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Transpower Accounting Guidance Notes for Revenue and Capital Expenditure Issue2

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Transpower Accounting Guidance Notes for Revenue and Capital Expenditure Issue2
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    Issue 2 Updated November 2010 © 2010 - Transpower New Zealand Limited 1    Accounting Guidance Notes for Revenue and Capital Expenditure [Note that this is a Guidance Note and not a Corporate Policy]    Issue 2 Updated November 2010 © 2010 - Transpower New Zealand Limited 2   CONTENTS 1   ISSUE DETAILS ...................................................................................................... 4   2   COMPLIANCE REQUIREMENT REFERENCES ..................................................... 4   2.1   Legislation ....................................................................................................................... 4   2.2   Regulations ..................................................................................................................... 4   2.3   Policies ............................................................................................................................ 4   2.4   Guidance Notes .............................................................................................................. 4   3   KEY WORDS ........................................................................................................... 4   4   ACCOUNTING GUIDANCE NOTES APPROVAL AND AMENDMENTS ................. 5   5   PURPOSE OF POLICY ............................................................................................ 5   6   INTRODUCTION ...................................................................................................... 5   6.1   Overview of Document Layout ........................................................................................ 5   7   INITIAL DEFINITIONS ............................................................................................. 5   7.1   Fixed Asset  –  Definition .................................................................................................. 5   7.2   Categories and Profiles .................................................................................................. 6   7.3   Maintenance Expenditure (Revenue Expenditure) ......................................................... 6   7.4   Capital Expenditure......................................................................................................... 6   8   GENERAL OVERVIEW OF ASSET LIFE CYCLE .................................................... 7   9   INVESTIGATIONS ................................................................................................... 7   9.1   Investigation Costs.......................................................................................................... 8   9.2   Distinction Between Types of Investigations .................................................................. 8   9.3   Determining When An Investigation Ceases .................................................................. 8   9.4   The Role of the EC and Board ......................................................................................11   9.5   Transferring Investigation Costs to Capital ...................................................................11   9.6   Limited Ability to Transfer Costs to Capital ...................................................................12   10   DEVELOPMENT .................................................................................................... 12   10.1   Development Expenditure  –  Definition .........................................................................12   10.2   Costs to Be Included in Development ..........................................................................12   11   COMMISSIONING .................................................................................................. 13   12   OPERATING .......................................................................................................... 13   12.1   Costs Incurred During Asset Operation  –  Expenditure Activities .................................13   12.2   Enhancement  –  Definition .............................................................................................14   12.3   Refurbishment  –  Definition ...........................................................................................14   12.4   Replacement  –  Definition ..............................................................................................14   12.5   Repair  –  Definition ........................................................................................................14   12.6   Dismantling  –  Definition ................................................................................................14   12.7   Fault Repairs  –  Definition .............................................................................................14   12.8   Scheduled Operating  –  Definition .................................................................................14   12.9   Unscheduled Operating  –  Definition .............................................................................15   12.10   Periodic Inspections, Servicing and Testing  –  Definition ..............................................15   12.11   Service Charges  –  Definition ........................................................................................15   12.12   Special Inspections, Servicing and Testing  –  Definition ...............................................15   12.13    Attributes  –  Definition ....................................................................................................15   12.14    Accounting Treatment of Expenditure Activities ...........................................................16   12.15   Work on Components of an Asset ................................................................................16   12.16   Sub Components Example  –  Impact on Remaining Life ..............................................16   13   PERIODIC REVIEW ............................................................................................... 17   14   DISMANTLING ....................................................................................................... 17      Issue 2 Updated November 2010 © 2010 - Transpower New Zealand Limited 3   15   PROJECTS WITH IMMATERIAL REVENUE EXPENDITURE ............................... 