Calculating asset value for individual assets or groups of assets and determining additional supporting measures are addressed in Chapter 7. For more detailed information, please refer to the chapter.
Thus far, the calculation steps provide all of the parameters necessary to determine asset value for a single asset or component. In this step, assets are carefully aggregated from the component or individual level into a homogenous group. An evaluation of uncertainty in the asset value calculation is important when using the measure for TAM decision-making.
- Step 1 – Review the Level of Detail in the Calculations:
Review the decisions made on the level of detail in the asset value calculation made in Step 1. Combine assets to perform a more aggregated analysis if feasible without significantly impacting the results. Disaggregate the analysis further if key parameters such as costs and useful lives are found to vary within subgroups of assets.
- Step 2 – Calculate Initial Value:
Apply the approach selected previously to calculate initial value for each asset group, asset or component. Note that in cases where treatments besides initial purchase/construction are included in the analysis and depreciation is based in part or entirely on age, the initial value should be calculated as of the time of the most recent treatment. (but may not be the same as that of a “like new” asset unless the most recent treatment was replacement or reconstruction).
- Step 3 – Calculate Depreciation:
Apply the selected approach to calculate depreciation for each asset group, asset or component.
- Step 4 – Calculate Asset Value:
Calculate value as the difference between initial value and accumulated depreciation. Sum the results across components, assets and/or asset classes to obtain total asset value.
- Step 5 – Conduct Sensitivity Analysis:
Document the impact of changes to key parameters on the calculations of asset value.
Unit replacement costs are established by asset class/component using expert judgement and/or industry defaults.
Unit replacement costs are established through a one-time analysis of project data and updated in subsequent years based on inflation.
Unit replacement costs are established through a well-documented process that includes: analysis of project data; assessment of how assets should be grouped for analysis (e.g., by system, material and/or surface type); and a defined update cycle (e.g., once every 1 to 2 years).
Asset purchase or construction and reconstruction are included in the asset value calculations. Supplemental analysis is not performed to consider inclusion of other treatments.
An analysis is performed to determine what treatments to include in the analysis, and what treatments are assumed to occur based on the agency’s life cycle strategy. The analysis is conducted separately from establishing asset life cycle strategies.
An analysis is performed to determine what treatments to include in the analysis, and what treatments are assumed to occur based on the agency’s life cycle strategy. The analysis is conducted as part of the development of asset life cycle strategies and/or strategies are updated as appropriate following the analysis.
Asset age is not well established. Costs by asset class are calculated by year and depreciated without associating costs to specific assets.
Asset or component age is known or can be estimated based on inventory and treatment data, supporting calculation of depreciation at an asset class, asset and/or component level.
Asset age or component age is known or can be estimated based on inventory and treatment data. An analysis is performed of the consumption of asset benefits. A custom pattern of benefit consumption is used if supported by the analysis. Depreciation is calculated based on the selected approach by asset class, asset and/or component.
Asset value is calculated for major assets at an aggregate level as required to support financial reporting and TAMP requirements.
Asset value is calculated for major assets. Either the calculations are performed at an asset/component level or supplemental analysis is performed to confirm use of the approach for aggregating asset value calculations.
Asset value is calculated for major assets. Either the calculations are performed at an asset/component level or supplemental analysis is performed to confirm use of the approach for aggregating asset value calculations. Sensitivity analyses are periodically conducted to show the effect of changes in key analysis parameters.
Asset value is reported in agency documents, including financial reports and the agency’s TAMP, but approaches used in different documents may be inconsistent.
Asset value is reported in agency documents, including financial reports and the agency’s TAMP. Discrepancies between different estimates are documented.
Asset value is reported in a consistent manner in different agency documents, including financial reports and the agency’s TAMP. Multiple approaches for reporting value are used as needed to maintain consistency between documents while satisfying reporting requirements.
Despite this guide’s focus on asset value for TAM, it remains important to consider asset valuation for financial statements. To maintain full consistency with the traditional GASB 34 approach, the historic cost method should be used; however for TAM applications, it is recommended agency’s use the GASB 34 modified approach and calculate asset value based on replacement cost or market value. In the instances where the modified approach is not used, several steps can be taken to resolve the discrepancy. These include:
- Establishing a clear line of sight between the inventory data used for TAM and financial reporting,
- Using common assumptions for key parameters (e.g., replacement cost & asset life), and
- Document any differences between the approaches
Often there are discrepancies between the asset register used for financial reporting and the asset hierarchy and inventory data used for TAM. Ideally an agency should resolve these discrepancies, so there is a clear “line of sight”.
Neither historic costs nor asset age can be reliably obtained at an asset level. Overall expenditures by work type and system are used as the basis for calculating asset value without relating expenditures to specific assets.
An asset inventory is available detailing asset age. Historic costs are not reliably tracked by asset but can be estimated using unit replacement costs and asset age
Actual costs of construction/asset purchases are tracked by asset.
