funding and presentation

Budget Review 2011-12 Index

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.

[1].       The jargon for ‘loss’ in the income statements is the ‘deficit attributable to the Australian Government’.

[2].       Make good expenses are those incurred in returning an asset to near its original state before relinquishing its use. 

[3].       This issue was raised in Operation Sunlight. See Department of Finance and Deregulation, Operation Sunlight, Department of Finance and Deregulation website, viewed 18 May 2011,

[4].       The DCB allows agencies to meet costs of replacing minor assets, that is, those valued at $10 million or less.