17   16   ACCOUNTING TREATMENT FOR WORK ON MISCELLANEOUS ASSETS ....... 17   16.1   Buildings .......................................................................................................................18   16.2   Land ..............................................................................................................................18   16.3   Roads ............................................................................................................................18   16.4   Minor Fixed Assets .......................................................................................................19   16.5   Fences and Gates.........................................................................................................19   17   ACCOUNTING TREATMENT OF COSTS INCURRED BY PROJECTS ................ 19   17.1   Introduction ...................................................................................................................19   17.2   Charging Salary Costs to Projects ................................................................................19   17.3   Backfilling Costs ............................................................................................................20   17.4   Training Costs ...............................................................................................................20   17.5   Incidental Revenue Expenditure ...................................................................................21   18   IST PROJECTS ...................................................................................................... 21   18.1   General Guidance .........................................................................................................21   18.2   IST Investigations .........................................................................................................21   18.3   IST Capital and Revenue Flowchart .............................................................................21   18.4   Licence Fees .................................................................................................................21   19   ANNUAL REVIEW OF ACCOUNTING TREATMENT OF WORK .......................... 22   20   MONITORING COMPLIANCE WITH THESE GUIDANCE NOTES ........................ 22   21   APPENDIX 1  –  EXPENDITURE ACTIVITY DECISION TREE  –  GRID ASSETS .... 23   22   APPENDIX 2  –  ASSET PROFILE LISTING ........................................................... 24   23   APPENDIX 3  –  WORK ON EXISTING BUILDINGS ............................................... 30   24   APPENDIX 4  –  EXPENDITURE CLASSIFICATIONS  –  EXISTING LAND ............. 31   25   APPENDIX 5  –  EXPENDITURE CLASSIFICATIONS TRANSMISSION ................ 32   26   APPENDIX 6  –  EXPENDITURE CLASSIFICATIONS SUBSTATIONS .................. 33   27   APPENDIX 7  –  EXPENDITURE CLASSIFICATIONS  –  MINOR FIXED ASSETS .. 34   28   APPENDIX 8  –  EXPENDITURE CLASSIFICATIONS  –  IST EXPENDITURE ......... 35      Issue 2 Updated November 2010 © 2010 - Transpower New Zealand Limited 4   PREFACE These guidance notes have been developed to provide detailed guidance to Transpower staff to assist in distinguishing between revenue (i.e. non capital) and capital expenditure. 1 ISSUE DETAILS Effective Date: Immediately following General Manager Corporate Services Approval Guidance Notes Owner: General Manager Corporate Services Written By: Finance Manager Approved By: General Manager Corporate Services in November 2010 Revision Authority: The General Manager Corporate Services and the Finance Manager have the authority to approve revisions and amendments to the application  of these Accounting Guidance Notes without the requirement of repeat approval Review Frequency: Biennially Review Date: November 2012 2 COMPLIANCE REQUIREMENT REFERENCES 2.1   Legislation Income Tax Act Financial Reporting Act 2.2   Regulations New Zealand Financial Reporting Standards 2.3   Policies  Accounting policies 2.4   Guidance Notes  Accounting guidance notes 3 KEY WORDS  Accounting Fixed Assets Capital Investigations Maintenance Revenue Expenditure    Issue 2 Updated November 2010 © 2010 - Transpower New Zealand Limited 5   4 ACCOUNTING GUIDANCE NOTES APPROVAL AND AMENDMENTS The responsibility for defining Transpower’s  Accounting Guidance Notes for revenue and capital expenditure lies with the General Manager Corporate Services. Definition is to be completed after appropriate consultation with engineering and management staff. The Guidance notes are consistent with the Board approved accounting policy. 5 PURPOSE OF POLICY This document provides an overview of Transpower's accounting policy with respect to revenue and capital expenditure on fixed assets. It provides a description of the asset life cycle, detailed guidance on the criteria for distinguishing between revenue (i.e. non-capital) expenditure and capital expenditure, and detailed guidance on the treatment of Investigations Expenditure. The aim of the document is to enable users to correctly classify asset related expenditure. 6 INTRODUCTION This policy is intended to be used a reference document by staff involved in working with Transpower’s fixed assets. 6.1   Overview of Document Layout Section 7 defines what is meant by the term ‘Fixed Asset’ in Transpower as well explaining the distinction between capital and revenue expenditure. Sections 8-14 follow the typical life-cycle of a self-constructed asset and provide guidance on how various types of costs should be treated for accounting purposes. The remainder of the document deals with a variety of specific issues that can arise in connection with fixed asset accounting, with the aim of ensuring consistency of treatment when common issues arise. 7 INITIAL DEFINITIONS Some of the fundamental terms used in these guidance notes are defined below to provide an explanation of their use within Transpower. 7.1   Fixed Asset  –  Definition  A Fixed Asset is defined as a tangible item or group of items, with a value in excess of $500, held for business use and which provide(s) benefits for more than one year.  A fixed asset is not necessarily a single item. Assets may contain one or more components that form a group of assets which perform a function. For example, a transformer could be dis-assembled into many parts such as the housing, winding, bolts, paper and so forth. However, when a transformer is purchased Transpower does not analyse the purchase price by component, but rather it records the entire value against an asset called a transformer.
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