ATTACHMENT D
DEPRECIATION CALCULATIONS
Introduction
1.
The Commission has made an assessment of the appropriate level of
depreciation attributable to the use of assets and infrastructure on each of the Indian Ocean
Territories in 1998-99. In simplified terms, the depreciation expense attributed to each was
calculated by:
(i) establishing the value of assets and infrastructure on the Territory;
(ii) classifying the assets and infrastructure into common groups; and
(iii) applying a common depreciation rate to the value of the assets in each
group.
2.
Ernst and Young provided preliminary calculations of this to the Department
of Transport and Regional Services in June 1999. These were based on incomplete data.
Value of Assets
3.
The Commission’s estimate of the value of assets was based on the latest
information contained in the asset registers prepared by the Administration on each Island.
The Australian Valuation Office’s replacement value was used for each asset when it was
shown and in cases where the item had not been revalued, the original purchase cost was
used.
4.
After a detailed study of the data, the Commission made the following
adjustments to the asset registers and valuations provided by the Islands’ administrations.
(i) Equipment worth less than $2000 was excluded to make the
calculations consistent with Government policy to write off anything
worth less than $2000 in the year it was purchased.
(ii) The value of the schools was included because they were omitted from
the asset registers supplied by the Islands administrations. Based on
the value of the hospitals on each Territory, the Commission estimated
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Depreciation Calculations
the value of the Christmas Island school to be $5 million and the
Cocos (Keeling) Islands school campuses to be worth $2 million.
(iii) The value of roads was excluded since the asset preservation model
used to determine the recurrent grants for the maintenance of roads
means that to include depreciation would double count the expense.
(iv) The value of the Cocos (Keeling) Islands health centres were
transferred from the Christmas Island asset register to the Cocos
(Keeling) Islands asset register.
5.
Table D-1 shows the Commission’s calculation of the estimated value of
assets for each Island.
Table D-1
CALCULATION OF ESTIMATED VALUE OF ASSETS
Cocos (Keeling) Islands
Christmas Island
$
41 530 316
$
188 457 993
12 922
21 001
Plus: School (a)
2 000 000
5 000 000
Less: Roads
2 082 700
48 247 500
Adjustment for Cocos Health Centre
1 150 000
-1 150 000
42 584 694
144 039 492
Original Value
Less: Assets worth less than $2000
Final Estimated Value
(a)
Value estimated by the Commission.
Source: Commonwealth Grants Commission.
Grouping of Assets
6.
To simplify the estimation process, the Commission grouped assets so that a
standard depreciation rate could be applied to all the assets in each group. The groups used
were:

Buildings. Commercial and non-commercial buildings, except the
schools and hospital which were identified separately.

Electricity and Water. Infrastructure associated with the provision of
electricity and water — that is, cabling, piping, large switches,
pumping facilities, transformers, generators, water galleries, sewerage
treatment, drainage, water tanks and wharf facilities.

School and Hospital buildings.

Other infrastructure. All other infrastructure — that is, sports
facilities, playgrounds, moorings, buoys and fuel facilities.

Airport Runway. Value of runway and sealed aprons only (excluding
terminal building).
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Attachment D

Fencing. All fencing, including crash barriers and rockfall fences on
Christmas Island.

Vehicles. All vehicles, including trucks, cranes, motor bikes, rollers,
utilities, mobile plants, boats and tractors.

Computers. All computing equipment, including printers, hard drives,
software, modems etc valued at more than $2000.

Tools. All tools including drills, battery chargers, compressors, lathes,
key cutting machines, presses, safes and welders valued at more than
$2000.

Small Electrical. All whitegoods (fridges, ovens, etc) valued at more
than $2000.

Airport Equipment. Value of all equipment associated with the
airport. Includes radios, beacons, lighting etc.

