| Guidance on accounting for landfill sites to be applied from 1 April 2023 |
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Inconsistent accounting by entities involved in waste disposal activities resulted in the development of guidance by the Board. The Guideline on Accounting for Landfill Sites will be included in the GRAP Reporting Framework for periods commencing on or after 1 April 2023.
From this date the Guideline should be considered by entities that are required to comply with the legislative requirements applicable to general and hazardous landfill sites. The Guideline can, by analogy, also be applied by entities that recognise other rehabilitation provisions. If applied, entities should be mindful of the specific legislation governing these provisions. |
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| Accounting for land used in landfilling |
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The following principles are applicable in accounting for land used in landfilling: Land can only be recognised as an asset when the definition and recognition criteria are met. For the definition of an asset to be met, an entity needs to control the land.
The criteria in IGRAP 18 on Recognition and Derecognition of Land are applied to assess control. When an entity concludes that there is joint control of land, for example at a regional or central landfill site, the criteria in GRAP 37 on Joint Arrangements are applied to account for the land. Land is classified as property, plant and equipment in accordance with GRAP 17 on Property, Plant and Equipment. The land is accounted for separately from other landfill site assets.
If not currently classified as such, land controlled by an entity is reclassified as property, plant and equipment when it is used for landfilling. Land is assessed for impairment using GRAP 21 on Impairment of Non-cash Generating Assets, or GRAP 26 on Impairment of Cash Generating Assets following the reclassification.
When land is specifically acquired for landfilling, it is measured at cost on acquisition. If it is acquired in a non-exchange transaction, the land is measured at fair value in accordance with GRAP 23 on Revenue from Non-exchange Transactions (Taxes and Transfers). If the land is acquired in a transfer of functions or merger, the principles in GRAP 105 on Transfer of Functions Between Entities Under Common Control, GRAP 106 on Transfer of Functions Between Entities Not Under Common Control or GRAP 107 on Mergers are applied to account for the land. After initial recognition, an entity either applies the cost model or the revaluation model to measure the land. As land has an unlimited useful life, it is not depreciated but only assessed for impairment at each reporting date. If the land no longer meets the definition of property, plant and equipment when the landfill operations cease, and the end-use plan is implemented, land is reclassified to account for the change in use. For example, land is reclassified to either inventory, investment property, or heritage assets. |
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| Accounting for landfill site assets |
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As with the recognition of land, a landfill site asset (hereafter referred to as “the asset”) is recognised when the definition and recognition criteria are met. It is also classified as property, plant and equipment as the asset will be used during more than one reporting period, and will be used in the production or supply of goods and services.
On initial recognition, the asset is either measured at cost, or fair value if acquired in a non-exchange transaction. When acquired in a transfer of functions or merger, the principles in GRAP 105, GRAP 106, or GRAP 107 are applied.
Initial cost of the asset
The cost of the asset comprises the following three elements: the purchase price – this include costs incurred to acquire, develop, and construct the asset and is the cash price equivalent of the assets acquired at recognition; costs directly attributable to bringing the asset to its location and condition necessary for it to be capable of operating in the manner intended by management. This includes, for example, internal and external site labour costs, cost of materials required to develop and construct the asset, and depreciation costs of plant used for development and construction; and an initial estimate of the costs to dismantle and remove the asset and restore the site on form which the landfill site is operated. After initial recognition, the entity either measures the asset in accordance with the cost model or the revaluation model. The principles in GRAP 21 or GRAP 26 are applied at each reporting date to assess impairment.
Costs to develop and construct the asset
Costs incurred to develop and construct the asset before approval is received from the licencing authority to operate the landfill site, are expensed. This is because an entity is unlikely to demonstrate that the landfill site will generate future economic benefits or service potential prior to approval being granted.
Costs incurred to develop and construct the asset after approval is received from the licencing authority, are either expensed or capitalised. The decision to expense or capitalise costs is based on an entity’s existing accounting policies, and criteria, such as if: it is probable that the asset will generate probable future economic benefits or service potential; it is technically feasible that approval will be obtained to operate the site; and the entity is able to complete the asset so that it is available for use. Any costs incurred after development and construction can only be capitalised to the asset if the recognition criteria for an asset are satisfied. Day-to-day operating costs are recognised in surplus or deficit, as incurred.
