Asset Valuation Guide v1 PDF

Roads Liaison Group
The Guidance has been superseded by the CIPFA Code of Practice on Transport
Infrastructure Assets: Guidance to Support Asset Management, Financial Management
and Report (2010).
Available through the following link. See here:
http://www.ukroadsliaisongroup.org/fmguidance
Guidance Document for

Highway Infrastructure
Asset Valuation
County Surveyors Society/TAG Asset Management
Working Group
2005 Edition TSO: London July 2005

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July 2005
Foreword by the President of
the County Surveyors Society
The Framework for Highway Asset Management, published by the CSS in 2004,
provided an excellent introduction to a subject which is manifestly growing in
importance. As authorities throughout the UK have begun to embrace this new
approach to highway management, there has been a clear and urgent need for advice
and guidance on the valuation of highway assets. I am delighted that, once again, the
CSS and its partner organisations have risen to the challenge.
I extend my thanks to all who have helped to develop this guidance, and I would
especially like to acknowledge Transport for London who have contributed generously
to the project. I also want to mention the involvement of government departments: the
Office of the Deputy Prime Minister, Her Majestys Treasury, and the Department for
Transport, whose support for this work makes it all the more authoritative.
The aim has been to deliver guidance which will enlighten and assist both highway
engineers and accountants and bring about mutual understanding and closer working
relationships. I believe this document achieves that objective, and I commend it to you.
ALASTAIR JEFFORD
May 2005
3
Preface
It is widely accepted that Asset Management provides the framework and principles for
good highway management. In 2004 the County Surveyors Society (CSS) produced the
Framework for Highway Asset Management to assist Local Highway Authorities in the
development and implementation of Asset Management. Central to Asset Management
is the development of cost effective long term plans, and the importance of these has
also been recognised by the Government:
Transport is vital to the economy and the way we live. Decisions we make
now will have an impact for decades to come. It is essential that we take
the long-term view.
The Future for Transport: A Network for 2030

White Paper, Department for Transport, 2004
A fundamental component of long term planning is to ensure the asset base is

preserved and replenished in a sustainable way without imposing an undue financial
burden on future generations. The preservation of the asset base can be measured and
monitored over time using a robust asset valuation procedure that provides a true and
fair value of the assets.
WHAT IS ASSET VALUATION?
Asset valuation is the calculation of the current monetary value of an authoritys assets.
The current monetary value is evaluated as the Depreciated Replacement Cost (DRC) of
an authoritys highway infrastructure assets, where:
DRC = Gross Replacement Cost Accumulated Consumption
The Gross Replacement Cost (GRC) for the highway infrastructure is determined from a
bottom up calculation using a standardised procedure involving standardised Unit Rates
and GRC models which represent the cost of replacing an existing asset with a Modern
Equivalent Asset. Assets are consumed during service due to ageing, usage,
deterioration, damage, a fall in the Level of Service (assessed through appropriate
Performance Measures) and obsolescence.
DRIVERS FOR ASSET VALUATION
The key drivers for highway infrastructure asset valuation are:
1. To emphasise the need to preserve the highway infrastructure by placing a monetary

value on highway infrastructure assets.
2. To demonstrate asset stewardship by monitoring the Asset Value over time.
3. To support Whole of Government Accounts and promote greater accountability,

transparency and improved stewardship of public finances.
4. To support Highway Asset Management Asset Valuation provides one facet of the
robust financial framework that Asset Management should operate within.
4
PURPOSE OF THE GUIDANCE DOCUMENT
The purpose of this Guidance Document is to provide a common framework for the
discussion, development and implementation of highway infrastructure asset valuation
by Local Highway Authorities in the UK. The general procedure to be used for asset
valuation is described; however, some of the detailed work, such as derivation of Unit
Rates and establishing asset service lives, will need to be undertaken by Local Highway
Authorities. It is recommended that regional groups are set up for this purpose to pool
the data and share the experience and learning.
SCOPE OF THE GUIDANCE
The guidance document describes a generic procedure for calculating the asset value
of highway infrastructure assets. Specific guidance is provided for roads, segregated
footpaths and cycle routes, structures, highway lighting, street furniture, traffic
management systems, off-highway drainage and land (associated with the highway).
If required, the generic procedure can be used to value other highway infrastructure
assets that are not covered explicitly by the document.
STATUS OF THE GUIDANCE DOCUMENT
The Guidance Document is a companion to the CSS Framework for Highway Asset
Management. The recommendations of the Guidance Document are not explicitly
mandatory on authorities. The term should associated with an action is used to denote
a recommendation, except where clearly relating to a statutory requirement.
The Guidance Document is endorsed by the Treasury, the Office of the Deputy Prime
Minister (ODPM), the Department for Transport (DfT), the County Surveyors Society
(CSS), the Local Government Technical Advisors Group (TAG) and the Society of Chief
Officers of Transportation in Scotland (SCOTS).
Implementation
The following timeframe is recommended for the implementation of highway

infrastructure asset valuation to support Asset Management and Whole of Government
Accounts:
interim valuation of a sample of assets in Financial Year 2005-06.
benchmark valuation in Financial Year 2006-07 (provides opening book value for
2007-08).
calculate in-year movements (e.g. depreciation) in Financial Year 2007-08.
Guidance is provided on the valuation regime, systems, data and resource requirements
that should be considered by Local Highway Authorities when planning the
implementation of asset valuation.
5
Contents
Glossary 8
Abbreviations 12
1. Introduction 13
2. Asset Valuation Requirements 17
3. Overview of Highway Asset Valuation Procedure 21
4. Valuation Principles, Basis and Rules 24
5. Asset Inventory 32
6. Unit Rates 40
7. Gross Replacement Cost 46
8. Depreciation 49
9. Impairment 57
10. Depreciated Replacement Cost 64
11. Asset Preservation Measures and Valuation Report 67
12. Roads 70
13. Segregated Footpaths & Cycle Routes 75
14. Structures 79
15. Highway Lighting and High Mast Lighting 86
16. Land associated with the Highway 92
17. Other Highway Assets 94
18. Implementation and Recommendations 96
19. References 99
APPENDIX A Asset Valuation Explanatory Examples 101
APPENDIX B Depreciated Replacement Cost Example 103
APPENDIX C Renewals Accounting Example 110
Acknowledgements 113
6
LIST OF TABLES
Table 5.1 Classification of Highway Assets 37

Table 5.2 Asset Valuation Data for each Asset 39
Table 6.1 Recommended Units for Measuring Asset Quantities 43
Table 14.1 Gross Replacement Cost Models and Unit Rates for Structures 82
Table 14.2 Additional Cost Factors on New-Build Unit Rates 84
Table 18.1 Key Recommendations 98
LIST OF FIGURES
Figure 3.1 Overview of the Procedure for Highway Infrastructure Asset Valuation 22
Figure 3.2 Detailed Steps in Highway Infrastructure Asset Valuation Procedure 23
Figure 5.1 Asset Classification 34
Figure 8.1 Straight Line Depreciation of Finite Life Asset 51
Figure 8.2 Straight Line Depreciation and Residual Value 52
Figure 8.3 Treatment of Reduction in Remaining Service Life 53
Figure 9.1 Calculating Impairment 61
Figure 9.2 Grouping of Assets by Age Bands 62
Figure 9.3 Performance Measure and Restoration Cost Factor 63
Figure 11.1 Accumulated Asset Consumption Measure 68
Figure 11.2 In-year Asset Consumption and Renewal Measures 69
Figure 15.1 GRC and Component Replacement Cost 89
7
Glossary
Accruals Accounting a method of recording expenditure as it is incurred
and assets as they are consumed, regardless of
when the cash is received or paid out.
Admissible Costs costs that are directly attributable to bringing the

asset into a working condition for its intended use.
Asset in the context of this guidance an asset is an integral

feature of the highway infrastructure, e.g. roads,
structures, lighting and traffic management systems.
Asset Consumption measured in terms of depreciation and impairment of

assets.
Asset Management a strategic approach that identifies the optimal

allocation of resources for the management,
operation, preservation and enhancement of the
highway infrastructure to meet the needs of current
and future customers.
Asset Management a plan for managing the asset base over a period of
Plan (AMP) time in order to deliver the agreed Levels of Service
and Performance Targets in the most cost effective
way. This may be referred to as a Highway Asset
Management Plan (HAMP) or Transport Asset
Management Plan (TAMP) in other guidance
documents and codes of practice.
Asset Management the hardware and software that supports Asset

System Management practices and processes and stores
the asset data and information.
Asset Valuation the procedure used to calculate the asset value.
Asset Value the calculated current monetary value of an asset or

group of assets. It should be correctly referred to as
the Net Asset Value, however it is normally shortened
to Asset Value. Where the term Asset Value is used in
this Guidance Document it should be interpreted as
the Net Asset Value. Asset Value in this document is
synonymous with Depreciated Replacement Cost and
Net Book Value.
Authority used in this document to mean a Local Highway

Authority, this covers all forms of Local Highway
Authority having responsibility for highway
maintenance as defined in Section 1 of the Highways
Act 1980 amended.
Balance Sheet a financial statement showing the assets and

liabilities of an authority.
8
Glossary
Benchmark Valuation a full valuation that includes a review of the valuation

basis and calculation of the Unit Rates, Gross
Replacement Cost and Depreciated Replacement
Cost, typically undertaken once every 5 years.
Carriageway the part of the highway laid out for use by motor
vehicles.
Current Performance see Performance.
Cycle Route a way constituting or comprised in a highway, being a

way over which the public have a right of way on
pedal cycles (other than pedal cycles which are
motor vehicles within the meaning of the Road Traffic
Act 1972) with or without a right of way on foot
[Section 329(1) Highways Act 1980]. The words in
brackets were inserted by section 1 of the Cycle
Tracks Act 1984.
Depreciation the systematic consumption of economic benefits

embodied in an asset over its service life arising from
use, ageing, deterioration or obsolescence.
Depreciated the calculated current monetary value of an asset or

Replacement Cost/ group of assets, normally calculated as the Gross
Net Asset Value Replacement Cost minus accumulated depreciation
and impairment. This is synonymous with Net Book
Value.
Footway a way comprised in a highway, which also comprises

a carriageway, being a way over which the public has
a right of way on foot only [Section 329(1) Highways
Act 1980]. Footways are the pedestrian paths
alongside a carriageway.
Footpath a highway over which the public have a right of way

on foot only, not being a footway [Section 329(1)
Highways Act 1980].
Generally Accepted an international accounting convention for preparing

Accounting Practice financial reports by private companies. These are
customised in each country to comply with the
national accounting standards.
Gross Replacement the total admissible cost of replacing a highway asset

Cost/Gross Asset Value as part of the existing highway network.
Heritage Asset a listed asset or an asset that, due to its construction

form or character, is considered to be important to
the heritage and/or character of an area.
Highway collective term for publicly maintained facilities laid

out for all types of user, and for the purpose of this
guidance includes, but is not restricted to, roads,
streets, footways, footpaths and cycle routes.
9
Highway Infrastructure Asset Valuation Guide County Surveyors Society/TAG Asset Management Working Group
Highway Infrastructure an authoritys portfolio of highway assets including

Asset roads, segregated footpaths and cycle routes,
structures, lighting, traffic management systems, etc.
Together they function as a system or network which
as a whole is intended to be maintained at a
specified Level of Service (assessed through
Performance Measures) by the continuing
replacement and refurbishment of its assets
and elements.
Impairment a reduction in Net Asset Value due to a sudden or

unforeseen decrease in condition and/or performance
of an asset, compared to the previously assessed
level, which has not been recognised through
depreciation.
Initial Measurement determining a monetary value of a newly constructed,

re-constructed or improved asset.
Levels of Service a statement of the performance of the asset in terms

that the customers can understand. Levels of Service
typically cover condition, availability, accessibility,
capacity, amenity, safety, environmental impact and
social equity. They cover the condition of the asset
and non-condition related demand aspirations, i.e. a
representation of how the asset is performing in
terms of both delivering the service to customers and
maintaining its physical integrity at an appropriate
level.
Modern Equivalent an asset which provides the same Potential

Asset Performance as the existing asset, but takes account
of up-to-date technology.
Net Book Value the amount at which fixed assets are included in the
balance sheet, i.e. the Net Asset Value.
Network the highway network inclusive of all its elements, e.g.

roads, segregated footpaths and cycle routes,
structures and lighting.
Performance three aspects of performance should be recognised

as defined below:
Current Performance the performance and/or condition currently provided

by an asset. The Current Performance is likely to be
lower than the Potential Performance due to usage,
ageing and deterioration. The Current Performance
may also be different from the Required Performance.
Potential Performance the maximum or full performance that an asset can

provide if it is in an as new condition. This may be
greater than the Current Performance.
10
Glossary
Required Performance the performance and/or condition currently required

of an asset. This may be different from the Current
Performance and Potential Performance due to
changes in demand or changes in statutory/
regulatory requirements or standards.
Performance Measure a generic term used to describe a measure or

indicator that reflects the condition and/or
performance of an asset, e.g. Best Value
Performance Indicators (BVPI) and other Performance
Indicators (PIs).
Potential Performance see Performance.
Renewals Accounting a technique for estimating depreciation that allows

the level of annual expenditure required to maintain
the Level of Service to be treated as the depreciation
charged for that period and deducted from the
current asset value. The expenditure required should
be identified from an Asset Management Plan and the
Level of Service is assessed through Performance
Measures.
Required Performance see Performance.
Resource Accounting an accounting procedure adopted by Central

and Budgeting Government in 2001 that aims to produce a set of
accounts in a style similar to the private sector
following Generally Accepted Accounting Practice.
Special Structures structures that due to a combination of their size,

construction, and character are not suitable to be
valued using standardised Unit Rates and Gross
Replacement Cost models.
Statement of Accounts a set of financial statements which present the

financial performance and position of an authority
during the accounting period covering its assets,
liabilities, income and expenditure, the cash flow, and
any provisions for the future.
Unit Rates the cost per unit measure

(number/length/area/volume) to replace an asset or
part of an asset.
Valuation Report a report which summarises the results of valuation

and provides supporting information relating to an
authoritys highway infrastructure assets.
Whole of Government a central Government initiative to produce a

Accounts comprehensive set of accounts from 2006-07 for
the whole of the public sector covering central
government departments, local government,
agencies, NHS trusts and other public bodies in a
style similar to the private sector, following Generally
Accepted Accounting Practice.
11
Abbreviations
AAC Accumulated Asset Consumption
ADF Adjustment factor
AMP Asset Management Plan
AMS Asset Management System
BVPI Best Value Performance Indicator
CSS County Surveyors Society
CIPFA Chartered Institute of Public Finance and Accountancy
DfT Department for Transport
DRC Depreciated Replacement Cost
FRS Financial Reporting Standard
GAAP Generally Accepted Accounting Practice
GRC Gross Replacement Cost
HMT Her Majestys Treasury
IAC In-year Asset Consumption
IAR In-year Asset Renewal
LASAAC Local Authority Scotland Accounting Advisory Committee
MEA Modern Equivalent Asset
NBV Net Book Value
ODPM Office of the Deputy Prime Minister
PI Performance Indicator
PROW Public Rights of Way
RAB Resource Accounting and Budgeting
RAM Resource Accounting Manual
RCPI Road Construction Price Index
RCTPI Road Construction Tender Price Index
RV Residual Value
SCOTS Society of Chief Officers of Transportation in Scotland
SL Service Life
SORP Standard of Recognised Practice
TAG The Local Government Technical Advisors Group
UR Unit Rate
WGA Whole of Government Accounts
12
Section 1
Introduction
1.1 WHAT IS ASSET VALUATION?
1.1.1 Asset valuation is the calculation of the current monetary value of an

organisations assets. The value is reported annually in the organisations
Balance Sheet and is one of the key components supporting Whole of
Government Accounts (WGA) and public sector financial management.
1.1.2 Asset valuation is an important mechanism for demonstrating proper

stewardship of public assets. It provides a means for quantifying the capital
employed in the assets and the cost of use of the assets in delivering services
to the public.
1.1.3 The methodology used to calculate the current monetary value depends on the
asset under consideration. This Guidance Document has been produced
specifically for the valuation of highway infrastructure assets.
1.2 DRIVERS FOR ASSET VALUATION
To Emphasise the Need to Preserve the Highway Infrastructure
1.2.1 Placing a monetary value on highway assets emphasises their importance and
hence the need to maintain them. Monitoring how the asset value is changing
with time can indicate if costs are being unduly passed to future generations,
and can provide compelling arguments for investing in the preservation of the
asset base.
13
1.2.2 Experience in other countries (Finland, New Zealand, Australia, US, Canada)
has shown that implementing financial reporting of asset values for
infrastructure assets has a significant impact on how maintenance and renewal
work is funded and utilised. This has generally resulted in an improvement in
the maintenance of assets.
1.2.3 It is, however, important to recognise that asset value represents only the
monetary value or capital value of the assets and not the service provided or
the worth of the assets to society.
To Support Improved Asset Management
1.2.4 Authorities are implementing improved highway Asset Management practices,

as described in the CSS Framework for Highway Asset Management [Ref. 1]
and the respective Codes of Practice for roads, structures and lighting [Ref. 2,
3 & 4]. A key component of Asset Management is to value the assets and
demonstrate that the forward work volumes, defined in the Asset Management
Plan, will sustain and, where appropriate, enhance the value of the asset.
1.2.5 Asset valuation, in the context of Asset Management, acts as an important

indicator of good asset stewardship. However, asset valuation should not be
used in isolation, but should be used in combination with other recognised
Performance Measures such as Best Value Performance Indicators (BVPIs) and
other Performance Indicators (PIs), and with processes such as value
management, whole life costing, risk management and optimisation.
To Support the Whole of Government Accounts
1.2.6 The UK Government introduced new Resource Accounting and Budgeting

(RAB) [Ref. 5] procedures for all Government Departments from 2001-02.
Whole of Government Accounts (WGA) extends the RAB agenda by developing
a consolidated standard and processes for the whole of the public sector in
one set of accounts.
1.2.7 WGA uses accruals accounting methods in line with the Generally Accepted
Accounting Practice (GAAP) and brings public sector accounting in line with
that of the private sector. By relying on proper accounting practice this builds
on the prudential system for local government finance and the Resource
Accounting procedures for central government.
1.2.8 The objectives of WGA and RAB are to promote greater accountability,
transparency and improved stewardship of public finances. Resource
accounting is intended to provide a systematic link between an authoritys
objectives, resources consumed and outcomes delivered. Under RAB an
authority is required to report in its accounts the resources, including physical
assets, invested and consumed in the delivery of public services. The benefits
of RAB are stated as including [Ref. 6]:
1. Enhancing the fiscal framework by distinguishing more clearly between

consumption and investment.
2. Providing better information on costs, assets and liabilities to assist

resource management.
3. Linking resource allocation and capital spending to the delivery

of services.
14
Section 1 Introduction
4. Measuring the full costs of activities (whether or not there is a cash

element) and recording costs when they are incurred rather than when
they are paid.
5. Apportioning assets over the years in which they are consumed in the
provision of services.
1.2.9 The central objectives and intentions of RAB and consolidation through WGA
align closely with those of good Asset Management.
1.3 PURPOSE OF THIS GUIDANCE DOCUMENT
1.3.1 The purpose of this Guidance Document is to provide guidance on asset

valuation of highway infrastructure assets that aligns with financial reporting
and Asset Management requirements. The guidance is presented in the form of
a step by step procedure covering asset classification, data requirements,
calculation of Gross Replacement Cost, calculation of depreciation and
impairment, and the reporting and monitoring of asset value. Examples are
provided in the appendices to illustrate the application of the methods.
1.3.2 The guidance provides a common framework for the discussion, development
and implementation of highway infrastructure asset valuation by authorities in
the UK. It is recommended that authorities work together, possibly at regional
level, to develop some of the inputs for asset valuation, e.g. Unit Rates, Gross
Replacement Cost models and service lives.
1.4 SCOPE
1.4.1 This Guidance Document covers all fixed assets that form an essential part of
the highway network, for example the earthworks, pavement, drainage, verges,
fencing, structures, lighting, street furniture, traffic management and
communication assets. Assets such as vehicles, plant and equipment, and
depots are excluded from the scope.
15
1.5 STATUS OF THE GUIDANCE DOCUMENT
1.5.1 This Guidance Document is a companion to the CSS Framework for Highway
Asset Management [Ref. 1]. The recommendations of this Guidance Document
are not explicitly mandatory on authorities. The term should associated with
an action is used to denote a recommendation, except where clearly relating to
a statutory or mandatory requirement.
1.5.2 However, authorities who elect, in the light of local circumstances, to deviate
from the recommendations given here should identify these in their Valuation
Report together with the reasons for the departure.
1.5.3 The guidance is endorsed by the Treasury, the Office of the Deputy Prime
Minister (ODPM), the Department for Transport (DfT), the County Surveyors
Society (CSS), the Local Government Technical Advisors Group (TAG) and the
Society of Chief Officers of Transportation in Scotland (SCOTS).
1.6 KEY RECOMMENDATIONS
1.6.1 Key recommendations are boxed, like this paragraph, when they appear in the
text. They are also summarised in Section 18.4.
1.7 IMPLEMENTATION OF ASSET VALUATION
1.7.1 The following timeframe is recommended for the implementation of highway

infrastructure asset valuation in order to support Asset Management and WGA:
Interim valuation of a sample of assets in Financial Year 2005-06.
Benchmark valuation in Financial Year 2006-07 (provides opening book

