Escolar Documentos
Profissional Documentos
Cultura Documentos
Depreciation of
Library Collections
February 2010
Public Libraries Victoria Network Depreciation of Library Collections - Guidelines
2. Depreciation
- A ‘Non-Accounting’ Explanation
2.2 ‘Capitalisation’
In public libraries, depreciation was first brought in with the introduction of full
accrual accounting in the early-1990s (Australian Accounting Standard 27).
This accounting standard required ‘assets’ to be ‘capitalised’. Assets
generally include larger physical items that have the potential to deliver
ongoing value or benefit (land, buildings, plant and equipment, etc.).
However, for accounting purposes, assets do not have to be physical or
large: they can include anything where the benefit is expected to last beyond
the current year.
To ‘capitalise’ an item of expenditure means to treat it as an asset in the
accounts. That means recording it in the balance sheet rather than in the
operating statement. The implication of capitalising an item of expenditure
(i.e. treating it as an asset and putting it on the balance sheet) rather than
‘expensing’ it is that it is a recognition that the value and benefit from that
expenditure will flow not only in the current year, but also in future years.
Alternatively, if an expenditure item is ‘expensed’ and recorded in the
operating statement (i.e. not treated as an asset and capitalised), the
underlying assumption is that the value or benefit flowing from the
expenditure will be totally consumed within the current year.
Most library collection items have a useful life of more than one year. In this
context, collections are required by the Accounting Standards to be
capitalised. To the extent that the value or benefit embodied in those assets
is ‘finite’ (i.e. it has a limited useful life), and it does not increase in value or
retain value (i.e. like land), collection items are regarded as ‘depreciable’
assets. That means the benefit embodied in them is finite and it will, over
time, be consumed and so they are required to be depreciated in the library
accounts.
Depreciation is the artificially calculated expense that represents that part of
the capitalised cost of the asset that is attributable to a particular year.
The definition of the depreciable amount of an asset’s value is its cost, less
its residual value.
In determining the depreciation expense, the estimated useful life of the item
is the key consideration.
The implication of assuming a nil residual value is that the whole of the
original cost of the asset is deemed to be consumed over its defined useful
life through the depreciation expense charged to the profit and loss
statement.
USAGE PROFILE
- NON-FICTION
‘USEFUL LIFE’
No.
RANGE
OF
LOANS
1 YO 2 YO 3 YO 4 YO 5 YO 6 YO 7 YO 8 YO
AGE CATEGORY (Years Old) - NON-FICTION
This example shows how the usage level (borrowing rate) ‘tails off’ (for this
collection category) for items when they reach an age of 5 to 6 years.
Assuming it remains on the shelf after that, usage would stay at a low level.
Otherwise, it would cease upon being removed from circulation.
This borrowing profile could be used to support a depreciation policy
assumption that defines the ‘useful life’ at around 5 or 6 years. But, as can
be seen in this example, it is by no means conclusive or definitive.
Similarly, this usage profile could be used to determine the library’s target
discard/cull policy of say 6 years and this, in turn, defines the assumed
useful life for depreciation purposes.
Usage profiles for other collections items may look very different to this
example profile. In any case, the practical ‘usefulness’ of a library item does
not just ‘switch off’ after a given number of years.
In practical terms, actual use may continue on after the theoretical useful life
(assumed for the purposes of depreciation) has expired and the item has
been totally written off in the financial accounts of the library. This of course
assumes it remains in circulation.
There are no hard and fast rules to defining useful life for different types of
collection items. However, it is best practice to apply some logical
evidence-based method. The ability to do this is, of course, depends on
the capability of the library management system. It is such an evidence
base, that reflects the operational reality of the library, that auditors will look
for in considering the appropriateness of the depreciation assumptions you
use.
$100
‘Straight-Line’ Method:
Written Down Value
$ Book Value
(WDV)
‘Diminishing
Value’ Method:
Written Down Value
$0
Year 1 Year 2 Year 3 Year 4 Year 5
This graph shows how, under the diminishing value method, higher levels of
depreciation expense are incurred in the earlier years of an asset’s life
compared to if the straight-line method were applied.
Notes:
1. Some periodicals may be retained & deemed to have a useful life beyond 1 year.
2. Cultural and heritage collection items – see section 3.7 above.
3. Where subscriptions to web-based and electronic resources, data-bases, E-books and
similar items provide rights of usage for up to 1 year, these would generally be expensed.
This includes situations where a subscription fee is paid annually even if it is as part of a
longer-term agreement or contract that the library is party to. In the event that a subscription
payment provides usage rights for a period of longer than 1 year, these may be capitalised.
4. Depreciation and
Collection Re-Investment
- The ‘Bookvote’
Depreciation ‘Bookvote’
– Accounting/reporting: - Capital budgeting/planning: