+ RMA Rural Municipalities
of Alberta

Resolution 7-10F

Amortization of Road Subgrades

January 1, 2010
Expiry Date:
November 30, 2013
Active Status:
Woodlands County
3 - Pembina River
Transportation and Infrastructure
Intent Not Met
Vote Results:

WHEREAS Section 276(1) of the Municipal Government Act provides that:  “Each municipality must prepare annual financial statements of the municipality for the immediately preceding year in accordance with

a) the generally accepted accounting principles for municipal government recommended from time to time by the Canadian Institute of Chartered Accountants and
b) any modification of the principles or any supplementary accounting standards or principles established by the Minister by regulation.”

WHEREAS Section 3150.22 of the Canadian Institute of Chartered Accountants’ Public Sector Accounting Standards provides that:  “The cost, less any residual value, of a tangible capital asset with a limited life (bolding & italics provided for emphasis) should be amortized over its useful life in a rational and systematic manner appropriate to its nature and use by the government”;

WHEREAS the Public Sector Accounting Standards 3150 (PS 3150) does not provide specific guidance with respect to the expected life of a tangible capital, the Public Sector Accounting Board’s “Guide to Accounting for and Reporting Tangible Capital Assets” states that in determining an asset’s estimated useful life, a local government should consider the asset’s expected service demands and should be based on the local government’s own experience and plans for the asset;

WHEREAS the cost of the subgrade of the roads in a municipality comprise a significant portion of the total cost of tangible capital assets of a municipality;

WHEREAS it is the opinion of an engineering firm (an engineering firm responsible for engineering a significant number of the roads in rural Alberta) and a construction engineer from Alberta Transportation that the expected life of the subgrade of a road is indefinite if the road is properly maintained;

WHEREAS, in fact, the only subgrades of any roads in Alberta that had to be replaced were to increase the service level of those roads (ie Highway 2 from Edmonton to Calgary);

WHEREAS a consequence of amortizing the base of a road which is not a wasting asset would be that the annual operating expense of a municipality would be significantly overstated and the financial position of the municipality would be significantly understated.  At the end of the amortization period of the subgrade, Tangible Capital Assets would have a Net Book Value of $0 (see Case 1), whereas in fact the subgrades would be still exist in an undiminished capacity (ie most of the gravel roads in Alberta);

WHEREAS if a municipality included the annual cost of amortization of the subgrades of its roads in the calculation of its millrate, at the end of the amortization period of the subgrades, the municipality would have an unrestricted surplus equal to the cost of the subgrades, without any need to replace them (see Case 2);

WHEREAS if a municipality chose not to include the annual cost of amortization of the subgrades of its road in the calculation of its millrate, annually council would have to explain its annual operating deficit to its ratepayers (see Case 1).

WHEREAS not amortizing the subgrade of roads provides a much fairer presentation of a municipality’s financial position and its annual operating cost ( see Case 3);

Operative Clause:

THEREFORE BE IT RESOLVED that the Alberta Association of Municipal Districts and Counties urge the Province of Alberta to recognize that the estimated useful life of the subgrade of a road is indefinite for purposes of accounting for tangible capital assets.

Member Background:

See attached document.

RMA Background:

The AAMDC has no active resolutions directly related to this issue.

Government Response:

Municipal Affairs:
Section 276 of the Municipal Government Act requires each municipality to prepare its financial statements in accordance with accounting principles and standards recommended by the Canadian Institute of Chartered Accountants.
Municipal Affairs has interpreted those standards to mean that all tangible capital assets, except land, should be assigned a useful life and be amortized.  This is also the position of most, if not all, professional auditors.
The work done by the ministry to assist municipalities and develop guidance and recommendations on accounting for tangible capital assets was based on advice from municipal finance professionals in Alberta.  A guide to understanding municipal financial statements is also available on the ministry web page.
Contact:   Christina Parkins, Manager, Financial Advisory Services
Local Government Services, 780-422-8128


The response from the Government of Alberta to this resolution was deemed to be unsatisfactory as it simply outlined the need for tangible capital asset accounting. The association is aware of the necessity for tangible capital asset accounting, but the response did not address the specific issue raised regarding the estimated useful life of subgrades. A letter was sent to the Public Sector Accounting Board (PSAB) in December 2010 requesting a response to this resolution. After no response, a subsequent letters were sent to PSAB in April 2011 and again in August 2013. The association brought this issue to the attention of the Minister of Municipal Affairs, and requested assistance in seeking procuring a response. The association continues to work towards this end.

Provincial Ministries:
Municipal Affairs
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