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Infrastructure assets are the long lasting capital assets that adds value to the land like roads, bridges, railways, tunnels, electricity, airports, energy, lighthouses, public housing, telecommunication, water supply, canals and many more. It is very important to manage and account these assets. Therefore, information is needed for efficient management of these assets. Management reporting is one of the source for information, where the financial reports are prepared. Financial reporting is executed by the financial managers, where the accounting process is done. In this case, are determined as capital assets and are placed in different categories as depreciable assets, non-depreciable assets or both the depreciable and non-depreciable assets. The infrastructure assets is also to be reported by following the accounting standards. The paper is discussed on the accounting method of infrastructure assets, the issues and challenges related to reporting the infrastructure assets, and the different assets related to the infrastructure. The intense of this paper is to evaluate the accounting system of the infrastructure assets.
According to the author, the infrastructure management is very important in making the decisions. The management of infrastructure is done using the software’s, data and the process. The paper is discussed on the challenges of implementing the municipal infrastructure management environments (MIMEs) and the various challenges for this challenges (Halfawy 2008). The solution involves the various data models, software for integrating the system.
The research is carried through primary data collection through the interviews in the office of ministry of information, culture, and communication.
The infrastructure assets needs to managed in an organized way to establish a long-term service goal, in maintaining the quality of life of society and the environment. The government is responsible for managing these assets, to assess the optimum quality in maintenance and long-lasting of the assets. The assets should provide an optimum level of service to the public society (Makkonen 2016). Accounting for infrastructure is a very important concepts for proper financial reporting and significant transfer of information for better quality of work. Accounting standards needs to be followed for reporting the infrastructure assets. There are approaches used for depreciation of the assets. The first is traditional depreciation approach. This methodis one of the approaches of reporting the infrastructure assets. The infrastructure assets are generally listed under the term, depreciable capital assets. This tells that, these assets are depreciated along with the other depreciable capital assets.Modified approach is themethod of accounting process, where the maintenance expenses and the other preservation expenses, of the infrastructure assets are reported as expenses (Yoon, Hastak and Cho 2017). This method is approved when the management is committed to maintain the infrastructure in certain conditions.Combined approach indicates that, the government uses both the traditional and modified approach to depreciate the infrastructural assets.In the modified approach of accounting the infrastructure assets, it provides all the information related to the infrastructure assets and estimate the clear value for forecasting the budgeting and management of the assets (Adey et al. 2019). This is because the assets management is done using the qualifying asset management system and the document is related to the sufficient preservation of the assets.
The accounting of infrastructure assets is under the depreciable or non-depreciable capital assets (Bonthuys, Blom and van Dijk 2018.). These assets are generally recorded in the periodic depreciation and also in disposition. The double-decline balance method is used to depreciate the infrastructure assets.
Depreciation method will allocate the value of an infrastructure asset at the termination of its valuable life. This is included as operating expense of the infrastructure assets. The depreciation of infrastructure is calculated under the capital assets. It is very important to charge the depreciation for measuring the consumption of the infrastructure assets. To understand what will happen to the assets in the future. There are two methods of calculating the depreciation. The first method is, the Straight line depreciation and the second one is double-declining balance depreciation. The straight line depreciation method includes, recognizing the purchasing amount of the fixed assets and then subtracting the value of the assets from the purchasing amount (Marzouk and Osama 2017). This will estimate the life span of the infrastructure assets. The straight line depreciation formula is given by: Depreciable costs of the asset = Purchase cost- salvage value. The second method for depreciating the infrastructure is double declining balance method. Here, the worth of the asset is depreciated twice at the amount, determined by straight line method. The traditional depreciation method includes, the systematic allocation of costs, and estimates the valuable life span of the resources. The cost of an infrastructure assets, represent the purchase cost of the assets and it is determined as the fair value of the assets. The accounting standards measures the depreciation annually. Therefore, the depreciation of an infrastructure assets is to be calculated annually to adjust any changes required. The infrastructure assets are generally renewed continuously. Therefore, there is a little chance of degrading the assets (Giglio, Friar and Crittenden 2018). There are some infrastructure assets that can be depreciated are the buildings, equipments, furniture’s and many more. The only infrastructure assets that cannot be depreciated is the land. This is because it cannot lose its value. It has its ultimate life span, since, it is a natural resource.
