APPENDIX A

CODE OF PRACTICE ON LOCAL AUTHORITY ACCOUNTING IN THE UNITED KINGDOM 2005 – A STATEMENT OF RECOMMENDED PRACTICE

DEFINITION OF CAPITAL EXPENDITURE

1. All expenditure on the acquisition, creation or enhancement of tangible fixed assets should be capitalised on an accruals basis. Expenditure on the acquisition of a tangible asset, or expenditure which adds to, and not merely maintains, the value of an existing asset, should be capitalised and be classified as a tangible fixed asset, provided that it yield benefits to the authority and the services it provides are for a period of more than one year.

2. Expenditure that should be capitalised will include expenditure on the:

o Acquisition, reclamation, enhancement or laying out of land

o Acquisition, construction, preparation, enhancement or replacement of roads, buildings and other structures

o Acquisition, installation or replacement of movable or immovable plant, machinery, apparatus, vehicles and vessels

3. In this context, enhancement means the carrying out of works which are intended to:

• Lengthen substantially the useful life of the asset

• Increase substantially the market value of the asset, or

• Increase substantially the extent to which the asset can or will be used for the purposes of, or in conjunction with, the functions of the local authority concerned

4. Under this definition, improvement works and structural repairs should be capitalised, whereas expenditure to ensure that the fixed asset maintains its previously assessed standard of performance should be recognised in the revenue account as it is incurred.

5. Administration and general overhead costs are excluded. Costs will also be ineligible to the extent that they relate to activity that takes place before the intention to acquire or construct a particular fixed asset has been confirmed. Examples include the cost of option appraisals and feasibility studies.

6. Where any of the costs relate to potential fixed assets which are not then constructed they are treated as abortive and written off to revenue.