fixed asset management policy - elrc

amo

FIXED ASSET MANAGEMENT

POLICY

ASSET MANAGEMENT POLICY 2

EDUCATION LABOUR RELATIONS COUNCIL

Doc No. SCM/AM/001

Date: OCTOBER Rev 2

Page: 2 of 13

Title: ASSET MANAGEMENT POLICY Document type: POLICY

This document has been seen and accepted by the following: EXECUTIVE COMMITTEE OF THE COUNCIL

COMPILED/ REVIEWED BY: CHARLES N. MOKOENA

RECOMMENDED BY: UNATHI NDOBENI CHIEF FINANCIAL OFFICER

APPROVED BY: NOLUSINDISO FOCA GENERAL SECRETARY

AUTHORISED BY: LUVUYO BONO CHAIRPERSON OF THE COUNCIL

DATE OF LAST REVIEW: FEBRUARY 2020

DATE OF NEXT REVIEW: MARCH 2022 NOTE: - This document may be changed before the stipulated period as and when a need arises as guided by the Documentation Policy


TABLE OF CONTENTS Page

1. DEFINITIONS 4

2. ACRONYMS 6 3. REGULATORY FRAMEWORK 6

4. OBJECTIVES 6 5. SCOPE 7

6. FUNCTIONAL ROLES AND RESPONSIBILITIES 7

7. APPLICATION OF POLICY OR CONTENT 7

8. RECOGNITION AND CLASSIFICATION OF ASSETS 11

9. SAFE GUARDING 12

10. ASSET THRESHOLD 12

11. DISPOSALS AND RETIREMENTS 13

12. LOSS OF ASSET(S) 13

13. INSURANCE 13

14. NON-COMPLIANCE 13

15. POLICY EFFECTIVE DATE 13

16. POLICY MANAGEMENT AND REVIEW 13


1. Definitions

1.1 Assets

Assets are resources controlled by an entity (ELRC) as a result of past events and from which future economic benefits are expected to flow to the entity.

1.2 Property, Plant and Equipment (PPE)

Property, plant and equipment are tangible items that:

are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and

are expected to be used during more than one reporting period. 1.3 Amortisation is the systematic allocation of the depreciable amount of an intangible

asset over its useful life.

1.4 Artwork refers to paintings, drawings, or other artistic works and other art collection tribal cultures.

1.5 Asset identification number is a number uniquely assigned to each asset. It can be

used for identification in the asset register.

1.6 Capitalisation of assets means the recording of assets in the Fixed Asset Register and the general ledger, with its historical financial cost in accordance with IFRS-SME.

1.7 Capital Assets are all assets with a life cycle of greater than one year and above the capitalisation threshold (where applicable). For example, this would include property, plant and equipment (infrastructure network, furniture, motor vehicles, computer equipment, etc.), intangible assets, and investment property.

1.8 Capitalisation Threshold is the value above which assets are treated as Capital Assets and entered into an Asset register from which reporting in the Financial Statements (specifically the Statement of Financial Position) is extracted. It is the minimum cost at which an asset is recorded in the Fixed Asset Register and in the general ledger.

1.9 Carrying Amount is the amount at which an asset is recognised after deducting any accumulated depreciation and accumulated impairment losses.

1.10 Classification of assets means the grouping of assets of a similar nature or functionality in an entity’s operations.

1.11 Class of Property, Plant and Equipment means a grouping of assets of a similar nature or function in an entity’s operations that is shown as a single item for the purpose of disclosure in the financial statements.

1.12 Cost means the amount of cash or cash equivalents paid or the fair value of or other

consideration given to acquire an asset, at the time of its acquisition or construction. It includes all costs incurred to bring the asset to the condition and location essential for its intended use (e.g. purchase price plus transport and installation). This cost should include VAT where applicable.

1.13 Depreciation is the systematic allocation of the depreciable amount of a tangible asset over its useful life. It is the reduction in the carrying amount of a tangible asset due to use, obsolescence or passage of time.


1.14 Depreciable amount means the cost of an asset or other amount substituted for cost

in the financial statement less its anticipated residual value.

1.15 Division or Business Unit refers to a section or unit assigned to a manager in accordance to the organisational structure. The two words will be used interchangeably.

1.16 Fair value means the amount for which an asset could be exchanged, or a liability

settled, between knowledgeable, willing parties in an arm’s length transaction. 1.17 Fixed Asset Register means a register for the recording of assets as defined by the

accounting standards and IFRS-SME.

1.18 Impairment is an accounting principle that describes a permanent reduction in the value of an organisation's asset, normally a fixed asset.

1.19 Impairment loss the amount by which the carrying amount of an asset or cash-generating unit exceeds its recoverable amount.

1.20 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. For example, Goodwill, brand recognition and intellectual property, such as computer software, patents, trademarks and copyrights, etc.