value for 2007-08).
Calculate in-year movements (e.g. depreciation) in Financial Year 2007-08.
1.7.2 An implementation plan is proposed in Section 18.1.
16
Section 2
Asset Valuation Requirements
2.1 FINANCIAL REPORTING REQUIREMENTS
2.1.1 Asset valuation for highway infrastructure assets should comply with the
financial reporting requirements summarised below. The asset valuation
procedure described in this Guidance Document enables authorities to comply
with these requirements.
Compliance with Standards
2.1.2 The methodology adopted for calculating asset values for an authoritys
statutory accounts should comply with the SORP [Ref. 7]. The methodology
should also be consistent with Financial Reporting Standards 15 and 11
[Ref. 8 & 9]. Consistency with Treasurys Resource Accounting Manual [Ref. 10]
is also desirable for the preparation of the Whole of Government Accounts.
2.1.3 The valuation principles, basis and rules established for highway infrastructure
asset valuation are presented in Section 4. The principles, basis and rules
comply with the aforementioned standards where appropriate.
2.1.4 The guidance recommends the use of Renewals Accounting for roads,
segregated footpaths and cycle routes, and structures because they form an
integral part of the highway network and meet the requirements set down in
FRS 15 [Ref. 8]. It is recognised that FRED 29 [Ref. 11], following on from IAS
16 [Ref. 12], does not refer to Renewals Accounting. However, in the opinion of
those endorsing this guidance (Section 1.5.3), Renewals Accounting is a robust
and systematic basis for estimating the consumption of the aforementioned
parts of the highway network.
2.1.5 The inclusion of highway infrastructure asset values derived in accordance with
this guidance into the statutory accounts is dependent on agreement of the
procedure with CIPFA/LASAAC and necessary amendments to the SORP [Ref.
7]. It is recognised that the 2004 publication of the SORP guidance [Ref. 7]
requires highway infrastructure assets to be reported in the Balance Sheet at
historical cost and a current valuation of these assets is not required. At the
time of publication of this Guidance Document, discussions between
CIPFA/LASAAC, HMT, ODPM, DfT and CSS/TAG were assessing the suitability
of historical cost for highway assets and the practicality of moving towards a
(re)valuation regime based on current value. This Guidance Document has been
prepared on the assumption that highway infrastructure assets will be required
to be valued on the basis of current value.
True and Fair Value
2.1.6 An authority should provide a true and fair current value of the highway
infrastructure assets for reporting in the Balance Sheet. The asset value is
intended to represent the current value of the capital employed by the authority
in delivering its services.
17
Depreciation and Impairment
2.1.7 Depreciation of assets should be calculated annually and recognised as a cost,

with appropriate in year phasing for financial management purposes.
Depreciation represents the consumption of assets in delivering services to the
public, and should be allocated on a systematic basis over the useful service
life of an asset. In addition, any drop in value of assets due to a sudden
reduction in their condition/performance should be recognised as impairment.
2.1.8 The accumulated depreciation and impairment are deducted from the Gross
Replacement Cost to give the Depreciated Replacement Cost.
2.2 HIGHWAY ASSET MANAGEMENT REQUIREMENTS
2.2.1 Key objectives of highway Asset Management, as with RAB, are to promote
greater accountability and improved stewardship of public assets, and to
systematically link resources to the delivery of an authoritys objectives. This
translates into two categories of work for highway infrastructure assets:
1. A programme of improvement works to cater for increases in demand or

to improve Levels of Service (e.g. safety, environmental, accessibility,
condition, also see Ref. 1); and
2. A programme of routine, programmed and reactive maintenance and

renewal to preserve or restore the condition/performance of existing
assets.
2.2.2 These programmes of work influence the asset value, i.e. the work programme
may maintain or increase the asset value or, if it is not adequate, then the asset
value may decrease. Monitoring asset value over time can therefore be used to
demonstrate stewardship of assets. This information provides an important
input to a business case for investing in the maintenance and upkeep of public
assets.
2.2.3 To enable effective use of asset valuation within highway Asset Management,
the valuation procedure should meet the following specific requirements:
1. Treat the assets in the right way, reflecting that they are part of a
highway network and operate together to provide the specified Levels of
Service for the network. This integrated approach to asset management
should be reflected, where appropriate, in the procedure used for
highway infrastructure asset valuation.
2. Reflect good engineering practice and support the right investment

choices for maintenance, renewal and improvement works.
3. Be sensitive to works that add or protect asset value.
18
Section 2 Asset Valuation Requirements
4. Be consistent with, and be a component of, the suite of processes used

in highway Asset Management such as Performance Measures,
prioritisation, value management and whole life costing.
5. Support decision making and long term investment planning by forming

an important element of the business case for funding in the upkeep of
condition and performance of the assets.
6. Be relatively straightforward and operate on data that is readily available

or can be collected with marginal effort.
2.3 VALUATION REGIME
2.3.1 An authority should establish a valuation regime for their highway

infrastructure. It is recommended that, as a minimum, a benchmark valuation
is performed every five years with annual adjustments to take account of
changes to the stock and fluctuations in construction prices.
2.3.2 It is recognised that the robustness and reliability of valuation are likely to
improve with time as Asset Management Systems (AMS) progress and the
quality of data about asset inventory, condition and performance improves.
Also, as authorities develop and populate their AMS they can expect to
improve the level of detail used in asset valuation and to streamline the
procedure. If suitable advances are made in AMS, then asset valuation may
become largely, or completely, automated and it may become feasible to align
annual adjustments more closely with the tasks undertaken in a benchmark
valuation.
2.3.3 An authority should review the scope of the benchmark valuation and annual
adjustments described below and, based on the characteristics of its highway
stock, the availability of data and the functionality of its AMS, adopt a suitable
valuation regime. An authority should also consider how their data and systems
are likely to change over time, as identified from the Asset Management gap
analysis [Ref. 1], and assess the impact this may have on the asset valuation
regime.
Benchmark Asset Valuation
2.3.4 As a minimum, the asset valuation regime should include a full benchmark
valuation every five years. The benchmark valuation should comprise:
1. A review of the valuation basis, rules and algorithms, and making any
necessary amendments if this results in a fairer valuation.
2. Determination or updating of the Unit Rates using a representative

sample of construction/replacement schemes that cover specific asset
types and groups.
3. Determination and/or updating of the service lives used to depreciate

finite life assets or elements.
4. Collation of up-to-date data on all assets, including recent

additions/deletions, information on dimensions, condition and
performance of each asset.
19
5. Calculation of Gross Replacement Cost, depreciation, impairment and

Depreciated Replacement Cost for individual assets and groups of
assets, as appropriate, based on the valuation and depreciation
methodology applied.
2.3.5 A benchmark valuation should be undertaken before the five year milestone, if
there is reason to believe the current value is materially different from a true
and fair value.
Annual Adjustments
2.3.6 Asset valuation should include annual adjustments to reflect any in-year
changes compared to the previous year and, if appropriate, adjust the asset
value. The adjustments should take account of:
1. Changes in asset condition and performance, i.e. in-year depreciation

and impairment.
2. Changes in construction prices. These should be assessed using suitable

indices, e.g. Baxter Indices.
2.3.7 Changes to the stock resulting from improvements, detrunking, retrunking,

highway adoptions, decommissioning etc., should be recognised immediately
rather than at year end.
2.3.8 Capitalisation of subsequent expenditure (Section 4.5) also influences asset

value. However these costs should be applied when incurred rather than at
year end.
2.3.9 If an authority wishes to accrue in-year depreciation, e.g. quarterly or monthly,

this should be done by phasing the annual depreciation charge equally across
the in-year accounting periods.
20
Section 3
Overview of Highway Asset
Valuation Procedure
3.1 OVERVIEW
3.1.1 The general procedure for the valuation of highway infrastructure assets
consists of the following steps and is illustrated in Figure 3.1.
1. Establish the principles, basis and rules for asset valuation (Section 4).
These should comply with the valuation requirements given in Section 2.
2. Compile an Asset Inventory that provides the base data for calculating
asset values for all highway infrastructure assets owned by an authority
(Section 5). The assets should be appropriately classified and grouped.
Also see Section 2 of the CSS Framework for Highway Asset
Management [Ref. 1].
3. Produce the initial value of the highway infrastructure assets. This
involves:
a. Deriving appropriate Unit Rates for the different asset groups and
sub-groups (Section 6).
b. Calculating the Gross Replacement Cost for each asset within a
group or sub-group (Section 7).
4. Calculate the consumption of the assets, which involves:
a. Calculating in-year depreciation (Section 8); and
b. Assessing for in-year impairment and calculating loss in value
where required (Section 9).
5. Calculate the Depreciated Replacement Cost (Section 10) which involves:
a. On the introduction of the asset valuation regime, calculating the
DRC (which is the opening Net Book Value) by reducing the Gross
Replacement Cost to reflect the current age, condition and
performance of assets; and
b. Annual adjustments to the asset value to account for in-year
depreciation and impairment.
6. Prepare the Valuation Report (Section 11).
3.1.2 Sections 4 to 11 apply to all highway infrastructure assets, except where
explicitly stated. Guidance specific to each asset type is provided in Sections
12 to 17.
3.2 DETAILED PROCEDURE
3.2.1 The specific tasks involved in steps 2 to 5 above are shown in Figure 3.2 and
described in detail in Sections 5 to 10. The relevant sections are cross
referenced in Figure 3.2.
21
3.2.2 Several tasks in the procedure are interrelated and may need to be carried out
in a different order, depending on whether the valuation is being undertaken for
the first time or whether it is a benchmark valuation or annual adjustment.
Figure 3.2 shows some of the relationships between tasks as appropriate for
initial implementation of asset valuation.
Financial Reporting Asset Valuation Regime Asset Management

Requirements (Section 2.3) Requirements
(Section 2.1) (Section 2.2)
Valuation Principles,
Basis and Rules
(Section 4)
Asset Inventory
(Section 5)
INITIAL VALUE
Unit Rates
(Section 6)
Gross
Replacement Cost
(Section 7)
CONSUMPTION
Depreciation Impairment
(Section 8) (Section 9)
Depreciated
Replacement Cost
(Section 10)
Valuation Report
(Section 11)
Figure 3.1 Overview of the Procedure for Highway Infrastructure Asset Valuation
22
Section 3 Overview of Highway Asset Valuation Procedure
ASSET INVENTORY
(Section 5) Establish asset
classification
Review asset (Section 5.4) Establish
Compile asset
inventory sub-groups &
valuation data
requirements adjustment factors
(Section 5.6)
(Section 5.2) Identify key (Section 5.5)
cost drivers
(Section 5.3)
UNIT RATES (Section 6)
Select Establish unit of Derive Derive

schemes measurement Unit Rates adjustment factors
(Section 6.2) (Section 6.3) (Section 6.4) (Section 6.5)
GROSS Develop Gross Calculate Gross

REPLACEMENT Replacement Cost Replacement Cost
COST model (Section 7.3)
(Section 7) (Section 7.2)
DEPRECIATION (Section 8)
Adopt Determine Calculate
Conventional Classify assets & service lives & depreciation
Method components depreciation charge
(Section 8.2) (Paragraph 8.2.2) (Paragraph 8.2.4) (Paragraph 8.2.10)
Adopt Renewals Determine AMP Determine actual Calculate

Accounting funding expenditure depreciation
(Section 8.3) requirements (Paragraph 8.3.9) charge
(Paragraph 8.3.4) (Paragraph 8.3.10)
IMPAIRMENT
(Section 9) Assess for Calculate
impairment impairment
DEPRECIATED Determine
Calculate
Calculate annual
REPLACEMENT condition & adjustments
initial DRC
COST performance to DRC
(Section 10.3)
(Section 10) (Section 10.2) (Section 10.4)
Figure 3.2 Detailed Steps in Highway Infrastructure Asset Valuation Procedure
23
Section 4
Valuation Principles, Basis and Rules
4.1 GENERAL
4.1.1 Before carrying out valuation it is important that the principles, basis and rules
are set down and agreed by the authority with its auditors, as they have a
significant impact on the calculated asset values. The principles, basis and
rules presented below provide an appropriate basis for the valuation of
highway infrastructure assets and are strongly recommended for adoption by
all authorities. They underpin the asset valuation procedure and guidance
presented in this document.
4.1.2 It is important that authorities do not deviate from the principles, basis and
rules described below unless there is a good reason to do so. This is necessary
to ensure consistency in the asset values and the related asset preservation
measures produced by different authorities. If an authority deviates from the
following rules they should fully document the reasons for the deviation in their
Valuation Report (Section 11.2).
4.1.3 The principles, basis and rules for highway infrastructure asset valuation are
described under the following headings:
1. Accounting principles (Section 4.2)
2. Valuation basis (Section 4.3)
3. Admissible costs (Section 4.4)
4. Capitalisation of subsequent expenditure (Section 4.5)
5. Indexation of costs (Section 4.6)
6. Modern Equivalent Asset (Section 4.7)
7. Assets under construction (Section 4.8)
8. Assets under a PFI Scheme (Section 4.9)
9. Special structures (Section 4.10)
10. Heritage assets (Section 4.11).
4.2 ACCOUNTING PRINCIPLES
4.2.1 Highway infrastructure asset valuation and its annual reporting should follow
the established principles of financial accounting; in particular:
1. Reliability the information contained can be depended upon for the

stated purpose; it is free from deliberate or systematic bias; it is free from
material error; and a prudent approach has been taken in dealing with
uncertainty.
24
Section 4 Valuation Principles, Basis and Rules
2. Comparability the information provided can be compared with similar

information about the organisation for previous accounting periods and
with other similar organisations. Comparability depends on consistency in
valuation between like items, such as pavement and structures, and
between accounting periods, and recognising that changes may be
appropriate if they would result in a fairer valuation.
3. Materiality all information is included that might be expected to have an

influence on the purpose for which the financial statements are used.
Materiality depends on the size and nature of the item considered and
should be judged on the circumstances of the case.
4.3 VALUATION BASIS
4.3.1 Highway assets are largely publicly owned and have rarely if ever been sold on
the open market. They are not created to produce revenue and therefore do not
have a defined revenue stream, although revenue may be associated with them
in certain cases (e.g. congestion charging, tolls and parking charges). Hence
the market value or revenue stream-based valuation methods are not
appropriate for highway assets.
4.3.2 The Resource Accounting Manual (RAM) [Ref. 10], based on the requirements
of FRS 15 [Ref. 8], recommends that highway infrastructure assets are valued
on the basis of Depreciated Replacement Cost (DRC). (NB: at the time of
publication of this document the SORP Guidance [Ref. 7] required historical
cost to be used for the valuation of highway infrastructure assets; but the
SORP requirement has not been followed, for the reasons given in
paragraph 2.1.5).
4.3.3 The Depreciated Replacement Cost is evaluated as:
Depreciated Replacement Cost =
Gross Replacement Cost (Accumulated Depreciation & Impairment)
Equation 1
Where:
Depreciation is the systematic consumption of economic benefits

embodied in an asset over its service life arising from use, ageing,
deterioration or obsolescence; and
Impairment is a reduction in Net Asset Value due to a sudden or

unforeseen decrease in condition and/or performance of an asset
compared to the previously assessed level which is not already
recognised through depreciation.
4.3.4 This Guidance Document describes the approaches that should be used to
calculate depreciation and impairment. Guidance on the accounting treatment
of depreciation and impairment in the Statement of Accounts is beyond the
scope of this document, and for this purpose authorities should refer to the
SORP [Ref. 7].
25
4.3.5 When an asset is constructed, reconstructed or improved within the current

financial year, the asset could initially be valued at cost. At the next valuation
(i.e. annual adjustment or benchmark valuation) these assets should be re-
valued based on the DRC approach using the standard procedure. Since
valuation may not give the same monetary value as the actual construction
cost, this could result in writing down the asset value soon after an asset
enters into service. To avoid this fluctuation in asset value an authority may
choose to value such new assets using the standard procedure for valuation
and include the asset in the Balance Sheet at the re-valued amount rather than
at cost. This may lead to an immediate write-down of capital costs which
should be treated according to established capitalisation (Section 4.5) and
accounting procedures [Ref. 7].
4.4 ADMISSIBLE COSTS
4.4.1 In valuing and revaluing highway infrastructure assets it is important to clearly

establish the costs that are admissible. The same applies to (re)constructed
assets and costs incurred when carrying out maintenance.
4.4.2 FRS 15 [Ref. 8] states that Costs, but only those costs that are directly
attributable to bringing the asset into working condition for its intended use,
should be included in its measurement.
4.4.3 Directly attributable costs for highway infrastructure assets are all costs
incurred by the authority when constructing the asset, e.g. labour, plant,
material, site preparation, traffic management and professional fees. However,
certain costs such as utility service diversion/disruption, pre-feasibility costs,
the authoritys overall programme management, monitoring and overhead costs
not directly attributable to a specific asset or scheme, are not admissible. Any
abortive costs including those related to design errors, industrial disputes, idle
capacity, wasted resources and production delays are also not admissible.
4.4.4 The actual outturn costs incurred in constructing a highway asset can be
broadly grouped under the following cost elements:
26
1. Direct cost of material, labour, plant and equipment including site

clearance and preparation costs, including contractors profit margin and
finance costs.
2. Project management and supervision costs including scheme design.
3. Costs of authoritys own staff time.
4. Cost of demolishing or breaking out of the existing assets and

their disposal.
5. Cost of temporary works, e.g. diversions and temporary bridging.
6. Temporary traffic management costs, e.g. coning, traffic lights

and signage.
7. Possession costs for assets over, or that impact on, railway lines,
canals, etc.
4.4.5 The majority of highway infrastructure assets can be considered as mature

assets. The admissible costs for mature highway infrastructure assets should
include all costs incurred in the current location, subject to the rules above.
These costs should be taken into account in the derivation of Unit Rates and
the calculation of Gross Replacement Cost.
Utility Diversion Costs
4.4.6 It is recognised that the diversion of utility services (e.g. gas, water, telephones
and cables) during asset replacement or renewal work and their subsequent
reinstatement can contribute a significant proportion to project costs. However,
these costs are uncertain and difficult to estimate and should therefore be
written off when incurred (except for highway lighting, and similar assets, as
explained in paragraph 15.3.1).
4.5 CAPITALISATION OF SUBSEQUENT EXPENDITURE
4.5.1 The valuation procedure should preferably align with the capitalisation
procedures used for accounting for subsequent expenditure on assets in their
maintenance, renewal and enhancement. Guidance for this is provided in the
SORP [Ref. 7].
4.5.2 Authorities should establish proper policies and procedures, in agreement with
their auditors, for the capitalisation of costs and their classification into
admissible and non-admissible costs for valuation purposes. In doing so, due
consideration should be given to the approach adopted for depreciation
because this has an influence on how the subsequent expenditure is
capitalised [Ref. 8]. The recommended approaches for depreciation are
described in Section 8.
4.6 INDEXATION OF COSTS
4.6.1 Valuation is carried out using standardised Unit Rates (Section 6) for each asset
group or sub-group. The Unit Rates are derived from outturn costs from a
representative sample of previously completed highway (re)construction
schemes. The Unit Rates need to be adjusted, using an appropriate price
index, to represent present day prices.
27
4.6.2 Authorities should adopt an index that best reflects the increases in road
construction prices in their authority. The indices widely used by authorities in
the UK are:
1. Baxter Indices published by the Department for Trade and

Industry (DTI).
2. Road Construction Price Index (RCPI) published by Department

for Transport until 1995.
3. Road Construction Tender Price Index (RCTPI) published by

