FM 109
Date of issue: 15 September 2000

1.     This FM replaces FM 19 dated 5 June 1998 which is hereby cancelled.

2.     This FM clarifies and redefines the procedures for asset recording and related accounting processes placing particular emphasis upon the definition of assets and the recording of fixed assets in the Fixed Asset Register (FAR). Reference should also be made to instructions FAR 01 and FAR 02 for the FAR and FM 406 for disposals. (FAR instructions originate in PPARC Finance Division, Swindon Office. Copies are held by Establishment Finance Officers. FMs are available on PPARC’s Intranet.)

3.     The Accounting Officer for PPARC is the Chief Executive who, as Accounting Officer, is charged with accounting for and safeguarding all PPARC assets acquired with public funds and is required to report and explain significant losses in the Annual Accounts submitted by PPARC to Parliament. Responsibility for stewardship of assets is delegated to the Accounting Officer's nominee within each Establishment who is responsible for ensuring that the procedures below are followed.

4.     For recording purposes, assets covers Fixed Assets (as defined in para 5 below); all Portable and Attractive items (as defined in para 15 below) costing £250 or more; and, at the discretion of Establishment Finance Officers, any other Portable and Attractive items of lower value. It does not cover Assets under Construction, Work-in-Progress or Stocks (these terms are defined in paras 9 - 11 below).

1. purchased; or
2. acquired by other means such as gift or exchange; or
3. internally produced for continuing use in PPARC;

which meet the following criteria:

1. have an estimated life at the date of acquisition (or, for internally developed items, at the date of commissioning) of more than one year from that date; and
2. cost* at least £3,000 before VAT; and
3. are, at the date of acquisition, intended to remain largely unchanged from their original state other than from wear and tear.

*NB: Assets must be recorded at full cost less any trade discounts. Trade-in values of outgoing assets must not be used to reduce the cost of the replacement asset: they must be recorded as a receipt on disposal.

6.     Details of Fixed Assets will be kept on the Fixed Asset Register module of SunAccount (the SUN FAR). Their value will also appear at summary level in the balance sheet published within the Financial Statements incorporated in the PPARC’s Annual Report ). When individual items are intended for incorporation into larger items and will have no stand-alone identity in PPARC they should be treated as Assets under Construction rather than Fixed Assets in the Annual Accounts. Although Fixed Assets are purchased in cash terms in one year their costs are deferred in the Annual Accounts and released over the life of the asset - this is depreciation.

7.    Spares required to maintain a Fixed Asset are not treated as Fixed Assets and are not recorded in the FAR. If, when fitted, the part either enhances the value or performance of a Fixed Asset or extends its useful life, the FAR must be amended accordingly as prescribed in paragraph 23. If the life of an existing Fixed Asset is extended then its depreciation rate must be adjusted. Maintenance or refurbishment work on assets will not be capitalised unless it results in an extended asset life. Such extended life must be recorded in the FAR in accordance with paragraph 23 and the depreciation rate adjusted.

8.     Items costing less than £3,000 but which will be incorporated with other items into a Composite Asset which will exceed £3,000 must be treated as Fixed Assets. Although it is likely that there will be a clear "parent" item which meets the Fixed Asset criteria in its own right, this is not necessarily so. This concept is complicated in practice and should only be used when treatment as recurrent expenditure or as Assets under Construction is inappropriate.

9.     "Assets under Construction" are internally constructed assets (ie constructed within an Establishment) intended on completion to become Fixed Assets. The costs incurred on purchases and associated unrecoverable VAT, labour costs and associated overheads (such as pension and NI contributions), and other direct relevant costs such as professional fees (but not general administration) are to be accumulated to give the capitalisation value.

10.     The term "Work-in-Progress" covers long term work on a project that, on completion, will not deliver an asset to be capitalised on the FAR. Work in progress is therefore classified as a Current Asset. Work-in-Progress will arise on certain grant-in-aid funded projects and on repayment activities. Cumulative costs on grant-in-aid funded projects and repayment projects which are incomplete at year end will be accumulated as above and included in the balance sheet under a separate heading.

12.     Stores locations may contain Fixed Assets for use within the stores, or which have been purchased for onward transmission to another section but which have not yet been moved to that section. These items are not Stocks, but are treated as Fixed Assets.

13.     Intangibles (eg patents or software) should be capitalised with caution and PPARC Finance Division, Swindon Office, advice sought in all cases. Intellectual property rights and patents should only be capitalised when they are significant and yield benefit over a period of years. Only major software developments should be capitalised - normal PC software should be treated as recurrent. It is likely that these would be developed in-house, and therefore the rules relating to capitalisation from Work-in-Progress should be followed.

14.     Some non-consumable items costing less than £3,000 before VAT but at least £250 (lower value items may also be included) are regarded as "Portable and Attractive" and are particularly at risk of misappropriation. Each Establishment is required to designate an officer with responsibility for maintaining a register of Portable and Attractive items. These items should be charged directly to the expense accounts (eg 53xxx) and should not be capitalised. They should be separately recorded with responsibility assigned to an individual staff member and controlled on a separate ledger.

