Background

The purpose of this procedure is to provide direction for recognizing and recording Tangible Capital Assets (TCA) on a consistent basis and in accordance with Public Sector Accounting Board (PSAB) PS 3150.

Tangible Capital Assets Defined

Tangible Capital Assets (TCA) are non-financial assets having physical substance that:

• Are held for use in the production or supply of goods and services, for rental to others, for administrative purposes or for the development, construction, maintenance or repair of other tangible capital assets;
• Have useful economic lives extending beyond one year;
• Are used on a continuing basis; and
• Are not for resale in the ordinary course of operations.
  

TCA are acquired, constructed, or developed assets and have the following characteristics:

• Ownership and control clearly rest with the Division; and
• The asset is used to achieve the Division’s objectives.
  

The following will help determine whether an asset is a TCA:

• Include land, buildings, infrastructure assets (roads, water network, playground equipment; pools, fencing, and artificial turfs), vehicles, computer hardware, tools, furniture, equipment, leasehold improvements, and assets acquired by capital leases or by donations;
• Do not include non-operational heritage assets such as museum and gallery collections, other works of art, archives, archeological sites, ruins, burial sites, monuments, and statutes;
• Do not include intangible assets such as copyrights, trademarks, patents, easements and rights-of-way.
  

Objective and Issues of this Procedure

The objective of the TCA procedure is to prescribe the accounting treatment for tangible capital assets so that users of the financial report can discern information about the investment in Tangible Capital Assets and the changes in such investment.

The principle issues in accounting for TCA are the recognition of the assets, the determination of their carrying amount, the amortization charges and the recognition of any related impairment or disposal losses.

An independent valuation company was hired by the Division to identify and cost the various TCA of the Division. Their complete report was produced in 2009.

Recognition of Tangible Capital Assets Carrying Amounts (Cost)

The cost of TCA includes the cost of any asset that has been acquired, constructed, or developed with the intention of being used and normally consumed in operations that achieve the school Division’s objectives.

TCA also include betterments. Betterments are expenditures relating to the alteration or modernization of an asset that appreciably prolong the asset’s period of usefulness or improve its functionality.

Pooled Cost Approach

Pooling refers to the Pooled Cost Approach.  Under this approach, similar assets area added to one group, and they generally remain in the asset class until it is fully amortized.  Tangible capital assets reported under the pooled cost approach are to be reported by year of purchase in the applicable TCA class.

Assets recorded using the pooled cost approach will have a deemed disposal at the end of their useful life; individual disposals are not generally recorded.  If the asset is sold or disposed of before the end of its useful life, the proceeds are to be recorded as revenue.

In exceptional circumstances where there is a significant loss or disposal incurred in a pooled class, the pool would be decreased for the loss of disposal.  For example, a school has a break-in and all the computers are stolen. The gross book value of the stolen computers as well as the related accumulated amortization would be removed from the computer hardware pooled TCA class.

Procedures

1.  TCA will be tracked based on the type of asset class. The following tracking method will be used:

2.  The classification of assets will be determined by the Chief Financial Officer or designate considering the recommendations of the Ministry of Education and the Division’s auditors.

3.  Only TCA that exceed the asset class threshold will be capitalized. The following are the thresholds that are being used to develop the initial TCA listing:

4.  The initial TCA listing has been prepared and it is to be reviewed annually by the CFO to determine whether or not the threshold should be raised.

5.  The Division does not capitalize interest costs incurred during the construction or development of TCA.

6.  Expected useful life is normally the shortest of the asset’s physical, technological, commercial and legal life and is based on its use by the Division. In determining an asset’s useful life the present condition, intended use, construction type and maintenance policy will be considered, including how long the asset is expected to meet service demands and the Division’s experience with similar assets.

7.  The cost, less any residual value of a TCA with a limited life will be amortized over its useful life using the straight line method. The amortization method and estimate of useful life of the remaining unamortized portion will be reviewed on a regular basis and revised when the appropriateness of a change can be clearly demonstrated.

A full year’s amortization is recorded in the year the asset is acquired, constructed or developed and put into use, regardless of when this event occurs in the fiscal year.

8.  Transfer of assets to/from the Division will only be capitalized as a TCA when the agreement provides for the transfer of ownership.

9.  When TCA are taken out of service, destroyed or replaced due to obsolescence, scraping or dismantling, the appropriate department must notify the Finance Department of the asset description and effective date of disposal.

Assets will be retired from the accounts of the Division when the asset is disposed of. The gain or loss on disposal will be calculated as the difference between the proceeds received and the net book value of the TCA. The gain or loss on disposal will be recorded in the financial statements.

10.  A lease will be recorded as a TCA and an offsetting liability when it meets the test for a capital lease as defined by PSAB. PSAB uses a “benefits and risks” approach to assessing if a leased asset should be treated as a capital lease. If the “benefits and risks” of the asset are essentially transferred to the Division (the lessee) then the lease is a capital lease and the leased asset is a TCA if it exceeds the Division’s threshold.

11.  A write down is used to reflect a permanent impairment in the value of an asset. This impairment may be a result of:

• Removal of the asset from service;
• Physical damage;
• Significant technological developments;
• A decline in or cessation of the need for the service provided by the asset; and
• A change in the law or environment affecting the asset usage.

If the value of an asset is impaired, the cost of the asset will be written down to reflect the decline in the asset’s value and its shorter useful life. This write down is considered a loss (expense) in the financial statements.


Reference:  Public Sector Accounting Board (PSAB) PS 3150
Sections 85, 87, 109, 110, 347, 348, Education Act

March 30, 2011