About HECI Asset Valuation
When Horizons encounters an asset with an unknown age, the HECI can be used to determine a notional age for asset valuation.
A subsection’s notional age is calculated from its HECI score based on its total useful life as defined below:
Formulation of the deterioration curve:
The AGE can be converted to an accumulated depreciation percentage (D%) using the following formula:
D% = 100 * AGE / TTUL (when AGE < TTUL)
or
D% = 100 (when AGE >= TTUL)
The depreciated value of the subsections is then calculated as (D% / 100) *(unit rate of the modern equivalent asset).
Below is an example deterioration curve for calculating asset age with TINI= 4 and TTUL=30
Example deterioration curve:
This approach uses well established accounting principles based on the work by Chartered Institute of Public Finance and Accountancy as part of the Highways Asset Management Financial Information Group (HAMFIG).
The output of asset valuation is a report in Horizons detailing the Total Depreciated Replacement Cost (DRC) and Gross Replacement Cost (GRC) of the pavement asset maintained by Highways England under a Whole Government Accounting (WGA) section as shown in the following figure:
Example WGA report with current and future projections:
Below is an explanation of the terminology used in the report:
Gross Replacement Cost (GRC)
The GRC is the total cost of replacing either the whole of an existing network asset or some part of it with a Modern Equivalent Asset (MEA). The GRC is calculated as the Quantity of Inventory multiplied by the Unit Rate.
Depreciated Replacement Cost (DRC)
The DRC provides the current cost of replacing an asset with its Modern Equivalent Asset (MEA) less deductions for all physical and all relevant forms of obsolescence and optimisation.
Accumulated Depreciation Cost (ADC) (Surveyed)
The ADC is the cumulative depreciation of an asset up to a single point in its life,. The depreciation of an asset during a single period is added to the previous period’s accumulated depreciation to get the current accumulated depreciation. The depreciation is calculated based on the most recent surveyed condition of the asset.
GRC - ADC = DRC
ADC (Unsurveyed)
For Inventory where no survey data is available, the ADC is estimated using the accumulated depreciation percentage for the surveyed inventory and then applying this to the unsurveyed inventory (for each asset group).