15.     An item is regarded as Portable and Attractive if it is sufficiently portable to be concealed about the person or in a car and is attractive to people who might have access to it. It is likely that the items requiring control in this manner will vary across and within Establishments. Annual checks of holdings must be carried out by the finance department in each Establishment.

16.     Assets listed on the SUN FAR on 1 April 1997 have independently compiled values based on estimates of open market value with an estimate of remaining useful life.

17.     New acquisitions are added at actual cost (in local currency) inclusive of unavoidable taxes such as VAT and installation expenses. Other costs of acquisition such as transport or foreign exchange should not be capitalised but charged to the Income and Expenditure Account in the year of acquisition.

18.     Acquisitions comprising Fixed Assets which are not readily valued, such as gifts or contributions in exchange for services, will be valued at current replacement cost depreciated at the appropriate rates from the table at Annex A. PPARC Finance Division, Swindon Office, should be consulted in all such cases.

19.     The total amount of VAT associated with a purchase is treated as irrecoverable and shall be capitalised. Any VAT recovered shall be treated as a sundry receipt in the Income and Expenditure Account. If the proportion of exemption or the basis on which VAT operates changes (eg by the Chancellor in a Budget) this method of accounting will be reviewed; the benefits of total accuracy will need to be weighed against the effort of computation and maintenance.

20.     Each asset must be depreciated on a straight line basis so as to reduce the value to a residual value of nil over the expected life of the asset. Depreciation should be calculated on both an historic and a current cost accounting basis. However, Establishments will be responsible for accounting on an historic basis only. Current cost accounting will be carried out centrally by PPARC Finance Division, Swindon Office.

21.     No depreciation is charged in the month of acquisition, nor is any depreciation charged in the year of disposal regardless of when in the year disposal occurs. Assets have been analysed into broad categories. A table showing the standard life for each is at Appendix A. Establishments may sub-divide these categories into types as appropriate to best meet their needs and either allocate standard lives according to type or to individual assets. PPARC Finance Division, Swindon Office, must be consulted if there is a perceived need to introduce a standard life for a type outside the list at Appendix A.

23.     Financial Reporting Standard FRS 15 Tangible Fixed Assets came into force for all accounting periods ending on or after 23 March 2000. It requires the useful economic life of every Fixed Asset to be reviewed at the end of each reporting period. To comply with FRS15, standard asset lives will continue to be used unless there is significant evidence that this estimate is inappropriate and should not be followed. Under FRS 15 an evaluation is required for every addition to the FAR and any deviations from the current policy of standard asset lives must be referred to the Head of Finance, PPARC, to consider the issue of materiality. In addition, each year when the physical asset verification is carried out as described in paragraph 49 below an evaluation by the budget holder will also be required to review the useful economic life and residual values.

24.     Assets on the FAR will be valued in the same currency as that in which the local SUN ledger is denominated.

25.     Individual items of expenditure in any one year must be classified as either capital or recurrent.

26.     Recurrent expenditure is charged to the Income and Expenditure Account under an appropriate heading for that year.

27.     Capital expenditure on Fixed Assets and Assets Under Construction is recorded in the Balance Sheet. The consumption of the Asset is represented by an Annual Depreciation charge to the Income and Expenditure Account. Assets Under Construction are re-classified as Fixed Assets when the construction is complete and delivered. The value of the completed Fixed Asset will be transferred between Establishments by advice note and entered on to the receiving Establishment’s Asset Register. Any residual value not capitalised and transferred will be classified as recurrent expenditure in the constructing Establishment’s accounts.  Work-in-Progress and Stocks are classified in the Balance Sheet as Current Assets.

28.     Portable and Attractive items are accounted as recurrent expenditure and not capitalised. They are nonetheless separately recorded on a memorandum basis as the responsibility of a named individual. This responsibility must be agreed with the individual.

29.     On acquisition, all FAR items are allocated a unique reference number within the FAR, and bar-coded labels bearing these numbers must be affixed permanently and prominently to the item when physically possible. When a label cannot be affixed, alternative adequate identification must be provided and must follow the item if it is moved, such that a FAR item is always identifiable.

30.     On acquisition of a FAR item, the Establishment Finance Officer, in consultation with the appropriate technical officer, shall determine the standard life of the item within the range for the relevant category indicated in Appendix A to this FM. Overriding beyond this range must be approved by PPARC Finance Division, Swindon Office.

31.     Items loaned or otherwise housed on PPARC’s premises but not belonging to PPARC may require recording for security purposes. So long as this can be done without affecting the data held for PPARC items the FAR may be used for this purpose.

32.     As Assets under Construction projects are completed the accumulated accounting records must be reviewed in collaboration with Swindon Office to establish an appropriate value for the resulting Fixed Asset. Usually this is the accumulated costs but if some of those are regarded as unproductive or fruitless they may be transferred to recurrent expenditure for the year, so that the value capitalised as the Fixed Asset is more appropriate to the finished item. This must be performed at each year-end before the values of Assets under Construction and of Fixed Assets are finalised.

