Annual Report and Accounts 2021 to 2022
b) Non-current assets
Non-current asset purchases are capitalised if the original purchase price of an item or group of related items is £2,500 or more and the asset or group of assets has a useful life that exceeds one year. Purchased software licences are classified as intangible assets.
Accounting estimates and judgements
Critical accounting estimates and judgements
Valuation of non-current assets
The value of the Commission's property, plant and equipment, right of use assets and intangibles are estimated based on the period over which the assets are expected to be available for use. Such estimation is based on experience with similar assets. The estimated useful life of each asset is reviewed periodically and updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence or legal or other limits on the use of an asset.
At lease commencement the Commission makes a decision as to whether it is reasonably certain to be exercising break clauses and extension options. This judgement impacts the length of the lease term impacting the lease liabilities and right of use assets. This is reviewed if there is a significant event or significant change of circumstances during 2021-22.
Provisions for liabilities and charges
Provisions are assessed according to IAS 37 guidance, ensuring a legal or constructive obligation exists at the balance sheet date, which have a probable outflow of economic resources and can be measured reliably.
Depreciation and amortisation
Depreciation and amortisation are provided on all non-current assets on a straight-line basis to write of the cost or valuation evenly over the asset’s currently anticipated life as shown in the following table.
Anticipated life of assets
|IT Hardware||4 years|
|IT Software Licences||Over the life of the licence|
|IT Developed Software||5 years|
|Fixtures and fittings||10 years|
|Motor Vehicles||4 years|
|Right-of-use||Over the life of the lease|
Depreciation and amortisation are charged in full in the month following acquisition of the asset, with no charge being made in the month of disposal. No amortisation is charged on software development until the asset is completed.
Property, plant and equipment
Property, plant and equipment is stated at depreciated historic cost as a proxy for fair value. All of the Commission's assets are short life assets (less than 10 years) and therefore depreciated historic cost is not considered to be materially different from fair value. A review of property, plant and equipment is undertaken annually to ensure that all items are still in use and that disposals have been appropriately treated through the year.
Property leases assessed for IFRS 16 Right-Of-Use assets are valued using a cost model which has been used as a proxy for current value as the underlying asset value of the short lease is unlikely to fluctuate significantly.
Annual reviews are also undertaken to identify any impairment of assets in accordance with the International Accounting Standard (IAS) 36. Any gain or loss arising from the disposal of property, plant and equipment is determined as the difference between the disposal proceeds and the carrying amount of the asset and is recognised in the Statement of Comprehensive Net Expenditure account as other income or other expenditure.
The Commission's intangible assets are recorded in accordance with IAS 38. IAS 38 sets out the criteria for recognising and measuring intangible assets and requires disclosures about them. An intangible asset is an identifiable non-monetary asset without physical substance. Such an asset is identifiable when it is separable, or when it arises from contractual or other legal rights.
Under IFRS software development is classified as an intangible asset. Expenditure on development is capitalised only where all of the following can be demonstrated:
- the project is technically feasible to the point of completion and will result in an intangible asset for sale or use
- the Commission intends to complete the asset and sell or use it
- the Commission has the ability to sell or use the asset
- the intangible asset will generate probable future economic or service delivery benefits, for example there is a market for it or its output, or where the asset is to be used for internal use, the usefulness of the asset can be determined
- there are adequate financial, technical and other resources available to the Commission to complete the development and sell or use the asset
- the Commission can measure reliably the expenses attributable to the asset during development.
Internal staff costs that have been directly incurred in the implementation of capital projects are identified as capital expenditure, provided that they satisfy the conditions of IAS 38. Research costs have not been capitalised.
Software purchases that have not required development prior to completion are identified as additions within the category software in the intangible fixed asset note.
In accordance with the FReM, all intangible assets are carried at fair value. Depreciated historical cost is used as a proxy for fair value, which is considered not to be materially different from fair value.
Increases in value are credited to the Revaluation Reserve, unless it is a reversal of a previous impairment. Reversals are credited to the Consolidated Statement of Comprehensive Net Expenditure to the extent of the previous impairment and any excess is credited to the Revaluation Reserve, in accordance with IAS 36, the Impairment of Assets.
On disposal of a revalued asset, the balance on the Revaluation Reserve in respect of that asset becomes fully realised and is transferred to the General Fund. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised in the Consolidated Statement of Comprehensive Net Expenditure.
Last updated: 31 August 2022
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