Annual Report
Ausgrid%20AR%202015
Ausgrid%20AR%202015
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Ausgrid – <strong>Annual</strong> <strong>Report</strong> 2014/15 35<br />
m. Property, plant and equipment<br />
(i) Recognition and measurement<br />
Items of property, plant and equipment<br />
are initially recognised at cost.<br />
Non‐system assets purchased below<br />
$500 are expensed as acquired. All costs<br />
of assets constructed by Ausgrid<br />
(system assets) are capitalised. Cost<br />
includes expenditure that is directly<br />
attributable to the acquisition and or<br />
construction of the asset including costs<br />
of materials, services, direct labour, the<br />
initial estimate, where relevant, of the<br />
costs of dismantling and removing the<br />
items and restoring the site on which<br />
they are located and an allocated<br />
proportion of supporting overhead<br />
costs. Capitalised costs also include<br />
borrowings costs in accordance with<br />
AASB 116 Property Plant and Equipment<br />
and AASB 123 Borrowing Costs.<br />
Management judgement is required<br />
in the assessment of the types of<br />
costs that are directly attributable<br />
to the construction of our property,<br />
plant and equipment. Satisfying the<br />
directly attributable criteria requires<br />
an assessment of those unavoidable<br />
costs that, if not incurred, would result<br />
in the property, plant and equipment<br />
not being constructed. Directly<br />
attributable overheads are allocated to<br />
the cost of construction of an asset using<br />
direct labour hours.<br />
Property, plant and equipment<br />
transferred from customers is initially<br />
measured at fair value at the date on<br />
which control is obtained in accordance<br />
with Interpretation 18, AASB13 Fair value<br />
measurements and AASB 116.<br />
After initial recognition as an asset,<br />
items of property, plant and equipment<br />
are measured at fair value. Fair value<br />
is determined in accordance with<br />
NSW Treasury Accounting Policy TPP<br />
14‐01 Valuation of Physical Non‐Current<br />
Assets at Fair Value, AASB13 and<br />
AASB 116, and reviewed annually for<br />
impairment in accordance with AASB 136<br />
Impairment of Assets.<br />
System assets<br />
System assets are stated at fair value<br />
less accumulated depreciation and<br />
impairment losses. The fair value<br />
of system assets is determined<br />
using the income approach in<br />
accordance with AASB 13.<br />
The valuation methodology reflects<br />
a discounted cash flow methodology<br />
to value Ausgrid, and a calculation to<br />
subtract the value of other business<br />
assets and liabilities to arrive at a value<br />
for Ausgrid’s system assets.<br />
The income approach is based on a<br />
discounted cash flow model using the<br />
following methods and assumptions:<br />
• Use of an estimate of future cash<br />
flows to be derived based on<br />
financial forecasts;<br />
• Expectations about possible<br />
variations in the amount/timing of<br />
future cash flows to reflect the most<br />
likely outcome;<br />
• The time value of money, represented<br />
by the current market risk‐free<br />
rate and the price for bearing the<br />
uncertainty inherent in the asset, as<br />
encapsulated in the discount rate;<br />
• Other factors such as illiquidity that<br />
should be reflected in pricing future<br />
cash flows; and<br />
• A multiple of the forecast regulated<br />
asset base (RAB) at the end of the<br />
forecast period used as a proxy for<br />
the terminal value. The terminal<br />
value RAB multiple is determined<br />
with reference to market<br />
observable multiples.<br />
System assets are revalued at least<br />
every five years in accordance with<br />
TPP14‐01 and AASB13. However, an<br />
assessment is made at each reporting<br />
date to ensure the net carrying value of<br />
system assets does not differ materially<br />
from its fair value, which is calculated<br />
on a ‘cash generating unit’ (CGU)<br />
basis using the discounted cash flows.<br />
As at 30 June 2015, the net carrying<br />
amount of system assets did not differ<br />
materially to the discounted cash flow<br />
methodology values.<br />
The Corporation’s view is that the<br />
distribution network as a whole should<br />
be considered to be a “single asset”<br />
for the purposes of revaluation. This is<br />
because all components within the<br />
network must work together in order<br />
to reliably supply electricity. Further,<br />
due to the specialised nature of the<br />
Corporation’s network, system assets<br />
cannot be readily sold to third parties for<br />
different uses.<br />
Non‐system land and buildings<br />
Non‐system land and buildings are<br />
stated at fair value.<br />
Non‐system land and buildings were<br />
revalued during 2013/14 to reflect fair<br />
value in accordance with AASB 13, AASB<br />
116 and the NSW Treasury Accounting<br />
Policy TPP14‐01. Independent valuers,<br />
Preston Rowe Paterson NSW Pty<br />
Limited (PRP) were engaged to value<br />
these assets. The 2013/14 valuations<br />
were assessed at fair value based upon<br />
existing use which was provided by<br />
PRP. Sample testing of asset values<br />
is performed in intervening years to<br />
confirm that the current carrying<br />
amounts for these assets reflect fair<br />
value for adoption at 30 June.<br />
Other property, plant and equipment<br />
Other property, plant and equipment<br />
assets comprise non‐specialised<br />
assets with short useful lives. These<br />
assets are stated at their depreciated<br />
historical costs which is considered an<br />
acceptable surrogate for fair value under<br />
TPP14‐01 as any difference is unlikely<br />
to be material.