8/3/2019 Ubl Capitalization vs Expensing
1/31
FIXED ASSET
CAPITALIZATION POLICYOF UBL
8/3/2019 Ubl Capitalization vs Expensing
2/31
AGENDA
8/3/2019 Ubl Capitalization vs Expensing
3/31
AGENDA
Introduction of United Bank Limited
(UBL)
Technical Terms & Definitions
Objectives & Scope of This Policy
Classification of Fixed Assets
Capitalization Limit Matrix
Initial Recognition of The Asset
Measurement After Initial Recognition
Depreciation
Impairment
Derecognition\Disposal
8/3/2019 Ubl Capitalization vs Expensing
4/31
INTRODUCTION
8/3/2019 Ubl Capitalization vs Expensing
5/31
INTRODUCTION
United Bank Limited (UBL) is a bankingcompany, which is engaged in commercial
banking, retail banking and related services
domestically and overseas.
UBL is the second largest private commercial
bank in Pakistan with over 1000 branches and
has an international presence in 10 countries.
It was incorporated in 1959 and is a private
bank in the following shares:
1. Abu Dhabi Group, UAE (25.5%)
2. Best Way Group, UK (25.5%)
3. State Bank (48.69%)
4. Govt. of Pakistan (0.31%)
8/3/2019 Ubl Capitalization vs Expensing
6/31
TECHNICAL TERMS
&DEFINITIONS
8/3/2019 Ubl Capitalization vs Expensing
7/31
TECHNICAL TERMS
Fair Value is the amount for which an asset
could be exchanged between knowledgeable,
willing parties in an arms length transaction.
Residual Value is the estimated amount that
an entity would obtain from disposal of an asset,
after deducting the estimated cost of disposal, ifthe asset is already of the age and in the
condition expected at the end of its useful life
Useful Life is the period over which an asset is
expected to be available for use by the bank.
Property, Plant and Equipment are tangibleitems that are:
1. Held for use for administrative purposes or
for rental for others (e.g. Ijarah); and
2. Expected to be used during more than oneperiod.
8/3/2019 Ubl Capitalization vs Expensing
8/31
OBJECTIVES & SCOPE OF
FIXED ASSETCAPITALIZATION POLICY
8/3/2019 Ubl Capitalization vs Expensing
9/31
OBJECTIVES & SCOPE
Operating fixed asset policy is being framed to
stream line and bring in consistency in
recording and maintaining tangible and
intangible asset throughout the network.
In formulating this policy, the instruction and
guidelines given in the following standards are
followed by the UBL Bank:
1. International Accounting Standards (IAS),
2. International Financial ReportingStandards (IFRS),
3. Banking Ordinance 1962,
4. Companies Ordinance 1984, and
5. Instructions issued by State Bank of
Pakistan.
8/3/2019 Ubl Capitalization vs Expensing
10/31
OBJECTIVES & SCOPE
The objective of the policy is to provide a
uniform set of guidelines on the capitalization,
carrying values, depreciation and disposal of
the operating fixed assets of the bank.
The guidelines outlined in this policy manual
will be applicable to all branches, regional
offices and divisions at banks head office in
Pakistan.
8/3/2019 Ubl Capitalization vs Expensing
11/31
CLASSIFICATION OF FIXED
ASSETS
8/3/2019 Ubl Capitalization vs Expensing
12/31
CLASSIFICATION OF FIXED ASSETS
CAPITAL EQUIPMENT CATEGORYUSEFUL
LIFE
RESIDUAL
VALUE
DEPRECIATION RATE
Years Percentage
Tangible Immovable Assets
Freehold land - - -
Building on freehold land 20 - 5%
Lease hold land Lease term
Building on leasehold land 20 - 5%
Improvement on leasehold building
10 - 10%Tangible Movable Assets
Furniture and fixtures:
Carpets, curtains & library books 4 - 25%
Others 10 - 10%
Electrical, Office and IT Equipment
Laptops 3 10% 33%
Smart phones 3 - 33%
Telecom and other IT hardware 4 - 25%
Electrical and office equipment 5 - 20%
Vehicles
Own use of the bank 5 10% 20%
Given on lease (Ijarah) Security deposit Period of contract
Intangible Assets
Core banking solution 10 - 10%
All other software 4 - 25%
8/3/2019 Ubl Capitalization vs Expensing
13/31
CAPITALIZATION LIMIT
MATRIX
8/3/2019 Ubl Capitalization vs Expensing
14/31
CAPITALIZATION LIMIT MATRIX
Asset Category Rupees
Fixed & fixtures
Chairs 5,000
All other 10,000
Electrical, office and IT
equipment
Printer and scanners 5,000
Cabling (data, power and voice) 20,000
All other 10,000
Vehicles
Own use of bank 15,000
Given on lease (Ijarah) Actual
Software 10,000
8/3/2019 Ubl Capitalization vs Expensing
15/31
INITIAL RECOGNITION OF A
FIXED ASSET
8/3/2019 Ubl Capitalization vs Expensing
16/31
INITIAL RECOGNITION OF AN ASSET
An asset will be recognized as an fixed asset
only when it meets the following criteria:
1. If it is held for use in banks operation or for
rental for others e.g. Ijarah etc.,2. Has life of more than one year,
3. Is over the capitalization limit matrix,
4. It is probable that the future economic,
benefits will flow to the entity, and
5. The cost of the asset can be measuredreliability.
Any item falling outside these criteria / limit
will be expense out.