Department for Transport since 1995.
4.6.3 It is recommended that a price index based on a basket of appropriately

weighted Baxter Indices are used for highway infrastructure asset valuation
because these are more stable compared to the other indices. Further details
on the Baxter Indices are provided below.
4.6.4 If an authority uses an alternative price index, then they may adopt this for
asset valuation provided the authority and their auditors are satisfied with its
suitability for highway infrastructure assets.
Baxter Indices
4.6.5 Baxter Indices were developed in order to apply Price Adjustment Formulae to
construction contracts to allow for variations in contractors costs over the
duration of a contract. Whilst they are published by the DTI on a monthly basis
[Ref. 13], there is a working group, which has a wide representation from all
sides of the construction industry, that is responsible for reviewing the indices
and deciding issues arising in the compilation of the indices. Indices are
published as provisional in the first instance and are subsequently changed to
firm values.
4.6.6 Two sets of indices are published; one for building work and one for specialist
and civil engineering works. The latter should be used for highway
infrastructure asset valuation and consists of 14 indices for different
components of labour, plant and materials:
1. Labour and supervision in civil engineering
2. Plant and road vehicles: provision and maintenance
3. Aggregates
4. Bricks and clay products
5. Cements
6. Cast iron products
7. Coated roadstone for road pavements and bituminous products
8. DERV fuel
9. Gas oil fuel
28
10. Timber
11A. Steel for reinforcement
11B. Metal sections
12. Fabricated structural steel
13. Labour and supervision in fabricating and erecting steelwork
4.6.7 In order to adjust the Unit Rates (Section 6), it is necessary to use a basket of
indices weighted based on the proportion the above components contribute to
the Unit Rate under consideration. Whilst this can be done separately for each
Unit Rate an authority may decide to produce a weighted basket appropriate to
each Level 1 asset type (Section 5.4) and use this combined index for all asset
groups and sub-groups within the category. Similarly this could be done at
Level 2, for example, for a concrete bridge one would use indices 1, 2, 3, 5, 10
& 11A as their movement would affect the Unit Rate significantly.
4.7 MODERN EQUIVALENT ASSET
4.7.1 The concept of Modern Equivalent Asset (MEA) is used to determine the
standardised Unit Rates (Section 6) and Gross Replacement Cost (Section 7)
when valuing existing assets of technologically obsolete construction form,
e.g. the modern equivalent of a masonry arch bridge may be a composite
beam and slab bridge.
4.7.2 The MEA is defined as one which provides the same Potential Performance as
the existing asset, but takes account of up-to-date technology. If the
construction form of an existing asset is no longer considered appropriate as a
replacement, or when existing assets can be replaced more economically by
new construction forms to provide a similar function, then this should be
reflected in asset valuation by using the MEA instead of the existing
construction form.
29
4.7.3 MEA should reflect current good practice and should therefore implicitly
account for the latest construction techniques, delivering minimum whole life
costs, and meeting sustainability and environmental requirements. The MEA
should be identified, where required, for the asset groups and sub-groups
described in Section 5 and a replacement Unit Rate derived for each. The MEA
can be readily identified by reviewing recent construction practice.
4.7.4 In some cases the Potential Performance provided by an existing asset cannot
be replicated by a MEA, e.g. the Potential Performance of an existing bridge
may be 10 tonne however a MEA would be designed to provide 40 tonne
capacity. In such cases the GRC should be evaluated as the cost of a MEA that
meets the Current Performance, even if it provides an improvement on the
existing Potential Performance, provided the GRC of the MEA is considered to
be representative. If the GRC of the MEA is considered to be unrepresentative
of the cost of replacing the existing asset, with an asset that provides the same
Potential Performance, then the costs should be factored accordingly. A factor
should be applied when the GRC for the existing asset is considered to be
more than 10% of the GRC of the MEA.
4.7.5 Appendix A provides some examples of how to use MEA. The examples
explain the appropriate treatment of impairment (Section 9).
4.8 ASSETS UNDER CONSTRUCTION
4.8.1 Schemes which have not reached the open for traffic stage but are in
progress at the valuation date are classed as assets under construction.
These assets should be included in the accounts either at cost or a proportion
of the value of the complete asset evaluated using the standard procedure. The
proportion of the value considered should be based on the progress of the
work or spend to-date compared to the full asset when completed.
4.9 ASSETS UNDER A PFI SCHEME
4.9.1 Assets which are managed under a Private Finance Initiative (PFI) scheme as
off the Balance Sheet assets should not be included in the valuation. Where
this is not the case a proportion of the full asset value (evaluated using the
standard procedure), based on the elapsed period of the PFI concession
relative to the total concession period, should be included in the Balance
Sheet. For example, if the total asset value of lighting assets in an authority is
20 million and the total period of the PFI concession is 20 years with 15 years
elapsed, then the asset value to be included in the Balance Sheet is 15
million.
4.10 SPECIAL STRUCTURES
4.10.1 Highway infrastructure assets are classified into groups and sub-groups
(Section 5) to enable standardised Unit Rates (Section 6) and GRC models
(Section 7) to be determined. However, Special Structures are those that due to
a combination of their size, construction and/or character are not suitable to be
valued using standardised Unit Rates and GRC models, for example, the
Jubilee Bridge.
4.10.2 Special Structures should be valued individually using the principles given in
this Guidance Document, including the concept of Modern Equivalent Asset.
Specific guidance on the treatment of Special Structures is provided in
Section 14.
30
4.11 HERITAGE ASSETS
4.11.1 Many authorities have a significant number of heritage and/or listed highway
assets, principally bridges, e.g. Tower Bridge, but they may also include other
assets that are deemed to be important to the character of the area, e.g. ornate
lighting columns and cobbled streets. It would not be appropriate to value
these assets using the Modern Equivalent Asset (MEA) approach because this
would not reflect the true costs incurred by the authority in maintaining and/or
replacing the existing asset. That is, a heritage asset would be expected to be
replaced with a like for like or nearly as like as is feasible asset. This is likely
to result in a significantly higher cost compared to replacing it with a MEA.
Therefore, the standardised Unit Rates derived for MEA groups, or sub-groups,
should not be used to calculate the asset value for heritage assets.
4.11.2 Unit Rates and Gross Replacement Cost models may be determined for
individual heritage assets or groups/sub-groups of heritage assets. The
approach adopted depends on the type and number of heritage assets in the
authority, or in the region if the authority is working with other authorities.
4.11.3 The Unit Rates and Gross Replacement Cost models should be based on an
optimised replacement cost that provides the required appearance and
function but seeks to make cost savings and efficiencies where appropriate.
Examples include:
Lighting Column an existing cast iron lighting column with decorative

features that reflects the character of the area has been classified as a
heritage asset. The column should be valued by assuming it will be
replaced by a lighting column that looks the same and provides the same
service, although a modern material (steel) may be used to optimise
the cost.
Pavement a cobbled street is deemed to reflect the character of the

area and is an important aspect of tourism. The pavement should
be valued by assuming it will be replaced by structural layers of
appropriate modern materials and standards but the surface layer will
be cobbled stone.
4.11.4 If sufficient (re)construction cost data is not available from within the authority
or other similar authorities then engineering judgement and experience should
be used in valuing Special Structures and Heritage Assets. If necessary, advice
may also be sought from a Quantity Surveyor.
31
Section 5
Asset Inventory
5.1 GENERAL
ASSET INVENTORY
Establish asset
classification
(Section 5.4) Establish
Review asset Compile asset
inventory sub-groups & valuation data
requirements adjustment factors (Section 5.6)
Identify key
cost drivers
(Section 5.3)
5.1.1 The asset inventory provides the base data required for asset valuation. This
section describes the asset inventory requirements, asset classification (and
the key cost drivers to be considered when classifying the assets), asset sub-
groups and adjustment factors. The data required for asset valuation is also
summarised.
5.2 ASSET INVENTORY REQUIREMENTS
5.2.1 It is recommended that authorities develop an asset inventory for Asset

Management that also covers the needs of asset valuation. Guidance on
developing an inventory for Asset Management is provided in the CSS
Framework for Highway Asset Management [Ref. 1] and the relevant Codes
of Practice [Ref. 2, 3, & 4]. The data needs for asset valuation are described
in the following.
5.2.2 In order to support asset valuation the asset inventory should contain the
following:
1. Asset Register a listing of each individual asset owned by the

authority. The assets should be appropriately classified into types, groups
and sub-groups to ensure valuation, depreciation and impairment are
correctly applied.
2. Valuation Data the data for each asset required to calculate asset
values, e.g. dimensions, material type, age and useful service life.
5.2.3 The refinement of the asset register directly influences the accuracy and
reliability of valuation. Greater refinement is likely to increase the quantity of
data required to support asset valuation thereby increasing the storage
requirements and the resources needed to keep it up-to-date and accurate. It
is recommended that authorities identify the asset classifications required for
good Asset Management and seek to align asset valuation with these. A
classification that is suitable for asset valuation is presented in Section 5.4.
32
Section 5 Asset Inventory
5.2.4 To expedite asset valuation it is desirable that the asset inventory and the
valuation procedure are automated using a computerised system. Section 18.2
provides further guidance on the functionality of asset valuation systems.
5.3 KEY COST DRIVERS
5.3.1 Asset valuation requires a true and fair monetary value to be placed on the
highway assets. The standardised Unit Rates and Gross Replacement Cost
models should take account of the factors that have a significant influence on
replacement cost. The key cost drivers should therefore be identified and used
to inform asset classification.
5.3.2 The key cost drivers that influence the GRC of a highway asset include:
1. Asset type, e.g. road, structure and lighting.
2. Construction form, e.g. bridge, retaining wall and culvert.
3. Usage, e.g. single or dual carriageway.
4. Location, e.g. urban or rural.
5.3.3 Sections 12 to 17 present a range of key cost drivers for each asset type; the
asset classification presented in Section 5.4 takes account of these key cost
drivers.
5.4 ASSET CLASSIFICATION
5.4.1 The entire highway infrastructure is defined as an asset class. The highway
infrastructure operates as a single network and is managed and maintained in a
manner that reflects the interaction and inter-dependence between the
individual assets that comprise the network. However, for the purpose of asset
valuation it is necessary to distinguish between assets of different function and
form in order to derive appropriate Unit Rates and GRC.
5.4.2 The highway infrastructure asset class is divided into asset types, asset
groups, asset sub-groups and components. This helps to:
1. Distinguish assets by key cost drivers (e.g. function, form and material)
that influence their replacement cost; and
2. Distinguish between assets and components with different useful lives

and deterioration characteristics which could be treated separately for
depreciation and impairment calculations.
33
5.4.3 The proposed classification for asset valuation has three levels, shown in
Figure 5.1. The three levels are defined as:
Level 1: Asset Types broad categories based on the general function of the
assets. They divide the asset base into categories that may be suitable for
reporting in the financial statement and provide an appropriate basis for high
level management information.
Level 2: Asset Groups used to distinguish between assets that have a

similar function and form. The asset groups should distinguish between assets
that are likely to require different Unit Rates (Section 6) and Gross Replacement
Cost models (Section 7). Each asset group may need to be further divided into
sub-groups if the Unit Rates are likely to vary significantly between assets in
a group.
Level 3: Components distinguishes between components that are likely to

require different depreciation and impairment models, e.g. different service
lives and/or rates of deterioration. [NB: it is not necessary to explicitly identify
all components for asset types depreciated under Renewals Accounting
(Section 8)].
Level 1: Asset Types

Broad categories based on the
general function of the assets
Increasing
level of Level 2: Asset Groups and Sub-Groups
asset Assets of similar function and form which
information provide suitable detail for calculating Unit
required Rates and Gross Replacement Costs (GRC)
Level 3: Component
Components that are likely to have different Note: Level 3 assets and
components are explicitly
deterioration rates and/or service lives and identified for depreciation
should therefore be treated separately for when the Conventional
depreciation and impairment Method is used.
Figure 5.1 Asset Classification
34
5.4.4 The disaggregation required for asset valuation depends on the accounting
approach used for depreciation. Section 8 describes the depreciation
approaches suitable for highway infrastructure assets and recommends the
approaches to be used for each asset type. The choice of the depreciation
method influences asset disaggregation as follows:
1. Asset types such as lighting, street furniture, traffic management systems,

and off-highway drainage that are assessed individually or at component
level for depreciation, using the Conventional Method (Section 8.2),
require Levels 1, 2 and 3 of the classification to be explicitly defined and
used within asset valuation.
2. Asset Types such as roads, segregated footpaths and cycle routes, and
structures that are assessed at group or type level for depreciation, using
Renewals Accounting (Section 8.3), require Levels 1 and 2 to be explicitly
defined and used within asset valuation. Whilst the Level 3 components
are not explicitly identified for depreciation they are likely to be needed in
the development of the Asset Management Plan that supports Renewals
Accounting.
5.4.5 An asset classification that is appropriate for asset valuation is shown in Table
5.1. The table is not exhaustive and should be taken as a general framework. If
these asset types and groups do not provide adequate coverage then an
authority may extend this scheme to make it appropriate for its network. Where
possible the asset disaggreagtion should align with that used for Asset
Management.
35
Level 1 Level 2 Level 3: Components that Level 2

Asset Type Asset Group implicitly covers in valuation
Road Flexible pavements Pavement layers (formation,
roadbase, binder course, surface
Flexible composite pavements
course)
Rigid concrete pavements
Other surface types e.g. paved
Rigid composite pavements
Hard strip/shoulder
Footway/cycleway attached to road
Central reservation, roundabout,
lay-by etc.
Markings
Kerbs
Earthworks (embankments & cuttings)
Vegetation
Drainage
Safety fences
Boundary fences and hedges
Verges
Segregated Footpath (including PROW) Binder course and surface course
footpaths
Bridleways (including PROW) Formation
and cycle
routes* Off road cycle routes
Pedestrian areas
Structures Bridges (includes subways) All elements identified on the CSS
inspection pro forma [Ref. 14 and 15].
Culverts (span < 1.5m)
Retaining walls
Sign/signal gantries and
cantilever road signs
Other assets included in this group: Should include all components
considered in the maintenance and
Tunnels
management of these assets.
Structural earthworks, e.g.
Smaller water carrying structures are
strengthened/reinforced soils
considered as road drainage.
Fords and causeways
Cattle grids
Highway Lighting columns Column and foundations

lighting and
Lighting unit attached to wall Bracket
high mast
lighting High mast lighting Luminaire (or other fixtures,
e.g. CCTV)
Control gear, switching and internal
wiring cabling (may depend on
ownership)
* These assets are only included in highway infrastructure asset valuation where they
are maintained as part of the highway infrastructure asset, e.g. surfaced PROW.
36
Table 5.1 Classification of Highway Assets
Level 1 Level 2 Level 3: Components that Level 2

Asset Type Asset Group implicitly covers in valuation
Street Town/city centre street/road Bus Shelters
furniture
Suburban/village street/road Seating
Rural road Bins
Bollards
Marker Posts
Street name plates
Tree protection etc.
Traffic Traffic signals Signal, column and foundation
management
Pedestrian signals Control equipment and cables
systems
Bulbs
Illuminated traffic signs Sign, column and foundation
Non-illuminated traffic signs Control equipment and cables
Illuminated pedestrian signs
Non-illuminated pedestrian signs
Traffic calming Speed bumps
Speed cameras
Communication systems All components
Off-highway Sustainable Urban Drainage All components

drainage Systems (SUDS)
Soakaways
Pumping stations
Land Freehold land Features on the land are not taken into
account in the valuation
Rights land
5.5 ASSET SUB-GROUPS AND ADJUSTMENT FACTORS
5.5.1 The asset groups (Level 2) shown in Table 5.1 may be used as the basis for
deriving standardised Unit Rates (Section 6). However, in some cases these
groups may not provide the required degree of refinement. Further refinement
can be achieved by identifying sub-groups within a group or by the use of
adjustment factors to account for certain cost-influencing factors. Guidance on
the choice between the two options is given below. Sections 12 to 17
recommend asset sub-groups and adjustment factors for each asset type.
Asset Sub-Groups
5.5.2 An asset sub-group is an identifiable set of assets, within an asset group,

that are influenced by the same key cost driver(s) in a similar way. It may
therefore be appropriate to derive a separate Unit Rate for the sub-group.
Examples of asset sub-groups are:
1. The flexible pavement asset group may be divided into sub-groups: urban
single, urban dual, rural single, rural dual and rural single track.
37
2. The bridges asset group may be divided into sub-groups, e.g. road
bridge, subway and footbridge.
5.5.3 The asset inventory should enable the asset sub-groups to be readily identified
based on the data held against each asset.
Adjustment Factors
5.5.4 The Unit Rate for an individual asset may in some cases differ significantly from
the standardised Unit Rate determined for the group or sub-group. This is likely
to occur when a key cost driver only influences one asset or a small number of
assets in the group/sub-group. The same key cost driver may also influence a
small number of assets in other groups/sub-groups. In such cases an
adjustment factor should be derived and this can be applied to the appropriate
assets when calculating the GRC.
5.5.5 Adjustment factors should take account of significant key cost drivers that are
not already covered by the group or sub-group attributes. Criteria that may be
considered as appropriate for adjustment factors include:
1. Location different factors may be applied for assets in rural and urban
areas, or in relation to location generally.
2. Size the replacement cost may vary according to overall size for certain
asset types reflecting economy of scale in construction.
3. Access the replacement cost for assets with difficult access may be
higher, for example bridges over a motorway, railway line, canal or river.
4. Earthworks the volume of earthworks required and the ground

conditions, e.g. embankments, cuttings, marshy or rocky ground
conditions.
5.5.6 The adjustment factors are applied to the calculated Gross Replacement Cost
as shown in Section 7.
5.5.7 Where adjustment factors are used the asset inventory should hold relevant
attributes against individual assets to enable appropriate factors to be applied.
5.6 ASSET VALUATION DATA
5.6.1 The specific data requirements depend on the characteristics of the asset
group, or sub-group, and the associated format of the Unit Rate, Gross
Replacement Cost, depreciation and impairment models. The general data
required for different steps within asset valuation are summarised below:
1. Determination of Unit Rates (Section 6) the Unit Rates are based on

the outturn costs from a representative sample of recently completed
(re)construction schemes for each asset group or sub-group. The scheme
details and dimensions, and the quantities of individual assets within
each scheme, are required.
2. Calculation of Gross Replacement Cost (Section 7) the GRC is

calculated for individual assets within each group and sub-group. The
data held against each asset should include dimensions and the
38
characteristics necessary to identify the appropriate group, sub-group

and adjustment factors.
3. Calculation of Depreciation and Impairment (Sections 8 and 9)

requires data on the condition/performance of the asset, the cost of
maintenance work required to restore to as new condition, and, where
appropriate, asset/component service lives. The cost of maintenance
work should be taken from the AMP where appropriate.
5.6.2 The categories of data shown in Table 5.2 should be held against each asset
for the purpose of asset valuation. The list is not exhaustive and authorities are
advised to assess the completeness of the list for specific asset types, groups
and sub-groups, against the full asset valuation procedure described in the
following sections.
Table 5.2 Asset Valuation data for each asset
Inventory Data
1 Asset type, group (and sub-group if appropriate)
2 Attributes relevant to adjustment factors
3 Attributes relevant to Unit Rates (replacement)
4 Dimensions relevant to GRC calculations
5 Date of installation (where appropriate)
6 Remaining life or replacement date (where appropriate)
Additional Supporting Data
1 Current condition and performance
2 Required maintenance work
3 Attributes relevant to maintenance unit rates
5.6.3 All of the data shown in Table 5.2 is required for good Asset Management and
authorities are already likely to hold much of this data or are in the process of
compiling it. However, as a matter of course, authorities should review their
existing data against the list and identify any gaps in relation to the data
required for asset valuation. The review should assess completeness and
accuracy of the data, and the suitability of the data format and storage
medium. Where necessary, a prioritised programme for data cleansing and
collection should be put in place before implementing the asset valuation
regime. This programme should meet the timeframe identified in Section 1.7
and where possible be part of the data collection programme for Asset
Management.
39
Section 6
Unit Rates
6.1 GENERAL
UNIT RATES
Derive
Select Establish unit of Derive
adjustment
schemes measurement Unit Rates
factors
(Section 6.2) (Section 6.3) (Section 6.4)
(Section 6.5)
6.1.1 The Unit Rates are those relevant to the replacement of a highway asset,
e.g. road replacement, bridge replacement and lighting column replacement.
The Unit Rates are not derived for each individual asset; instead standardised
Unit Rates are derived for asset groups/sub-groups (Section 5). The Unit Rates
are then used with appropriate dimensional data for individual assets to
calculate the Gross Replacement Cost (Section 7).
6.1.2 The Unit Rates should be derived using outturn or tender costs from a
representative sample of recently completed highway (re)construction schemes.
The Unit Rates should relate to an appropriate unit of measurement and should
be indexed to represent present day prices. Adjustment factors should be
derived to take account of Unit Rate variations within an asset group or
sub-group.
6.2 SELECTION OF SCHEMES
6.2.1 Highway (re)construction schemes normally include a range of works and these
may include several of the asset types, groups and sub-groups described in
Section 5. Ideally the scheme information should enable the individual assets
and their associated quantities to be identified and allow outturn costs to be
carefully screened, classified and apportioned to the relevant asset(s). This
allows the quantities and costs to be linked to an asset group/sub-group for
the derivation of Unit Rates. Careful screening of the costs is required because
only those costs that are directly attributable to bringing the assets into
working condition are admissible for deriving Unit Rates (Section 4.4).
6.2.2 The number of assets in each asset group or sub-group will differ considerably
within and between authorities. The quantity of (re)construction data available
for deriving Unit Rates is likely to vary with the group/sub-group size. Where
possible, authorities should adopt the following recommendations for deriving
Unit Rates:
Group or sub-group with less than 50 assets the Unit Rates should be
based on (re)construction costs from not less than three representative
assets.
Group or sub-group with 50 to 100 assets the Unit Rates should be

based on (re)construction costs from not less than five representative
assets.
40
Section 6 Unit Rates
Group or sub-group with 100 to 200 assets the Unit Rates should be
based on (re)construction costs from not less than 10 representative
assets.
Group or sub-group with > 200 assets the Unit Rates should be based
on (re)construction costs from not less than 20 representative assets.
6.2.3 Authorities should consider working with other authorities who have similar
highway networks in order to meet the above minimum requirements and to
utilise larger sample sizes that will produce more robust Unit Rates. It is
recommended that authorities seek to form regional working groups, possibly
split between urban, semi-urban, and rural areas, for this purpose. If regional
working groups are unable to provide a sufficient number of schemes then
estimates based on engineering judgement or from bills of quantities may be
used.
6.2.4 The following criteria should be considered when identifying sample schemes:
1. Scheme Date the scheme should have been completed in the last
10 years.
2. Scheme Type the scheme should include one or more of the following
types of work: construction (new build), re-construction, partial re-
construction or major improvement.
3. Scheme Size the size of the scheme, in terms of value and number of
assets, should be typical of highway construction schemes carried out by
the authority.
4. Scheme Information appropriate cost (outturn and/or tender), quantities

and other relevant data should be available for the scheme.
Scheme Date
6.2.5 It is recommended that only schemes completed in the last 10 years are used
to derive Unit Rates because the construction techniques and procurement
practices used should be reasonably representative of current practices, i.e.
they represent Modern Equivalent Assets (Section 4.7). The selected schemes
should preferably be post 1999 to align with the Rethinking Construction
initiative [Ref. 16]. The scheme costs should be indexed to represent present
day prices (Section 4.6).
Scheme Type
6.2.6 The scheme types considered appropriate for deriving Unit Rates include:
1. Construction (New Build) where a new asset is constructed, i.e. a

highway did not previously exist on the site, e.g. road bypass. New build
costs should be appropriately factored to represent a replacement on the
live network.
2. Re-construction where the existing highway asset is replaced by a

new asset that serves the same purpose and provides the same
performance as the original, e.g. lighting column replacement, bridge
replacement.
41
3. Partial Re-construction where the existing highway asset is partially

replaced, e.g. a new pavement structure is laid on the existing foundation
and embankment. The use of these costs depends on the form of the
GRC model:
a. If the GRC model uses separate Unit Rates for constituent parts of
the asset then, if appropriate, the partial re-construction costs may
be used to derive these Unit Rates directly.
b. If the GRC model uses a composite Unit Rate for the whole asset
then the costs for replacement of other parts of the asset should be
estimated, or derived from other schemes, and combined with the
partial re-construction scheme costs to derive a suitable Unit Rate.
4. Improvement where the existing highway asset is replaced or modified

to provide improved performance compared to the original, e.g. road
widening, interchange upgrade, street scene improvements. Improvement
data should be applied in the same manner as the partial re-construction
data.
6.2.7 The cost data from the above schemes should be used, and combined where
appropriate, in a manner that is representative of the common practice used for
renewing or replacing the assets in a group/sub-group, in whole or in parts, to
maintain the highway network at a specified Level of Service. The Unit Rates
derived from these schemes should implicitly include all the admissible cost
elements normally incurred by the authority (Section 4.4).
Scheme Information
6.2.8 The scheme information required to determine Unit Rates typically includes:
1. The general information required to identify individual assets within the

scheme and assign them to the respective asset group or sub-group.
2. The scheme outturn costs or, if unavailable, the scheme tender costs.
The costs should be apportioned to the respective assets within the
scheme. Some or all of the cost elements described in Section 4.4 may
be incurred in completing a scheme and the relative proportions of the
different cost elements will vary from one scheme to another. Only those
costs admissible for asset valuation should be used. If a representative
sample of highway schemes is used then they should provide an
appropriate mix of the cost elements in the Unit Rates.
3. The scheme construction date (month and year) to allow indexation of the
costs to the valuation date using appropriate indices (Section 4.6).
4. The quantity of work performed for each asset group, e.g. 10,000m2 of
single carriageway road, three span bridge of 125m2 deck area each, 35
lighting columns of height 12m (Section 6.3).
6.3 UNIT OF MEASUREMENT
6.3.1 The Unit Rates should be derived based on an appropriate unit of

measurement. The unit of measurement depends on the asset type/group and
the format of the Gross Replacement Cost model.
42
6.3.2 The recommended units of measurement for different asset types/groups are
shown in Table 6.1. Specific guidance for each asset type is provided in
Sections 12 to 17.
Table 6.1 Recommended Units for Measuring Asset Quantities
Level 1 Level 2 Unit of Measurement

