Budget Transfer: Revenue to Capital Heads of Expenditure

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A decision made on 9 December 2011:

Decision Reference: MD-T-2011-0122
Decision Summary Title :	Transfer Between Revenue And Capital Heads Of Expenditure as per GAAP Accounting Requirements		Date of Decision Summary:	06 December 2011
Decision Summary Author:	Capital Accountant		Decision Summary: Public or Exempt? (State clauses from Code of Practice booklet)	Public
Type of Report: Oral or Written?	Written		Person Giving Oral Report:	N/A
Written Report Title :	Transfer Between Revenue And Capital Heads Of Expenditure as per GAAP Accounting Requirements		Date of Written Report:	06 December 2011
Written Report Author:	Capital Accountant		Written Report : Public or Exempt? (State clauses from Code of Practice booklet)	Public
Subject: Internal budget transfer from revenue to capital heads of expenditure amounting to £112,879.50 for the correct treatment of expenditure, as a result of GAAP accounting.
Decision(s): The Minister for Transport and Technical Services approved a budget transfer from revenue to capital totalling £112,879.50 of expenditure as set out in the supporting document.
Reason(s) for Decision: The States of Jersey implemented Generally Accepted Accounting Principles (GAAP) in 2010. GAAP accounting requires that all expenditure meeting the GAAP definition of capital expenditure should be treated as such; other expenditure must be accounted for as revenue. These budget transfers are the movements in budgets between revenue and capital required to align the budgeting treatment of expenditure with the GAAP accounting treatment. This does not change the total amount of expenditure voted by the States
Resource Implications: Other than those detailed in the report there are no further financial or manpower implications.
Action required: The Finance Director to request the Minister for Treasury and Resources to approve the budget transfers from revenue to capital and capital to revenue as referred to in the accompanying report.
Signature:		Position:
Date Signed:		Date of Decision (If different from Date Signed):

Budget Transfer: Revenue to Capital Heads of Expenditure

TRANSPORT AND TECHNICAL SERVICES DEPARTMENT

TRANSFER BETWEEN REVENUE AND CAPITAL HEADS OF EXPENDITURE AS

PER GAAP ACCOUNTING REQUIREMENTS

Purpose of Report

The purpose of this report is to seek the approval of the Minister for Transport and Technical Services for an internal budget transfer amounting to £112,879.50 expenditure from revenue to capital head of expenditure.

Background

General Background

The States of Jersey implemented Generally Accepted Accounting Principles (GAAP) in 2010. GAAP accounting requires that expenditure should be accounted for as capital if it meets the GAAP accounting definition of capital expenditure, and revenue otherwise. In accordance with the States of Jersey Capital Accounting Manual:

 FRS 15 defines tangible fixed assets as ‘assets that have physical substance and are held for use in the production or supply of goods or services, for rental to others, or for administrative purpose on a continuing basis in the reporting entity’s activities’.

 A tangible fixed asset will generally have a life in excess of one year.

 The States of Jersey has adopted a £10,000 capitalisation threshold for individual assets except for land.

Previously, ‘capital’ budgets have represented whatever the States Assembly voted as capital. The States have already approved capital allocations for 2011 in the 2011 Business Plan. These budget transfers move budgets between revenue and capital so as to align the budgeting treatment of 2011 expenditure with the GAAP accounting treatment.

Four revenue projects were undertaken to increase operational efficiencies within the waste operations division and thereby help the department to achieve its CSR savings. A breakdown is provided below:

Existing Head of Expenditure	Project Name	Expenditure To Reclassify	New Head of Expenditure
Q50 Energy From Waste	EFW Bagging System	32,610.00	Q0000C2681 – Waste Minor Capital
Q50 Energy From Waste	Dust Suppression System	37,390.00	Q0000C2681 – Waste Minor Capital
Q70 Solid Waste	Hydraulic Pump	12,879.50	Q0000C2681 – Waste Minor Capital
Q71 Recycling Logistics	Road Construction	30,000.00	Q00RL10011 – Infrastructure

Two of these projects related to the purchase of assets to increase operational efficiencies within the EFW. These were the purchase of a bagging system and the purchase of a dust suppression system. One project related to the construction of a new road on the La Collette site to enable easier transportation of green waste materials. The final project related to the purchase of a new Hydraulic Pump Pack for the Sludge Project.

The expense of each individual asset was greater than £10,000, and under the States of Jersey Accounting Policies and GAAP these assets should be treated as fixed assets and therefore as capital projects.

Discussion

Finance Direction No.3.6 ‘Variations to Heads of Expenditure’ sets out the procedures for the transfers between revenue and capital heads of expenditure and states that budget transfers in excess of £1,000,000 require the approval of the Minister for Treasury and Resources and the relevant Minister party to the transfer. Authority to approve non-contentious budget transfers under £1,000,000 has been delegated to the Treasurer of the States.

Recommendation

To approve a budget transfer totalling £112,879.50 expenditure from TTS revenue head of expenditure to TTS capital head of expenditure. This will allow for the expenditure to be properly accounted for under GAAP.

Reason for Decision

The States of Jersey implemented GAAP in 2009. GAAP accounting requires that all expenditure meeting the definition of capital expenditure to be treated as such; other expenditure must be accounted for as a revenue cost. These budget transfers are the movements in budgets between revenue and capital required to align the budgeting treatment of expenditure with the GAAP accounting treatment. This does not change the total amount of expenditure voted by the States.

Resource Implications

There are no resource implications as a result of this decision.

Action Required

The Finance Director to request the Minister for Treasury and Resources to approve the budget transfer from revenue to capital as referred to in this report

Written by:	Capital Accountant
Approved by:	Acting Director of Finance