Double Dipping in Asset Accounting

The adoption of current cost accounting techniques means that service authorities derive a far more accurate assessment of the true consumption (or depreciation) of their assets. However, we must be careful not to confuse true depreciation, and the overall costs of providing a service, with the future works programs that may be envisaged to rehabilitate and renew these assets.

For instance, if the annual maintenance being undertaken on an asset is sufficient to provide an indefinite life, then no depreciation is required. Taking this one step further, if an asset has a regular overhaul or renewal program, then this may constitute the depreciation of an asset.

For long-lived passive infrastructure that is being maintained between target and minimum levels of service, annual maintenance plus long-term renewal/ rehabilitation costs, expressed as an average annuity, is fundamental to asset economics. This figure can be accurately derived using accrual techniques providing the depreciated values of the assets reflect the true cost of returning the asset to a target level of service.

This is why Infrastructure Accounting or Renewal Accounting has become so popular in advanced asset management economics. It more truly reflects the cash required for the organization to remain viable and provide the required services.