Asset Type Asset Group
Road All pavements Area (m2)
Segregated footpaths and All segregated footpaths Area (m2)

cycle routes and cycle routes
Structures Bridges (includes subways) Deck area (m2)
Culverts Internal surface area (m2)
Retaining walls Retained area (m2)
Sign/signal gantries Span length (m)
Tunnels Length (m)
Structural earthworks Length (m)
Fords and causeways Length (m)
Cattle grids Number or length (m)
Highway lighting and high Lighting columns Number

masts
Lighting unit attached Number
to wall
High masts (>20m) Number
Street furniture All street types Number
Traffic management systems All traffic management Number

systems
Off-highway drainage All off-highway drainage Length and/or number
Land All land Area (hectares)
6.4 DERIVING UNIT RATES
6.4.1 The Unit Rate for an asset group or sub-group should be evaluated as the
summation of the indexed outturn or tender costs (Section 4.6) divided by the
summation of the relevant quantities, where the costs and quantities are
compiled from the representative sample of (re)construction schemes (Section
6.2). When deriving Unit Rates the following approach is suggested:
1. Compile scheme costs and quantities and apportion them to individual

assets.
43
2. Review the gross costs for an individual asset and, where possible,
exclude those costs that are not representative of the group or sub-
group. These costs should be used to calculate the adjustment factors
(Section 6.5).
3. Calculate the Unit Rate for the asset group/sub-group as follows:
( Gross cost of Asset i

Unit Rate for asset group/sub-group = i &1
n
( Quantity of Asset i
i &1
Equation 2
Where n = number of assets used to derive Unit Rate
i = asset i of n
Quantity may be in m2, number, etc. (Section 6.3)
Gross Cost = gross admissible outturn cost for asset i
6.4.2 The above procedure should be repeated for each asset group and sub-group.
6.5 DERIVING ADJUSTMENT FACTORS
6.5.1 Section 5.5 provides guidance on when to use asset sub-groups and when to
use adjustment factors. An adjustment factor may be derived using either of
the equations shown below. Equation 3a evaluates the adjustment factor
relative to the influence of a key cost driver on an individual asset, while
Equation 3b evaluates the adjustment factor relative to the Unit Rate of the
respective asset group or sub-group.
GCINC
adjustment factor (ADF) =
GC EXC
Equation 3a
) GC INC /
** 0
+ Quantity 01
adjustment factor (ADF) =
Unit Rate
Equation 3b
Where GCINC = gross cost of the asset including the influence of a key cost driver
GCEXC = gross cost of the asset excluding the influence of a key cost driver
Quantity = corresponding quantity of the asset
Unit Rate = the rate derived for the asset group or sub-group (Section 6.4).
The adjustment factor should be applied to individual assets at the time of

calculating the Gross Replacement Cost (Section 7).
44
6.5.2 If scheme costs are not recorded in a manner to allow easy identification of the
influence of different key cost drivers then engineering judgement and/or
advice from a Quantity Surveyor may be used to apportion the costs.
45
Section 7
Gross Replacement Cost
7.1 GENERAL
7.1.1 The objective of the Gross Replacement Cost (GRC) is to provide a true and
fair estimate of the current cost of replacing an asset using a standardised
procedure. The replacement asset should have a Potential Performance
broadly similar to the existing asset, but take account of up-to-date technology,
i.e. a Modern Equivalent Asset (Section 4.7), except for assets classified as
heritage assets (Section 4.11).
GROSS REPLACEMENT COST
Develop Gross
Calculate Gross
Replacement Cost
Replacement Cost
model
(Section 7.3)
(Section 7.2)
7.1.2 A GRC model should be developed for each asset type, group or sub-group as
appropriate. The GRC models are then applied to individual assets and
aggregated to evaluate the total GRC for the highway infrastructure using a
bottom up approach.
7.2 GROSS REPLACEMENT COST MODEL
7.2.1 The format of the GRC model should be carefully selected for each asset type,
or group/sub-group where appropriate, based on an understanding of the key
cost drivers (Section 5.3) which influence the replacement cost for the asset.
46
Section 7 Gross Replacement Cost
7.2.2 Individual assets within an asset group or sub-group are broadly similar in
terms of their functionality, composition and the key cost drivers that influence
them. In general, it may therefore be adequate to base the GRC model on one
or two key dimensional parameters of the asset or its constituent components,
which have the dominant influence on the overall cost of the asset. For
example, the road asset contains a range of constituent components (Table
5.1) but the GRC may be modelled in terms of the road area, pavement type
and associated Unit Rate.
7.2.3 Given the above, the GRC model typically includes appropriate dimensional
data, the Unit Rate for the asset group or sub-group and relevant adjustment
factors e.g.
GRC = f(asset dimensions, group/sub-group Unit Rate, relevant adjustment

factors)
Equation 4
7.2.4 Where the replacement cost cannot be accurately modelled in terms of one or
two key dimensions, it may be appropriate to divide an asset into major
component parts and develop a GRC model for each part. The replacement
costs of individual parts can then be aggregated to produce the overall GRC
for the asset. For example, the GRC for a bridge could be evaluated as a
summation of the GRCs for deck, sub-structure and foundation.
7.2.5 Guidance on the development of a GRC model for each asset type is provided
in Sections 12 to 17.
7.3 CALCULATING GROSS REPLACEMENT COST
7.3.1 The GRC reported in an authoritys Balance Sheet may consist of one entry for
the whole highway infrastructure class, or possibly one entry for each asset
type (Section 5.4). These GRCs are built up from the GRC of each individual
asset, or where appropriate the component parts.
7.3.2 In order to calculate the GRC, it is necessary to hold relevant dimensional data
against each individual asset in the asset inventory (Section 5.6) and
additionally relevant attributes to enable the choice of appropriate Unit Rates
and adjustment factors.
7.3.3 The GRC calculation should become a largely automated procedure once the
GRC models are implemented into a computerised Asset Management System
or Asset Valuation System.
7.4 SENSITIVITY ANALYSIS AND VERIFICATION
Sensitivity Analysis
7.4.1 Where possible, the sensitivity of Unit Rates and GRC models should be
analysed. The analysis should investigate the influence of key cost drivers and
the required refinement of the GRC. Sensitivity analysis should also be carried
out to assess other parts of the asset valuation procedure, for example, asset
service life and degree of refinement used for Level 3 components (Table 5.1).
47
Verification
7.4.2 The accuracy of derived Unit Rates and the output from GRC models should
be verified against an independent sample of data. Authorities should define
the degree of accuracy expected in the verification process. The following
tolerances are suggested:
1. Calculated value of no more than 50% of the independent sample falls

outside 10% of the actual value.
2. Calculated value of no more than 10% of the independent sample falls

outside 25% of the actual value.
48
Section 8
Depreciation
8.1 GENERAL
DEPRECIATION
Adopt Determine Calculate

Conventional Classify assets &
service lives & depreciation
Method components
depreciation charge
(Section 8.2) (Paragraph 8.2.2)
Determine AMP Calculate

Adopt Renewals Determine actual
funding depreciation
Accounting expenditure
requirements charge
(Section 8.3) (Paragraph 8.3.9)
Definition
8.1.1 Depreciation is defined as the systematic consumption of the economic

benefits embodied in an asset over its service life arising from use, ageing,
deterioration or obsolescence (although it is recognised that obsolescence may
not be relevant for some highway asset types). Two different approaches can
be used to depreciate highway infrastructure assets, the Conventional Method
and Renewals Accounting.
8.1.2 The Conventional Method is used to depreciate individual assets or

components over their service life, normally using straight line depreciation.
8.1.3 Renewals Accounting is used to depreciate groups of assets, e.g. the

infrastructure network. The depreciation charge under Renewals Accounting is
defined as the level of annual expenditure required to maintain the
infrastructure network at a specified Level of Service, where the Level of
Service is assessed through Performance Measures.
Objective
8.1.4 The objective of depreciation is to reflect the amount of economic benefits

consumed in a period, i.e. in one financial year, and to allocate the depreciable
amount of an asset over its service life using a systematic approach.
8.1.5 Depreciation should be charged even if the asset has risen in value or been
re-valued.
Methodology
8.1.6 It is recommended that the two depreciation methods defined above are
applied to highway infrastructure assets as follows:
Conventional Method (Section 8.2) applied to highway lighting, street

furniture, off-highway drainage, traffic management systems and land.
49
Renewals Accounting (Section 8.3) applied to roads, segregated

footpaths and cycle routes, and structures.
8.1.7 The following sections explain why the asset types were classified as above
and describe the two depreciation methods.
8.2 CONVENTIONAL METHOD
8.2.1 The Conventional Method should be used for asset types which do not qualify
for the use of the Renewals Accounting method, or if appropriate Performance
Measures are not available to monitor their performance at the asset type or
group level. This method is most appropriate where individual
assets/components have readily identifiable service lives and are routinely
replaced at the end of their life, for example lighting columns. In this approach
each individual asset, or its components, is treated separately for calculating
depreciation.
Classify Assets and Components
8.2.2 The asset, or components of the asset, should be classified into one of three
types finite life, indefinite life and variable life, where these are defined as:
1. Finite Life an asset/component that has a definable finite service life

and needs to be replaced at the end of its life, e.g. lighting column. Finite
life assets/components are depreciated over their service life on a
systematic basis. Straight line depreciation is recommended; see the
section on Service Lives and Depreciation below.
2. Indefinite Life an asset/component that has a remaining service life of

greater than 50 years, an example may be a pumping station building. No
depreciation charge is made, on the grounds that it would be immaterial,
but the asset/component is regularly checked for impairment using
appropriate condition and performance data [Ref. 8]. Section 9 provides
guidance on calculating impairment.
3. Variable Life an asset/component that in some cases may need to be

replaced or upgraded based on economic and/or functional
considerations, e.g. speed bumps. It is recommended that a variable life
asset/component is treated as a finite life asset/component if its
remaining life is assessed to be less than 50 years, and as an indefinite
life asset/component if its remaining life is assessed to be greater than
50 years. The remaining life could be estimated either by engineering
judgement or, preferably, through a whole life cost analysis.
8.2.3 The level of refinement used to divide an asset into its components should be
chosen on grounds of materiality and should broadly align with that appropriate
for Asset Management. A greater level of refinement should not be used solely
for asset valuation purposes.
Service Lives & Depreciation Profile
8.2.4 Finite life assets/components require realistic service lives to be established

and appropriate depreciation profiles applied. The service lives of finite life
assets should be based on one, or more, of the following:
1. historical data from the authority or similar authorities;
50
Section 8 Depreciation
2. technical reports and manufacturers data; or
3. engineering judgement.
8.2.5 It is recommended that depreciation of finite life assets is calculated using the
straight line method shown in Figure 8.1.
8.2.6 It is recognised that straight line depreciation may not be an accurate

representation of the consumption of economic benefits for some asset types,
in these circumstances authorities may use alternative profiles provided they
meet the requirements of FRS 15 [8]. In doing so it is important to be aware
that the rate of depreciation should reflect the consumption of economic
benefits or loss in Level of Service, and not the rate of physical deterioration.
Some highway assets have faster rates of deterioration towards the end of their
service life. FRS 15 [8] states that the method chosen should result in a
depreciation charge throughout the assets life and not just towards the end of
its service life. Also, where the pattern of consumption of an assets economic
benefits are uncertain a straight line method of deprecation should be adopted.
Service Life (yrs), SL

Gross
Replacement
Cost, GRC
DRC
Age (yrs), A
Zero
Residual TIME
Value
Time of End of
installation or Service Life
replacement (replacement)
Figure 8.1 Straight Line Depreciation of Finite Life Asset
8.2.7 Based on the straight line depreciation profile shown in Figure 8.1 the DRC, at
a given time in the assets life, is evaluated as:
) SL % A /
DRC t & GRC ' * 0 but not less than 0
+ SL 1
Equation 5
Where DRCt = Depreciated Replacement Cost at time t ()
SL = asset or component service life (years)
A = current age of the asset or component (years)
51
8.2.8 If the asset has a residual value, RV, this should be taken into account in the
depreciation profile, see Figure 8.2, and the DRC at a given time should be
evaluated as:
Service Life (yrs), SL

GRC
Age (yrs), A
DRC
Residual
Value, RV
0 TIME
Time of End of
installation Service Life
Figure 8.2 Straight Line Depreciation and Residual Value
8.2.9 The remaining service life of an asset should be periodically reviewed, as a

minimum at each benchmark valuation (Section 2.3), but also when new
information becomes available that suggests a different service life is more
appropriate. The remaining service life should be revised if the review, or new
information, identifies any significant difference compared to the previous
estimate. The remaining service life may have changed as a result of
deterioration in condition, or the need to replace or upgrade the asset for
economic or other reasons. The depreciation profile should be amended using
one of the following approaches to reflect the revised service life:
1. An amended rate of depreciation over the revised remaining service life,

see Figure 8.3 for an accelerated rate of depreciation. (NB: a reduced rate
of depreciation would be applied if the revised service life was greater
than the previous estimate).
2. A one-off impairment charge applied at the time of the new information,

see Figure 8.3. Section 9 describes how to calculate impairment.
Depreciation in the subsequent period can continue at the original
depreciation rate until the end of revised service life.
52
Initial Service Life
Revised Service Life

GRC
Initial rate of depreciation

DRC
Impairment
Accelerated depreciation
0 TIME
Time of New End of revised End of initial
installation information service life service life
Figure 8.3 Treatment of reduction in remaining service life
Depreciation Charge
8.2.10 The in-year and accumulated depreciation charge for an individual finite life
asset or component after t years in service are evaluated as shown below.
In-year depreciation charge = DRCt-1 - DRCt
Equation 7a
t
Accumulated deprecation charge after t years = ( "DRC
i &1
i % DRC i %1 #
Equation 7b
Where DRCt-1 = the DRC at the start of the current financial year
DRCt = the DRC at the end of the current financial year
8.2.11 The total in-year depreciation charge for the finite life assets is the summation
of the individual in-year depreciations.
8.3 RENEWALS ACCOUNTING
8.3.1 Renewals Accounting may be used to estimate depreciation in the following

circumstances:
1. The infrastructure asset is a system or network that, as a whole, is

intended to be maintained at a specified Level of Service by the
continuing replacement and refurbishment of its components; and
2. The level of annual expenditure required to maintain the Level of Service

of the infrastructure asset is calculated from an Asset Management Plan
that is certified by a person who is appropriately qualified; and
53
3. The system or network is in a mature or steady state (although Renewals

Accounting can still be used if the network is in an improving,
deteriorating or marginal state, provided the depreciation charge is
correctly applied and the Levels of Service are appropriately monitored
through Performance Measures).
8.3.2 Under Renewals Accounting the level of annual expenditure required to

maintain the Level of Service of the highway infrastructure, as identified in the
Highway Asset Management Plan (AMP), is treated as the depreciation charge.
The estimated annual expenditure from the AMP is deducted from the current
value of the asset while the actual expenditure is capitalised as incurred.
Therefore, provided the expenditure estimated in the AMP is spent as planned,
there will be no change in the Net Book Value.
8.3.3 Renewals Accounting requires all definable major assets or components with
identifiable finite lives to be treated separately for depreciation using the
Conventional Method. Special Structures (Section 4.10) are excluded from
Renewals Accounting because the Conventional Method is regarded to be
more representative of the specific management plans normally developed for
these structures.
AMP Funding Requirements
8.3.4 To support Renewals Accounting the AMP should identify the work volumes
and associated funding at asset type and asset group level and clearly
distinguish between:
1. The level of funding required to maintain the current Level of Service;

and
2. The level of funding required for improving the Level of Service to meet
specified targets in the AMP.
8.3.5 The above distinction is required because the in-year depreciation charge
under Renewals Accounting is calculated as the estimated annual expenditure
required for maintaining the current Level of Service of the asset type/group,
as assessed through Performance Measures.
8.3.6 An AMP provides the work volumes and phasing that an authority plans to
undertake in order to maintain, or improve, the highway infrastructure and
many of the work items may not be linked to a specific year. The annual AMP
funding requirements, and hence the depreciation charge, should therefore be
estimated as:
Total AMP Funding Required

Annual AMP Funding Requirement =
AMP Time Period
Depreciation Charge = Annual AMP Funding Requirement
Equation 8
Where the Total AMP Funding Required refers to the funding required to
maintain the current Level of Service and the AMP Time Period is the number
of years the AMP covers, normally 5 or 10 years.
54
8.3.7 All work types that are required to maintain the Level of Service of the network,
should be identified in the AMP, e.g. reactive, programmed and routine. The
roads and structures Codes of Practice [Ref. 2 & 3] should be consulted for the
appropriate classification of work types.
8.3.8 Good Asset Management practice requires an authority to assess the service
lives, replacement cycles, inspection and maintenance needs of all assets,
normally at the group and/or component level shown in Table 5.1. Renewals
Accounting is therefore based on a similar level of detail and knowledge to the
Conventional Method, although under Renewals Accounting such data is not
explicitly required for valuation purposes.
Actual Expenditure
8.3.9 The actual annual expenditure is capitalised (as part of the cost of the asset) as
incurred. Actual expenditure should be tracked and recorded at a level that
supports Asset Management. This level of detail should be adequate for
Renewals Accounting, however authorities should ensure that the expenditure
considered is admissible for asset valuation (Section 4.4).
Depreciation Charge
8.3.10 The net change in asset value (Net Book Value) under Renewals Accounting
can be calculated as:
Change in Asset Value = Depreciation Charge based on AMP requirement

Actual annual expenditure on maintenance
Equation 9
8.3.11 Provided the Levels of Service are maintained, as assessed through the
Performance Measures, then if the actual annual expenditure is equal to the
depreciation charge there will be no change in asset value (Net Book Value).
However, if the actual annual expenditure is less than the depreciation charge
then the asset value, Net Book Value, decreases. Additional expenditure
incurred in improving the Level of Service above the current Level of Service
should be treated as an enhancement of the asset base and will result in an
increase in the DRC, and may also result in an increase to the GRC. Appendix
C provides an example of applying depreciation under Renewals Accounting.
8.3.12 Renewals Accounting also requires appropriate Performance Measures (e.g.

