1. Following the adoption of AASB 16 on 1 July 2019, the additions balance includes the recognition of newly acquired right-of-use assets and the impact of the remeasurement of existing right-of-use assets.

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

Assets in the course of construction

The carrying value of property, plant and equipment includes $1,150 million

(2019: $2,828 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.

Right-of-use assets

NBN Co adopted AASB 16 Leases on 1 July 2019. This resulted in the recognition of $8,251 million right-of-use assets, comprising the reclassification of $6,707 million existing leased assets and $1,544 million newly recognised right-of-use assets. Refer to Note H8 for further information on the impact of the adoption of AASB 16. As at 30 June 2020, the carrying value of property, plant and equipment includes $8,522 million related to right-of-use assets as follows:

Leased assets (classified as a finance lease under AASB 117)

As at 30 June 2019, the net carrying amount of leased assets included in property, plant and equipment was $6,707 million for network assets.

Following the adoption of AASB 16, these leased assets have been reclassified as right-of-use assets. Refer to Note H8 for further information on the impact of the adoption of AASB 16.

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 Infrastructure, Transport, Regional Development and Communications 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, other than that held by way of right-of-use assets, is not depreciated.

Right-of-use assets are measured at cost comprising the following:

• the amount of the initial measurement of lease liability,
• any lease payments made at or before the commencement date less any lease incentives received,
• any initial direct costs,
• restoration costs

The right-of-use asset is depreciated on a straight-line basis over the shorter of the asset’s useful life and the lease term. Subsequently, the right-of-use asset is measured at cost less any accumulated depreciation and impairment losses and adjusted for certain remeasurements of the lease liability.

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:

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 estimation of useful lives, residual value and depreciation methods requires 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 is based on contractual costing arrangements applied to detailed designs and is 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 right-of-use arrangements or contributed for no consideration.