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Appreciation and Depreciation of Assets


Since various assets perform differently over time, it is important to understand how those assets will affect the system’s accounting and finances. Asset types have different performance or decay curves. The condition of gray assets typically begins to deteriorate as soon as they are put into service. Green assets can be the opposite. A green asset’s condition might improve over the first few years of the asset’s life, and then flatten out for a period (possibly an extended period) and eventually begin to decay. For either type of asset, intervening with maintenance, repair and/or rehabilitation returns functionality to the asset and extends its life. System staff must think about how the asset condition will impact the accounting records for the system. Be aware that maintaining an asset not owned by the system can affect the way accounting recognizes those expenditures. This situation might not be a major issue for small maintenance expenditures, but for large expenditures on natural assets, such as forest thinning, it might be difficult for expenditures to be seen as a capital expense. More information can be found in The Water Research Foundation Project No. 4727, Asset Management Framework for Forested and Natural Assets, Section 10.2.2.