BVPIs and PIs) that are based on competent and reliable inspection of the
assets to demonstrate that the highway network as a whole is maintained at a
specified Level of Service. If the Level of Service, as assessed through the
Performance Measures, of the infrastructure asset drops in any year/period it is
treated as impairment (Section 9) of the asset base.
55
8.4 RECOMMENDED APPROACH
8.4.1 The Renewals Accounting method is proposed for estimating depreciation for
roads, segregated footpaths and cycle routes, and structures, as these assets
are typically maintained in perpetuity and meet the three requirements in
paragraph 8.3.1. However, it is recognised that some authorities are in the
process of developing AMPs and may therefore require an interim solution to
estimate depreciation. Modified Renewals Accounting provides an alternative
approach for estimating depreciation and should be used as an interim
solution pending the development of AMPs (see below).
8.4.2 Lighting assets, street furniture and traffic management systems typically
have finite lives and are replaced at the end of their service life. These assets
should be treated separately and depreciated using the Conventional Method.
Off-highway drainage assets should also be treated using the Conventional
Method as they do not form an integral part of the highway, and appropriate
Performance Measures are currently not available to monitor their
performance at a group level.
Modified Renewals Accounting
8.4.3 Modified Renewals Accounting is specific to some infrastructure organisations

and is an exception to the standard interpretation of Renewals Accounting.
This method is recognised by the Treasury Resource Accounting Manual
[Ref. 10], however it is not recognised by SORP [Ref. 7] or FRS 15 [Ref. 8].
8.4.4 In this approach the infrastructure asset is treated as a system or network

that as a whole is intended to be maintained at a specified Level of Service by
the continuing maintenance, replacement and refurbishment of its components.
The Level of Service of highway assets can be assessed through appropriate
Performance Measures.
8.4.5 Following initial valuation, the Level of Service and DRC of the asset is
established. If the Level of Service is maintained (within defined limits) in steady
state over a year, the actual maintenance and renewal expenditure is treated
as a proxy for depreciation but is not deducted from the asset value. If the
Level of Service drops in a year, it is recognised as an impairment of the asset
base (Section 9). The Level of Service is assessed through Performance
Measures.
56
Section 9
Impairment
9.1 GENERAL
Definition
9.1.1 Impairment is a reduction in Net Asset Value due to a sudden or unforeseen

decrease in the condition and/or performance of an asset compared to the
previously assessed level that has not already been accounted for through
depreciation. Examples of impairment include damage of highway assets due
to natural phenomenon such as flooding or landslide.
IMPAIRMENT
Assess for Calculate

Impairment Impairment
Objective
9.1.2 When the Level of Service of an asset drops below the previously assessed
level (outside defined limits), impairment should be recognised and the asset
value reduced accordingly. The Level of Service may be assessed individually
or at the asset type or group level through appropriate Performance Measures
or performance/condition surveys.
9.1.3 Impairment is considered as a consumption of the asset and is taken as a cost.
9.1.4 When the Level of Service (or performance) of an asset rises above the
previously assessed level (as a result of maintenance works) it should be
recognised as impairment reversal, revaluation gain or fixed asset formation,
depending on the reason, and the expenditure treated according to established
capitalisation principles [Ref. 7].
Methodology
9.1.5 The approach used for assessing for impairment should align with the
approach adopted for applying depreciation, i.e.:
1. Conventional Method impairment is assessed on individual assets.

This method is applied for lighting assets, street furniture and traffic
management systems.
2. Renewals Accounting the highway infrastructure is treated as a single

asset and Performance Measures are used to assess impairment at the
asset type or asset group level. This method is applied for roads,
segregated footpaths and cycle routes, and structures assets.
57
9.1.6 Although the impairment is assessed at different levels between the two
methods, impairment is calculated using a bottom-up approach on individual
assets in both the methods. The two methods are therefore discussed
concurrently in the following.
9.2 ASSESSING FOR IMPAIRMENT
Frequency of Assessment
9.2.1 Provided highway assets are adequately maintained and depreciated in an

appropriate manner (Section 8), then they are unlikely to become materially
impaired unless events or changes in circumstances cause a sudden and
unforeseen reduction in the performance.
9.2.2 Finite life assets/components which are treated using the Conventional Method
are depreciated on a systematic basis through their service life. The service
lives of these assets should be assessed, and revised if necessary, at the time
of each benchmark valuation or when new information becomes available
which suggests a revision of service lives. A reduction in the remaining service
life of an asset/component could be treated using accelerated depreciation as
discussed in paragraph 8.2.9, or alternatively impairment is calculated as
discussed in paragraph 9.3.3.
9.2.3 Indefinite life assets/components treated using the Conventional Method

should be assessed for impairment as part of a benchmark valuation or when
there are indications of impairment (discussed below).
9.2.4 Assets treated using the Renewals Accounting method should be assessed for
impairment annually at the asset type or asset group level using appropriate
Performance Measures.
9.2.5 When impairment occurs, the adjustment in asset value and recognition of
impairment should take place immediately.
Indications of Impairment
9.2.6 Appropriate indications of impairment should be established for each asset

type and asset group, and consistently used to monitor for impairment.
9.2.7 Sections 12 to 17 provide suggestions on appropriate Performance Measures

that can be used to monitor for impairment. Some examples include:
1. An appropriate pavement BVPI may be used as a proxy for the entire

road asset at the asset group level.
2. The Condition PI (also know as the Bridge Condition Indicator) may be

used for highway structures at the asset group level.
3. Data from a condition survey on an individual lighting column may be

suitable for assessing for impairment.
9.2.8 Impairment should be recognised when the asset condition and/or

performance exceeds acceptable limits (see paragraph 9.2.12).
58
Section 9 Impairment
9.2.9 When assessing for impairment, it is important to distinguish between the

Current Performance provided by an asset, the Potential Performance the asset
can be expected to provide in an as-new condition and the Required
Performance placed on the asset. Depending on the situation the impairment
should be considered as below:
1. If the Current Performance provided by an asset is below its Potential

Performance (and this has not been previously recognised through
depreciation or impairment), then the asset value should be impaired.
2. If the Required Performance is greater than the Potential Performance of

an existing asset (i.e. the asset is functionally obsolete), this is not
considered as an impairment of the asset. Instead, the required
enhancement is identified in the AMP and the GRC and DRC are
amended accordingly after the enhancement takes place (see examples
in Appendix A).
9.2.10 The above two cases do not consider the possibility of the Potential
Performance being greater than the Required Performance. Whilst a valid
consideration for many non-highway assets, e.g. plant and machinery, this is
not considered to be relevant for the majority of highway assets.
9.2.11 Appendix A provides examples for roads, structures and street lighting and
discusses the relationship between the Required Performance and Potential
Performance. The examples include scenarios where impairment should and
should not be recognised.
Acceptable Limits
9.2.12 It is likely that Performance Measures will show some fluctuation each year but
these could be ignored on grounds of materiality if they do not exceed defined
limits. It is proposed that impairment is recognised based on the following
limits:
1. In-year change should not exceed 2.5 points on a scale of 0 to 100.
2. Five year change should not exceed 5 points on a scale of 0 to 100.
9.2.13 These limits represent a provisional suggestion and have not been tested. The
suitability of these limits should be tested using sensitivity studies to identify
limits that provide a materially correct valuation for each asset type. Any
sensitivity studies should be fully documented.
9.3 CALCULATING IMPAIRMENT
9.3.1 The approach used for calculating impairment should be established and
consistently applied. After an approach is established, if it is identified that a
change in the approach would provide a fairer valuation, then this should be
applied at the next benchmark valuation and described in the Valuation Report.
9.3.2 The approach recommended below is based on the typical maintenance and
management practices used for different highway assets. The approach is
described under the following headings:
1. Finite Life Assets and Components (under the Conventional Method).
59
2. All other assets and components (indefinite life assets under the
Conventional Method and all assets treated using the Renewals
Accounting Method) sub-divided into two categories:
a. Condition Based Maintenance where condition or performance

data can be used to estimate the consumption of the asset and the
maintenance expenditure required to restore it to the as new
condition.
b. Time Based Maintenance where the asset consumption is more

appropriately reflected by the age of the asset than condition, for
example, a bridge bearing is replaced at the end of its service life.
Finite Life Assets and Components
9.3.3 A reduction in remaining service life of a finite life asset/component, based on

new information, is normally treated under the Conventional Approach using
accelerated depreciation as described in paragraph 8.2.9. However, if an
authority wishes to recognise the full decrease in asset value at the time the
new information becomes available, then impairment should be applied (also
discussed in paragraph 8.2.9). Impairment should be calculated using the
equation below.
) SL % SLR /
Impairment & GRC ' ** I 00
+ SLI 1
Equation 10
Where SLI = the initial service life of the asset (yrs)
SLR = the revised service life of the asset (yrs)
All other Asset Types and Components
9.3.4 The impairment, for individual assets or asset types/groups, should be

estimated as the full cost of the work (maintenance, repair, renewal etc.)
required to restore the asset(s) to the previously assessed level of
condition/performance, see Figure 9.1:
1. At time t1 the asset(s) has a Depreciated Replacement Cost, DRC(t1).
2. Between time t1 and t2 there was no change in asset value, i.e. the Net
Book Value remained the same.
3. At time t2 the Performance Measures identified impairment; this was

recognised to give the revised DRC (t2).
60
GRC
Cost to restore Cost to restore
at time t1 at time t2
DRC(t1)
Impairment
DRC(t2)
TIME
t1 t2
Figure 9.1 Calculating Impairment
9.3.5 The impairment is the difference between DRC(t1) and DRC(t2) as shown in
Figure 9.1. It would generally be difficult to evaluate directly the work required
to bring the asset(s) back to their condition/performance at the time t1. Instead,
it is more convenient to calculate the cost of the work required to restore an
asset to the as new condition. The impairment should be calculated using the
full cost of restoration at time t2 minus the cost of restoration at time t1
as below.
Impairment = (cost to restore at time t2) (cost to restore at time t1)
Equation 11
9.3.6 Impairment should be calculated on individual assets, although this may be

simplified in some cases by grouping together assets in similar condition with
similar maintenance needs and applying generic maintenance unit rates.
Condition Based Maintenance
9.3.7 The value of the maintenance work is evaluated directly based on the condition
or performance data for the individual assets or components. The effort
involved in this task can be greatly reduced if rule sets are defined that link
generic maintenance types and average maintenance costs to typical defect
types and/or condition ratings/indices.
9.3.8 Examples of condition based assets/components include pavement,

earthworks, footways, bridge beams/abutments/foundations, retaining walls,
culverts etc.
Time Based Maintenance
9.3.9 The economic consumption of some assets/components (e.g. bridge bearings)

is more appropriately reflected by age than condition or performance. In this
case the DRC(t) at time t and impairment between periods t1 and t2 are
calculated as below:
61
[
DRC(t) = GRC ( )]
SL t
SL
Equation 12(a)
[
Impairment (t1, t2) = GRC ( )]
t 2 t1
SL
Equation 12(b)
where SL = estimated service life
9.3.10 The calculation may be simplified by categorising assets/components into

bands based on their age and evaluating the proportion of the assets in each
band. Figure 9.2 shows how assets/components may be assigned to five age
bands, where:
1. Network A age of assets/components are spread evenly across the

bands.
2. Network B greater proportion of assets/components are of older age.
3. Network C greater proportion of assets/components are of younger age.
20% 20% 20% 20% 20%
Network
A
30%
26%
20%
14%
Network 10%
B
30%
26%
20%
Network
14%
C 10%
05 yrs 510 yrs 1015 yrs 1520 yrs 2025 yrs
Asset Age Bands
Figure 9.2 Grouping of assets by age bands
9.3.11 The DRC for the whole asset group can be evaluated as shown in the equation
below based on the proportion of assets in each age band.
62
k
GRC
DRC %
SL
& ( "RL
i %1
i & p Bi #
Equation 13
Where SL = estimated average service life
RLi = average remaining life for the band i
pBi = proportion of assets in band i
k = number of age bands
Simplified Approach
9.3.12 As a simplification of the aforementioned condition and time-based

maintenance approaches (paragraphs 9.3.7 and 9.3.9 respectively) the
impairment for some asset types may be calculated using a standardised
relationship between a Performance Measure and a Restoration Cost Factor as
illustrated in Figure 9.3. In this case the Restoration Cost is evaluated as
Restoration Cost = GRC & Restoration Cost Factor
Equation 14
Best
Performance
Measure
Worst
0 Restoration Cost Factor 1.0
Figure 9.3 Performance Measure and Restoration Cost Factor
9.3.13 Relationships between Performance Measure and Restoration Cost Factor are
not provided in this guidance document and should be developed by
authorities, should they wish to use this approach for some
assets/components.
63
Section 10
Depreciated Replacement Cost
10.1 GENERAL
DEPRECIATED REPLACEMENT COST

Determine Calculate annual
Calculate
condition & adjustments
initial DRC
performance to DRC
(Section 10.3)
10.1.1 The Depreciated Replacement Cost (DRC) is the Gross Replacement Cost
(GRC) appropriately reduced to reflect the current age, condition and
performance of the asset. In this Guidance Document DRC is also referred to
as the Net Book Value, Net Asset Value and Asset Value. The DRC can be
defined as:
DRC = GRC Accumulated Depreciation and Impairment
Equation 15
10.1.2 It is normal for the DRC of highway infrastructure assets to be less than the
GRC. This is due to systematic consumption of finite life assets and the
inevitable ageing and deterioration of other assets that causes their current
condition to be below the as new condition. If an asset valuation regime is in
place from the time of original construction, or installation, of the asset then the
accumulated depreciation and impairment are built up over time through the
recognition of annual (in-year) depreciation and impairment. However, such a
regime has hitherto not been required for Local Highway Authorities. Therefore,
on the introduction of asset valuation authorities need to establish the initial
DRC (Net Book Value), and in subsequent years calculate the in-year
depreciation and impairment.
10.2 CONDITION AND PERFORMANCE
10.2.1 To calculate the initial DRC it is necessary to know the current condition and
performance of highway infrastructure assets. The condition and performance
data are used to assess the cost of work required to restore the assets to the
full performance or as new condition (Section 10.3).
10.2.2 Knowledge of the current condition and performance of highway assets is an

essential requirement of Asset Management [Ref. 1]. The condition and
performance data compiled for Asset Management should be adequate for
calculating the DRC, but it is essential that the data covers all the asset types
included in asset valuation.
64
Section 10 Depreciated Replacement Cost
10.3 CALCULATE INITIAL DRC
10.3.1 The approaches described for assessing depreciation and impairment should
be used to evaluate the DRC on the introduction of the asset valuation regime.
The initial DRC should be evaluated as follows:
1. Finite life assets/components (identified from the Conventional Method)

the straight line depreciation method (Figure 8.2 in Section 8.2) should be
used to evaluate the current DRC of each individual asset, e.g. lighting
columns.
2. All other assets/components (indefinite life assets treated using the

Conventional Method and all assets treated using the Renewals
Accounting Method) these should be divided into two types to evaluate
the DRC:
a. Condition based maintenance (paragraph 9.3.7) where condition

or performance data can be used to estimate the consumption of
the asset and the maintenance expenditure required to restore it to
as new condition, e.g. pavement and the majority of structures
assets/components. The DRC is then equal to the GRC minus the
cost of the condition based maintenance.
b. Time based maintenance (paragraph 9.3.9) where the asset

consumption is more appropriately reflected by the age of the asset
than condition, e.g. bridge bearings and expansion joints. The DRC
is based on the ratio of the remaining life (RL) to service life (SL), i.e.
DRC = (RL/SL) x GRC. This approach is the same as that used to
recognise the initial DRC for finite life components, however
subsequent depreciation and impairment of time based
maintenance elements is recognised through the AMP under
Renewals Accounting.
10.3.2 A worked example on the calculation of the initial DRC, on a hypothetical

network, is provided in Appendix B.
10.3.3 On the introduction of asset valuation an authority should establish how the
change from historical cost, as required by the SORP [Ref. 7], to DRC should
be treated in the Statement of Accounts.
65
10.4 ANNUAL ADJUSTMENTS TO DRC
10.4.1 After the initial DRC has been evaluated it forms the basis for applying
subsequent in-year depreciation and impairment as follows:
Conventional Method (for individual assets)
DRCt = DRCt-1 + (in-year admissible capitalised expenditure)

- (in-year depreciation) (in-year impairment)
Equation 16a
Renewals Accounting (for asset type or asset group)
DRCt = DRCt-1 + (in-year expenditure)

(annual AMP Estimate) (in-year impairment)
Equation 16b
Modified Renewals Accounting (for asset type or asset group)
DRCt = DRCt-1 (in year impairment)

Equation 16c
Where DRCt = represents the closing NBV for the financial year
DRCt-1 = represents the opening NBV for the financial year
in-year = occurs in the financial year
10.4.2 The DRC should be re-evaluated at each benchmark valuation (Section 2.3)
rather than continuing with the application of annual adjustments to the
original DRC over a longer period.
66
Section 11
Asset Preservation Measures and
Valuation Report
11.1 Asset Preservation Measures
11.1.1 The following three measures are provided for monitoring the preservation of
assets over time:
Accumulated Asset Consumption (AAC) measures the proportion of

the gross asset value that has been consumed to date;
In-year Asset Consumption (IAC) measures the proportion of asset

value consumed during the accounting period;
In-year Asset Renewal (IAR) measures the proportion of asset value

restored/renewed during the accounting period.
11.1.2 Authorities are recommended to calculate these three measures annually and
include them in the Valuation Report.
Accumulated Asset Consumption (AAC)
11.1.3 This should be evaluated as:
Accumulated Asset Consumption = )*1 $ DRC ,- & 100 expressed as a %

+ GRC .
Equation 17
11.1.4 The Accumulated Asset Consumption should be monitored over time and
presented in the Valuation Report. In-year change in the measure is unlikely to
appear significant on this scale, but the time dependent plot should enable an
authority to assess the trend over time, i.e. is the measure increasing,
decreasing or is the asset base being preserved at a constant level (see the
example in Appendix C).
11.1.5 In the future it may be useful to determine the optimum value for the
Accumulated Asset Consumption measure based on the optimum amount of
maintenance, renewal and enhancement work identified in an Asset
Management Plan. This would require quantifying the impact of the work
proposed in the AMP on the asset value of the highway infrastructure asset.
11.1.6 The actual Accumulated Asset Consumption and the optimum value implied by
an AMP can then be plotted on a graph, as shown in Figure 11.1, to illustrate
the gap. Also, it can be argued that the value of work required to bridge this
gap is the current maintenance backlog.
67
Optimum Accumulated Asset Consumption value
Possible AAC
Measure
profiles
(%)
Time
Figure 11.1 Accumulated Asset Consumption Measure
In-year Asset Consumption (IAC)
11.1.7 The In-year Asset Consumption measure should be evaluated as:
In-year Asset Consumption = [( In - year Depreciation & Impairment

DRC ) ]
100
Equation18
Equation 18
In-year Asset Renewal (IAR)
11.1.8 The In-year Asset Renewal should be evaluated as:
In-year Asset Renewal =

[( In - year Maintenance and Renewal Expenditure
DRC
100 ) ]
Equation 19
Equation 19
11.1.9 The IAC and IAR measures should be presented on the same time dependent
plot. If the IAR is less than the IAC this indicates a shortfall in maintenance
expenditure, depreciation in asset value and an increasing maintenance
backlog. For example, Figure 11.2 schematically shows the difference between
the two measures to be gradually increasing because maintenance is under
funded.
68
Section 11 Asset Preservation Measures and Valuation Report
Increasing due to short fall in funding, In-year Asset

therefore increasing backlog Consumption
(IAC)
Measure In-year Asset

Renewal (IAR)
Annual expenditure below needs
Time
Figure 11.2 In-year Asset Consumption and Renewal Measures
11.2 VALUATION REPORT
11.2.1 The Valuation Report should be a stand alone document that presents the
results of valuation with supporting information. The Valuation Report should
act as the key supporting document to the highway infrastructure asset
values reported in the Balance Sheet. It is recommended that the Valuation
Report is produced annually.
11.2.2 The Valuation Report should include, as a minimum:
1. A summary of the valuation procedure and principles (with appropriate

references to this Guidance Document and the SORP).
2. Assumptions made in producing the asset values and an indication of the

accuracy or confidence in the valuation numbers.
3. The number/quantity of highway assets included in asset valuation,

subdivided by type, group and sub-group, and presented in a tabular or
graphical format. Explanation should be provided for any highway assets
excluded.
4. A summary of in-year movements to the asset stock additions and

deletions.
5. A summary of the standardised Unit Rates and service lives used in asset
valuation.
6. A summary of current Levels of Service and the associated Performance

