Asset Management

Road Formation - An asset or an expense?

  • 1.  Road Formation - An asset or an expense?

    Posted 06 August 2019 21:15
    Hi Everyone,

    Road formation is defined in AIFMM Section 12.3 Fig 12.3.7.

    Our Council's setting is 100% urban roads, road reserve is very well established. We would have no significant earth works.

    Everything we do will be replacing on their existing location except improvements on pavements.

    Engineers are of the view that the roads formation were done during the creation of road assets, should be a cost expensed.
    Accountants are after a value of the road formation as it was traditionally treated as an asset with infinite life.
    In my opinion, you can't put a price on something with an infinite life. Infinite life means that it's never going to need replacement.

    I'm curious of how the industry treats Road Formation.

    Would you treat road formation as an asset and have a value assign to it or do you think that our view is considered to be more realistic considering an urban setting?

    Look forward to read views on this. Thanks in advance.

    Kind Regards,

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    Frank Liu,
    Asset Management Engineer
    Randwick City Council
    NSW Australia
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  • 2.  RE: Road Formation - An asset or an expense?

    Posted 07 August 2019 20:30
    Hi Frank,

    We value the formation but do not depreciate it.

    There is a AASB  document on 'Accounting for Earthworks' Interpretation 1055 


    Regards
    David
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  • 3.  RE: Road Formation - An asset or an expense?

    Posted 07 August 2019 22:51
    ​We have formation as an asset, with a value and unit rate, but we don't depreciate it. It does get revalued as required.
    Our problem is knowing the construction method used for the different formations
    Not to be confused with Land Under Roads

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    Ashley Bishop
    Asset Management Coordinator
    Benalla Rural City Council
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  • 4.  RE: Road Formation - An asset or an expense?

    Posted 08 August 2019 17:48
    Hi Frank,

    We have a similar treatment as Benalla Rural City Council ie formation are treated as assets, revalued but not depreciated.

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    Raj Suppiah
    Chief Financial Officer
    Tararua District Council

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  • 5.  RE: Road Formation - An asset or an expense?

    Posted 09 August 2019 19:21
    Thank you everyone. I now understand how it is agreed to be treated.

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    Frank Liu,
    Asset Management Engineer
    Randwick City Council
    NSWAustralia
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