1.21 Investment Property is land or a building (including part of a building) or both that is held to earn rentals or for capital appreciation or both; not owner-occupied; not used in production or supply of goods and services, or for administration; and not held for sale in the ordinary course of business. Investment property may include investment property that is being redeveloped.

1.22 Organisational Inventory Register means a register for the recording of items that do not meet the IFRS-SME definition of an asset.

1.23 Residual value It is the net amount the Council expects to obtain for an asset at the

end of its useful life after deducting the expected costs of disposal.

1.24 Repairs and Maintenance means all actions and measures performed on existing tangible assets that are undertaken to prevent deterioration and failure and to restore the physical condition, quality of functionality and operational performance.

1.25 Useful life means the period over which an asset is expected to be available for use by an entity.

1.26 Recoverable amount is defined as the higher of the ‘fair value less costs to sell’ and the ‘value in use’. Total economic benefits or service potential that the Council expects to recover or receive from the continued use and ultimate disposal of an asset.


2. ACRONYMS

2.1 AMC Form: Asset Movement Capture Form 2.2 CFO: Chief Financial Officer 2.3 DIR: Division Inventory Register 2.4 ELRC: Education Labour Relations Council 2.5 EXCO: Executive Committee 2.6 FAR: Fixed Asset Register 2.7 GS: General Secretary of the ELRC 2.8 IFRS-SME: International Financial Reporting Standards for Small Medium Enterprises 2.9 PPE: Property, plant and equipment 2.10 SCM: Supply Chain Management

3. REGULATORY FRAMEWORK

3.1 The applicable reporting framework used in the drafting of this policy is:

IFRS-SME;

The Supply Chain Management Policy; and

The Finance Management Policy

4. OBJECTIVES

4.1 To ensure the effective and efficient control, utilisation, safeguarding and management

of ELRC’s property and equipment.

4.2 To ensure Senior Managers are aware of their responsibilities regarding infrastructure and assets.

4.3 To set out the standards of physical management, recording and internal controls to

ensure property, plant and equipment are safeguarded against inappropriate loss or utilisation.

4.4 Provide guidelines and standards with a view to ensure that assets:

(i) Remain appropriate to program requirements; (ii) Are effectively and economically utilized; and (iii) Are well maintained to support program delivery at the lowest possible long-

term costs.

4.5 This Policy shall not be used in isolation and shall be used in conjunction with all other policies and relevant legislation.


5. SCOPE

5.1 This Policy applies to all Property, Plant and Equipment including intangible assets,

which are either contributed to the organisation or purchased and meets the definition of an asset as set out above (1.1).

6. FUNCTIONAL ROLES AND RESPONSIBILITIES

6.1 The purpose of this section is to prescribe the responsibilities of various functionaries

within the organisation regarding assets: 6.2 The General Secretary

The General Secretary (GS) is accountable for compliance with this Policy, while the EXCO maintains oversight over the implementation thereof.

6.3 The CFO

The Chief Financial Officer (CFO), supported by the Finance and SCM division, is the custodian of this Policy and is accountable for the implementation thereof, together with all ELRC Officials such that: 6.3.1 All assets are kept in secure premises / environment, which have adequate

security and access control. The Assets Manager must ensure that adequate measures are in place to mitigate the risk of loss.

6.3.2 SCM ensures that all assets are acquired in terms of the SCM Policy. 6.3.3 SCM ensures that all assets have an asset number allocated to it; also that

the physical location assets agrees to the asset register and the division inventory registers.

6.3.4 Assets in the possession of staff are to be treated with due care. Any failure

to maintain, care for and safeguard the asset may result in disciplinary action being taken against the staff.

6.3.5 The SCM Manager ensures the maintenance of the Fixed Asset Register

(FAR) and all entries thereto. The FAR is to be updated for all acquisitions, disposals and write-offs.

6.3.6 The FAR includes at least the following information:

Asset category

Asset number

Asset description

Date of acquisition

Original cost

Residual value (reviewed annually)

Asset location

Useful life (reviewed annually)

Annual depreciation/amortisation and accumulated depreciation


Carrying value

Person responsible 6.3.7 The fixed asset register is reconciled monthly with the general ledger by the

Finance unit.

6.3.8 The Finance Manager ensures that depreciation calculation are performed monthly.

6.3.9 The Finance Manager ensures that an impairment assessment is performed

annually at the end of the financial year.

6.3.10 The SCM Manager ensures that assets are verified bi-annually. 6.3.11 The organisation’s assets are valued in accordance with standards of IFRS-

SME. 6.4 All Other Divisions/business units

Senior Managers shall be directly responsible for the physical safeguarding of any fixed asset controlled or used by their section or Business Unit.