Infrastructure assets accounting process involves the display of technical and financial information related to managing of the infrastructure assets. It is very important to accurately manage the financial information of the operations to support the statutory requirements of the business (Achebe and Tighe 2018). The technical information includes all the important information related to the valuation of assets, depreciation and other information related to the assets. The record keeping is done through accounting process to keep the financial information secured and auditable. Asset management is very important to maintain and operate the costs effectively. It is a very important for executing the operations in order to accomplish the goals (Salvador Palau Roozenbeek and Parlikad 2018). Therefore, the reporting of infrastructure assets needs to be done in such a way that it follows the accounting standards. Accounting process involves the budgeting and forecasting the performance of an assets and helps in making the decision related to the strategic goals. Government Accounting Standards Bureau is the accounting standard established in the year 1999 for reporting the accounting process of the infrastructure assets (Brous, Herder and Janssen 2016). This process is to be followed by the governments in order to do a systematic and fair accounting of the fixed assets. This standard includes the balance sheets which contents all the information related to the assets expenditures and gains and help the business in understanding the position of the business (Boyes, Ellul and Irwin 2017). The balance sheet will provide the disclosure of the financial information of the assets. Accounting process will give a proper valuation to the assets and hence, will help in evaluating the performance of the organisations. The Government Accounting Standards Bureau will help in enhancing the proper management of assets and valuating the assets. Accounting standards are the most important factor that have a major impact on the quality of the corporate reporting. Infrastructure assets are continuous, therefore it is very important to do a correct valuation of the assets if the assets are renewed, upgraded, operated or replaced.
The government is responsible for maintaining the optimum quality and service to the local society. Therefore, the major challenge is to maintain the quality, so that the infrastructure assets sustain in the long-term durability (Salvador Palau, Roozenbeek and Parlikad 2018). The infrastructure assets like roads proceeds into the movement of different types of vehicles from one place to another. The management needs to connect these infrastructural assets into networks so that these gets connected. This is quiet challenging for the management. The infrastructure assets are fixed assets and therefore, they are fixed in a place. Only the part of infrastructure may be extended, but rest all needs to be replace. Hence, supporting the business operation is quiet challenging for the government. The infrastructure assets have no market value, because it is not bought and sold (Wijnia and de Croon 2015). The value of these assets are determined by the replacement costs of the assets. Hence, it is quiet challenging to exactly determine the economic value of the assets.
There are certain technical issues related to the method of depreciation of the assets, whether it needs to be depreciated or not and what is their measurement is one of the major issues for the accounting manager. The estimation of assets life is difficult for the investors. The investors cannot have a substantial data record related to the infrastructural assets. There may be accounting problem in valuation of the infrastructure assets like a single change in the accumulated depreciation will affect the gross replacement of the assets valued. The accounting process involves different methods for accounting an assets. Therefore, different accounting methods will determines the different values of assets. Therefore, accounting by one method will not give the exact value (Chen 2016). For example, the present value method will be more appropriate for asset management than the perpetuity inventory method. Error in asset management method will result in error in the financial reporting process.
The various categories of expenditures related to infrastructure assets are the operating expenditure, Maintenance expenditure, capital renewal expenditure, capital expansion, capital upgrade (Rasoulkhani et al. 2019). Operating expenses includes the expenditures required to provide the operating benefits to the society. This includes the expenses of electricity, water, fuel and many more. Maintenance expenditure is the expenses required periodically to enable the asset, continuously provide services like servicing the equipments, road construction and many more. Renewal expenditure is useful to renew and returns the service for gaining the useful life of the assets. This includes replacement of a machine, internal renew of the building (Mostafavi and Inman 2016). Capital expansion expenditure is needed to extend an asset to the existing one like extension of library, extending the railways and many more. Capital Upgrade expenditures is needed to enhance the existing services into the latest features.
Accounting issues can be reduced by proper managing and controlling the accounting process (Jackson 2017). The risks identification and the unnecessary complexity related to the accounting process is to be reduced.
Hence, it can be deferred from the study that, Infrastructure assets is the most important long term projects of any government. The infrastructure assets has an adverse effect on the economy of the country. It provides the required facilities to the society and helps in gaining the economic position of the country. Therefore, the accounting process needs to be done in a way so that it supports the statutory requirements of the business. The accounting process needs to be examined according to the accounting standards. The accounting method used for accounting process is usually done using the depreciation method. The two methods used for the calculation is the straight line method and double declining methods. These two methods are used for the accounting of infrastructure assets. There are certain challenges that is to be faced in managing the accounting. This is because, the infrastructure assets cannot be bought or sold, hence, it is challenging for the management to determine the economic value of the assets. The financial reporting needs involves the budgeting and forecasting the performance of the business. The infrastructure Assets have different types of expenditures that is needed to be reported in the final report of the accounting process. Some infrastructure assets are depreciated and some infrastructure assets are not depreciated. Land is the only capital asset that is not depreciated. The accounting process of infrastructure assets is depreciated under the depreciation of capital assets.
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