Highways Agency Annual Report and Accounts 2011-2012

SECTION 10: Financial Statements
ended 31 March 2010. In addition during the year ending 31 March 2012 the Agency has reviewed the
specific methodology for valuing structures, moving to a simpler categorisation of structure types and the
application of standard road dimensions (rather than individual structure dimensions) where possible.
Information on infrastructure assets is held on a number of operational asset management systems.
Where appropriate, dimensional data is used from these systems to inform the valuation of individual
roads and structures. The application of professional judgement by engineers will impact the variability of
dimensional data which in turn will impact the valuation of the infrastructure asset.
Indexation
Various indices are applied to the valuation of the network to ensure the final valuation is at current
replacement cost. Indexation of the network valuation is applied as follows:
Indexation
Roads and
structures
Roads and
structures
Land
Technology
Five year revaluation
Year end revaluation
Unit costs are calculated from projects opened to traffic over the
last 5-10 years to value carriageways, structures and technology.
Unit rates from projects with different opening dates are brought to
a common baseline using Roadcon, a construction industry index.
This index is calculated from tenders for highway works and reflects
contractor’s output costs.
ROCOS is the index applied to roads and structures for yearly
revaluation and reflects the movement in prices in the construction
industry. ROCOS (resource cost index of road construction); published
on a quarterly basis by the Department for Business, Innovation
and Skills (BIS).
Land indices published twice yearly by the Valuation Office Agency
(VOA).
ROCOS is the index applied to all technology assets.
Indexation based on these indices is applied to all elements of the network. However there may be
occasions where the use of indices for particular network assets may give an unrealistic outcome. This
may happen for example where there has been substantial technological change when changes in the
cost of specific assets are known to have been significantly different from the changes in the index;
or where the historical purchase cost of assets was affected by special circumstances unlikely to be
repeated and for which no allowance can be made. In such circumstances the gross current replacement
cost is based on expert opinion or other evidence of the current cost of assets or groups of assets having
a similar service potential.
The valuation of the network is based upon a non recoverable VAT rate of 20% which reflects a consistent
long-term approach to valuing the network. Certain special structures are valued at historic prices
appropriately indexed as the best approximation of replacement cost.
Assets Under Construction
All new projects in the course of design or construction are accounted for as assets under construction
(AUC) at their actual build cost. On completion of a project, the project is transferred out of AUC and into
Infrastructure Assets at the current replacement cost (which will be different from the actual cost).
The difference between a project’s actual cost of construction and the current replacement cost is treated
as a write down which is charged to the Statement of Comprehensive Net Expenditure (SCNE).
Write-downs
Write-downs arise due to the difference between the cost of construction and the current standard
replacement costs. There are a number of reasons for this difference in cost including:
Highways Agency Annual Report and Accounts 2011-12