Bedroom size 3/4 Useful life (years) House Nontraditional house Bungalow Flat high rise (average 70 dwellings) Flat med rise (average 25 dwellings) Flat low rise (average 25 dwellings) Flat low rise (average 4-6 dwellings) Land Main fabric 70% Roof structure and external doors 6% Windows and external doors Gas boilers/fires 15 Kitchen 5% Bathroom/WCs Mechanical systems (heating, ventilation, plumbing) Electrics Lift

15 NHF matrix Bedroom size 1/2 Useful life (years) House Nontraditional house Bungalow Flat high rise (average 70 dwellings) Flat med rise (average 25 dwellings) Flat low rise (average 25 dwellings) Flat low rise (average 4-6 dwellings) Land Main fabric Roof structure and external doors Windows and external doors Gas boilers/fires Kitchen Bathroom/WCs Mechanical systems (heating, ventilation, plumbing) Electrics Lift

16 NHF matrix Sheltered Useful life (years) Sheltered Very sheltered (Cat 2.5) Land Main fabric 100 Roof structure and external doors Windows and external doors 2% Gas boilers/fires Kitchen Bathroom/WCs Mechanical systems (heating, ventilation, plumbing) Electrics Lift 4%

17 10 key steps 4. Determine expenses amounts to be reinstated in the balance sheet How have components been treated previously? How good are your records? LSVT vs traditional RP

18 10 key steps 5. Determine accumulated depreciation on expensed amounts to be reinstated in the balance sheet Depreciation from 2000 Assumptions re fully depreciated

19 10 key steps 6. Determine still capitalised amounts (including depreciation) for now-replaced assets to be written out How many kitchens are on the balance sheet?

20 10 key steps 7. Calculate prior period adjustment day one of comparative period I & E March 2012 new basis I&EMarch 2011 restate on new basis PPA prior to 1April 2010 Impact will depend on prior treatment

21 10 key steps 8. Determine grant treatment Initially land and structure in proportion Then choice if excess grant Negative asset Allocate to all components proportionately

22 10 key steps 9. Determine policy for treatment of replacements Rewrite accounting policies in accounts De minimus Full vs part replacement at what point does repair become component replacement?

23 10 key steps 10. Set up or amend accounting systems to deal with new cost, grant and depreciation assumptions Asset management software Spreadsheets Can your systems cope?

24 The story so far... Review of RP accounts Few RPs have applied component accounting in full A number of RPs have adopted partial component accounting Varied approach to component identification Non-standardised approach to assigning Useful Economic Lives No Prior Period Adjustments

25 The story so far... Table 1: Summary of current practice by a sample of the top 60 RPs Registered Provider Anchor Vicinity Family Mosaic CityWest City Anglia Hanover Placesfor People PeabodyTrust Viridian Harvest Southern West Mercia Liverpool Mutual Plymouth Knowsley Explicit policy in respect of component accounting for completed housing stock Explicit policy in respect of component accounting for refurbishment /replacement of major components Components recognised at cost Components separately identified Component depreciation rates itemised Policy on capitalisation of enhancements

26 The story so far... Table 3: Review of Component Useful Economic Lives Component Circle Anglia Hanover Vicinity Viridian Liverpool Mutual Homes Plymouth Community Homes Places for People Kitchen Bathrooms Heating Windows Roofs NA This table does now show all the components but only the ones that can be compared

27 Conclusion A lot to do How far have you got? Keep calm and carry on Or panic and run...!

28 St George s House Chester Road Manchester M15 4JE t: f: w: