Initial recognition
Items of property, plant and equipment and infrastructure costing $5,000 or more are recognised as assets and the cost of utilising assets is expensed (depreciated) over their useful lives. Items of property, plant and equipment and infrastructure costing less than $5,000 are immediately expensed direct to the Statement of comprehensive income (other than where they form part of a group of similar items which are significant in total).
Assets transferred as part of a Machinery of Government change are transferred at their fair value.
The cost of a leasehold improvement is capitalised and depreciated over the shorter of the remaining term of the lease or the estimated useful life of the leasehold improvement.
The initial cost for a non-financial physical asset under a finance lease is measured at amounts equal to the fair value of the leased asset or, if lower, the present value of the minimum lease payments, each determined at the inception of the lease.
Subsequent measurement
Subsequent to initial recognition as an asset, the revaluation model is used for the measurement of land and buildings, and historical cost for all other property, plant and equipment and infrastructure. Land and buildings are carried at fair value less accumulated depreciation and accumulated impairment losses. All other items of property, plant and equipment and infrastructure are stated at historical cost less accumulated depreciation and accumulated impairment losses.
Where market-based evidence is available, the fair value of land and buildings is determined on the basis of current market buying values determined by reference to recent market transactions.
In the absence of market-based evidence, fair value of land and buildings is determined on the basis of existing use. This normally applies where buildings are specialised or where land use is restricted. Where the fair value of buildings is determined on the depreciated
replacement cost basis, the accumulated depreciation is restated proportionately with the change in the gross carrying amount of the asset.
Fair value for existing use assets is determined by reference to the cost of replacing the remaining future economic benefits embodied in the asset, i.e. the depreciated replacement cost. Fair value for restricted use land is determined by comparison with market evidence for land with similar appropriate utility (high restricted use land) or market value of comparable unrestricted land (low restricted use land).
When buildings are revalued, the accumulated depreciation is eliminated against the gross carrying amount of the asset and the net amount restated to the revalued amount. Land and buildings are independently valued annually by the Western Australian Land Information Authority (Valuations and Property Analytics) and recognised annually to ensure that the carrying amount does not differ materially from the asset’s fair value at the end of the reporting period.
Land and buildings were revalued as at 1 July 2017 by the Western Australian Land Information Authority (Valuations and Property Analytics). The valuations were performed during the year ended 30 June 2018 and recognised at 30 June 2018. In undertaking the valuation, fair value was determined by reference to market values for land $15.0 million and buildings $5.6 million (note 8.3). For the remaining balance fair value of buildings were determined on the basis of current replacement cost and fair value of land was determined on the basis of comparison with market evidence for land with low level utility (high restricted used land).
Notes to the financial statements
for the year ended 30 June 2018 5.1 Infrastructure, property, plant and equipment (continued)The most significant assumptions in estimating fair value are made in assessing whether to apply the existing use basis to assets and in determining estimated useful life. Professional judgement by the valuer is required where the evidence does not provide a clear
distinction between market type assets and existing use assets. Upon disposal or de-recognition of an item of land and buildings, any revaluation surplus relating to that asset is retained in the asset revaluation surplus.
The asset revaluation surplus is used to record increments and decrements on the revaluation of non-current assets.
Key sources of estimation uncertainty – Measurement of fair values
A number of the department’s accounting policies and disclosures require the measurement of fair values, for both financial and non- financial assets and liabilities.
Landgate provide valuation services for the department’s land and buildings.
The department provides the remaining useful life and depreciated book value to Landgate to assist them in their calculation of Level 3 fair value. When measuring the fair value of an asset or a liability, the department uses market observable data as far as possible.
Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs)
If the inputs used to measure the fair value of an asset or a liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.
The department recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.
Notes to the financial statements
for the year ended 30 June 2018 5.1 Infrastructure, property, plant and equipment (continued)5.1.1 Depreciation and impairment
2018
$'000
Depreciation expense
Charge for the period
Buildings 4,753
Computer and communications equipment 954
Office and other equipment 773
Plant and machinery 2,867
Lease improvements 1,858
Marine vessels 941
Infrastructure 1,219
Vehicles and buses 269
Total depreciation for the period 13,634
As at 30 June 2018 there were no indications of impairment to property, plant and equipment or infrastructure. All surplus assets at 30 June 2018 have either been classified as assets held for sale or have been written-off. Please refer to note 5.2 for guidance in relation to the impairment assessment that has been performed for intangible assets.
Finite useful lives
All non-current assets having a limited useful life are systematically depreciated over their estimated useful lives in a manner that reflects the consumption of their future economic benefits. Depreciation is calculated using the straight line method, using rates which are
reviewed annually. Estimated useful lives for each class of depreciable asset are:
Asset category Life (years)
Buildings 20 to 40 and/or estimated useful life
Computer and communications equipment 3 to 5 Office and other equipment 5 to 10
Plant and machinery 5 to 20
Marine vessels 5 to 6
Infrastructure 20 to 80
Vehicles and buses 5 to 10
Leased improvements are depreciated on a straight line basis over the life of the lease or the life of the asset, whichever is less.
Land is not depreciated.
The estimated useful lives, residual values and depreciation method are reviewed at the end of each annual reporting period, and adjustments should be made where appropriate. Leasehold improvements are depreciated over the shorter of the lease term and their useful lives.