Measures by asset type and group. This may include a description of
current and desired Levels of Service [Ref. 1].
7. The GRC, DRC, depreciation and impairment values by asset type and
group, presented in a tabular format. Including identification and
explanation of any significant changes compared to the previous
valuation.
8. Asset Preservation Measures including graphical plots of trends with

time, and where possible, a comparison of these against other similar
authorities.
69
Section 12
Roads
12.1 GENERAL
12.1.1 This section provides specific guidance on the valuation, depreciation and
impairment of roads and their associated assets/components. Reference
should also be made to the asset valuation examples for roads in Appendix A,
B and C.
12.2 ASSET COMPOSITION
12.2.1 The road asset consists of the following components (see Table 5.1):
Pavement (formation, road base, binder course, surface course)
Hard strip/shoulder
Footway/cycleway attached to road
Central reservation, roundabout, lay-by etc.
Markings
Kerbs
Earthworks (embankments and cuttings)
Vegetation
Drainage
Safety fences
Boundary fences and hedges (if managed as part of the highway

infrastructure).
12.2.2 The above list is not exhaustive and should be reviewed to identify any
additional components that make up the road asset and would result in a fairer
valuation. If additional components are identified they should be checked
against the other asset types (Table 5.1) to ensure they are not covered
elsewhere.
70
Section 12 Roads
12.3.1 The following factors are considered to have a significant influence on the
replacement cost of a road:
1. Pavement type rigid, flexible or composite.
2. Type of carriageway single or dual carriageways differ in terms of the

central reservation, kerbs and safety fences.
3. Road hierarchy influences the design specifications (construction form

and road layout), the materials used and traffic management costs.
4. Number of lanes this influences the width of the carriageway and may
therefore impact on the Unit Rate per m2 due to economies of scale in
construction.
5. Location the composition of the road asset may be different between

rural and urban areas, and the construction costs incurred are likely to
have a different composition, e.g. site access and traffic management.
6. Traffic Loading has an influence on the design and materials.
7. Earthworks the volume of earthworks required and the ground

conditions, e.g. embankments, cuttings, marshy or rocky ground
conditions.
8. Footway/cycleway whether or not the road has an attached footway

and/or cycleway.
9. Local Policies may influence the construction practices, e.g. recycling.
12.3.2 The above list is not comprehensive and authorities are advised to identify
other key cost drivers, relevant to their road asset, that have a significant
impact on replacement cost.
12.4 ASSET GROUPS, ASSET SUB-GROUPS AND ADJUSTMENT FACTORS
12.4.1 Suggested asset groups, sub-groups and adjustment factors are presented
below. Also refer to Sections 5.4 and 5.5 for generic guidance and the
distinction between the use of sub-groups and adjustment factors.
Asset Groups
12.4.2 The pavement type is the dominant cost driver for the majority of road assets.
It is recommended that the road asset is divided into the following asset
groups based on pavement type:
1. Flexible pavement
2. Flexible composite pavement
3. Rigid concrete pavement
4. Rigid composite pavement
71
12.4.3 The above four groups may not provide a sufficient degree of refinement for
deriving appropriate Unit Rates. If required the above groups should be further
divided into asset sub-groups.
Asset Sub-Groups
12.4.4 The key cost drivers should be used to identify the asset sub-groups. It is
suggested that the carriageway type and location are used to define the
following asset sub-groups within each asset group.
1. Urban single carriageway
2. Urban dual carriageway
3. Rural single carriageway
4. Rural dual carriageway
5. Rural single track
12.4.5 If suitable data is available, and if required, the above list of sub-groups may be
extended to take account of other key cost drivers, e.g. road hierarchy. It may
be more appropriate to account for some of the key cost drivers through
adjustment factors.
Adjustment Factors
12.4.6 Section 5.5 provides guidance on when to use sub-groups and adjustment
factors, and Section 6.5 provides guidance on deriving adjustment factors. The
influence of key cost drivers, which are not explicitly covered by groups/sub-
groups, on Unit Rates should be assessed and adjustment factors derived
where appropriate.
12.5.1 The road asset within a group or sub-group should be relatively homogeneous
in terms of its components. It is assumed that any local variations, not explicitly
accounted for through a group/sub-group or adjustment factor, are likely to be
averaged out over the asset stock. Based on this assumption, it is suggested
that the GRC of the road asset is estimated using a Unit Rate for each asset
group/sub-group, the associated dimensions of the carriageway and the
relevant adjustment factor as shown below.
Gross Replacement Cost of Road =

[Carriageway length (m) & Carriageway width (m)] & [Unit Rate (/m2) & ADF]
Equation 20
Where ADF = adjustment factor
72
Section 12 Roads
12.5.2 The asset inventory should hold the carriageway length and width, and other
required data (i.e. characteristics, features, attributes), against each road asset
to enable appropriate Unit Rate and adjustment factors to be applied and the
GRC calculated. Where there are two clearly defined carriageways (i.e. dual
carriageway) then the carriageway width is equal to the sum of the two
carriageway widths.
12.6 UNIT RATES
12.6.1 Given the format of the GRC model above, the Unit Rate should be evaluated
separately for each asset sub-group in terms of per m2 of the carriageway.
The Unit Rate is therefore a composite rate which combines the replacement
cost of all the relevant components listed under Section 12.2.
12.6.2 The derivation of Unit Rates should follow the general procedure given in
Section 6. In selecting the highway schemes for each asset group/sub-group,
care should be taken to ensure that the schemes provide a representative mix
of the different components, e.g. embankments, cuttings, safety fences and
footways, so the Unit Rates and adjustment factors represent average costs
for all assets within that sub-group. The Unit Rates for roads should be
evaluated as:
( "Admissible Costs#
i %1
i
Unit Rate % n
( "Carriageway length & width#

i %1
i
Equation 21
Where n = number of assets used to derive Unit Rate for this group/sub-
group
i = asset i for which cost and dimensional data are known
This equation should also be used to establish appropriate adjustment factors

(ADF), see Section 6.5.
12.7 DEPRECIATION, IMPAIRMENT AND DRC
Depreciation
12.7.1 The road asset should be assessed for depreciation using the Renewals
Accounting method, described in Section 8.3 (an example is provided in
Appendix C). Authorities who are in the process of developing an Asset
Management Plan may use Modified Renewals Accounting to estimate
depreciation in the interim period.
Impairment
12.7.2 The road asset should be assessed for impairment annually using appropriate
Performance Measures at asset type or group level.
73
12.7.3 It is not necessary for the Performance Measures to cover all components of
the road asset described in Section 12.2. Instead, a balanced set of
Performance Measures should be used that covers the majority of the road
asset. Performance Measures for roads are available [see Ref. 2] primarily for
the pavement component and since the pavement cost dominates the value of
the road it may be sufficient to use the pavement condition/performance as a
proxy for the entire road asset.
12.7.4 Impairment should be calculated as described in Section 9.3.
12.7.5 The DRC should be evaluated as described in Section 10.
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Section 13
Segregated Footpaths & Cycle Routes
13.1 GENERAL
impairment of segregated footpaths and cycle routes. Footpath and cycle route
assets are only included in highway infrastructure asset valuation where they
are maintained as part of the highway infrastructure asset, e.g. surfaced
PROW.
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13.2.1 Footpaths and cycle routes, for the purpose of asset valuation, are considered
to consist of the following components (see Table 5.1):
Binder course and surface course
Formation
Kerbs
13.2.2 The above list may be extended to provide more comprehensive coverage of
footpath and cycle route assets if this would result in a fairer asset value. The
list should only be extended if the available asset inventory (Section 5) and
construction scheme data (Section 6.2) support a more refined calculation of
Unit Rates, GRC and DRC.
13.3.1 The following factors are considered to have a significant influence on the
replacement cost of segregated footpaths and cycle routes:
1. Usage and footpath hierarchy
2. Construction form
3. Location and associated access
4. Earthworks
75
13.3.2 The above list should be reviewed to identify other key cost drivers relevant to
the footpath and cycle route network in an authority.
below. Also refer to Sections 5.4 and 5.5 for generic guidance on the
Asset Groups
13.4.2 It is suggested that footpaths and cycle routes are classified into the following
groups:
1. Footpath (including surfaced PROW)
2. Bridleway (including surfaced PROW)
3. Off road cycle routes
4. Pedestrian areas
Asset Sub-Groups
13.4.3 If there are considerable differences in the replacement Unit Rates between
assets in the footpath group, this may be divided into the following sub-groups
based on the widely recognised categories [Ref. 2]:
1. Category 1a Prestige Walking Zone
2. Category 1 Primary Walking Route
3. Category 2 Secondary Walking Route
4. Category 3 Link Footway
5. Category 4 Local Access Footway.
Adjustment Factors
13.4.4 Section 5.5 provides guidance on when to use sub-groups and adjustment
factors. The influence of key cost drivers which are not explicitly covered by
groups/sub-groups on Unit Rates should be assessed and adjustment factors
derived where appropriate.
13.5.1 The footpath/cycle route assets within a group or sub-group should be

relatively homogeneous in terms of its components. It is assumed that any
local variations not explicitly accounted for within a group/sub-group or
adjustment factors, are likely to average out over the asset stock. Based on
this assumption, it is suggested that the GRC is estimated using a Unit Rate for
each asset group/sub-group, the associated dimensions of the footpath/cycle
route and the relevant adjustment factor as shown below.
76
Section 13 Segregated Footpaths & Cycle Routes
Gross Replacement Cost =

[Footpath/cycle route length (m) % width (m)] % [Unit Rate (/m2) % ADF]
Equation 22
Where ADF = adjustment factor
width = width of paved/surfaced part of the footway/cycle route
13.5.2 The asset inventory should hold the footpath/cycle route length and width, and
other required data (i.e. characteristics, features, attributes), against each
footpath or cycle route asset to enable appropriate Unit Rate and adjustment
factors to be applied, and the GRC calculated. The other data enable the
appropriate Unit Rate and adjustment factors to be applied to the asset during
asset valuation.
13.6 UNIT RATES
13.6.1 Given the format of the GRC model above, the Unit Rate should be evaluated
separately for each asset group or sub-group in terms of per m2 of the
footpath/cycle route. The Unit Rate is therefore a composite rate which
combines the replacement cost of all the relevant components listed under
Section 13.2.
13.6.2 The derivation of Unit Rates should follow the general procedure given in
Section 6. The Unit Rates for footpath/cycle routes should be evaluated as:
& "Admissible Costs#

i$1
i
Unit Rate $ n
& "Footpath/cycle route length % width#

i $1
i
Equation 23
Where n = number of assets used to derive Unit Rate for this

group/sub-group
i = asset i for which cost and dimensional data are known
This equation should also be used to establish appropriate adjustment factors

(ADF), see Section 6.5.
Depreciation
13.7.1 The footpath/cycle route asset should be assessed for depreciation using the
Renewals Accounting method, described in Section 8.3. Authorities who are in
the process of developing an Asset Management Plan may use Modified
Renewals Accounting to estimate depreciation in the interim period.
77
Impairment
13.7.2 Footway/cycle route assets should be assessed for impairment annually using
appropriate Performance Measures at asset type or group level.
13.7.3 It is not necessary for the Performance Measures to cover all components of
the asset described in Section 13.2. Available footpath condition indicators are
considered to be appropriate for this purpose. Where appropriate condition
indicators are not available they should be established.
78
Section 14
Structures
14.1 GENERAL
impairment of the main structure types and their associated
assets/components, i.e. bridges, culverts, retaining walls and sign/signal
gantries. Other structure types listed in Table 5.1, but not explicitly covered
below, should be treated using a similar procedure to that described here.
Reference should also be made to the examples for structures provided in
Appendix A and B.
14.2.1 Highway structures should be categorised into groups as in Table 5.1. Although
structures are integral to the network performance they may be treated as
discrete assets for deriving the GRC as they are normally well delineated from
the highway network. The main components of each structure are well
identified for inspection purposes and the inspection pro-forma given in the
CSS Guidance Notes [Ref. 14 & 15] should be referred to for this purpose. In
particular, it should be noted that the surfacing on a bridge deck and approach
embankments are components of the road asset and not those of the bridge.
14.3.1 Definitions for the following assets are provided in the Code of Practice for
Highway Structures [3].
Bridges
14.3.2 The replacement cost of a bridge is influenced by the type of deck, abutment,
intermediate support and foundation.
79
1. Deck the deck cost is governed by the area of the deck and maximum
span of the bridge. Reinforced Concrete (RC) slab, pre-stressed concrete
beam and RC slab, and composite steel/RC slab deck forms are the
most commonly used modern construction forms (see Section 4.7 on
Modern Equivalent Assets); the choice being dictated by span and other
location specific factors. The Unit Rates between these construction
forms do not seem to vary significantly.
2. Abutment the cost of an abutment depends on whether it is a normal

full-height abutment or a bank-seat abutment.
3. Intermediate Support the cost of an intermediate support depends on

whether it is a pier or a column support, and in the case of the latter, the
cost is a function of the number of columns.
4. Foundation the foundation cost varies significantly for spread footings

and piled foundation and the associated ground conditions. The form of
the existing asset foundations may be used to inform the choice of the
Modern Equivalent Asset. If the current form of the foundation is
unknown, or if it is not piled or spread footing, then the form of the MEA
foundation should be chosen based on engineering judgement.
Culverts
14.3.3 The Unit Rate of culverts normally does not vary significantly between the
different shapes of culverts such as pipe, box or slab, and between different
construction forms such as corrugated steel, reinforced concrete or pre-cast
concrete. The key parameters influencing costs are span, height, depth of
ground cover, and ground conditions.
Retaining Walls
14.3.4 The Unit Rate of retaining wall per metre area is strongly influenced by the
structural form and retained height of the earth. Actual height is more
commonly recorded than retained height. The retained height may be
approximated by adding 0.6m to the actual height.
Sign/Signal Gantries
14.3.5 The cost of gantries varies significantly between cantilever and portal gantries.
The cost of portal gantries depends on the span, and to a lesser extent, on
column height.
below. Also refer to Sections 5.4 and 5.5 for the generic guidance and the
distinction between sub-groups and adjustment factors.
Asset Groups
14.4.2 Highway structures should be categorised into the following groups (see
Table 5.1):
1. Bridges (including subways)
80
Section 14 Structures
2. Culverts
3. Retaining walls
4. Sign/signal gantries
14.4.3 Other asset groups that may be reported under the structures category include
tunnels, structural earthworks, fords and causeways, and cattle grids.
Asset Sub-Groups
14.4.4 It is not considered necessary to sub-divide each group into sub-groups.

However, if an authority has a large number of subways (e.g. a Metropolitan
Borough) it would be beneficial to treat these as a separate asset group using
the principles given for culverts. It may also be suitable to identify footbridges
as a separate sub-group.
Adjustment Factors
14.4.5 The need for adjustment factors should be assessed as described in Section
5.5. The number of adjustment factors required for bridges depends on the
level of refinement adopted for the GRC model (Section 14.5). A more refined
model is likely to require fewer adjustment factors because variations would
have already been taken into account in deriving the Unit Rates.
14.5.1 Based on an understanding of the key cost drivers influencing the replacement
cost of each asset group, the Gross Replacement Cost models are
recommended as given in Table 14.1, subject to the proviso in 14.6.
14.5.2 Bridges generally form the largest component of the structures asset value and
it may be appropriate to use a more refined approach for asset valuation, given
the range of shapes and sizes they can take. Two approaches are suggested
for highway bridges:
1. Basic Approach the GRC of the bridge is evaluated in terms of a

composite Unit Rate per square metre of the deck area.
2. Refined Approach the GRC is evaluated as the summation of the GRC

of the major constituent parts of the bridge, namely the deck, parapet,
supports and foundation. Unit Rates and dimensions specific to each
constituent part are used to calculate the GRC.
14.5.3 The refined approach may provide a more accurate value of the GRC and
should be used where the necessary information to support this is available.
If the required asset data is not available then the basic approach should
be used.
14.5.4 Many authorities have a considerable number of listed or heritage structures

(Section 4.11). The generic asset valuation procedure applies to heritage
structures, however, the GRC should be calculated on the basis of a like for
like, or nearly as like as is feasible, replacement instead of a MEA. Some
additional guidance is provided in Section 14.8.
81
14.5.5 There are normally few highway tunnels managed by Local Highway Authorities
and hence these should be treated as Special Structures (Section 14.9) and
valued individually based on the replacement cost of major component parts.
There is no need to derive standardised replacement Unit Rates for these
assets.
Table 14.1 Gross Replacement Cost Models and Unit Rates for Structures
Model Name GRC Model Unit Rate
Bridge (Basic) CBridge= Deck Area x URBridge x ADF URBridge is expressed in /m2 of
total deck area and is likely to be
a function of bridge maximum
span. It is a composite Unit Rate
for the whole bridge
Bridge (Refined) CBridge= CDeck+CParapet+CEnd-Sup+ Unit Rates derived for each

CInt-Sup+CPiling+CFooting major constituent part of the
bridge
Deck CDeck= Deck Area x URDeck x ADF URDeck is expressed in /m2 of

total deck area as a function of
bridge maximum span
Parapet CParapet= Length of Bridge URParapet is given in /m length of

URParapet x ADF bridge for different containment
levels
End-Support Total cost of two abutments UREnd-Sup is expressed as /m
including wing walls, backfill, etc: length of support for normal and
CEnd-Sup= End Support Length bank-seat abutments
x UREnd-Sup x ADF
Int.-Support CInt-Sup= Deck Width NInt-Sup URInt-Sup is given in /m width

x URInt-Sup x ADF of deck per intermediate
NInt-Sup = number of internal support, measured along
supports centreline of support
Foundation CFooting = Deck Width x URFooting x URFooting is given in /m of deck

ADF width
CPiling= Deck Area x URPiling x ADF URPiling is given in /m2 of deck
area
Culvert CCulvert= Culvert Internal Surface URCulvert is given in /m2 of
Area x URCulvert x ADF internal surface area of culvert
Retaining Wall CRet.Wall= Retained Height x Length URRet.Wall is given in /m2 of

x URRet.Wall x ADF retained area
Gantry CGantry= Gantry Length x URGantry x URGantry is given in /m length of

ADF gantry or per cantilever
Where
Deck Area = (Overall Width) x (centreline to centreline of end supports); or
Deck Area = (Overall Width) x (distance between end support faces + 0.6m)
Deck Width = Overall width measured from outside edge to outside edge
82
Retained Height = as recorded or (actual height + 0.6m)
Gantry Length = centreline to centreline of end supports
Culvert Internal Surface Area = base, sides and soffit (as appropriate)
ADF = adjustment factor
14.6 UNIT RATES
14.6.1 The format of the Unit Rates for the main structure groups are summarised in
Table 14.1 and guidance on their derivation is given in the following.
Bridges
14.6.2 The replacement cost of a bridge may be evaluated using the basic or refined
approach. The basic approach uses a composite Unit Rate (/m2 of the deck
area) for the bridge, that includes all components of the bridge. The basic
approach should be used when adequate data is not available from
(re)construction schemes (Section 6.2) to derive a Unit Rate for each
constituent part. Under the basic approach the Unit Rate should preferably be
derived as a function of maximum span length while adjustment factors should
be used to account for other cost drivers.
14.6.3 The refined approach uses a summation of the cost of deck, parapets, end
supports, intermediate supports and foundation as explained below.
1. Bridge Deck costs including finishes but excluding parapets can be

expressed as /m2 of total deck area where the rate is related to the
maximum span length.
2. Parapet costs can be given as /metre length of bridge.
3. Substructure End Supports: abutments including wing-walls; total cost

of two abutments can be expressed as /metre length of abutment.
Where information is available a separate Unit Rate may be derived for
bank seat abutments.
4. Substructure Intermediate Support: /m length of support for piers and

/column for column supports. If information on support type and number
of columns is not available, then a single Unit Rate expressed as /m
width of deck per intermediate support may be derived.
5. Foundation Costs Unit Rate for spread footings can be expressed as

/m width of deck for each support. The total piling cost can be
expressed as /m2 of deck area as a function of depth of piling. Where
detailed information on foundation type and depth are not available for
each bridge, a single rate, expressed as /m2 of deck area, can be
derived as a simplification assuming piled foundation.
Culverts
14.6.4 The Unit Rate for culverts could be expressed as /m2 of internal surface area
of the culvert for all construction forms.
83
Retaining Walls
14.6.5 The Unit Rate of retaining walls including finishes can be expressed as /m2 of
retained area. Where information on retained height is not available, the actual
height of the wall plus 0.6m may be used as a simplification. Where the
differences in Unit Rates are significant, retaining walls may be divided into two
MEA sub-groups: (i) Reinforced Concrete Inverted-T, and (ii) Embedded Pile.
Sign Gantries
14.6.6 The Unit Rate of portal gantries can be expressed as /m length of the gantry
where the rate is a function of the maximum span. The Unit Rate for cantilever
gantries can be expressed as /gantry.
Additional Cost Elements
14.6.7 The Unit Rates for each asset group should preferably be derived from recently
completed reconstruction schemes (Section 6.2) and should include all
admissible costs.
14.6.8 Where the number of schemes is limited, the Unit Rate for each group could be
derived from new-build schemes. These Unit Rates should include the direct
plant, material, and labour costs with allowances made for site preliminaries
and project management and supervision costs. The Unit Rates should then be
multiplied by the cost factors given in Table 14.2, where appropriate, to fully
reflect the additional costs involved in replacing an existing structure on the live
network as opposed to building a new structure off line.
Table 14.2 Additional Cost Factors on New-Build Unit Rates
Cost Element Range of additional costs Cost Factor

Demolition Cost of Existing Asset 5% 15% 1.1
Temporary Works Costs, e.g. diversions and 10% 50% 1.3
temporary bridging (if relevant)
Traffic Management Costs 5% 35% 1.2

Possession Costs (if relevant) 5% 15% 1.1
Depreciation
14.7.1 Structures should be treated for depreciation using the Renewals Accounting
method, described in Section 8.3. Authorities who are in the process of
developing an Asset Management Plan may use Modified Renewals
Accounting to estimate depreciation in the interim period. Section 8.3 provides
guidance on the application of Renewals Accounting for depreciation.
Impairment
14.7.2 Structures should be assessed for impairment annually using appropriate

