FRS15 permits renewals accounting on infrastructure assets only
in specified circumstances; that is, where the infrastructure is
treated as a single system, is maintained by continuing replacement
of parts according to a projected asset management plan (AMP)
calculated by a qualified and independent person. The system or
network has to be in a mature or steady state. Under renewals
accounting, the estimated level of expenditure required to maintain
the operating capacity (over the AMP period) is treated as
depreciation and is charged to the profit and loss account. Actual
maintenance expenditure is capitalised. There is no direct link
between the actual expenditure in any one year and the amount
charged to the profit and loss account. Renewals accounting
provides a mechanism to smooth the profile of maintenance
expenditure.
By definition the incidence of expenditure on repairs and
maintenance on infrastructure can be large and lumpy. This
'smoothing' was achieved by a maintenance provision or by deferring
expenditure as a prepayment. However this treatment is prohibited
for periods ended on or after 23 March 1999 by FRS12. The new FRS15
provides a replacement 'smoothing' mechanism.