In exercising this responsibility, Senior Managers shall adhere to the stipulations of this Policy, as well as any other written directives issued by SCM to the division or business unit in question, or generally to all divisions or business units with regard to the control of or safeguarding of the Council’s Fixed Assets.

All the Other Divisions/business units within the organisation (ELRC) shall:

(a) Ensure that employees in their division/business unit adhere to the approved Asset Management Policy.

(b) Ensure that all assets are procured in terms of the SCM Policy.

(c) Ensure that employees with delegated authority have been nominated to

implement and maintain physical control over assets in their division/business unit. Although authority has been delegated, responsibility remains with the respective Managers of the division/business unit and overall accountability with the Senior Managers of the relevant Divisions/business units.

(d) Ensure that assets are properly maintained in accordance with their

respective asset maintenance plan.

(e) Ensure that, where applicable, all their movable assets as reflected on the FAR and DIR are barcoded to exercise control.

(f) Ensure that SCM is notified of any changes in the status of assets under the

department’s control;

(h) Ensure that transfers between divisions/business units are administered through SCM and the AMC form is completed.

6.5 Human Resources Management Department - Resignation of employees


The Human Resources Management Department shall ensure that no monies are paid out to staff on termination of their service prior to receiving the relevant asset resignation form signed off by the relevant supervisor.

7. APPLICATION OF POLICY OR CONTENT

7.1 Recognition The ELRC recognises an item of property, plant and equipment as an asset

when: a) it is probable that future economic benefits associated with the asset will flow

to the ELRC (risks and rewards associated with ownership will be received); and

b) the cost or fair value of the asset can be measured reliably.

7.1.1 Initial recognition

a) The ELRC initially measures an item of property, plant and equipment at its cost, i.e. all costs incurred in bringing the asset to working condition. These costs include: o import duties; o VAT and other non-refundable purchase taxes (ELRC is not a VAT

vendor); o initial delivery and handling costs; o installation costs; o rebates and/or trade discounts; and o costs of site preparation.

b) Costs of assets are capitalised if it meets the definition of an assets and

recognition criteria. Costs that do not meet the definition of an asset, are recognised as expenditure and expensed in the period in which they are incurred.

c) Assets shall be included in the fixed asset register once all requirements are met.

d) In certain circumstances, it is appropriate to allocate the total expenditure of an asset to its component parts and account for each component separately. This can be the case when the component assets have different useful lives. The CFO has a responsibility to determine if the different components of the asset should be recognised separately.

7.2 Borrowing costs Borrowing costs are not capitalised to the cost of PPE, they are expensed when incurred.

7.3 Subsequent expenditure

a) Subsequent expenditure relating to an asset should be expensed in the period incurred unless future economic benefits will be more than the originally assessed standard of performance of the asset; in which case it is added to the carrying value to be recovered from future use of the asset.


b) Subsequent expenditure that qualifies for recognition as an asset should be depreciated over the remaining useful life of the asset.

c) Subsequent expenditure to be capitalised should not relate to standard repairs and maintenance. Upgrades can be considered for capitalisation.

7.4 Depreciation

7.4.1 Each part of an item of property, plant and equipment with a cost that is

significant in relation to the total cost of the item shall be depreciated separately.

7.4.2 The depreciable amount of an item of property, plant and equipment shall be

allocated on a systematic basis over its useful life. 7.4.3 Where depreciable assets are acquired or disposed of during the financial year,

depreciation is to be raised from the date the asset is ready to use up to the date of disposal.

7.5 Useful life of assets

7.5.1 The useful life of an item of property, plant and equipment shall be reviewed once per year and if expectations are significantly different from previous estimates, the depreciation charge for the future periods should be adjusted.

7.6 Depreciation method

7.6.1 The depreciation method used to depreciate assets should reflect the pattern

in which the economic benefits are consumed. All assets are depreciated using the straight-line method of depreciation over their expected useful lives.

7.7 Depreciation rates

7.7.1 All assets are depreciated on a straight-line basis over their estimated useful lives as follows:

Item Estimated useful life in

years

Buildings 25

Lifts 25

Generators 25

Furniture and fittings 10

Motor vehicles 7

Office equipment 8 to 10

Computer equipment 3

Leasehold improvements 5

Useful lives of Intangible assets:

Item Estimated useful life in years

Computer software - Operational 8

Computer software - Application 3


7.7.2 Intangible assets that have an indefinite useful life are not subject to

amortisation and are tested annually for impairment or more frequently if events or changes in circumstances indicate that they might be impaired.

7.8 Impairment of assets

7.8.1 An impairment of asset test shall be conducted on an annual basis to determine

whether any assets are carried above their recoverable amount.

