Capitalisation Transactions

At the end of a Capital Project, the costs that have been incurred need to be capitalised against the underlying Component Items. This is done in the Metrix Asset Management system using Capitalisation Transactions. The process of generating (and applying) capitalisation transactions causes the following:

  • The Budget Bucket will be closed/locked.
  • The cost of works (sum total of Capital Spends) will be transferred to the Capital Transactions Ledger.
  • A transaction batch summary will be created against the Budget Bucket.
Warning

Capitalisation Transactions can only be applied ONCE during the life of a project - It marks the end of the project. To perform any more capital works against the same Component Items, a new Budget Bucket must be created.

When Capitalisation Transactions are applied, the Budget Bucket will be Closed (locked).

It is in point 2 above that the bulk of the capitalisation work occurs. When the value is transferred to the Capital Transactions Ledger, the following considerations are taken into account:

  • Any disposal/impairment of existing Component carrying value is measured and applied (see Renewal Methodologies below).
  • Any effect on accumulated depreciation is measured and applied (see Renewal Methodologies below).
  • Any effect on the gross replacement cost of the Component is measured and applied.
  • Components are seeded with a Finance Category (in the case that they do not already exist within the Capital Transactions Ledger).
Renewal Methodologies

For Capital Spends that have any Capitalisation Shares that are attributed to ‘Renewal’, consideration must be given to how the system will process any existing carrying value of the underlying Component Item(s). The system does this through the implementation of ‘Renewal Methodologies’.

Info

For Capital Spends that have any Capitalisation Shares that are attributed to ‘Renewal’, a Renewal Methodology must be chosen in order to Generate Capitalisation Transactions.

Renewal Methodologies are essentially a set of rules that define how the system treats existing gross value and accumulated depreciation value when capitalising renewal spends against a Component Item. Given the complexity of these methodologies, only one is discussed here. For a full breakdown of the available Renewal Methodologies, see the ‘Renewal Method Examples’ within your Metrix Application.

An example Renewal Methodology, for the purposes of explaining the type of things they control, is the ‘Disposal Method’. When capitalisation transactions are generated under the ‘Disposal Method’, the system will do the following:

  • When the Component’s Spend Share value exceeds its accumulated depreciation value, but not its gross value:
    • The system will generate ‘Disposal’ transactions to accelerate the accumulated depreciation value up to that of the Spend Share value, or the gross value of the Component (whichever is less).
    • The system will then generate a ‘Renewal’ transaction to capitalise the Component’s Spend Share value against the accumulated depreciation of the Component. Essentially, reversing the accumulated depreciation value.
  • When the Component’s Spend Share value exceeds its gross value:
    • Firstly, the system performs the above process to allocate as much of the spend as possible to the accumulated depreciation value of the Component.
    • The remainder of the Spend Share value is then capitalised against the gross value (as another ‘Renewal’ transaction) of the Component.

Again, this is a very simplistic example of how the system treats existing carrying value and accumulated depreciation. See the ‘Renewal Method Examples’ within your Metrix Application for a full breakdown of the available Renewal Methodologies.