Other Assets. Cabinets, compactus, hydrants, tables, hoists, breath
testing units, medical instruments, medical beds and chairs, X-Ray
machines, Film processors, storage units, white boards, ultrasounds etc
valued at more than $2000.
7.
Table D-2
Table D-2 shows the value of assets in each of these groups.
VALUE OF ASSETS BY GROUP
Cocos (Keeling) Islands
Christmas Island
$
15 070 900
$
34 438 000
Electricity and Water
5 834 082
56 462 810
School
2 000 000
5 000 000
Hospital / Health Centre
1 150 000
8 600 000
Airport Runway
7 950 000
8 200 000
8 600
1 834 500
Other Infrastructure
4 265 005
14 593 270
Vehicles
4 608 833
9 827 612
Tools
485 170
662 847
Small Electrical
748 384
600 288
72 010
689 733
Airport Equipment
211 450
155 000
Other Assets
180 260
2 975 432
42 584 694
144 039 492
Buildings
Fencing
Computers
Total
Source: DOTRS.
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Depreciation Calculations
Depreciation Rates by Group
8.
The depreciation rates used by the Commission were higher than those that it
believes are applicable in most mainland areas because of the effects of the tropical climate
and soil types etc experienced on the Islands. The Commission applied the same
depreciation rates for all assets included in each of the asset groups to simplify the
assessment and to ensure a consistent approach was applied to similar types of assets. The
same depreciation rates were used for both Territories.
9.
The depreciation rates used by the Commission differed from those used by
Ernst and Young because:
(i) Ernst and Young used different depreciation rates for each type of
asset in the groups, and, in some cases, different rates for the same
type of asset; and
(ii) Ernst and Young do not appear to have included an adjustment for the
effects of the tropical environment. This meant that, in general,
depreciation rates used by Ernst and Young were lower than those
used by the Commission.
10.
The depreciation rates used by the Commission and the weighted average of
those used in the Ernst and Young study are shown in Table D-3.
Table D-3
DEPRECIATION RATES BY GROUP
Commission
Per cent
Roads
na
Ernst and Young
Cocos (Keeling) Islands
Christmas Island
Per cent
Per cent
Range (average)
Range (average)
5 – 20 (5.53)
5.56 – 33.33 (11.82)
4
0 – 10 (4.73)
2.0 – 2.5 (2.1)
Electricity and Water
6.7
3.25 – 20 (6.58)
1.72 – 33.33 (6.3)
School
3.3
na
na
Hospital / Health Centre
3.3
na
1.72
Airport Runway
5.0
5.0
5.56
Fencing
6.7
6.7 – 10 (6.79)
4.35 – 5 (4.99)
Other Infrastructure
6.7
3.25 – 50 (7.30)
2.08 – 100 (30.8)
Vehicles
16.7
5 – 20 (7.46)
14.5
Tools
16.7
4 – 20 (7.61)
6.75 – 14.5 (10.63)
Small Electrical
25
5 – 25 (8.62)
25
Computers
25
15 – 33.33 (22.29)
33
Airport Equipment
16.7
0 – 50 (11.79)
5 – 20 (18.28)
Other Assets
16.7
3.33 – 50 (11.4)
6.75 – 14.5 (10.63)
Buildings
na = not applicable to the calculation.
Sources: Commonwealth Grants Commission, Ernst and Young.
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Attachment D
Results
11.
Table D-5.
The calculation of depreciation for each Territory is shown in Table D-4 and
Table D-4
DEPRECIATION ALLOWANCE FOR THE COCOS (KEELING)
ISLANDS
Type
Category
Asset Value
Commission
Depreciation
Rate
Commission
Depreciation
Ernst and Young
Depreciation
$
Per cent
na
$
$
157 500
5 834 082
6.7
388 939
Building
15 070 900
4.0
602 836
Hospital
1 150 000
3.3
38 333
School
2 000 000
3.3
66 667
Airport Runway
7 950 000
5.0
397 500
8 600
6.7
573
Other Infrastructure
4 265 005
6.7
284 334
Vehicles
4 608 833
16.7
768 139
Small Electrical
748 384
25.0
187 096
Tools
485 170
16.7
80 862
Airport Equipment
211 450
16.7
35 242
72 010
25.0
18 002
180 260
16.7
30 043
1 962 000(a)
2 898 566
2 517 000
Infrastructure Roads
Electricity and Water
Fencing
Assets
Computer
Other
Total
42 584 694
397 500
na = not applicable to the calculation.
(a)
Total depreciation for all infrastructure and assets, less roads and Airport runway.
Sources: Commonwealth Grants Commission, Ernst and Young.
12.
For the Cocos (Keeling) Islands, the Commission’s estimate for depreciation
was $2.899 million. This differs from the Ernst and Young figure of $2.517 million. This
result was expected because of:
(i) the Commission’s exclusion of depreciation on roads — because the
asset preservation model used to fund the maintenance of roads means
that to include depreciation is to double count the expense — which
brings the Ernst and Young figure down to $2.359 million;
(ii) the addition of the schools to the asset register; and
(iii) the transfer of the Commission’s estimate of depreciation for the
Cocos Health Centres from Christmas Island.
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Depreciation Calculations
Table D-5
DEPRECIATION ALLOWANCE FOR CHRISTMAS ISLAND
Type
Category
Infrastructure
Asset Value
Commission
Depreciation
Rate
Commission Ernst and Young
Depreciation
Depreciation
$
Per cent
$
Electricity and Water
56 462 810
6.7
3 764 187
Building
34 438 000
4.0
1 377 520
Hospital
8 600 000
3.3
286 667
School
5 000 000
3.3
166 667
Airport Runway
8 200 000
5.0
410 000
Fencing
1 834 500
6.7
122 300
14 593 270
6.7
972 885
9 827 612
16.7
1 637 935
Roads
Other Infrastructure
Assets
Vehicles
2
Small Electrical
600 288
25.0
150 072
Tools
662 847
16.7
110 475
Airport Equipment
155 000
16.7
25 833
Computer
689 733
25.0
172 433
2 975 432
16.7
495 905
Other
Total
144 039 492
9 692 879
$
4 303 000
454 000
3 980 000(a)
2 398 000(b)
11 135 000
na = not applicable to the calculation.
(a)
Remaining infrastructure besides Roads and Runway
(b)
Includes all assets.
Sources: Commonwealth Grants Commission, Ernst and Young.
13.
The Commission’s estimate for depreciation on Christmas Island was
$9.693 million, nearly $1.5 million less than Ernst and Young’s figure of $11.135 million.
This resulted from:
(i) the Commission’s exclusion of depreciation on roads — because the
asset preservation model used to fund the maintenance of roads means
that to include depreciation is to double count the expense — which
brings the Ernst and Young figure down to $6.832 million;
(ii) the transfer of the Commission’s estimate of depreciation for the
Cocos Health Centres from Christmas Island; and
(iii) the Commission’s assumed depreciation rates being lower than those
used by Ernst and Young in several areas.
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