Question

What are the advantages of using the modified approach and what conditions must be met in order to use the modified approach?

Answer 1

The advantages of using the modified approach are as under :

1) Useful to management : Modified approach provides details on capital assets. It helps management in budgeting process and cost calculation can be done correctly.

2) Modified approach helps to decrease the comparison of cost among the government's data

3) It will help to determine whether the government's overall performance has improved or decreased

4) Will provide detail analysis to government for fund investment i.e.. Whether the fund has been invested in road, highways or other infrastructure projects

5) Helps to understand the government sources of fund , whether it is debt or equity or by using revenue

6) Modified approach will help to calculate the cost of providing services to citizens

7) Will helps to compare the current year expenses liability with current year earning and whether earning is sufficient to bear the liability

8) Overall yearly operating results of government can be known

Conditions which must be met in order to use the modified approach are :

1) Government must have an up-to-date record of inventory of eligible infrastructure assets,

2) Preforms condition assessments of those eligible assets at least every three years, and

3) Estimates the cost it costs to maintain the assets at a condition level that is approves by the government every year. It also has to document that the infrastructure assets are being maintained.