This section includes information relating to the capital project spend, including significant contractual arrangements, site preparation expenses, the property, plant and equipment the Company has already purchased or leased, and the capitalisation of costs incurred in constructing the Airport.

• B.1 Significant contractual arrangements and commitments
• B.2 Site preparation expense
• B.3 Property, plant and equipment

B.1 Significant contractual arrangements and commitments

WSA has entered into key agreements with the Commonwealth of Australia, including the lease of the Western Sydney International Airport site and execution of preparatory activities.

In addition, the Company has entered into a number of contractual arrangements with various third-party contractors to execute the build of the Airport.

These agreements are essential to WSA’s ability to achieve its short and long-term objectives.

Airport Lease Grant

On 17 May 2018, WSA become the Airport Lessee Company by entering into a lease with the Commonwealth of Australia for 50 years with an additional 49-year option. The lease is administered by the Department of Infrastructure, Transport, Cities and Regional Development. The airport lease gives WSA the right to use the designated land at Badgerys Creek as the site for the Airport. The terms of the lease require nil cash consideration, although significant obligations in the lease require WSA to design and develop the Airport to meet functional specifications determined by the Commonwealth of Australia.

On the basis that the cost of the lease to WSA is nil, no land asset has been recorded.

Commonwealth Preparatory Activities (CPA)

CPA relates to activities undertaken by the Commonwealth on behalf of WSA. The activities primarily relate to biodiversity offsets, noise amelioration, relocation of pre-existing cemeteries and land acquisitions. WSA has agreed to a payment schedule of funding to the Commonwealth for these activities.

The Company adopted the accounting policy to expense CPA payments in the same period equity is issued to the Commonwealth.

Contracted works and expenditure

Contractual commitments for agreements relating to the construction of the Airport as at Statement of Financial Position date include (GST exclusive):

Contracted works and CPA

B.2 Site preparation activities

Site preparation expenses relate to costs incurred during the pre-development stage of construction. These include costs relating to procurement of contractors and preparatory works such as formation activities to level the site in preparation for the Airport infrastructure. Further information on WSA’s capitalisation policy has been detailed at Note B3.

B.3 Property, plant and equipment

Property, plant and equipment comprises owned assets (plant and equipment and the costs capitalised in the construction of the Airport) as well as leased assets which the Company has the right to use.

The right-of-use assets are for the lease of office space at 45-47 Scott Street, Liverpool, where the day-to-day operations and management of the Company take place and for motor vehicles used at the construction site by the Company personnel.

Recognition and measurement

Plant and equipment

Plant and equipment is initially recorded at cost and subsequently measured as the cost of the asset less accumulated depreciation and impairment.

Asset recognition threshold

Purchases of property, plant and equipment are recognised initially at cost in the statement of financial position, except for purchases costing less than $5,000, which are expensed in the year of acquisition (other than where they form part of a group of similar items which are cumulatively greater than $5,000).

Airport construction in progress

The costs incurred in building the Airport which are capital in nature are recognised at cost. Upon completion of the Airport and when the Airport is ready for use, the Airport will be subsequently measured at cost less accumulated depreciation and impairment.

In order to determine if a cost is capital in nature, the Company determines if the cost is in relation to the pre-development stage of construction or the development stage.

Costs which relate to the pre-development stage, including the cost relating to procurement of contractors, preparatory works or are operating in nature are expensed as incurred.

Development stage costs incurred in building the airport are capitalised to the extent that future economic benefits are expected to flow to the Company. Where Management considers that the projected costs will exceed the anticipated future economic benefits, these costs will be expensed. Development stage costs include the carrying out of capital works, project management, installation, design and engineering.

As the airport is still under construction and not yet ready for use, no depreciation is charged on the assets recognised.

Depreciation

Depreciable plant and equipment assets are written-off to their estimated residual values over their estimated useful lives using the straight-line method of depreciation.

The expected useful lives are summarised below:

Current financial year

At 30 June 2019, Airport construction in progress predominantly includes project management, airport design, engineering and construction of the Experience Centre and Site Office. The balance is inclusive of contributions received from the Commonwealth relating to:

• design and construction of the Experience Centre ($5m); and
• a novated contract from the Commonwealth for construction and installation of the Airport site perimeter fence ($7.1m).

Pre-development costs are primarily recognised as site preparation expenses (refer note B.2) in the Statement of Comprehensive Income, including:

• CPA undertaken on behalf of WSA;
• relocation of the TransGrid 330kV power line from overhead to underground; and
• early earthworks.

Impairment

All assets were assessed for impairment at 30 June 2019 and there were no indications of impairment identified by Management.

Where indications of impairment exist and if the asset’s recoverable amount is less than its carrying amount, the asset’s recoverable amount would be estimated and an impairment adjustment made.

The recoverable amount of an asset is the higher of its fair value less costs to sell and its depreciable replacement cost (DRC) of the assets. DRC is an estimate of what it would cost to acquire or construct a substitute Airport, on a like for like basis, to the stage of current completion. In determining the DRC, the Company considers the cost incurred to date by the project to date.