8/3/2019 Ubl Capitalization vs Expensing
17/31
INITIAL RECOGNITION OF AN ASSET
The cost of an item of property, plant andequipment comprises:
1. Purchase price, including import duties and
applicable taxes after deducting any trade
discounts, rebates and refundable taxes,2. Any cost directly attributable to bring the
asset to the location and condition necessary
for it to be capable of operating in the manner
intended by the banks management,
3. Professional fees on acquisition e.g. architectsand engineers fee,
4. Cost of construction,
5. Cost of site preparation,
6. Installation and assembly cost, and
7. Costs of testing.
8/3/2019 Ubl Capitalization vs Expensing
18/31
INITIAL RECOGNITION OF AN ASSET
Subsequent Expenditure:
1. Any expense in the nature of repairs and
maintenance does not qualify for
capitalization.
2. Any other expense does not meet the criteria
for capitalization and have an immaterial
amount also does not qualify for
capitalization.
8/3/2019 Ubl Capitalization vs Expensing
19/31
MEASUREMENT AFTER
INITIAL RECOGNITION
8/3/2019 Ubl Capitalization vs Expensing
20/31
MEASUREMENT AFTER INITIAL RECOGNITION
According to IFRSs there are two models whichan entity shall use as its accounting policy:
1. Cost Model
2. Revaluation Model
UBL follows Revaluation Model, which statesthat, after recognition of an asset, an item of
property plant and equipment whose fair value
can be measured reliable shall be carried at a
revalued amount.
Fair value at the date of revaluation less (-) any
subsequent accumulated depreciation and
subsequent accumulated impairment losses.
8/3/2019 Ubl Capitalization vs Expensing
21/31
MEASUREMENT AFTER INITIAL RECOGNITION
UBL revalued there fixed assets once in every three
years or when there are reasons or indications that
the carrying amount differs significantly from the
fair value of the asset, revaluation will be carried
out.
If any category of the operating fixed assets is
revalued, the entire assets falling in that category
will be revalued.
Any increase in the value of the asset as a result of a
revaluation will be recognized and accumulated in
the equity under the heading Revaluation Surplus
Any decrease in the value of the asset as a result of a
revaluation will be recognized in the profit and loss
as an Impairment Loss.
8/3/2019 Ubl Capitalization vs Expensing
22/31
DEPRECIATION
8/3/2019 Ubl Capitalization vs Expensing
23/31
DEPRECIATION
UBL depreciate the amount of an asset on
straight line basis over the useful life of an
asset.
Depreciation on addition is to be charged in themonth of addition and no depreciation is
charged on the month of disposal.
Useful life is to be reviewed periodically and, if
the remaining expected life differs significantly
from previous estimate, the depreciation rate
is to be adjusted to account for change in
expectation.
8/3/2019 Ubl Capitalization vs Expensing
24/31
DEPRECIATION
The depreciation method applied to an asset
shall be reviewed at least at each financial year-
end and, if there has been a significant change in
the expected pattern of consumption of the
future economic benefits embodied in the asset,the method shall be changed to reflect the
changed pattern.
8/3/2019 Ubl Capitalization vs Expensing
25/31
IMPAIRMENT
8/3/2019 Ubl Capitalization vs Expensing
26/31
IMPAIRMENT
Impairment Loss is the amount when the
carrying amount (Book Value) of an asset
exceeds its recoverable amount (Market Value).
UBL assess at the end of each reporting periodwhether there is any indication that an asset
may be impaired.
If any such indication exists, the entity shall
estimate the recoverable amount of the asset
and immediately record the impairment loss.
8/3/2019 Ubl Capitalization vs Expensing
27/31
IMPAIRMENT
In Assessing whether there is any indicationthat an asset may be impaired, UBL consider the
following indication from external sources:
1. Fluctuations in assets market value during
the period.
2. Significant changes with adverse effects on
the bank in the technological, market,
economic or legal environment in which theentity operates.
3. Fluctuations in the market interest rates or
other market rates of return on
investments.
8/3/2019 Ubl Capitalization vs Expensing
28/31
IMPAIRMENT
In Assessing whether there is any indicationthat an asset may be impaired, UBL consider the
following indication from internal sources:
1. Any obsolescence or damage of an asset
2. Any evidence from the internal reporting
that the economic performance of an asset
will be worse than expected.
3. Significant changes with adverse effects on
the bank, e.g. asset becoming idle, plans to
discontinue as asset, reassessing the useful
life of an asset as finite rather than infinite.
8/3/2019 Ubl Capitalization vs Expensing
29/31
DERECOGNITION
8/3/2019 Ubl Capitalization vs Expensing
30/31
DERECOGNITION
The carrying amount of an item of property,plant and equipment shall be derecognized:
1. On disposal\sale; or
2. When no future economic benefits are
expected from its use or disposal.
The gain or loss arising from the derecognition
of an item of fixed asset shall be determined as
the difference between the net disposal
proceeds and the carrying amount of the item.
The gain or loss arising from the derecognition
of an item of property, plant and equipment
shall be included in the profit and loss when the
item is derecognized.
8/3/2019 Ubl Capitalization vs Expensing
31/31
THANK YOU