7.9 Reversal of impairment loss

7.9.1 Where an impairment loss has been recognised in a previous period, and there is any indication that the impairment no longer exists or may have decreased, must be performed. The recoverable amount of the asset should be estimated and an appropriate amount of the impairment previously recognised should be reversed.

7.9.2 The increased carrying amount of an individual asset due to a reversal of an

impairment loss shall not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years.

7.9.3 The CFO shall consider approval any reversal of an impairment loss.

7.10 Leased assets

7.10.1 The ELRC should analyse each lease contract to determine whether it

represents a finance lease or an operating lease.

7.10.2 Whether a lease is a finance lease, or an operating lease depends on the substance of the transaction rather than the form of the contract.

7.11 Intangible assets

7.11.1 Intangible assets should be allocated unique asset numbers and separately recorded on the asset register. This will facilitate consideration of all accounting requirements pertinent to the different asset accounting standards. This will also facilitate asset verification.

7.12 Research and development

7.12.1 All expenses incurred internally on an intangible asset including expenditure for research and development activities, will be expensed when incurred unless it forms part of the cost of another asset that meets the recognition criteria as per IFRS for SMEs Standard.

8 RECOGNITION AND CLASSIFICATION OF ASSETS

8.1 Property, Plant and Equipment

Property, Plant and Equipment is carried at cost less accumulated depreciation and accumulated impairment losses.


8.1.1 Cost includes all costs incurred to bring the asset to the location and condition

necessary for it to be capable of operating in the manner intended by management.

8.1.2 Costs include costs incurred initially to acquire or construct an item of

property and equipment and costs incurred subsequently to add to, replace part of, or service it.

8.1.3 For a contributed non-current asset, cost is deemed to be the fair value at the

date the asset is contributed. 8.1.4 Items such as spare parts, stand-by equipment and servicing equipment are

recognised in accordance with this section if they meet the definition of property, plant and equipment. Otherwise, such items are classified as inventory

8.2 Investment Property

8.2.1 An investment property is measured initially at cost, in line with the following: a) Initially at acquisition cost plus transaction cost, or nominal value b) Where acquired at no cost or nominal value, fair value at acquisition is

deemed to be cost for disclosure c) If held under a lease and classified as Investment Property, is the lower

of fair value and the present value of the minimum lease payments

9. SAFEGUARDING

9.1 Custody and Security

9.1.1 All assets shall be barcoded and captured in the Fixed Asset Register. 9.1.2 Assets shall be assigned a location and/or issued to a specific user. 9.1.3 When allocating the asset, the user shall acknowledge receipt 9.1.4 The end user/ division/business unit shall report to the SCM Officer (Assets)

any stolen or damaged property within their area of responsibility. 9.1.5 Assets shall be insured within five days after accepting delivery. 9.1.6 Upon resignation, all employees shall return assets allocated to them by the

Council. 9.1.7 The assets of the ELRC shall be verified at least once a year.

10. ASSET THRESHOLD

10.1 All assets costing less than R5 000 will be classified as ‘Minor Assets’. These assets

will not be capitalised but will be expensed. They will be recorded in the Council’s Inventory Register.

10.2 The Furniture and Fitting are exempt and shall be capitalised even if the cost is

below the threshold. 10.3 Artwork, even if it falls below the threshold, shall also be included in the inventory list.


11. DISPOSALS AND RETIREMENTS

11.1 Assets shall be retired or disposed if:

11.1.1 It no longer perform at optimum levels to meet the organisation’s requirements. 11.1.2 Technological obsolescence; damaged beyond repair or assets are in excess

of the current requirements and will not be needed in the foreseeable future. 11.1.3 The delegated officials shall make a submission to the office of the General

Secretary, seeking approval to dispose of he identified assets. 11.1.4 The method of disposal shall be approved by the General Secretary.

12. LOSS OF ASSET(S)

12.1 Loss of any assets covered in this Policy will be dealt with in line with the Theft and

Loss Policy.

13. INSURANCE

13.1 All assets must be insured with an accredited and approved financial institution within

five working days of receipt by the ELRC.

14. NON-COMPLIANCE

14.1 Non-compliance with this Policy or any applicable regulatory requirements through any

deliberate or negligent act or omission, including allowing a staff member, either expressly or implicitly, not to comply with this Policy or any applicable regulatory requirements; will be considered serious and will be dealt with in terms of the ELRC’s disciplinary policies and procedures.

15 POLICY EFFECTIVE DATE

15.1 This Policy comes into effect on the date when approval of this policy is communicated

to ELRC staff via e-mail, provided that the e-mail communication does not fall on a business day, then the policy comes into effect on the first business day following the date on which the e-mail communication was sent.

16 POLICY MANAGEMENT AND REVIEW

16.1 This Policy shall be managed and reviewed in accordance with the ELRC’s Policy

Management Framework and Policy Management Standard Operating Procedures.

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