NNPCL Finance and Accounts Property PDF

NNPC Limited Finance and Accounts Process and Procedures 6.0 Property Plant and Equipment Management 6.1 Objectives This policy provides for guidelines on all activities to be performed in the acquisition, recording, capitalization, transferring and disposal of Property, Plant and Equipment. The p...

NNPC Limited Finance and Accounts Process and Procedures 6.0 Property Plant and Equipment Management 6.1 Objectives This policy provides for guidelines on all activities to be performed in the acquisition, recording, capitalization, transferring and disposal of Property, Plant and Equipment. The processes under this section are designed to ensure:  Adequate procedures for acquiring, classifying, recording, transferring, and disposing of PP&E  Adequate procedures for tagging and verifying NNPC Limited’s PP&E  Depreciation rate for PP&E classes are consistently applied across each class of asset within NNPC Limited in line with the approved accounting policies; and  Adequate procedures for assessing and recognizing impairment of NNPC Limited’s property, plant, and equipment (where necessary), and in line with the requirements of IFRS. 6.2 Scope/Applicability The sub-processes covered under PP&E management include:  Asset acquisition and capitalization;  Asset safeguard and control (tagging, verification, and reconciliation) 6.3  Depreciation of assets  Impairment of assets  Transfer of assets  Disposal of assets Property, Plant and Equipment Policy Statements 49 NNPC Limited Finance and Accounts Process and Procedures It is the policy of NNPC Limited to ensure effective management of its Property, Plant and Equipment as well as safety of the assets.  All procurement of fixed assets shall be carried out in strict compliance with the Supply Chain Management (SCM) policy and procedural guide.  All amounts expended on Property, Plant and Equipment, above the defined threshold and whether purchased, constructed or leased, shall be capitalised and depreciated, except for land.  All PP&E owned by NNPC Limited, and its subsidiaries shall be classified, recorded and reported in line with the provisions of the applicable IFRS (IAS 16).  All PP&E capitalised amounts shall be verified and tested for impairment on an annual basis in line with regulatory requirements. 6.4 Procedural Guidelines for PP&E Management 6.4.1 Asset Acquisition Guidelines  All PP&E acquisitions shall be made in accordance with the provisions of the approved Capital Expenditure (CAPEX) budget for the year using only MM Module.  PP&E requisitions must be reviewed and approved by the relevant HOD of the originating department.  PP&E procurement shall be conducted in strict compliance with the Supply Chain Management Policy and Procedural Guide.  Where an asset has been delivered, the SCM Officer who took delivery of the asset shall notify the User Department, GRC and the PP&E Accountant within 24 hours of delivery.  Delivered asset shall be jointly inspected by a representative from the User Department and a staff from the GRC to ensure that goods 50 NNPC Limited Finance and Accounts Process and Procedures supplied meet the required specifications and conditions stated in the contract.  If the delivered asset is acceptable after inspection, the transaction source documents (i.e., Delivery Note, Waybill, Copy of PO, Goods Receipt Note, job completion reports etc.) shall be sent to the Be sent to Budget and Projects Department within Unit within 24 hours of certification.  The SCM Department or the User Department shall notify the insurance department of all PP&E acquisitions for insurance purposes. The insurance process shall be initiated upon receipt of an asset and before its deployment for use. Refer to the Insurance Management Policies and Procedural Guide for details.  All capitalised assets shall be insured against fire, theft and natural disasters at minimum.  All acquired assets shall be initially recognised at cost. The cost of the asset shall include import duties and non-refundable purchase taxes, and any cost directly attributable to bringing the asset to a working condition for its intended use. Refer to the NNPC Limited’s Accounting Policies for details.  Subsequent to initial recognition, property, plant & equipment shall be reported at their acquisition cost less accumulated depreciation and any accumulated impairment losses.  A PP&E register shall be maintained for all tangible assets. Key information to be tracked about each asset shall include date of purchase, description, asset code, category, location of asset, cost of asset, accumulated depreciation on asset and net book value.  