Performance Measures at asset type or group level.
84
14.7.3 It is not necessary for the Performance Measures to cover all aspects of the
asset described in Section 14.1. A condition indicator [Ref. 17, 18 and 19] may
be sufficient for this purpose, although other indicators should be considered,
e.g. Reliability and Availability [Ref. 17]. Authorities are recommended to use
currently available Performance Measures [Ref. 17] for this purpose.
14.8 HERITAGE STRUCTURES
14.8.1 The asset value of heritage structures (Section 4.11) should be calculated using
the same procedure described for other structure types except that the GRC is
not based on a Modern Equivalent Asset (Section 4.7). Instead, the GRC of a
heritage structure is calculated based on a like for like replacement, or a nearly
as like as is feasible. This should be interpreted as the replacement structure
providing the same look and feel as the original, but modern techniques may
be used to optimise the like for like replacement where possible. For
example, cast iron elements could be replaced with steel elements that look
the same but represent a more cost efficient and structurally effective solution
than installing a new cast iron element.
14.8.2 Some structures may be deemed important to the character and environment
of an area but they may not be listed structures. In these cases the
replacement, while looking the same, may be able to deviate more from the
original compared to a listed structure. For example, the replacement could use
a non-structural faade that replicates the look and feel of the original and
masks a MEA underneath. In this case the GRC should be for the MEA plus the
cost of the faade.
14.9 SPECIAL STRUCTURES
14.9.1 Guidance on special structures is provided in Section 4.10. In undertaking

asset valuation of special structures the following should be considered:
1. The form of the MEA is this the same as the existing asset or is a new
structural form more appropriate? If a MEA is not acceptable as a
replacement then the special structure should be treated as a heritage
asset.
2. The need to derive Unit Rates if the structure is unique then it may not
be necessary to derive Unit Rates. Instead the actual cost data may be
used, being appropriately amended by adjustment factors and indexation.
85
Section 15
Highway Lighting and High
Mast Lighting
15.1 GENERAL
impairment of highway lighting and high mast lighting assets. Reference should
also be made to the examples for lighting provided in Appendix A and B.
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15.2.1 Highway lighting assets are taken to consist of the following key components
(as shown in Table 5.1):
1. Column and foundation
2. Bracket
3. Luminaire (and initial lamp)
4. Control gear, switching and internal wiring.
15.2.2 A comprehensive inventory is recommended by the Code of Practice for

Highway Lighting [Ref. 4] for Asset Management purposes. However, the above
components are considered to be adequate for calculating the Gross
Replacement Cost (GRC), depreciation and impairment.
15.2.3 The cost of the initial lamp is included with the luminaire in the above list.
Subsequent lamp changes are excluded from the above list because
expenditure is likely to be Operational rather than Capital and therefore may not
be admissible (Section 4.5) for asset valuation under the Conventional Method.
If an authority considers lamp depreciation and expenditure as admissible, they
should assess the practicality and benefits of dealing with this in asset
valuation. Lamps normally have short service lives and lower up-keep costs
relative to the remainder of the lighting column unit and therefore could be
treated in a simplified way.
86
Section 15 Highway Lighting and High Mast Lighting
15.2.4 Energy consumption costs are not included for asset valuation.
15.3.1 The following factors are considered to have a significant influence on the cost
of replacing a lighting unit:
1. Service connections (private cabling or Distribution Network Operator

(DNO) supply) these should be included for lighting columns as these
are integral to the function and are not the same as STATS diversions
(paragraph 4.4.6). Although the service connection is not a physical
component, such as those listed in Section 15.2, some authorities may
wish to identify it as such if it represents a significant and identifiable cost.
2. Column type, e.g. cross sectional characteristics, material (steel,

aluminium, FRP etc, provided it reflects the MEA), manufacturer and
decorative features.
3. Column height suitable categories should be established.
4. Foundation type, e.g. planted root, bolted flange plate.
5. Bracket type, e.g. column top, projection and projection length.
6. Number of brackets.
7. Luminaire type and/or manufacturer.
8. Type of control gear, switching and internal wiring and whether or not
the authority is responsible for their maintenance.
9. Local Policy in relation to lighting levels and types, e.g. white light.
15.3.2 The inventory list in the Code of Practice for Highway Lighting [Ref. 4] should
be consulted to identify additional key cost drivers that may be appropriate.
below. Also refer to Sections 5.4 and 5.5 for generic guidance and the
Asset Groups
15.4.2 It is recommended that highway lighting is divided into the following asset
groups:
1. Highway lighting columns planted root
2. Highway lighting columns bolted flange plate
3. Highway lighting unit attached to wall
4. High mast (>20m).
87
15.4.3 Groups 1 and 2 above may be combined if the foundation type does not make
a significant difference to the Unit Rate.
Asset Sub-Group
15.4.4 Based on the key cost drivers identified in Section 15.3, together with other key
cost drivers identified by the authority, appropriate sub-groups should be
identified. It is suggested that sub-groups for lighting columns are identified
based on total height, for example:
1. Less than 6m.
2. 6m to less than 8m
6. 20m and above are classified as high mast lighting.
15.4.5 Authorities are recommended to review their lighting data and identify an
appropriate degree of refinement for asset valuation sub-groups.
Adjustment Factors
15.4.6 It is recommended that the influence of column type, bracket type and number
of brackets on the Unit Rate is investigated (Section 7.4). If they have a
significant impact then appropriate adjustment factors should be derived
(Section 6.5).
15.5 GROSS REPLACEMENT COST
15.5.1 The Gross Replacement Cost (GRC) for individual lighting units may be
evaluated using a composite Unit Rate or a Unit Rate for each component, for
example:
GRC of Individual Lighting Unit = URLU % ADF-LU

Equation 24a
GRC of Individual Lighting Unit =
(URCol)%ADF-Col + &[(URF-Brac)%ADF-Brac] + &[(URLum)%ADF-Lum] + &[(URCon)%ADF-Con]
Equation 24b
Where UR = Unit Rate determined for that lighting unit or lighting

component
ADF = adjustment factor applied to Unit Rates
LU = Lighting Unit
Col = Column and foundation
88
Brac = Bracket
Lum = Luminaire
Con = Control gear and cabling
15.5.2 The summation symbols () are included where there may be more than one
component per lighting unit.
15.5.3 The sum of the GRC of the components should be equal to the GRC of the
asset as shown in Figure 15.1. The proportions shown in Figure 15.1 should be
derived from replacement cost data where available. The proportions are
therefore produced when Equation 24b is used but not when Equation 24a is
used. The proportions may need to be established using limited cost data
and/or engineering judgement when Equation 24a is used.
Luminaire x1% of GRC
Bracket x2% of GRC
Gross Control x3% of GRC

Replacement
Cost
Column x4% of GRC
Where the percentages for x1, x2, x3 and x4 should be calculated from available
partial replacement cost data or, in lieu of this data, based on engineering judgement.
Note: some authorities may wish to include Service Connection as a separate

proportion of the GRC if this is considered to be a significant and identifiable cost.
Figure 15.1 GRC and Component Replacement Cost
15.6 UNIT RATES
15.6.1 The Unit Rates, for each asset group or sub-group, should be determined from
a representative sample of lighting unit construction, replacement and partial
replacement schemes (Section 6.4). All admissible costs incurred during the
replacement (including removal and disposal of the previous unit or
component) should be included (Section 4.4). The Unit Rate should be
evaluated as:
& Admissible Costs

i$1
Unit Rate $
n
Equation 25
89
Where n = number of assets/components used to derive the Unit Rate
i = asset i for which the admissible costs are known
15.6.2 The above equation may be used to derive a composite Unit Rate for the
replacement of the whole lighting unit, or a separate Unit Rate for each
component of the lighting unit. The former approach may be more suitable for
the majority of authorities, particularly if replacement cost data is captured at
lighting unit or scheme level. If information on individual components
(paragraph 15.2.1) is available, then it may be appropriate to derive Unit Rates
for each component type.
Depreciation
15.7.1 Lighting units should be depreciated using the Conventional Method as

described in Section 8.2. Authorities should determine the following for each
asset group or sub-group:
1. The proportion of the replacement cost contributed by each component

(as shown in Figure 15.1); and
2. The service life of each component type.
15.7.2 The value of each component is depreciated, using the straight line method
shown in Figure 8.1 in Section 8.2, over its service life. It is recognised that the
condition deterioration profile for lighting columns may not be straight line,
however financial depreciation and condition deterioration are different
concepts, and the former represents how the economic benefits are consumed
over the service life (also see paragraph 8.2.6). Service lives should be
estimated from engineering judgement, manufacturers data or preferably,
from historical replacement cycles (Section 8.2).
15.7.3 The service life and replacement costs should be monitored and, as a
minimum, updated at each benchmark valuation (Section 2.3) or when new
information becomes available. If significant changes occur to service lives
between valuation periods, then the depreciation should be amended
accordingly, i.e. a new service life is reflected in a revised rate of depreciation,
see Figure 8.3 in Section 8.2, or impairment is applied (see below).
15.7.4 Guidance on the relationship between the CSS lighting column Condition
Indicator and remaining service life is provided in Ref. 20. This may be used
to assign remaining service lives to individual lighting columns.
Impairment
15.7.5 Lighting assets should be assessed for impairment using appropriate

Performance Measures, for example the CSS Condition Indicator [Ref. 20].
If appropriate Performance Measures, or condition data, is not available then
authorities should seek to establish the processes. Lighting assets should
only be assessed for impairment when there are indications of impairment
(Section 9.2).
90
91
Section 16
Land Associated with the Highway
16.1 GENERAL
16.1.1 The following approach is proposed for the treatment of land associated with
the highway infrastructure. Land associated with the highway may be reported
in the accounts with the highway infrastructure or with land in general. The
Valuation Report should identify which approach an authority has adopted.
16.1.2 Land is a component in the DRC valuation although in itself land can usually be
valued by reference to comparable open market transactions. It is however
recognised that when valuing a specialised property the land element is
included within the overall DRC approach.
16.1.3 An authority should be satisfied that Depreciated Replacement Cost (DRC) is

the appropriate approach for valuing land associated with the highway.
16.1.4 The land should include the entire land holding associated with the highway,
and in identifying the extent of the land to be included in the valuation,
consideration should be given to the following:
1. Land that may be suitable for disposal without affecting the use or
stability of the highway, in which case that land should be treated as
surplus to requirements and reported separately at its market value.
2. Land that may be currently unused but is being kept for possible future
use, or has been expressly acquired for a future road scheme, may be
included as part of the highway asset.
3. Land that may be surplus to requirements but, due to its physical

location, could not be sold, such as land surrounded by motorways
where that land could not incorporate the necessary access and exit
roads, due to its size or shape.
16.2.1 The land asset should only comprise the land associated with the highway.
Features on the land are not taken into account in the valuation of land.
16.3.1 The value placed on the land may present difficulties since, by definition, the
highway has no open market. Conversely, if it were not for the highway, the
surrounding uses may well be substantially different, e.g. the highway giving
either a positive impact (due to access) or a negative impact (due to noise, loss
of outlook).
16.3.2 It is considered that although the valuation must always be of the actual land,
it is appropriate to assess that value by reference to the cost of acquiring a
notional replacement site in the same locality that would be equally suitable.
Thus there is a requirement to look at values of land in the locality.
92
Section 16 Land Associated with the Highway
16.4 ASSET GROUPS AND SUB-GROUPS
16.4.1 Land should be classified as freehold or rights. Rights land may be further
subdivided into time based rights and rights in perpetuity (i.e. freehold). In
addition, a straightforward, but suitable, approach would be to distinguish
between rural and urban land by region.
16.5 VALUATION
16.5.1 From a practical point of view, it is suggested that the authority considers a
standard approach to land valuation. It is not considered necessary to
undertake a detailed assessment of every individual portion of the highway
network; this is likely to take an unjustified amount of time.
16.5.2 Where a road is currently being, or has recently been, constructed there should
be relevant land acquisition costs available and these can be utilised as the
land value. It must be realised, however, that the total compensation paid will
have included injurious affection the compensation to cover the effect of the
new road on the remainder of the property owned by the vendor, as well as
other costs incurred, and so the valuation will need to establish the agreed
element of the land value.
16.5.3 It is recognised that a new road opening can result in claims for compensation
under the Land Compensation Act 1973. It is suggested that the value impact
of any such claims should be ignored for the DRC valuation or else that figure
would alter year on year, based on the value of the surrounding housing, and
not relate to the cost of the asset itself.
16.6 DEPRECIATION AND IMPAIRMENT
16.6.1 Unless expressly notified to the contrary it should be assumed that land
associated with the road is held freehold with a clean title, and so the land
value is not required to be written down (depreciated or impaired). If for any
reason (such as a time limited concession being in place) the authority does
not have the freehold for the land, then it may be appropriate to discount the
land value accordingly, reflecting the period of ownership remaining, i.e. the
land is depreciated over the concession (rights) period.
16.6.2 The Conventional Method should be used to depreciate land (Section 8.2)
where appropriate, although by its nature freehold land would be assessed as
indefinite life (paragraph 8.2.2) and therefore no depreciation would be charged
on the grounds of immateriality, however the land would be reviewed for
impairment.
93
Section 17
Other Highway Assets
17.1 STREET FURNITURE
General
17.1.1 Street furniture can constitute a significant asset for some authorities and, in
such cases, should be included as a separate asset category in asset
valuation. Street furniture should be valued according to the generic guidance
provided and depreciated using the Conventional Method (Section 8.2). Some
street furniture assets are similar to highway lighting therefore the guidance in
Section 15 should be considered as appropriate.
17.1.2 Authorities may not wish to identify street furniture as a separate asset type if
the inventory data is not readily available. In this case the street furniture may
be included as a constituent component of the road or footpath asset type, i.e.
they are included within the composite Unit Rate derived for the road or
footpath asset.
94
Section 17 Other Highway Assets
Asset Composition
17.1.3 The asset composition should include the following assets if they are managed
as part of the highway network: bus shelter, seating, bins, bollards, marker
posts, street name plates and tree protection. The list is not comprehensive
and authorities may add additional street furniture components relevant to their
network.
Asset Groups
17.1.4 The following asset groups may be sufficient to evaluate GRC for street
furniture:
1. Town/city centre street/road
2. Suburban/village street/road; and
3. Rural road.
17.1.5 It is not necessary to build up the GRC from the individual street furniture units,
instead a composite GRC, relevant to the above street classifications may be
considered adequate. If authorities hold a detailed inventory of street furniture
then they may wish to establish a more refined approach for evaluating
the GRC.
Depreciation, Impairment and DRC
17.1.6 Depreciation should be applied using the Conventional Method (Section 8.2),
therefore each asset should be depreciated separately. However, assets may
be grouped together for depreciation if this is more representative of the
inventory data.
17.1.7 Street furniture should be treated for impairment using condition/performance

survey data as described in Section 9. Condition survey data (or related
condition indicators) may be appropriate for identifying impairment. Where
condition data is not available, authorities should seek to establish appropriate
condition measures.
17.2 TRAFFIC MANAGEMENT SYSTEMS
17.2.1 Many of the assets listed in Table 5.1 under Traffic Management Systems are
similar in nature to highway lighting (Section 15) and should be treated similarly
for asset valuation.
17.3 OFF-HIGHWAY DRAINAGE
17.3.1 An authority should establish if this asset type is relevant to the valuation of
their highway network. Off-highway drainage should be valued in accordance
with the generic guidance provided and the Conventional Method should be
used for calculating depreciation and impairment.
95
Section 18
Implementation and Recommendations
18.1 IMPLEMENTATION PLAN
18.1.1 The following implementation plan is suggested for highway infrastructure

asset valuation:
1. Year 1 Interim asset valuation which may include the following activities:
a. Set up regional working groups to collaborate on asset valuation.
b. Assess how current asset inventory/data and systems align with the
needs of asset valuation. Integrate asset valuation needs with those
identified from the Asset Management gap analysis [Ref. 1].
c. Identify asset groups, sub-groups and adjustment factors.
d. Compile scheme data, determine Unit Rates and develop GRC

models.
e. Trial the asset valuation procedure on a sample of highway assets.
2. Year 2 undertake a benchmark valuation and this should include the

following activities:
a. Refine the asset valuation procedure based on experience from

Year 1.
b. Check the Asset Management System (or Asset Valuation System)
c. Extend the procedure to cover all highway assets.
d. Calculate the GRC and initial DRC for the end of this financial year.
This should be used as the opening Net Book Value for Year 3.
3. Year 3 calculate in-year movements including, where appropriate,

depreciation, impairment, indexation, additions (disposals), Asset
Preservation Measures, etc. A Valuation Report should be produced
for the end of year 3.
18.1.2 Authorities should work together on the development and implementation of

highway infrastructure asset valuation for the purpose of pooling data and
sharing experience and learning. This can be achieved by setting up Regional
Working Groups involving rural, semi-urban and urban areas.
96
Section 18 Implementation and Recommendations
18.2 ASSET VALUATION SYSTEMS
18.2.1 Asset Valuation can become an involved and complex procedure, requiring
considerable resource inputs, if appropriate IT systems are not in place.
Authorities should seek to automate the asset valuation procedure through an
appropriate software system that draws the basic data from a complete and
accurate asset inventory.
Morguefile.com
18.2.2 Authorities should identify how their current system(s) should be configured to
deal with highway infrastructure asset valuation, considering options such as:
1. Perform asset valuation within the engineering Asset Management

System (AMS), passing the key results to the Finance System.
2. Perform asset valuation within the Finance System, drawing the

appropriate base asset data from the engineering AMS.
3. A separate Asset Valuation System which interfaces with the AMS and
the Finance system.
18.2.3 Option 1 above may be the most suitable approach for many authorities
because they already hold the base asset data in the engineering AMS for
management purposes. The asset valuation capability may be added to an
existing AMS by:
1. Developing bespoke functionality within the existing system.
2. Purchasing a commercial bolt-on for the existing system.
3. Receiving an upgrade of the current AMS if commercial providers update

their systems to provide asset valuation functionality.
18.2.4 If an authority is currently in the process of procuring an AMS, or upgrading

their existing system, they should consider the needs of asset valuation.
18.3 RESOURCE REQUIREMENTS
18.3.1 The following resource needs should be determined for the implementation and
running of asset valuation:
1. Hardware and software needs.
2. Data collection, entry, storage and upkeep.
3. Staff training.
97
4. Staff time required to develop Unit Rates, GRC, DRC, depreciation and
impairment, attend Regional Working Groups and prepare the Valuation
Report.
18.3.2 Some of the above resource needs may align with those identified in the Asset
Management gap analysis [Ref. 1]. Authorities should seek to coordinate the
various initiatives and avoid duplicating the effort.
18.4 RECOMMENDATIONS
18.4.1 The key recommendations, and associated sections, from the Guidance
Document are summarised in Table 18.1.
Table 18.1 Key Recommendations
No. Asset Type Section
1 Undertake a benchmark valuation at a minimum interval of five years and 2.3 & 10.4
apply annual adjustments. Re-evaluate the DRC at each benchmark
valuation.
2 Adopt the principles, basis and rules set down in the Guidance Document 4.1
3 Use Depreciated Replacement Cost as the basis for valuation 4.3
4 Use the Baxter Indices for indexation of costs (unless an authority 4. 6

currently uses a different index which is suitable).
5 Classify the asset base and align the asset valuation inventory with the 5.2
Asset Management inventory
6 Use schemes completed within the last 10 years to derive replacement 6.2
Unit Rates
7 Apply straight line depreciation to finite life assets 8.2
8 Use Renewals Accounting for depreciation and impairment of roads, 8.4

segregated footpaths and cycle routes, and structures
9 Use the Conventional Method for depreciation of lighting, traffic 8.4

management systems, street furniture, off-highway drainage and land
assets
10 Produce an annual Valuation Report 11.2
11 Calculate the three asset preservation measures annually and include in 11.1
the Valuation Report
12 Form Regional Asset Valuation Working Groups 18.1
98
Section 19
References
1. Framework for Highway Asset Management, CSS, April 2004.
2. Well Maintained Roads, Code of Practice for Highway Maintenance, UK Roads

Board, TSO, 2005.
3. Management of Highway Structures, A Code of Practice, UK Bridges Board,

TSO, 2005.
4. Well-lit Highways, Code of Practice for Highway Lighting Management, UK

Lighting Board, TSO, 2004.
5. Managing Resources: Analysing Resources Accounts: User Guide, HM

Treasury, 2001.
6. Managing Resources: Implementing resource based financial management,

HM Treasury, September 2002.
7. Code of Practice on Local Authority Accounting in the United Kingdom 2004,

A Statement of Recommended Practice, CIPFA/LASAAC.
8. Financial Reporting Standard (FRS) 15 Tangible Fixed Assets, Accounting

Standards Board, ISBN 1 85712 079 5, 1999.
9. Financial Reporting Standard (FRS) 11 Impairment of Fixed Assets and

Goodwill, Accounting Standards Board, ISBN 1 85712 068 X, 1998.
10. HM Treasury: Resource Accounting Manual, www.resource-accounting.gov.uk
11. Financial Reporting Exposure Draft (FRED) 29 Property, Plant and Equipment
Borrowing Costs, September 2002.
12. International Accounting Standard (IAS) 16 Property, Plant and Equipment,

December 2003.
13. Price Adjustment Formulae for Construction Contracts: Monthly Bulletin of

Indices, Department of Trade and Industry (DTI), TSO, ISSN 0964 4575.
14. Bridge Condition Indicators: Volume 2: Guidance Note on Bridge Inspection

Reporting, CSS Bridges Group, April 2002.
15. Addendum to Bridge Condition Indicators: Volume 2: Guidance Note on Bridge

Inspection Reporting, CSS Bridges Group, August 2004.
16. Rethinking Construction: The Report of the Construction Task Force (Egan
Report), ODPM, 1998.
17. Guidance Document for Performance Measurement of Highway Structures,

Draft Working Document, Version 1.3, February 2005.
99
18. Bridge Condition Indicators: Volume 3: Guidance Note on Evaluation of Bridge

Condition Indicators, CSS Bridges Group, April 2002.
19. Addendum to Bridge Condition Indicators: Volume 3: Guidance Note on

Evaluation of Bridge Condition Indicators, CSS Bridges Group, August 2004.
20. Lighting Columns: Review of Risk Assessment Strategy and Production of a

