Service Value and Componentized Accounting of Infrastructure Assets

Abstract

Asset management is a strategic tool for maintaining the value of an asset at a level that is satisfactory for users, asset owners, and taxpayers. This paper introduces the concept of service value. The concept is applied following the recommendations of the Organisation for Economic Co-operation and Development (OECD): service value equals the value of economic benefits generated by an asset. It is shown how alternative value accounting methods result in different asset values. The present value method, as recommended by accounting practitioners and in line with the concept of service value, is more appropriate for asset management purposes than the perpetual inventory method (PIM), despite the fact that the latter is more widely used. The impact of correct asset and service value accounting extends well beyond project and investment program management levels to the national accounting system of fixed capital. Incorrect asset management accounting may lead to serious under- or overestimation of investments and repair debt.