Where NNPC Limited or its Subsidiaries receive an asset as a gift or donation, the same shall be accepted through a formal acceptance agreement. The F&A Unit shall be informed for proper valuation of asset acquired as well as for making necessary entries the fixed asset 51 NNPC Limited Finance and Accounts Process and Procedures register. These valuations shall be based on a market value at the time of receipt. 6.4.2 Asset Capitalisation Guidelines  The capitalisation threshold for PP&E shall be ₦1,000,000 or $5,000 for moveable and non-moveable assets.  Components of an asset shall be capitalised if the cost of the component is within or exceeds the capitalisation threshold stated in this policy. However, in certain cases, it is appropriate to aggregate individually insignificant value items such as chairs and tables, printers, computers and UPS etc. and apply the capitalisation threshold to the aggregate value.  Any expenditure subsequent to acquisition of an asset which increases the operating capabilities of the asset and or the useful life of the asset shall be capitalised. Such expenditure shall include major additions or major improvement to existing assets. Examples of such additions also include expansion, extension, etc.  Leasehold improvements shall be capitalised if up to the capitalisation threshold stated above. 6.4.3 Asset Tagging Guidelines The following asset tagging guidelines shall apply to NNPC Limited and its Subsidiaries:  All capitalized fixed assets owned/controlled by NNPC Limited, and its subsidiaries shall be affixed with barcode tags. The only exceptions shall be buildings, land and improvements and any other assets that cannot be removed or stolen.  Under no circumstance shall the tags be removed or altered except under appropriate management approval. 52 NNPC Limited Finance and Accounts Process and Procedures  The tags shall be consistently placed in the same location on each similar asset type. The tags shall be placed, if possible, where they can be:  Easily accessible  Easily identifiable without disturbing the operation of the asset.  The PP&E Unit shall be responsible for overseeing the tagging of all physical assets. The tagging shall be done by a designated administrative officer in the user department.  Assets shall be tagged upon receipt by the user department before the asset is deployed for use. If an asset must be assembled before the tag can be affixed, the Administrative Officer will monitor the asset and coordinate with the destination department to tag the asset upon assembly completion.  Where more than one (1) quantity of the same asset is included in the fixed asset register, each asset shall be tagged separately with its unique code but under same asset class.  A fixed asset acquired or constructed as an accessory or modification to an existing asset that is already included in the asset register shall not be tagged; rather, it shall be treated as an improvement to the existing asset.  However, where the accessory or modified asset is not a permanent addition to the existing asset, it should be tagged and tracked separately.  Where a tag on a fixed asset is missing, worn out, damaged or require replacement, the Administrative Officer for the respective User Department shall notify the PP&E Unit for immediate remediation. 6.4.4 Asset Verification and Reconciliation Guidelines 53 NNPC Limited Finance and Accounts Process and Procedures  The verification exercise shall be performed on a bi-annual basis and coordinated by Budget and Projects department that performs a supervisory role of all Assets across the NNPC Limited and its Subsidiaries.  The verification shall involve confirming the existence, location and condition of each asset, and comparing them against the fixed asset register.  An Asset Verification Team (AVT) shall be responsible for conducting such exercise. The AVT shall consist of:  PP&E personnel  Finance and Account Department personnel at each subsidiary  GRC  User department personnel  Specialist from technical departments  Store personnel/administrative officers  In the course of asset verification, the validation of the assets listed in the asset register shall be done with an asset count sheet which shall be signed off by the PP&E Manager and the representative from GRC.  The PP&E Unit shall prepare a detailed Fixed Asset Verification and Reconciliation Report. Inconsistencies between the physical count and the asset register shall be duly investigated following consultations with the Head of Finance and Accounts, Head of User Department, and Stores Personnel and Technical Experts.  Where assets listed in the PP&E register are observed to be damaged or not in use within a given period, such observations shall be flagged in the Fixed Asset Verification and Reconciliation Report. 