The purpose of this policy is to prescribe the financial reporting requirements for library collections at University of Canberra.
In determining whether a purchased item should be capitalised or expensed, the future service potential of the item must be considered. Similarly, service potential considerations are essential in determining the useful life of an asset. The service potential of a library collection is the cornerstone for any library accounting policy. For the purposes of this policy, service potential is determined with reference to the availability of the information, i.e. the period of time over which an item is able to be accessed and used.
CLASSIFICATION OF COLLECTIONS
A library is generally made up of a variety of different collections, or types of books and other materials. For financial reporting purposes, the following classifications are to be used:
Common use collections
- Common use collections;
- Reference collections; and
- Closed collections (Heritage)
A common use collection is usually comprised of a large number of low value items which are used in the day-to-day operations of the library, e.g. undergraduate text books and technical publications. These items, in most instances, may be borrowed. Due to a pattern of declining use, obsolescence and of physical deterioration over time, library materials in these collections generally have a short period of service potential (e.g. the greatest usage is within the first year). Individual items are continually being updated and replaced.
Reference collections usually include both general and specialised items. These items are usually not able to be borrowed, but are available for use, even if archived. Generally, these items have variable uses (e.g. undergraduate and research purposes), and have a longer useful life than common use collections, but are not held indefinitely. If possible, these items would generally be replaced if lost or damaged.
Closed collections (Heritage)
A closed collection is a permanently retained collection which has heritage, cultural or historic value that is worth preserving indefinitely and to which sufficient resources are committed to preserve and protect the collection and its service potential. The collection is generally held for public exhibition, education, or to provide a service to the community. Closed collections are not usually available for sale, for redeployment or for an alternative use.
Items are to be allocated across the different collections by the UC, based on their attributes. For example, items making up a law library may be split across the collection types, based on their attributes (i.e. some parts of the law library may be heritage, while others may be reference or common use). In addition, periodicals, subscriptions and electronic media with archive access can be split over the three classification types.
Professional judgment will be required to assess the characteristics of each item to determine its correct classification. In determining the correct classification, considerations may include:
Common use collections
- The useful life of the material – is it limited, long term or indefinite?;
- How the items are stored and used; and
- The nature of library expenditure within that category – regular replacement of holdings, expenses related to controlling the environment in which the asset is used, etc.
The greatest usage of items within these collections would occur within the first year, with a rapid decline over subsequent years. In recognition of their limited life and the cost/benefit of valuing collections with a high turnover of material, common use items are to be expensed on acquisition.
A system to ensure the security of common use collections remains the responsibility of UC Library Management, even though these items are expensed on acquisition.
Based on their longer periods of service potential to the library, material reference collections are to be capitalised and recognised at fair value, based on the methodology outlined below. The advice from independent valuer is to depreciate this over 10 years.
Items in this category are to be recognised in the Balance sheet as ‘Library Reference Collection’.
Fair value is to be determined using average replacement cost, based on the average cost of purchases over a period considered as most closely providing an accurate average value for the collection. This cost is to be applied to all capitalised materials in the collection at year end. It is considered that a five year period would provide an accurate average value; the basis for determining the appropriate ‘averaging’ period should be documented by UC Library. Once determined, this period should be consistently applied. A maximum rolling of five year period is considered appropriate for determining average replacement cost based on the following:
- Five years is consistent with the business practice for revaluation of library collections.
- Five years should provide a smoothing of any peaks and troughs experienced in the cost of books. For example, there may be one year when a large number of high value law reference items are purchased. If this average cost was applied to all items in the collection, over inflation of the fair value may result. Using a five year rolling average cost should result in this peak being effectively managed.
This average cost should then be applied to all capitalised items including material acquired for no cost, ensuring these are assigned a replacement value.
Any changes in the fair value of the collection are to be recognised in the Asset Revaluation Reserve. Revaluation increments and decrements are to be accounted for in accordance with AASB 116 Property, Plant and Equipment
Removal of items from collection
To ensure a materially accurate valuation, assessments by UC Library must be made on a regular basis to determine whether items are still providing benefit or whether they should be removed from the collection. This may be included as part of the stock take process, i.e. an assessment is made of each item as it is physically verified. At a minimum, all capitalised items should be considered at least once every three years to determine whether they should be removed from the collection.
