Issue number:
Date Issued:
01 Jul 2002
Issued to:
Public Hospitals
To advise of the required accounting treatment of Infrastructure And Maintenance Grants and Income Received in Advance

Infrastructure And Maintenance Grant

The annual infrastructure and maintenance grant is provided to hospitals and health services for general equipment and infrastructure maintenance purposes. The grant is made as a contribution towards maintenance costs. Separate funding is provided by the Department to agencies for the replacement of equipment. The allocation of the infrastructure and maintenance grant is based on:

  • the size and relative age of equipment of each hospital/health service;
  • the inpatient and non admitted patient outputs; and
  • the relative financial capacity and resources of the hospital/health service.

The funding source for this grant is the Department of Treasury and Finance's (DTF) appropriation to the Department for the funding of hospital/health service outputs. DTF Bulletin 39 requires that all appropriations for the provision of outputs must be recognised as revenue. The introduction of whole of government reporting for the State of Victoria also requires the consistent treatment of assets, liabilities, revenues and expenses between the Government, Departments and wholly owned public entities. This facilitates the process of uniform reporting and proper consolidation of all the entities involved.

Given the above background and the existing practice of recognising maintenance costs as operating expenses, the Department requires all public hospitals/health services to treat the infrastructure and maintenance grants as an item of operating revenue.

For 2001/2, the infrastructure and maintenance grant to which this policy is to apply, is the grant that was cash flowed to hospitals/health services in February 2002.

Income Received in Advance

In March 2002, DHS sought written clarification from the Victorian Auditor General's Office (VAGO) in regard to the appropriate treatment of Income Received in Advance. The advice received unequivocally states that income received in advance should be recognised as a liability only when it meets the recognition criteria for a liability. The recognition criteria for this liability being, that at balance date the amount received in advance and to be repaid has been determined and that there is a present obligation for repayment.

VAGO further advised that in their view Weighted Inlier Equivalent Separation (WIES) and other grants are all non-reciprocal in nature at the time of receipt by hospitals, even if output measures are attached to the grant. VAGO have come to this opinion due to the definitions of non-reciprocal and reciprocal contained in Australian Accounting Standard AAS15 'Revenue' and Statement of Accounting Concepts (SAC) 4.

AAS15 'Revenue' defines a "non reciprocal transfer" as a transfer in which the entity receives assets or services and has liabilities extinguished without directly giving approximately equal value in exchange to the other party or parties to the transfer. Whilst SAC 4 states that "…for a transfer to be reciprocal, it is not sufficient that the transferor receives benefit indirectly as a result of the transfer". Thus grants are non-reciprocal in nature and should be recorded as revenue by the hospital once control of the grants has been obtained (upon receipt).

Therefore DHS requires the practice of recording income received in advance by public hospitals cease in the 2001/2 financial year. Any income in advance established in prior years should be brought into the Statement of Financial Performance as a revenue item. Additional disclosure requirements are required where a qualification was received in 2000/01 for revenue in advance. A further circular providing an addendum to the Financial Management Act, Annual Reporting Guidelines for 2001/02, will be available by 5 July 2002.


For queries on the above matters please contact:
Infrastructure Grants - Victor Liew on 9616-7450 or Email
Income in Advance - Duncan McColl on 9616-8316 or Email