Effective:

Applicable FAM Policies: 510 - Tangible Capital Assets

Applicability: GNWT Departments and Public Agencies

INTERPRETATION

A betterment is additional money spent on an existing Tangible Capital Asset (TCA) for an improvement to the original TCA and will generate future benefits beyond those estimated at the time the TCA was acquired.

Costs attributed to a replacement of a component of the original asset, (for which the original component cost has been removed from the original asset) are to be capitalized as a stand-alone asset with an estimated useful life that is appropriate for its intended use.

The cost of a betterment must be added to the original asset cost and be amortized over the remaining estimated useful life.   If the betterment increases the useful life of a TCA it is amortized over the balance of the revised useful remaining life. Betterments do not include repairs and maintenance required to restore the TCA to its condition before any damage.

In advance of incurring any expenses, departments and public agencies are to determine, if the work meets the definition of a betterment (keeping in mind capitalization thresholds).  Expenses should be recorded as a capital or operational expenditure from the beginning of the project to ensure the integrity of the entity’s financial information.

Betterments versus Repairs: Any cost to ensure the existing service potential of a TCA is maintained is repairs and maintenance. The cost to enhance the service potential of a capital asset is a betterment. If the cost has the attributes of both a repair and a betterment, the portion considered to be a betterment, if reliably determined, is to be added to the recorded cost of the original TCA. Service potential may be enhanced when there is an increase in the previously assessed physical output or service capacity, associated operating costs are lowered, the useful life is extended, or the quality of output is improved.

Examples of betterments:

1. A betterment can be the replacement of a major component of a TCA with a significantly improved component such as the replacement of an ship engine with a more powerful engine increasing the ships operating capacity.  This is an example where it would be a component of the ship with its own distinct expected life span. This example should be recorded as a component of the TCA.
2. A betterment can be a large, non-recurring expenditure that increases the utility or service life of an asset beyond the original estimate e.g. major renovation to an old building that will extend the useful life past that originally estimated.
3. A betterment can be an addition that is an integral part of an existing TCA, e.g. an extra wing or room added to a building or the addition of a production unit to an existing machine or a software module addition or upgrade. The betterment does not increase the useful life but does expand its capacity.
4. A betterment can be replacing all windows in a building where the expectation is a significant decrease in operating costs. The original life is not extended however the building is now significantly cheaper to operate.