Demystifying useful life, depreciation and asset valuation

Abstract

Australian Local Governments have been required to use Accrual Accounting in their reporting circa 1993. This aligned Public Sector with the Private Sector in financial reporting and required Councils to value and depreciate assets and display the outcomes in their financial statements. With no established methodologies and very little asset information the challenge was to correctly assess an appropriate value and service life to the many assets that are not able to be sold, often built from varying local materials and subject to many different environmental factors. In 1993 I was the sole Engineer working for a small rural NSW Council and was asked to derive a figure that would bring the Council Assets to a “Satisfactory” condition. Now 28 years later we are still being asked the same questions and debating the definitions of these terms. We however now actually have many tools to help evaluate an answer for these terms and to help manage a Councils community service levels. I hopefully will provide a simple explanation of the link between these terms and also a connection to asset renewal funding required to sustain Council service levels.