Asset Management

Asset age

  • 1.  Asset age

    Posted 12 June 2019 17:48

    Hello all,

    I work for a small Village in the southwest of BC, Canada. I am in the process of doing our (and my) first AMP. One challenge that I am having is what year to put on an older long lived asset. For example if a building was built in 1960 and the siding was last repainted in 2015 and is in very good condition would the year for that asset be 1960 or 2015? To me the year it was acquired should be 1960 and the useful life should be altered to reflect that it is still in very good condition. Is that correct, or is there some other method of tracking this that I'm unaware of?

    One other question. How fine do you break a building down into component parts? Currently we have four components for a building (i.e. envelop, roof, services, and interiors). I personally would like to eventually break each of those categories down into more elements (e.g. envelop into siding, soffits, and eaves troughs, etc.). Is this realistic? To my mind it seems by doing so I would be better able to track renewals of those portions of the asset.

    Thank you in advance.

    Troy Davis
    Infrastructure Manager
    Village of Harrison Hot Springs, BC

  • 2.  RE: Asset age

    Posted 12 June 2019 19:03
    Hi Troy,

    You raise a valid query with regard to capex on older assets. There are a myriad of solutions to the problem and you should be aiming to choose one that will provide consistency and 'real world' information. For renewals you are obviously trying to track the remaining life of the asset as a whole or its components. If  your are trying to  implement a base year for the asset to try and recalculate that remaining life on an ongoing basis then again, you need to establish a base year that works for your real world needs. But, there will be people in this forum that have done exactly what you are trying to achieve and they  will no doubt provide you their examples of workarounds.

    Whilst only an example, It would be concerning to restate the asset's remaining life as reflecting an age of only four years due to its good condition and recent general refurbishment. Not many assets designed 60 years ago would maintain contemporary technical and functional utility and we would expect in your example, the asset's life to have experienced a limited extension to its remaining life.

    It is worth remembering an asset has a physical life and an economic life. You obviously do not want to be using up limited financial resources undertaking renewals on assets that have no economic value, so it would be a good idea to map the asset's economic value against its physical remaining life to ensure  you do not over-capitalize. This may be difficult for unique assets but there are other ways you can track economic life other than through market transactions.

    We deal with a number of small government entities in Australia and  they are at times frustrated trying to meeting the requirements of IFRS (AASB in Australia), which recommend breaking up assets into their components on the basis of their variance from the parent asset, and establishing a robust AMP. Limited resources often mean they settle for broader categories of components or using value thresholds for inclusion. We see no point in componentising low valued assets (using economic value or reinstatement cost  as the threshold) unless it delivers a significant benefit.

    Your challenge would be to establish your village's cost/benefit.

    Having just googled Harrison Hot Springs it must be a struggle to get any work done in such a beautiful place !!!

    Go the Raptors

    Martin Burns
    National Director of Valuations
    Liquid Pacific
    North Sydney NSW
    02 9025 3788