NGV Annual Report 2003-04-Part 2 - National Gallery of Victoria

136 Report NGV Annual Report 2003/041. Summary of significant accounting policies CONTINUEDc. Depreciation of property, plant and equipmentDepreciation is calculated on a straight-line basis so as to write off the net cost of each item of property (excludingland) over its expected useful life to the National Gallery of Victoria. Depreciation is treated as an operatingexpense and recognised in the Statement of Financial Performance based on the following rates:Depreciation rates 2004 2003Building 1% 2%Capital improvements 6.67–7.5% 7.5%Redevelopment works-in-progress Nil % Nil %Plant and equipment 3.33–33.33% 7.50–33.33%Cultural assets are kept under special conditions so that there is minimal physical deterioration. They are expectedto have indeterminate useful lives to the National Gallery of Victoria. No amount for depreciation has beenrecognised in respect of cultural assets, as their service potential by the National Gallery of Victoria has not, in anymaterial sense, been consumed during the reporting period.The majority of assets included in redevelopment work-in-progress in prior years came into use during the year withthe completion of the St Kilda Road redevelopment. Depreciation has been provided from 4 December 2003, thedate of public opening, or the date the asset came into use, whichever is the later.Estimates of the remaining useful lives for all assets are reviewed at least annually.On completion of the St Kilda Road redevelopment, the useful economic life of the building was reassessed to bringit into line with industry practice.Plant and equipment depreciation rates have not changed; instead new assets have been purchased with differentuseful economic lives.d. Capital asset chargeThe capital asset charge is imposed by the Department of Treasury and Finance and represents the opportunitycost of capital invested in the non-current physical assets used in the provision of outputs. The charge is calculatedon the carrying amount of non-current physical assets (excluding cultural assets).e. Leased non-current assetsA distinction is made between finance leases which effectively transfer from the lessor to the lessee substantiallyall the risks and benefits incidental to ownership of leased non-current assets and operating leases under which thelessor effectively retains substantially all such risks and benefits.Finance leases are capitalised. A lease asset and liability are established at the present value of minimum leasepayments. Lease payments are allocated between the principal component of the lease liability and the interestexpense.The leased asset is amortised on a straight-line basis over the term of the lease, or where it is likely that theNational Gallery of Victoria will obtain ownership of the asset, the expected useful life of the asset to the NationalGallery of Victoria. Any leased assets that would be held at the reporting date would be amortised over the period ofthe underlying lease or a shorter period if the expected useful life were less.Operating lease payments are charged to the Statement of Financial Performance in the periods in which they areincurred, as this represents the pattern of benefits derived from the leased assets.