The analysis is limited to asset purchase or construction and reconstruction. Asset reconstruction is assumed to have the same cost and effect as initial construction.
Treatment costs are established through a one-time analysis of project data and updated in subsequent years based on inflation. Treatment effects are based on expert judgement or a one-time analysis.
Treatment cost and effects are established through a well-documented process that includes: analysis of treatment data; assessment of how assets should be grouped for analysis (e.g., by system, material, and/or surface type); and a defined update cycle (e.g., once every 1 to 2 years).
Condition data are sufficient for estimating the condition distribution at a network level. Condition is mapped to effective age and depreciation is calculated by asset class based on current condition.
An assessment is performed to determine how best to calculate effective age, potentially using actual age and/or condition. Depreciation is calculated based on effective age by asset class, asset and/or component.
An analysis is performed of the consumption of asset benefits. A custom pattern of benefit consumption is used if supported by the analysis. Otherwise, an assessment is performed to determine how best to calculate effective age, potentially using actual age and/or condition. Depreciation is calculated based on the selected approach by asset class, asset and/or component.
The agency prepares a balance sheet as part of its financial reporting, but does not attempt to reconcile asset value in the financial report with TAM estimates.
Differences in approaches between financial reporting TAM asset valuation are documented as a one-time exercise performed when preparing the TAM asset valuation.
Consistent approaches are used where possible to prepare the balance sheet in the agency’s financial report and value assets for TAM. Differences in approaches are resolved where possible, and regularly reviewed and documented in financial and TAM reports where they remain.
The cost to maintain current asset value is calculated using annual depreciation and reported in the agency’s TAMP.
The cost to maintain current asset value is calculated using the agency’s management systems. The cost to maintain and ASR are reported in the agency’s TAMP.
The cost to maintain current asset value is calculated using the agency’s management systems. The cost to maintain and ASR are reported in the agency’s TAMP. The cost to maintain and ASR are reviewed when establishing asset investment levels.
Several additional measures support the use of asset value for decision-making in TAM. Each measure is defined below and mapped to the key questions for asset value.
Average annual asset preservation, rehabilitation and replacement funding which, if spent over a specified period, is predicted to result in an ending asset value equal to the value at the start of the period.
The ratio of annual asset expenditures, omitting improvements, to the cost to maintain current value. All types of expenditures included in the cost to maintain current value should be included in the calculation of asset expenditures.
The ratio of current asset value to the initial value of an asset when purchased or constructed.
The ratio of asset preservation, rehabilitation and replacement funding planned over a 10-year period to the total funding required over the same period to achieve and maintain the agency’s desired state of good repair.
The difference between total discounted benefits and total discounted costs of an asset or investment.
Table 8-1. Asset Value-Related Measures and Mapping to Key Questions
| Key Questions | Asset Value | Cost to Maintain Current Value | Asset Sustainability Ratio (ASR) | Asset Consumption Ratio (ACR) | Asset Funding Ratio (AFR) | Net Present Value (NPV) |
|---|---|---|---|---|---|---|
| Q1: Overall Inventory Value | X | X | ||||
| Q2: Cost to Maintain | X | X | X | |||
| Q3: Needed Spending | X | X | ||||
| Q4: Allocating Funds | X | X | X | X | X | |
| Q5: Life Cycle Strategy | X | |||||
| Q6: Value Generated | X |
Market value is estimated based on expert judgement and/or industry defaults.
Market value is established through a one-time analysis of asset resale or other data and updated in subsequent years based on inflation.
Market value is established through a well-documented process that includes: analysis of asset resale or other data; assessment of how assets should be grouped for analysis (e.g., by system, material and/or surface type); and a defined update cycle (e.g., once every 1 to 2 years).
Asset useful life is estimated based on expert judgement and/or industry defaults.
A one-time analysis is performed to establish asset useful life based on analysis of historic data and/or asset models.
Asset useful life assumptions are based on models used in an agency’s management systems. The assumptions are periodically validated and updated through a well-documented process.
Cost to maintain current value, ASR and asset ACR are or can be calculated using annual depreciation and expenditures.
Cost to maintain current value, ASR and asset ACR are or can be calculated using annual depreciation and expenditures. In addition, supplemental analysis is performed using the agency’s management systems to establish the cost to maintain current value.
Cost to maintain current value, ASR, ACR and AFR are calculated and used to support investment decisions. Supplemental analysis is performed using the agency’s management systems to establish the cost to maintain current value and the cost to achieve the desired state of good repair.
Needed funding is reported in the agency’s TAMP. Needed funding is assumed to be equal to the cost to maintain current value.
A separate analysis is performed using the agency’s management systems to support the calculation of the funding needed to achieve and maintain the agency’s desired state of good repair.
A separate analysis is performed using the agency’s management systems to support the calculation of the funding needed to achieve and maintain the agency’s desired state of good repair. Needed funding is considered in establishing asset investment levels.