Depreciation
Each part of the asset with a cost that is significant in relation to the total cost of the asset, is depreciated separately. Depreciation of the component commences when the asset 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. Depreciation of the landfill site asset ceases on the day that the asset is derecognised.
The useful life of the asset is the period that the site is available for use, i.e., while the site is in operation and stores waste. The useful life of the significant parts of the assets, and the individually insignificant parts, cannot exceed the useful life of the site.
At each reporting date, an entity needs to assess if there is any indication that: its expectations about the site’s useful life; the depreciation method; and the asset’s residual value have changed since the preceding reporting date, and account for these accordingly.
Change in the cost of the rehabilitation provision
Changes in the cost of the rehabilitation provision (that was included as an initial component of the asset), will affect the cost of the asset initially recognised.
When the cost model is applied to measure the landfill site asset, changes in the landfill rehabilitation provision are adjusted to the cost of asset. When the revaluation model is applied, changes in the landfill rehabilitation provision are adjusted either in the revaluation surplus in net assets or surplus or deficit.
After adjusting the cost of the asset, the depreciable amount of the asset is adjusted over its remaining useful life.
Other assets
Any assets that are used at the site to ensure its effective operation, for example, a guard house or recycling and material recovery facilities, are accounted for as separate assets. These assets are not part of the landfill site asset. |
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| Accounting for the landfill rehabilitation provision |
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A landfill rehabilitation provision is recognised when the definition of a provision in GRAP 19 on Provisions, Contingent Liabilities and Contingent Assets is met. At larger landfill sites that operate on the basis of trenches or cells, the provision is recognised when the construction of the trench or cell commences. At smaller landfill sites, the provision is recognised when the entity commences with landfilling.
Cash flows included in the provision
The cash flows that are included in the provision represent the best estimate of the expenditure required to settle the present obligation at the reporting date. This estimate should reflect any future events that may affect the amount required to settle the provision, to the extent that there is sufficient, objective evidence that the future event will occur. Cash flows include expenditure relating to: costs to dismantle, remove, rehabilitate and/or restore the site, on an ongoing basis and on closure of the site; pre-closure planning and approval costs; final rehabilitation and closure costs; and post-monitoring and inspection costs to be undertaken after the closure of the site. The provision is calculated as the present value of these expenses, considering the time value for money.
Discount rate
The discount rate applied to the cash flows is specifically associated with the risk of the liability and should be consistent with the term or period of the provision. A pre-tax rate is used that reflects current market assessments of the time value of money. The government bond rate, or the corporate bond rate may be considered to determine the discount rate. |
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| Other relevant principles |
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Funding to rehabilitate the landfill site
An entity accounts for funding provided to it by the licencing authority or another party to rehabilitate a site as non-exchange revenue in accordance with GRAP 23.
Arrangements to undertake waste disposal activities
When an entity enters into an arrangement with another party to undertake waste disposal activities, its interest in the arrangement needs to be assessed. Where this interest constitutes: control – the principles in GRAP 35 on Consolidated Financial Statements are applied to prepare consolidated financial statements; significant influence – the principles in GRAP 36 on Investments in Associates and Joint Ventures are applied to the equity account for the investment in the associate; or joint control – the principles in GRAP 36 are applied to account for the interest in the jointly controlled operation, jointly controlled asset, or jointly controlled entity. When the arrangement constitutes a service concession arrangement, the principles in GRAP 32 on Service Concession Arrangements: Grantor are applied to assess if a service concession asset, and a related liability need to be recognised.
An entity can also appoint a service provider to undertake waste disposal activities. Any payments made for the rendering of these services are accounted for as, and when the services are provided, or in accordance with the arrangement between the parties. The principles in GRAP 109 on Accounting by Principals and Agents may be considered to assess if a principal-agent arrangement exists.
Adoption of principles in the Guideline
When an entity has not accounted for the land, the assets and/or the landfill rehabilitation provision as outlined in the Guideline, the principles in GRAP 3 on Accounting Policies, Changes in Accounting Estimates and Errors are applied to align accounting policies and/or estimates with the principles in the Guideline.
Judgement is applied to assess if any changes required constitutes a change in an accounting policy, a change in an accounting estimate or a correction of an error. |
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