54 NNPC Limited Finance and Accounts Process and Procedures  PP&E General Ledger (GL) balance shall be reconciled to the PP&E register on a monthly basis to ensure that movements (i.e., acquisitions, disposals and transfers) and reclassification of the PP&E accounts are accurately recorded and classified. 6.4.5 Asset Depreciation Guidelines  Depreciation of an asset shall begin when it is available for use, i.e., when it is in the location and condition necessary for it to be capable of operating in the manner intended by management.  Once an asset’s cost is capitalised, it shall be written off periodically or depreciated, in a systematic manner over the useful life of the asset.  Depreciation shall be computed on a monthly basis and charged against the results of operations in that month. Refer to the NNPC Limited’s Accounting Policy for Depreciation accounting.  Capital improvements to PP&E shall be depreciated over the remaining useful life of the asset. 6.4.6 Asset Impairment Guidelines  An annual assessment shall be undertaken each year to determine the extent, if any, to which PP&E may have been impaired. This consideration enhances confidence of users of financial statements that the carrying amounts of assets have not been overstated. Where annual inspection is impractical, inspections shall be undertaken within more suitable operational time frame.  This assessment shall be documented and recorded as part of the annual financial statements, for review by the external auditors.  An item of PP&E shall be deemed to be impaired if it meets the following conditions: 55 NNPC Limited Finance and Accounts Process and Procedures  The asset's market value has declined significantly more than would be expected, as a result of the passage of time or normal use during the period.  Significant changes with an adverse effect on the entity have taken place during the period, or will take place in the near future, in the technological, market, economic or legal environment in which the entity operates or in the market to which an asset is dedicated.  The carrying amount of the net assets of the entity is more than its market capitalisation.  Evidence is available of obsolescence or physical damage of the asset.  Evidence is available from internal reporting that indicates that the economic performance of an asset is, or will be, worse than expected. Please refer to Impairment of Non-Financial Asset section in the Group Accounting Policy manual for details. 6.4.7 Asset Transfer Guidelines This refers to the transfer of assets from one department, division or subsidiary to another. Asset transfer shall represent a retirement of the asset for the transferring party and an acquisition for the receiving party. The following guidelines shall apply in the transfer of assets within NNPC Limited and its Subsidiaries:  Transfer of assets between parties with similar company codes shall be regarded as an intra-company transfer while a transfer between parties with dissimilar company codes shall be regarded as an intercompany transfer.  The transfer of an asset from an entity to another shall be initiated using an asset transfer form. This shall be duly signed by the HOD of 56 NNPC Limited Finance and Accounts Process and Procedures the user department and the Head of Finance and Accounts of the requesting entity.  Asset transfer shall be sanctioned by the Head of Finance and Accounts of the transferring entity taking into consideration the asset cost, location, the justification for such transfer, and the availability of the asset for transfer by the entity.  The checklist shall contain the following inter alia:  Asset type  Asset code  Asset name and description  Current location  Current condition  Designated trustee  Assets shall be transferred at net book value. Depreciation on assets transferred shall continue over the remaining useful life of the asset except in instances where the asset transferred is revalued or the expected useful life is re-assessed.  All asset transfer shall be endorsed by the CFO and approved by the CEO. 6.4.8 Asset Disposal Guidelines The following guidelines shall apply in the disposal of fixed assets by NNPC Limited and its Subsidiaries:  A Corporate Assets Boarding and Disposal Committee (CABDC) shall be constituted by the CFO at the Corporate level subject to approval by the CEO. The CABDC shall have a Chairman not below the level of GGM and Secretary to be nominated from Budget and Project department of Federation Accounts Division. 57 NNPC Limited Finance and Accounts Process and Procedures  Membership of the CABDC shall comprise representatives from Assets Section, Supply Chain Management, Insurance, Legal, GRC, Security, General admin Service departments, NUPENG and PENGASSAN.  At respective Subsidiaries, there shall be an Asset Disposal Committee (ADC) shall be constituted by the Head of Finance and Accounts subject to approval by the respective MD.  