2 DEFINITIONS
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Government of Canada — As an accounting entity is defined in the Public Accounts, 1977, Volume 1, 1.3, as the aggregate of all its departments, agencies, boards, commissions, councils, Crown corporations, funds and other bodies, with two exceptions. These exceptions are the “Agencies” and “Proprietary”, Crown corporations listed respectively in Schedules C and D of the Financial Administration Act and those Crown corporations that are not subject to the Financial Administration Act.
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Indirect Costs — These are the overhead costs of the Department and the Government of Canada. Overhead can be further defined as operating costs which cannot be directly allocated to a service or goods but can be allocated to the service or goods through some intervening basis of allocation such as direct labour cost.
These costs would include statutory expenses plus those costs relating to the Departmental Budget for Administration as per the Main Estimates plus sector overhead plus services provided without charge by other government departments less formula indirect overhead recoveries from the Department of National Defence.
Overhead costs are to be applied as a percentage on direct labour which consists of the basic annual salaries/wages plus shift premium and fringe benefits.
As overhead costs for the next fiscal year will be known at the time of preparing the Operating Budgets and New Year Main Estimates, the overhead rate will be calculated at this time by the Comptroller’s Branch. The total overhead costs derived from the Operating Budgets will be divided by the total direct labour cost as defined above to arrive at the percentage to be applied.
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Interest on the Undepreciated Capital Cost — The interest rate to be used is the current long term borrowing rate as established by the Government Finance — Loans, Investments and Guarantees Section, Economic Programs and Finance Branch, Department of Finance. This rate is to be applied to the undepreciated capital cost of the equipment in question, i.e., annual interest expense = capital cost less accumulated depreciation times the long term borrowing rate.
Maintenance — Maintenance costs on equipment include the labour costs of the individuals employed for the express purpose of maintaining the equipment. The amount of yearly maintenance labour to be charged against a given piece of equipment should be pro-rated based on the expected time spent during a one year period. The other two cost components of equipment maintenance are materials and direct expense. Material cost would be such items as the cost of replacement parts for a piece of equipment while an example of direct expense is maintenance contracts. Both these cost components should be estimated for a one-year period.
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Private Sector — All parties and organizations other than those included in the definition of the Government of Canada as an accounting entity. The Private Sector therefore includes those Crown corporations listed respectively in Schedules C and D of the Financial Administration Act, those Crown corporations not subject to the Financial Administration Act, all individuals, corporations, universities, provincial governments, municipal governments, foreign governments, international organizations, etc.
Space — Where certain pieces of equipment occupy a large area, an appropriate portion of the building cost in which it is housed must be allocated to it. Where the buildings are owned by the Department, the yearly expense would be the annual carrying cost which will be calculated annually by the Comptroller’s Branch as follows:
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The capital recovery factor is used to calculate what the equivalent of a present sum of money would be expressed in terms of equal annual installments over a specific number of years. The formula is:
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The interest rate to be used will be the current long term borrowing rate as established by the Department of Finance. The number of years will be the estimated useful life of the building.
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