33.     As the balance sheet at each year end will include the value of Assets under Construction, it is important this is not overstated. Each project should be reviewed and costs which have been charged but which could not justifiably be capitalised at the project's completion written back to recurrent expenditure.

34.     The value of Work-in-Progress accumulated and treated as a current asset until the item is sold when it becomes a cost of sale. When Work-in-Progress has been accumulated in respect of an item which has become irrecoverable, such as a satellite produced for a space project, the entire value should be written off to recurrent expenditure in the year in which it becomes irrecoverable.

35.     When an item has ceased to have any operational value to PPARC, eg due to obsolescence, unserviceable condition with uneconomic cost of repair etc, PPARC has not lost any value and only an accounting "tidying up" is needed. It may be that the FAR still shows a net value for the item; this is a consequence of having charged incorrect depreciation. This net value will be charged to the Income and Expenditure Account, and cost and depreciation elements in the FAR will be reversed and hence removed.

36.     When PPARC has prematurely been deprived of the item, eg by theft, avoidable damage, a gift for consideration less than market value etc, real value has been lost. This value is not necessarily the net value as shown by the FAR but is the market value at the time of loss less any consideration received.

37.     The accounting actions as for Strikeoffs must be followed. Additionally, the difference between the net book value as shown in the FAR and the actual market value must be accounted for as a cost.

38.     When an item is sold the agreed price may or may not equal the general market value. The market value should be established for land, buildings and other major assets by specific professional revaluation and for other items by reference to prevailing market conditions. A sale for the market value is accounted for as for Strikeoffs, since PPARC is no worse off as a consequence of the sale. Proceeds above the market value constitute a profit in the Income and Expenditure Account, and, if below, constitute a loss to be treated as a Write-off. Note that the market value, sale proceeds and book value in the FAR may all differ. Care must be taken to account for each different element correctly. Sale proceeds must always be recorded as such, against the sold asset. On no account should sale proceeds be applied to the incoming replacement asset as a "trade-in value" to reduce it’s cost.

39.     All disposals must be correctly recorded and authorised by the Head of Finance, PPARC, or by the Establishment Finance Officer (or authorised nominee) as appropriate in accordance with the current delegated authorities (see FM 101). All records should be retained for audit scrutiny.

40.     Strikeoffs may only be made after the authorising officer has inspected such evidence as is deemed necessary and agrees that the asset has no further worth to PPARC. For significant items this may include an appropriate independent inspection report.

41.     Write-offs may only be made after a comprehensive and documented review of the facts and circumstances, particularly when theft or any wilful action was involved. All reasonable action must be taken to mitigate PPARC's losses.

42.     Sales require authorisation at least to the level of Strikeoffs, and as for Write-offs if there is a significant shortfall from the market value.

43.    FAR and Portable and Attractive items must be and remain recorded once only (ie by one Establishment) in PPARC. If a transfer to another Establishment or an outside body is temporary (less than 6 months) then it should be considered a loan and recorded as such.

44.     If the transfer is intended to be or becomes permanent, it should be treated for the purpose of FAR records by the original Establishment as a negative addition at the date the transfer is recognised as permanent. The despatching Establishment must provide suitable details, as defined in instruction FAR 01, from its FAR to accompany the asset to permit the receiving Establishment to record it correctly, and must not reverse the record in its FAR until the new Establishment has confirmed acceptance of responsibility. The details supplied by the despatching Establishment must include a certification that the transferred asset is in working order at the time of despatch. The receiving Establishment will bear the depreciation costs for the whole year.

45.     Transfers to non-PPARC bodies are sales and are treated as disposals in all accounting records, including the FAR. Any possible VAT implications must be considered as output tax may be payable even if the asset is donated free of charge (see PPARC’s VAT Briefing Notes).

46.     Temporary transfers to other Establishments and non-PPARC bodies are deemed a loan. The FAR record at the home location should be appropriately annotated with the temporary location and the project reference. The Establishment carrying the item in its FAR remains responsible for it and bears the depreciation. (See instruction FAR 01 for further information.)

PERSONALLY HELD PROPERTY

47.     All Portable and Attractive items are expected to be recorded in a suitable register as the responsibility of individual member of staff.

48.     Before a person leaves employment with the Establishment a record of the property held by that individual should be obtained and the property must be recovered. Any failure to recover must be treated as a disposal and appropriately authorised.

AUDIT AND CONTROL

49.     A record of physical inspections of each FAR item, which should be performed according to Establishment practice, must be noted in the FAR on SUN. All Fixed Assets should be verified once per annum and for Portable and Attractive items an annual statistically sound inspection programme that meets audit requirements must be followed.

50.     Periodic reconciliations of the contents of the FAR with Annual Accounts, physical records and other available records must be performed by Establishment management and any necessary adjustments made as above (see FAR 03).

Jeff Down
Head of Finance, PPARC

Appendix A to FM 109

Note that within these categories Establishments may freely define "types".

Last updated 29 June, 2001