The membership of respective Subsidiaries ADC shall be drawn from Assets Section, Supply Chain Management, Insurance, Legal, Audit, Security, General admin Service departments, NUPENG and PENGASSAN.  The ADC at the SBUs shall collaborate with CABDC for all activities relating to assets disposal. The CABDC shall coordinate and supervise the ADC at the SBUs for matters relating to boarding and disposal of assets.  All boardable assets at the corporate level, SBUs and CSUs shall be submitted to NTB for approval through the Chairman or Secretary of CABDC before any disposal of assets can be carried out.  There shall be no disposal of any assets (including JV assets) across NNPC Limited and its Subsidiaries without the approval of NTB.  Membership of Assets Accountant in the Assets Disposal Committee (ADC) at the SBU level shall be compulsory.  The Committee shall be charged with the responsibility of assessing the disposals proposed by the user departments and coordinating the disposal of approved PP&E items. However, in the case of status assets assigned to management staff such as cars etc., the disposal will be determined by HR policy and guidelines. 58 NNPC Limited Finance and Accounts Process and Procedures  The ADC shall determine if the asset to be disposed is useful in another business location or department. They shall consider the following:  Whether there are net disposal benefits, either in financial or other forms.  Whether there are secondary service obligations associated with the asset which may necessitate its retention  Whether a disposal can be carried out without adverse impacts on the physical environment.  A minimum of 60% of the Committee members shall constitute a quorum. The Chairman of the Committee shall call a meeting as may be required with a five-day (working days) notice period at minimum.  An asset shall also be considered for disposal when such asset is:  permanently withdrawn from use  In a non-usable state  has no future economic value  badly damaged and no more economically feasible to repair.  Any gain or loss arising, being the difference between any disposal proceeds and the carrying amount, shall be recognised as profit or loss in the Statement of Comprehensive Income.  A PP&E register/schedule of all disposed assets shall be maintained by the PP&E Unit and presented to the external auditors each year.  Recommendations for replacement or disposal of movable assets, which have not been fully depreciated, shall originate from the user department. This request shall be in writing, duly signed by the HOD, addressed to CABDC through the Head, Finance and Accounts and shall contain at the minimum: 59 NNPC Limited Finance and Accounts Process and Procedures  Asset code and location;  Depreciation charge on the asset;  Date of acquisition;  Justification for disposal;  Cost of acquisition;  Book value;  Estimated resale value;  Name, signature, and designation of the originator; and  Name, signature, and designation of the head of the division/department.  The disposal price for PP&E shall be determined by an open bid process (in line with the requirements of the SCM policy and procedural guide) or a reserved price as determined by the ADC/CABDC.  The disposal of assets to registered third parties called salvage buyers shall be duly approved for boarding by senior management. The disposal shall be conducted via an open competitive bidding and asset shall be sold to the highest bidder.  NNPC staff shall have the first bidding right for all movable assets approved for boarding by management. Disposal shall be by secret balloting, and the asset will be sold at a reserved price to staff, who shall have the first right of refusal.  The Finance and Treasury Department shall oversee receipt of payment for disposed asset and issue a receipt to the buyer. This receipt alongside the ADC/CABDC report and approval shall form the basis for derecognising an asset from the GL. 60 NNPC Limited Finance and Accounts Process and Procedures  All assets that have been disposed shall only be transferred to the buyer upon receipt of evidence of payment from Treasury Department.  Accounting entries for asset disposal and decommissioning costs shall be in line with the applicable IFRS as contained in the Group Accounting Policy. 6.5 Compliance Governance, Risk and Compliance (GRC) shall perform periodic review of the execution of this Policy for compliance and report any infringement to the Board. Where the need arises, the GCEO is authorized to grant exceptions to the application of this policy, and thereafter seek ratification from the NNPC Limited Board. 6.6 References  SCM Policy and Procedural Guide  Group Accounting Policy 61