Asset Costing and Valuation

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Name:	Asset Costing and Valuation
Acronym:
Type:	Glossary Item

Definition:

Asset Costing is the organisation’s end to end process for defining, capturing, and utilizing the TOTEX (Total Expenditure) of physical assets or systems of assets throughout their life cycle. This includes the costs associated with planning, design, acquisition, construction, operation, maintenance, renewal, and disposal. Asset Valuation is the organisation’s end-to-end process for quantifying the financial value of assets in accordance with accounting standards. The application of cost and valuation methodologies generates information and intelligence that supports decision-making in areas such as asset investments, asset life cycle optimization, improvements in return on investment, and to exercise management control to balance risk, cost, and performance.

Statement:

It is important to create and maintain a close link between accounting systems and Asset Management systems. These should have consistent mechanisms, definitions, and processes for determining asset costs and asset valuation. This alignment can produce a range of benefits including:

Stronger understanding of the costs and revenue within an organization generated by assets and their subsequent drivers.
Compliance with financial accounting standards.
A holistic and consistent view of value that assets and the organization deliver to its stakeholders.

Asset costing requires a structure and /or framework that defines the composition of all costs related to an asset, including systems of assets. This needs to consider the Total Expenditure [TOTEX], including the Capital Expenditure [CAPEX] and Operating and Maintenance Expenditure [OPEX] of the asset through its life cycle (including end of life activities). This would typically be defined in a work or activity breakdown structure to ensure costs are defined and captured in a way that supports Asset Management decision-making.

Asset Valuation refers to accounting practices or rules that allow the value estimation and value forecasting for assets over their life cycle. The processes for defining Asset Valuation are typically the responsibility of the organisation’s internal financial department.

Consideration should be given to alignment of financial and non-financial functions of the organization to ensure consistency of asset cost and valuation information.