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C3 Property, plant and equipment

NBN Co Group

Freehold land

Buildings and leasehold improvements

Furniture and equipment

IT equipment

Network assets

Total

$m

$m

$m

$m

$m

$m

At 30 June 2017

Cost

17

398

19

132

22,740

23,306

Accumulated depreciation

-

(128)

(12)

(100)

(2,558)

(2,798)

Net book value

17

270

7

32

20,182

20,508

Year ended 30 June 2018

Opening net book value

17

270

7

32

20,182

20,508

Additions

-

47

1

34

6,266

6,348

Depreciation

-

(33)

(3)

(18)

(1,759)

(1,813)

Net book value

17

284

5

48

24,689

25,043

At 30 June 2018

Cost

17

445

20

166

29,006

29,654

Accumulated depreciation

-

(161)

(15)

(118)

(4,317)

(4,611)

Net book value

17

284

5

48

24,689

25,043

Year ended 30 June 2019

Opening net book value

17

284

5

48

24,689

25,043

Additions

-

11

2

8

6,627

6,648

Reclassification

-

(211)

-

-

174

(37)

Depreciation

-

(20)

(3)

(16)

(2,172)

(2,211)

Net book value

17

64

4

40

29,318

29,443

At 30 June 2019

Cost

17

187

22

174

35,865

36,265

Accumulated depreciation

-

(123)

(18)

(134)

(6,547)

(6,822)

Net book value

17

64

4

40

29,318

29,443

Property, plant and equipment at net book value is analysed as follows:

NBN Co Group

30 June 2019

30 June 2018

$m

$m

Constructed and purchased assets

19,073

15,739

Assets in the course of construction

2,828

2,700

Leased assets

6,707

5,891

Assets acquired for no consideration and under government grant

835

713

Property, plant and equipment - net book value

29,443

25,043

Assets in the course of construction
The carrying value of property, plant and equipment includes $2,828 million (2018: $2,700 million) of expenditure on assets which are in the course of construction. The majority of assets in the course of construction are network assets. As these assets have not been installed and are not ready for use, no depreciation is charged on these assets.

Leased assets
The net carrying amount included in property, plant and equipment is nil (2018: $17 million) for buildings, having been reclassified to network assets during the period. The net carrying amount included in property, plant and equipment for network assets is $6,707 million (2018: $5,874 million).

Assets acquired for no consideration and under government grant
Included within network assets are assets acquired from developers for no consideration and an indefeasible right of use arrangement with the Department of Communications and the Arts to use certain Regional Backbone Blackspots Program assets for no consideration (Refer to Note C7 for more detail about this type of asset).

Non-current assets pledged as security
None of the non-current assets have been pledged as security by the Group.

Recognition and measurement
Property, plant and equipment are stated at historical cost less accumulated depreciation.

NBN Co’s costs include expenditures that are directly attributable to the acquisition of the asset, including the costs of materials and direct labour and initial estimates of the costs of dismantling and removing an asset and restoring the site on which it is located. The Group does not consider that it has any qualifying assets and therefore does not currently capitalise any borrowing costs.

Costs that are not directly attributable are recorded as an expense in profit or loss.

Assets under construction are recorded at cost based on the estimated percentage of completion. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All repairs and maintenance costs are charged to profit or loss during the reporting period in which they are incurred.

Depreciation on network and non-network assets commences when they are installed and ready for use, otherwise termed as ‘in service’. Buildings are depreciated from the date of acquisition. Land is not depreciated.

Depreciation on assets is calculated using the straight-line method to allocate the cost, net of residual values, over their estimated useful lives or, in the case of leasehold improvements and certain leased network assets, the shorter of the lease term or useful life.

The Group has assessed the current useful lives of assets as follows:

Asset type

Useful lives

Network assets

Lower of lease term and/or 5–40 years

Buildings

Lower of lease term and/or 50 years

Leasehold improvements

Lower of lease term and/or 5–35 years

Furniture and fittings

3–10 years

IT equipment

3–5 years

Residual values and useful lives are reviewed and adjusted if appropriate, at each reporting date.

Gain or loss on disposal is determined by comparing the proceeds with the carrying amount of the asset. Any gain or loss on disposal is recognised in profit or loss.

Key estimates and judgements:

Determination of useful lives of property, plant and equipment
The estimations of useful lives, residual value and depreciation methods require significant judgement and are reviewed at each reporting date. If they need to be modified, the depreciation expense is accounted for prospectively from the date of reassessment until the end of the revised useful life (for both the current and future periods). Such revisions are generally required when there are changes in economic circumstances, business plans and strategies, expected level of usage and future technological developments impacting specific assets or groups of assets. It is possible that future results of operations could be materially affected by changes in these estimates.

Estimation of percentage of completion for assets under construction
Estimating the percentage of completion requires an estimate of costs incurred to date as a percentage of total estimated costs of constructing an asset. In estimating the percentage of completion of an asset under construction, management uses inputs such as milestone information from Delivery Partners and average build duration periods. The estimate of total costs are based on contractual costing arrangements applied to detailed designs and are adjusted for estimates for variation, claims and incentive payments. Changes in these estimation methods or assumptions could have a material impact on the financial statements of the Group.

Estimation of liabilities for contractual claims
The Group is subject to claims and other obligations arising from its contractual arrangements. The recognition of liabilities for claims is subject to a significant degree of estimation. Provision is made for loss when it is considered probable that an adverse outcome will occur and the amount of the loss can be estimated reliably. In making estimates, management takes into account the advice of legal counsel and internal specialists. Any ultimate resolution may differ from the amount provided depending on the outcome of negotiations and/or court proceedings.

Significant non-cash components
Acquisition of assets by means of non-cash transactions represents those assets acquired via finance leases or contributed for no consideration.

NBN Co Group

30 June 2019

30 June 2018

$m

$m

Acquisition of network infrastructure by means of finance leases

1,100

1,145

Acquisition of network infrastructure by means of developer contributions or government grants

142

233

Acquisition of assets by non-cash transactions

1,242

1,378