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A MENDMENTS REGARDING T HIRD P ARTY C OSTS AND D EMOLITION /R ESTORATION
C OSTS
(R EFER TO : NCAP 1.4
C APITALISATION VS E XPENSING OF C OSTS I NCURRED )
As these amended policies are effectively changes in accounting policies for the purposes of AASB 108 Accounting Policies, Changes in Accounting Estimates and
Errors , they are to be applied retrospectively – subject to agency judgement about materiality and practicability (e.g. if such costs have been capitalised to a completed asset that has already been revalued, adjustment for these amended policies would not be expected).
I NTRODUCTION OF N ET M ETHOD OF R EVALUATION
(R EFER TO :

NCAP 3.6
R
EVALUATION
M
ETHODOLOGIES
– A
CCOUNTING FOR REVALUATIONS
–
GROSS
METHOD VS NET METHOD ; AND

NCAP 5.6
O THER D EPRECIATION I SSUES – R EVALUATIONS AND A CCUMULATED
D EPRECIATION / AMORTISATION )
Background
Paragraph 35 of AASB 116 Property, Plant and Equipment describes two methods allowed for dealing with accumulated depreciation when accounting for revaluations - the ‘gross method’ and the ‘net method’. Agencies should refer to that accounting standard for an explanation of these methods.
The NCAPs have, to date, mandated using the gross method for all asset revaluations.
It is widely recognised that the net method of revaluation produces more meaningful reported asset figures for valuations using a market or income approach, as such valuations do not directly reflect replacement costs or assessments of remaining useful life.
As depreciated replacement cost (DRC) valuations do require determination of replacement costs and assessments of remaining useful life, such valuations necessarily require calculation of gross replacement costs and restated accumulated depreciation. Therefore, usage of the gross method of revaluation in those circumstances better reflects the valuation process.
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Policy Change
Adoption of the net method of revaluation for certain revaluations was proposed in the draft revised NCAPs released for agency comment in February 2014. However, the policy change was deferred for application to reporting periods beginning on or after 1 July 2014.
Accordingly, as from reporting periods beginning on or after 1 July 2014, it is mandated that:
 the net method of revaluation be used for specific appraisals using a market or income approach, where the assets so valued comprise a material proportion of the class;
 the gross method of revaluation be used for specific appraisals using a depreciated replacement cost (DRC) approach, where the assets so valued comprise a material proportion of the class; and
 subsequent indexation should not cause a change in the method of revaluation used (to facilitate consistency over time).
The above policies are outlined in both NCAP 3.6 Revaluation Methodologies and
NCAP 5.6 Other Depreciation Issues. This document provides guidance on particular issues regarding the transition to the net method of revaluation.
Before reading the rest of this guidance, agencies should review the corresponding new material in NCAP 3.6 and NCAP 5.6.
Impact on agency revaluations
Agencies should continue with their planned revaluation arrangements in terms of scheduling of specific appraisals, indexation, rolling/progressive revaluations etc for various asset classes that need to be revalued.
Initial adoption of the net method of revaluation should be undertaken as follows:

for assets revalued by specific appraisal using either a market or income valuation approach during 2014-15 (or 2015, for those agencies with a calendar year as their financial year) - the accumulated depreciation balance at the date of recognising the revaluation is to be completely written-back against the gross amount of the asset. The revaluation is then to be recognised in such a way that the restated gross amount becomes the revalued carrying amount;

for assets revalued by indexation during 2014-15 (or 2015, for those agencies with a calendar year as their financial year) for which the last specific appraisal used either a market or income approach – similarly, the accumulated depreciation balance at the date of recognising the revaluation is to be completely written-back against the gross amount of the asset. The revaluation is then to be recognised in such a way that the restated gross amount becomes the indexed carrying amount; and

for not subject to a revaluation during 2014-15 (or 2015, for those agencies with a calendar year as their financial year) but which would otherwise be subject to the net method – initial adoption is to be deferred until the next time the asset is revalued (refer back to the previous two points).
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Financial Statement Impacts
Accounting Policy note
Where both market/income valuation approaches and depreciated replacement cost approaches are used by an agency within a given asset class, both the gross and net methods of revaluation will be used within the same class. This has significance for the interpretation of the overall gross and accumulated depreciation figures for that class.
Therefore, for the model financial statements in the 2014-15 Financial Reporting
Requirements update, QTT will develop concise narrative wording to explain the significance of the gross and net methods of revaluation, and (very broadly) what this means for the gross and accumulated depreciation figures in the Property, Plant and
Equipment note.
Property Plant and Equipment note
The quantitative impact of the net method is solely within the Property Plant and
Equipment note disclosure that disaggregates the carrying amounts of each asset class between gross and accumulated depreciation (and accumulated impairment losses). The transition to the net method is expected to have a significant impact on the gross and accumulated depreciation figures of affected assets as at year end.
However, the net method does not affect the (net) carrying amount i.e. the figures on the face of the financial statements will not change.
Existing arrangements for disclosure of the gross vs accumulated depreciation vs accumulated impairment losses figures (re paragraph 73(d) of AASB 116) will remain as is, without further disaggregation according to whether the net or gross method of revaluation has been used for individual assets.
Cross-references to the new accounting policy note (refer above) should be included against the lines for accumulated depreciation in the early part of the Property Plant and Equipment note.
The transition to the net method of revaluation is a “presentation” change within the
Property, Plant and Equipment note. On that basis, agencies are to apply the net method prospectively as from reporting periods beginning on or after 1 July 2014 (i.e. comparative figures in the Property, Plant and Equipment note are not to be adjusted).
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© The State of Queensland (Queensland Treasury and Trade) December 2014
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