Condition Indicator, TRL Report on behalf of the CSS, UPR/ISS/029/05.
100
Appendix A
Asset Valuation Explanatory
Examples
Purpose of Examples
The purpose of these examples is to explain some of the typical situations that may
arise during valuation, and how these should be addressed.
Example 1 Two Lane Road
The existing asset is a two lane Classified B road with appropriate formation and
structural layers. The GRC is based on a MEA which represents the current construction
techniques for this class of road and the appropriate cross sectional profile (i.e.
formation and structural layers).
For simplicity it is assumed that condition is assessed through only one condition index.
This section of road has a score 50 (on a scale of 0 to 100) for the condition indicator.
Therefore, the DRC is calculated as (Section 10):
DRC = GRC Cost of work to restore the condition score to 100
Alternative Consideration 1.1 The road has been built up over time and the actual
make-up of the formation and structural layers is unknown. The MEA is taken as the
typical construction techniques that would be used now to provide the same
performance (or Level of Service) for a Class B road.
Alternative Consideration 1.2 Traffic surveys indicate that the road does not provide
the required traffic capacity, i.e. it needs to be widened. This has no influence on the
asset value calculation. This is identified as an enhancement in the Asset Management
Plan. When the enhancement is carried out, then the GRC and DRC of the asset are
amended accordingly.
Example 2 Highway Bridge
The existing asset is a masonry arch bridge. The bridge is 120 years old but is not
classified as a Heritage Asset (Section 4.11). The GRC is based on the replacement
cost of a MEA which is taken as a reinforced concrete/steel composite bridge with
appropriate foundations.
The bridge has a Condition Indicator score of 75 out of 100. Therefore, the DRC is
calculated as (Section 10):
DRC = GRC Cost of work to restore the Condition Indicator to 100
Alternative Consideration 2.1 In the assessment programme the bridge was found to
have a Potential Performance (load carrying capacity) of 10 tonne. However, data would
not be available on the construction cost of a bridge with 10 tonne capacity because
modern bridges are designed for 40 tonne trucks, therefore the following approach may
be used (also see paragraph 4.7.4):
101
1. If the increase in cost of constructing a bridge with 40 tonne capacity is within

10% of constructing a bridge with 10 tonne capacity then the MEA described
as above should be used to evaluate the GRC.
2. If the increase in cost is more than 10%, then the MEA described above should
be used for calculating the GRC, but this value should be factored down to
account for the difference in costs between constructing a 10 tonne and 40
tonne bridge.
Alternative Consideration 2.2 In the assessment programme the bridge was found to
have a full Potential Performance (load carrying capacity) of 40 tonne. However, the
bridge is currently only providing 10 tonne capacity due to poor condition. In this case
the 40 tonne MEA is used to calculate the GRC, and the cost of work required to
restore the Potential Performance (40 tonne capacity) is deducted from the GRC when
evaluating the initial DRC (Section 10).
Alternative Consideration 2.3 The Potential Performance is 10 tonne but the authority
has decided it wants 40 tonne capacity. The GRC is evaluated as described in
Alternative Consideration 2.1 above. The shortfall in structural capacity below the
defined Required Performance has no influence on the asset value. If the enhancement
is carried out, then the GRC and DRC of the asset are calculated accordingly.
Example 3 Street Lighting
The existing asset is a steel lighting column with a luminaire that provides the required
lighting levels. The GRC is based on the replacement cost of a MEA which is assumed
to be a steel lighting column (to the latest specification) with a luminaire of the same
output as the current luminaire (but to modern specification).
For simplicity, the whole unit is assumed to have a service life of 40 years and it is
currently 20 years old. It is in the condition expected for its age and is providing the
expected performance. Applying straight line depreciation the DRC is evaluated as
(Section 8.2):
DRC = GRC x [(40years-20years)/40years] = GRC x 0.5
Alternative Consideration 3.1 The Required Performance has been redefined by the
authority and the Potential Performance of the existing asset is unable to meet this
standard. This has no influence on the asset value calculation. This is identified as an
enhancement in the Asset Management Plan. When the enhancement is carried out the
GRC and DRC of the asset are calculated accordingly.
Alternative Consideration 3.2 The current condition or performance is worse than that
predicted by the condition profiles. The residual service life is revised down to reflect
the current condition/performance. In this case the depreciation and/or impairment are
calculated as described in paragraph 8.2.9.
102
Appendix B
Example
Hypothetical Network
A hypothetical network shown in Figure B1 below is considered for this worked

example. The example shows how the network assets should be grouped and the
Gross Replacement Cost and initial Depreciated Replacement Cost calculated. Only
roads, bridges and lighting columns are considered. The calculations are for illustration
only and therefore do not represent the values and level of accuracy that would be used
in practice.
12.5km 37.5km
25km
12.5km
Embankment
100km
Single carriageway
Dual carriageway
100km
KEY Single carriageway Bridge
Double carriageway Urban area
River Embankment
Figure B1 Hypothetical Network
103
Network Data, Unit Rates and GRC
Roads
The network statistics and data are summarised in the table below. Urban roads have
footways attached and the Unit Rate has been factored by an adjustment factor to
reflect this. Also, the Unit Rate for the 75km of dual rural carriageway with embankment
has been adjusted to reflect this.
Table B1 Roads Data
Unit Rate
ID Asset type/group Width Length GRC
per m2
Dual urban carriageway

1 18.6m 241.4km 120 538,804,800
(inc. footway)
2 Dual rural carriageway 18.6m 366.4km 100 681,504,000
Dual rural carriageway

3 18.6m 75km 180 251,100,000
(with embankment)
Single urban carriageway

4 9.3m 250km 130 302,250,000
(incl. footway)
5 Single rural carriageway 9.3m 350km 110 358,050,000
Total = 1282.8km 2,131,708,800
NB: the width is the carriageway; attached footways are accounted for by different Unit
Rates.
Bridges
The road type has a limited influence on the bridges Unit Rate for this network. All
bridges are one span, of length 20m, and the overall deck width for single carriageway
is 10m, and 20m for dual carriageway bridges.
In addition to the bridges shown on the network it is assumed there is also a bridge for
every 25km of network.
Table B2 Bridges Data
Deck Unit Rate

ID Asset type/group Number GRC
Area per m2
1 Road over river (urban) 5 1400m2 1000 1,400,000
2 Road over river (rural) 6 1800m2 850 1,530,000
3 Road over road (rural) 4 1600m2 950 1,520,000
4 Other (urban) 20 6000m2 900 5,400,000
5 Other (rural) 32 10000m2 750 7,500,000
Total = 20800m2 17,350,000
104
Appendix B Depreciated Replacement Cost Example
Lighting
There are lighting columns on all urban routes at 25m spacing; there are no lighting
columns on rural routes. The lighting columns have been divided into two groups based
on overall height.
Table B3 Lighting Data
Road No. of Unit Rate

ID Asset type/group GRC
Length columns per unit
Dual carriageway (urban)

1 241.4km 9656 1500 14,484,000
12m high
Single carriageway (urban)

2 250km 10,000 1000 10,000,000
6m high
Total = 19,656 24,484,000
Network Gross Replacement Cost
The Gross Replacement Cost of the network is therefore:
Network GRC = GRCRoads + GRCBridges + GRCLighting
Network GRC = 2,131,708,800 + 17,350,000 + 24,484,000
Network GRC = 2,173,542,800
Initial Depreciated Replacement Cost
The initial DRC is evaluated as described in Section 10. The DRC is evaluated using the
principles of depreciation and impairment, described in Sections 8 and 9 respectively,
applied to the relevant assets/components. The assets/components should be divided
into two broad categories:
1. Condition based maintenance (paragraph 9.3.7) the maintenance required on an

asset group, or individual asset/component, can be estimated from condition
data. This approach is applied to Indefinite Life assets treated under the
Conventional Method and to the majority of assets treated using Renewals
Accounting.
2. Time based maintenance (paragraph 9.3.9) asset consumption is more readily

defined by asset age than condition or performance. This approach is applied to
Finite Life assets from the Conventional Method and to relevant
assets/components from Renewals Accounting, e.g. bridge bearings.
The roads, bridges and lighting assets/components are classified in this manner below
to evaluate the initial DRC.
Roads
The road asset is made up of the Level 3 assets and components shown in Table 5.1
(Section 5.4). The DRC should therefore be based on the GRC minus the cost of
maintenance required to restore these assets to as new condition.
105
All the significant maintenance needs on the road asset relate to condition based
maintenance. Therefore, the calculation can be streamlined by excluding asset or
component types that only contribute a small proportion of the maintenance needs.
This approach is considered to provide a suitable degree of accuracy for evaluating the
initial DRC for roads.
The DRC is therefore evaluated as GRC minus the summation of maintenance work
required on the different assets or components. This may be evaluated based on an
average maintenance rate linked to a condition band, for example see the condition
bands shown in Table B4 (NB: the relationship between condition bands and
maintenance costs shown in Table B4 is hypothetical and for illustrative purposes only,
and therefore should not be used for asset valuation. However, authorities may wish to
derive such relationships for asset valuation purposes).
Table B4 Example Condition Bands for carriageway
Condition Band Average value of maintenance

(e.g. a BVPI) per m2 of carriageway
0 20 0
20 40 10
40 60 25
60 80 75
80 100 150
The value of the maintenance work can therefore be evaluated by identifying the
quantity of the carriageway that falls into each condition category. A more refined
approach is to base the calculation on the condition, maintenance work needed and the
associated costs of each individual asset/component, e.g. each section of carriageway.
Authorities should adopt the approach that best reflects their asset data.
The major maintenance needs on the hypothetical network are as shown in Table B5.
The maintenance needs of the carriageway are likely to dominate the road maintenance
needs in most cases.
Table B5 Cost of condition based maintenance on roads
Asset or component Value of maintenance work
Carriageway and footway 250,000,000
Drainage 30,000,000
Earthworks 10,000,000
Safety fences 10,000,000
Verges 10,000,000
Total Value of Maintenance = 310,000,000
106
The DRC of the road asset is therefore evaluated as:
DRCRoads = GRCRoads (Condition based maintenance)
DRCRoads = 2,131,708,800 310,000,000
DRCRoads = 1,821,708,800
Bridges
The total volume of work required to restore the bridges to as new condition is
evaluated from the current inspection and assessment data. The value of the work
should be calculated using the general approach described in Section 10, i.e.
distinguish between condition based maintenance and time based maintenance.
The major highway bridge elements that require time based maintenance are
expansion joints and bearings (and possibly painting). The maintenance on all other
components can be treated as condition based. The total cost of condition based
maintenance on bridges for the hypothetical network is taken to be 2.5million.
The DRC of time based maintenance elements should be evaluated as described in

Section 10.3, i.e. establish remaining service life directly from installation date and
service life data. This may be applied to individual assets or asset groups; the latter
approach is used here.
If the asset ages are spread evenly across the service life then the DRC is equal to
(GRC x 0.5). However, for this example the age profile is not spread evenly across the
asset service life, therefore a more refined approach is required where the assets are
grouped into age bands. For simplicity, the expansion joints and bearings are assumed
to have the same service life (30 years) however the age profile is spread as shown in
Table B6.
Table B6 Age of bearings and expansion joints
Average Remaining Proportion of elements

Age Band
Life (years) in age band
1 25 0.10
2 20 0.14
3 15 0.20
4 10 0.26
5 5 0.30
The DRC of each age band is then evaluated as (paragraph 9.3.11):
[
DRC = GRC
( )]
RL
SL
(Proportion of asset in age band)
Equation B1
107
Where SL = assumed service life
RL = remaining life
The GRC of the time based maintenance elements is estimated to be 10% of the total
GRC of the bridges in this example = 17,350,000 x 0.1 = 1,735,000. The DRC of
time based maintenance elements is therefore evaluated as shown in Table B7.
Table B7 DRC of time based maintenance on bridges
Proportion of
Age Average
elements in (RL)/SL DRC
Band Remaining Life
band
1 25 0.10 0.83 144,583
2 20 0.14 0.67 161,933
3 15 0.20 0.50 173,500
4 10 0.26 0.33 150,367
5 5 0.30 0.17 86,750
DRC of time based maintenance elements = 717,133
The DRC of the structure assets is:
DRCBridges = GRC (Condition Based Maintenance) GRCTime + DRCTime
DRCBridges = 17,350,000 2,500,000 1,735,000 + 717,133
DRCBridges = 13,832,133
Where GRCTime = GRC for time based elements
DRCTime = DRC for time based elements
Lighting
The DRC of the lighting assets is evaluated using the time based maintenance
approach for the whole asset. It is assumed that all parts of a lighting unit are replaced
after 25 years. However, the ages of lighting columns in the stock are not spread evenly.
The age profile of the lighting units is shown in Table B8.
108
Table B8 DRC of time based maintenance on lighting
Proportion of
Age Average
elements in (RL)/SL DRC
Band Remaining Life
band
1 20 0.10 0.8 1,958,720
2 15 0.20 0.6 2,938,080
3 10 0.30 0.4 2,938,080
4 5 0.40 0.2 1,958,720
DRC of lighting = 9,793,600
The DRC of lighting is therefore calculated directly and gives:
DRCLighting = 9,793,600
Network DRC
The DRC for the hypothetical network is then evaluated as:
DRCNetwork = DRCRoads + DRCBridges + DRCLighting
DRCNetwork = 1,821,708,800 + 13,832,133 + 9,793,600
DRCNetwork = 1,845,334,533
Accumulated Asset Consumption
The Accumulated Asset Consumption (AAC), from Section 11.1, for the network is:
AAC = [1- (DRC/GRC)] x 100
AAC = 15.1%.
109
Appendix C
Renewals Accounting Example
Purpose of Example
The purpose of this example is to explain how the cost estimates from an Asset
Management Plan (AMP) and the actual in year expenditure should be used to apply the
depreciation charge under Renewals Accounting (Section 8.3).
Hypothetical Network
The hypothetical network from Appendix B will be used in this example. For simplicity
this example only presents Renewals Accounting in relation to the road asset from
Appendix B; the relevant details from Appendix B are shown in Table C1.
Table C1 Network Information
Condition Indicator
Asset Type GRC DRC (or NBV) AAC
Score (or BVPI)
20
Roads 2,131,708,800 1,821,708,800 14.5%
(on a scale of 0 to 100)
The AMP identifies the following for the road asset:
1. Approximately 50million should be spent each year to maintain the Condition

Score of the road asset at 20.
2. An additional spend of 15million per year (for a five year period) would improve
the Condition Score to 15.
Scenario 1 Maintain Condition
Under this scenario the authority provides the annual 50million to sustain the condition
of the road asset. The adjustment made to the Net Book Value (NBV) in one financial
year is as shown in Table C2 (NB: NBV = DRC).
Table C2 NBV Annual Adjustments
First Financial Year Debit Credit
Renewals Accounting Depreciation Charge 50,000,000
Actual Maintenance Expenditure (cash) 50,000,000
NBV brought forward (opening book value) 1,821,708,800
NBV carried forward (closing book value)

1,821,708,800
= 1,821,708,800 50,000,000 + 50,000,000
Under this scenario the estimated cost of maintenance is spent each year, therefore the
NBV is maintained at 1,821,708,800. The Condition Indicator is monitored to check
that it does not exceed the acceptable limits (paragraph 9.2.12).
110
Appendix C Renewals Accounting Example
Scenario 2 Improving Condition
Under this scenario the authority spends 65million per annum to improve the condition
of the road asset from 20 to 15. The adjustment made to the NBV in one financial year
is as shown in Table C3.
Table C3 NBV Annual Adjustment

1,836,708,800
= 1,821,708,800 50,000,000 + 65,000,000
Assuming the 65million funding continues for a five year period then the values in the
fifth year would be as shown in Table C4.
Fifth Financial Year Debit Credit

1,896,708,800
= 1,881,708,800 50,000,000 + 65,000,000
Therefore, the Accumulated Asset Consumption (AAC), described in Section 11.1 and
shown in Table C1, has decreased from 14.5% to 11.0%.
The five year change in the Condition Score should be approximately 5 points, i.e. from
20 to 15 as identified in the AMP. Therefore, based on the guidelines proposed in
paragraph 9.2.12, it was not necessary to calculate impairment (or the impairment
reversal) during the five year period (i.e. between benchmark valuations). Instead,
adding 15million per annum to the NBV is assumed to be a robust estimation of the
changing volume of maintenance work required on the road network, and hence the
change in DRC (see Section 10).
Scenario 3 Falling Condition
Under this scenario the authority is unable to spend 50million per year due to financial
constraints. Instead, 25million per annum is provided to carry out maintenance on the
road asset. The adjustment made to the Net Book Value (NBV) in one financial year is
as shown in Table C5.
111
Table C5 NBV Annual Adjustments

1,796,708,800
= 1,821,708,800 50,000,000 + 25,000,000
Assuming the 25million funding continues for a five year period then the values in the
fifth year would be as shown in Table C6.
Fifth Financial Year Debit Credit

1,696,708,800
= 1,721,708,800 50,000,000 + 25,000,000
Therefore, the Accumulated Asset Consumption (AAC), described in Section 11.1 and
shown in Table C1, has increased from 14.5% to 20.4%.
The change in the Condition Score may exceed the guidelines proposed in paragraph
9.2.12 and it may therefore be necessary to calculate impairment during the five year
period (i.e. between benchmark valuations) rather than relying on the annual deductions
based on the difference between AMP requirements and actual expenditure.
112
Acknowledgements
Steering Group
Matthew Lugg (Chair) Cambridgeshire County Council
David Baker (Project Manager) Transport for London
Alan Armson Hertfordshire Highways
Robert Biggs Derbyshire County Council
Paul Fearon St Helens Council
Chris Walker East Sussex County Council
Alex Ramage Scottish Executive
Kieran Rix HM Treasury
Ian Holmes Department for Transport
Technical Advisors
Dr Garry Sterritt Atkins
Dr Navil Shetty Atkins
Lila Tachtsi Atkins
Alan Taggart Atkins
Dr Roger Cole Atkins
Malcolm Dennett PKF
Disclaimer
The CSS/TAG Asset Management Working Group, the Steering Group and the Technical
Advisors who produced this guidance document have endeavoured to ensure the
accuracy of the contents. However, the guidance, recommendations and information
given should always be reviewed by those using them in the light of the facts of their
particular case and specialist advice be obtained as necessary. No liability for loss or
damage that may be suffered by any person or organisation as a result of the use of
any of the information contained here, or as the result of any errors or emissions in the
information contained here, is accepted by the CSS/TAG Asset Management Working
Group, the Steering Group, the Technical Advisors, and any agents or publishers
working on their behalf.
Printed in United Kingdom for The Stationery Office

N180408. C20 7/05 65536
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Guidance Document for

2005 Edition TSO: London July 2005

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Photos courtesy of WS Atkins except pp. 75, 86, 97

The Future for Transport: A Network for 2030

A fundamental component of long term planning is to ensure the asset base is

WHAT IS ASSET VALUATION?

DRC = Gross Replacement Cost Accumulated Consumption

DRIVERS FOR ASSET VALUATION

The key drivers for highway infrastructure asset valuation are:

1. To emphasise the need to preserve the highway infrastructure by placing a monetary

2. To demonstrate asset stewardship by monitoring the Asset Value over time.

3. To support Whole of Government Accounts and promote greater accountability,

SCOPE OF THE GUIDANCE

STATUS OF THE GUIDANCE DOCUMENT

The following timeframe is recommended for the implementation of highway

interim valuation of a sample of assets in Financial Year 2005-06.

calculate in-year movements (e.g. depreciation) in Financial Year 2007-08.

2. Asset Valuation Requirements 17

3. Overview of Highway Asset Valuation Procedure 21

4. Valuation Principles, Basis and Rules 24

7. Gross Replacement Cost 46

10. Depreciated Replacement Cost 64

11. Asset Preservation Measures and Valuation Report 67

13. Segregated Footpaths & Cycle Routes 75

15. Highway Lighting and High Mast Lighting 86

16. Land associated with the Highway 92

17. Other Highway Assets 94

18. Implementation and Recommendations 96

APPENDIX A Asset Valuation Explanatory Examples 101

APPENDIX B Depreciated Replacement Cost Example 103

APPENDIX C Renewals Accounting Example 110

Table 5.1 Classification of Highway Assets 37

Admissible Costs costs that are directly attributable to bringing the

Asset in the context of this guidance an asset is an integral

Asset Consumption measured in terms of depreciation and impairment of

Asset Management a strategic approach that identifies the optimal

Asset Management the hardware and software that supports Asset

Asset Valuation the procedure used to calculate the asset value.

Asset Value the calculated current monetary value of an asset or

Authority used in this document to mean a Local Highway

Balance Sheet a financial statement showing the assets and

Benchmark Valuation a full valuation that includes a review of the valuation

Current Performance see Performance.

Cycle Route a way constituting or comprised in a highway, being a

Depreciation the systematic consumption of economic benefits

Depreciated the calculated current monetary value of an asset or

Footway a way comprised in a highway, which also comprises

Footpath a highway over which the public have a right of way

Generally Accepted an international accounting convention for preparing

Gross Replacement the total admissible cost of replacing a highway asset

Heritage Asset a listed asset or an asset that, due to its construction

Highway collective term for publicly maintained facilities laid

Highway Infrastructure an authoritys portfolio of highway assets including

Impairment a reduction in Net Asset Value due to a sudden or

Initial Measurement determining a monetary value of a newly constructed,

Levels of Service a statement of the performance of the asset in terms

Modern Equivalent an asset which provides the same Potential