UC will depreciate the cost of the reference items over 10 years and in deciding the economic life the following factors had been taken in to account to assess the UC library collections.
- Physical lives – how long the item will last, taking into account user populations and climatic conditions or subject matter; and
- Relevant lives – the period during which the content or subject matter is relevant to the library’s user population
The above approach has been supported by the independent valuation officer engaged by UC in 2008.
UC obtain an independent valuation of Closed and Reference collections at least once every five years, and UC must obtain independent confirmation that the methodology being applied is appropriate.
Closed collections are to be capitalised and recognised at fair value, based on the methodology outlined below.
A recognition threshold of $5,000 is to be applied to the closed collections. If the value of the collection as a whole is less than $5,000, then it must be expensed, similar to common use items.
Items in this category will form part of the “Library – Closed collections” class in the balance sheet.
As with all property, plant and equipment, valuations can be performed by either:
- An independent valuer;
- An in-house valuer; or
- A combination of independent and in-house valuers.
To ensure fair, ‘arm’s length’ valuations of closed collections, it is preferred that revaluations be undertaken by independent, professionally qualified experts. However, there may be few independent valuers with the expertise to value certain collections. In these instances, employees with relevant expertise/knowledge may undertake an in-house review.
Closed collections are generally subject to stringent curatorial preservation techniques. As a result, they may have an indefinite life, may be held in perpetuity and appreciate in value. Library Operational Rules exist to restrict access to Reference and Closed Collection items and mandate retention of items in the Closed Collections. Therefore no depreciation will be applied.
PERIODICALS, ELECTRONIC MEDIA AND INTERNALLY DEVELOPED INFORMATION
Periodicals and Subscriptions
Generally, periodicals and subscriptions would be regarded as common use and expensed on acquisition. However, it may be appropriate for some of these items to be included in either the reference or closed collections. Therefore, UC Library will determine the correct classification for individual items and account for them accordingly.
Access to electronic media is generally obtained by either outright purchasing of the information or through a licence agreement. Under either method, the issue of control, as well as expected economic benefits, must be considered when determining whether
capitalising or expensing is appropriate.
When electronic media is purchased outright, control over the asset is generally obtained to partially satisfy the asset recognition criteria. Assuming the other asset recognition criteria are satisfied, the UC Library will determine the correct classification of the individual items of electronic media, and account for them accordingly.
When information is accessed through a licence agreement, there is no access to the information unless the licence fee is paid and other terms of the agreement are met, e.g. access rights and copyright clauses apply. Where this occurs, the UC does not have control of the information. Consequently, the annual licence fee should be expensed, and not recognised as an asset.
However, where the UC has archival access, capitalising this electronic media may be appropriate, as the benefit lasts for more than one year. The UC Library will determine the correct classification of the individual items of electronic media, and account for them accordingly.
In accordance with AASB 136 Impairment of Assets
, UC will annually assess whether there are indicators that library assets are impaired.
There may be instances of impairment for heritage books, e.g. questions over the authenticity of the item, or an item being damaged during a flood. While a heritage book may be water damaged, it may be retained for its historical value, even though the fair value of the book may have decreased.
Professional judgement should be used to identify indicators of impairment for library collections..
In addition to normal disclosures for non-current physical assets, UC must disclose in its financial statements:
PHYSICAL SECURITY AND VERIFICATION
- The basis on which collections are classified;
- Whether collections are capitalised or expensed, and the basis for this;
- If capitalised, how the fair value of the collections is determined; and
- If capitalised, whether collections are depreciated, and the basis for this;
Stock takes of capitalised collections should be undertaken every three years. Ideally, capitalised collections should be physically verified on an annual basis however, a rolling three-year stock take may be employed. A formal stock take of expensed collections may not be considered necessary. However, sufficient controls must be implemented to allow proper management of the holdings and to ensure security of the collections.