This is the second piece in our advisory series from U-LEAD experts Iryna Drozd and Tetiana Larikova. If you are wondering when a centralised accounting system should be created and how to organise it best, click on the link.
Following the info session on “Fixed Assets: Accounting, Valuation, revaluation”, which was held earlier for employees of accounting services of local self-government bodies and administrators of lower-level funds, the experts of the U-LEAD with Europe Programme, Iryna Drozd and Tetiana Larikova, offered some recommendations:
1. If the net book value of fixed assets is UAH 0.00, the disposal value is UAH 0.00. What shall I do?
For any fixed assets on the books of a budgetary institution with no net book value and zero disposal value, use accounting tools for cost management as per the National Regulation (Standard) of Accounting in the Public Sector 121 (Fixed Assets) approved by Order of the Ministry of Finance No. 1202 dated 12 October 2010 (hereinafter NP(S)BODS 121) and Guidelines on Accounting of Fixed Assets of Public Sector Entities approved by Order of the Ministry of Finance No. 11 dated 23 January 2015 (hereinafter Guidelines No. 11).
The Standard suggests two options:
Option 1: Establish the disposal value for these fixed assets;
Option 2: Reassess these assets.
Option 1. Guidelines No. 11 provides for setting the disposal value in two cases:
- When putting the fixed assets into operation;
- When the net book value of the assets is zero, but they are still usable.
The disposal value of the fixed assets is determined taking into account the total estimated value received from the sale (disposal) of the fixed assets after the end of the useful life net of any costs associated with the sale (disposal) (Clause 1 of Section V of Guidelines No. 11).
The disposal value should be established by the commission of the institution, which was created by order of the manager, or by an authorised stocktaking commission.
The requirement to review the disposal value at the end of the reporting year as per NP(S)BODS No. 121 must be enshrined in the Regulation on the Accounting Policy of the institution.
The established disposal value must be reflected by the accountant in the Stocktaking Card of the corresponding fixed asset and in the accounting as an increase in the original value of the asset (Dt 10 — Kt 5111; write off of received fixed assets).
You don’t have to calculate depreciation on the disposal value.
Option 2 provides for the revaluation of fixed assets, which, according to NP(S)BODS 121, does not have any further rules for the revaluation of fixed assets with no cost.
The procedure of revaluation of fixed assets is not mandatory, and the decision on revaluation is made by the budgetary institution in agreement with the management body.
2. When and in what cases should the periods of useful life be reviewed and changed?
The period of useful life is the period of time during which the institution expects to use the assets for their intended purpose.
When determining the period of useful life of fixed assets, follow the Standard Period of Useful Life of Fixed Assets given in Appendix 1 to Guidelines No. 11 or set them at your own discretion (Clause 8 of Section II of Guidelines No. 11). If you set periods of useful life at your own discretion, specify them in the Appendix to the Regulation on the Accounting Policy of the institution.
Review the established periods of useful life of fixed assets at the end of the reporting year (Clause 5 of Section IV of NP(S)BODS 121) and adjust them subject to a change in expected economic benefits (NP(S)BODS 127 (Decrease in Useful Life of Assets)).
The indicators of decrease and increase in usefulness, which you wish to be guided by when reviewing the periods of useful life of fixed assets, should be indicated in the Regulation on Accounting Policy. The period of useful life is reviewed by the commission by order of the manager. Formalise the decision of the commission to review and adjust the period of useful life of the asset as a decree (order) of the manager of the institution.
With this in mind, the Order on the Accounting Policy of the institution should clearly outline all cases when the periods of useful life of fixed assets in your institution are to be reviewed.
After reviewing the period of operation, calculate the depreciation of the relevant fixed assets based on the new period of useful life. This should be done starting from the month following the month of the change of useful life.
The review of the period of useful life of the fixed assets at the end of the reporting year must be provided by the Regulation on the Accounting Policy of the institution and recorded as a change in accounting estimates in compliance with the National Regulation (Standard) of Accounting in the Public Sector 125 (Changes in Accounting Estimates and Correction of Errors) approved by Order of the Ministry of Finance No. 1629 dated 24 February 2010.
3. Accounting of land plots (accounting value and procedure)
Pursuant to Clause 12 of Section II of the Guidelines on Accounting of Fixed Assets of Public Sector Entities approved by Order of the Ministry of Finance of Ukraine No. 113 dated 23 January 2015, land plots are accounted on the basis of documents established by law.
According to the Land Code of Ukraine No. 2768-III dated 25 October 2001 (hereinafter the Land Code), administrators of budget funds at the local level have an exclusive right to permanent use of plots of municipally owned lands. In fact, the right to permanent use of a land plot is a type of land use right. This right entitles to owning and using a plot of municipally owned land without establishing a period of use (Part 1 of Article 92 of the Land Code).
The right to permanent use of a land plot arises from the date of state registration of the right as per Article 125 of the Land Code. Therefore, the administrator of budget funds that acts as a land user must first execute the right to use the land plot in compliance with the Law of Ukraine No. 1952-IV “On State Registration of Property Rights to Immovable Property and Encumbrances” dated 1 July 2004.
Confirmation of the state registration of rights to a land plot is an extract from the State Register of Real Property Rights. Land user institutions can be issued this extract in soft copy and (if desired) in paper form.
The use of land plots without proper registration of rights is a violation of land legislation (Articles 125 and 211 of the Land Code).
Land valuation involves two types of monetary valuation: regulatory and expert valuation in accordance with the Law of Ukraine No. 1378-IV “On Land Valuation” dated 11 December 2003.
The regulatory monetary valuation of land plots determines the amount of land tax, rent duty, etc. and is conducted by an expert for taxation purposes.
Expert monetary valuation of land plots and rights thereto determines the value of the asset undervaluation. It is conducted by an expert for accounting purposes.
As of 17 October 2019, the expert monetary valuation of land was removed from the list of mandatory types of valuation (Law of Ukraine No. 132 “On Amendments to Law No. 1378” dated 20 September 2019).
Therefore, the administrator of budget funds can include a land plot on the institution’s books according to either regulatory or expert valuation. The selected type of monetary valuation of the land plot must be set forth in the Regulations on Accounting Policy.
We suggest including land plots on the institution’s books according to the regulatory monetary valuation, since expert valuation requires additional expenses from the administrator of budget funds.