Budget 2011–12: Agency capital investment: funding and presentation
Richard Webb
The way in which the Government funds agency capital expenditure has changed. This has also affected the presentation of some financial statements. In particular, some income statements show agencies as incurring losses. The following explains the change to funding and how this affects the presentation of financial statements.
Readers of the ‘departmental comprehensive income statement’ that appears at the end of each agency’s portfolio budget statements have noted that the statements can show that agencies have incurred or will incur a loss, and have queried how this can arise.[1]
The losses arise in part from a change in the way the Government finances depreciation (and amortisation and ‘make good’ expenses).[2] In the past, the Government provided money to agencies to cover depreciation. Agencies were required to hold the depreciation money until such time as they used it for investment in assets such as computers. This led some to question why agencies were being given money for depreciation before agencies actually used the money for capital investment.[3]
Starting in 2010-11, funding for depreciation was replaced by a departmental capital budget (DCB) for departmental (and administered) assets for which depreciation funding was previously provided.[4] Two financial statements are affected: the income statement and the DCB statement. The effect on the income statement is that money that was previously included in appropriations (revenue) for depreciation is no longer included in the income statement. Consequently, income statements can show losses whereas previously, they may not have. Instead, funds for capital investment now appear in the DCB statement in the agency’s portfolio budget statements.