You can find previous guidance, including details on the accounting rules for residential buildings as family-type children’s homes (FTCH), here: Residential Buildings
Writing off assets held under a right of usufruct Write-off
Recording of expenses for the construction of a water main
The use of budget funds for construction involves drawing up cost estimates and supervising the construction work.
In doing so, public sector bodies must comply with State Building Standards of Ukraine A.2.2-3-2014 “Composition and Content of Design Documentation for Construction”, approved by Order 163 of the Ministry of Regional Development dated 4 June 2014 (hereinafter the Building Standards).
The completion of construction works must be supported by the following primary documents: Report on the Completion of Contracted Works at the Construction Site
for the Period (Month/Year), Final Report on the Cost of Contracted Works Completed at the Construction Site for the Period, and Certificate of Completion and Acceptance of Construction Works, which are set out in Annexes 38, 39 and 40 to the Guidelines for Determining Construction Costs, approved as part of the aforementioned Building Standards.
If the local council is the one building the water main, it must record the construction costs as a debit to sub-account 1311 (“Capital investments in fixed assets”).
Once construction work on the site has been completed, a Statement of Readiness is drawn up, and the site is commissioned by the party that contracted the construction work.
Thus, before transferring the water main to the municipal utility company, the local council must commission it on the basis of a statement of readiness and record it on its balance sheet.
Commissioning a water main
The Procedure for Commissioning Completed Construction Projects was approved by Resolution of the CMU No. 461 of 13 April 2011 (hereinafter Procedure 461).
Pursuant to Clause 3 of Procedure 461, the commissioning of completed construction projects which, according to their consequence (liability) class, fall into the categories of:
- those with minor consequences (CC1), and facilities constructed on the basis of a building passport, requires registration by the relevant state architectural and construction supervisory authority, free of charge, of a statement submitted by the contracting body declaring the facility ready for commissioning;
- those with moderate (CC2) and significant (CC3) consequences, as well as complex structures (buildings) comprising facilities with different consequence (liability) classes, is carried out on the basis of a statement of readiness for operation issued by the relevant state architectural and construction supervision authorities.
Documents for the commissioning of newly constructed facilities are submitted, at the contracting body’s discretion, to the relevant state architectural and construction supervision authority either electronically via the DIIA portal or in hard copy via the ASC (Clause 3-1 of Procedure 461).
The facility commissioning date is the date when the statement is registered (or the certificate is issued).
A registered statement or certificate constitutes grounds for entering into contracts for the provision of utilities necessary for the operation of a commissioned facility, including water, gas, heat and electricity; for the inclusion of data on the facility in state statistical reports; and for the registration of ownership rights to the facility (Clause 13 of Procedure 461).
Therefore, the body contracting the construction project is the one to submit a statement of readiness for commissioning (to obtain a certificate).
Is it necessary to register a water main with the State Register of Real Property Rights?
Under the law, only rights to property that qualifies as real estate are subject to state registration.
Consequently, only rights to facilities that constitute real estate and are independent structures are subject to state registration.
However, a hydraulic facility is an engineering structure designed to facilitate specific water management activities, both in terms of the use of water resources and protection against the harmful effects of water.
Assets such as hydraulic facilities do not have technical specifications that must be entered in the State Register of Real Property Rights. This is the opinion of the Interregional Directorate of the Ministry of Justice.
Thus, there is no legal requirement to register a water supply facility (water pipeline) in the State Register of Real Property Rights.
Certification of a water facility
Rules for the Technical Operation of Water Supply and Wastewater Disposal Systems in Settlements of Ukraine, approved by Order No. 30 of the State Committee for Municipal Economy dated 5 July 1995.
In accordance with Clause 2.6.1 of these Rules, in order to operate and manage a water supply and wastewater disposal system on a day-to-day basis, it is necessary to ensure that technical, operational and executive documentation, as well as inventory and certification records, are kept complete at all times.
The certification and inventorying of structures, utilities and equipment should normally be handled by the entity that has them on its books.
The contracting body for drawing up a water facility certificate is the authority responsible for the management of the underwater land plot (water area) in accordance with the powers set out in the Land Code of Ukraine (Clause 3 of the Procedure for the Preparation of a Water Body Certificate, approved by Order of the Ministry of Ecology No. 99 of 18 March 2013).
This means that the certification can also be done by a municipal utility company to which the council has transferred the property under the right of usufruct – provided that the property is located on a plot of land transferred to the utility company under a right of use.
What assets can be transferred under the right of usufruct?
Pursuant to Part 1 of Article 60-1 of the Law of Ukraine “On Local Self-Government in Ukraine”, the right of personal, free-of-charge possession and use of municipal property (usufruct of municipal property) constitutes a right in rem to municipal property for usufructuaries, i.e. local self-government bodies, municipal utility companies (institutions, facilities), municipal non-profit associations and other legal entities which are not established for the purpose of making a profit and whose sole participant (founder) is the municipality.
Municipal property that is not subject to privatisation should be transferred for possession and use to a legal entity whose sole member (founder) is a municipality, or to a business entity in which more than 50 per cent of the shares in the authorised capital belong to the municipality, or to another legal entity whose sole participant (founder) is the municipality, on the basis of the right of usufruct of municipal property.
The right of usufruct over municipal property is granted by the competent local self-government body in respect of any type of movable or immovable property (other than land plots) owned by the municipality, for a term of five years or for an indefinite period (Article 60-1(2) of the Law of Ukraine “On Local Self-Government in Ukraine” No. 280/97-ВР of 21 May 1997, hereinafter the Law on LSG).
The assumption that these are independent accounting entities also follows from Clause 8 of the Procedure for the Transfer of State-Owned and Municipal Property under the Right of Usufruct and the Oversight of the Use Thereof was approved by Resolution of the CMU No. 1103 dated 8 September 2025 (hereinafter Procedure 1103).
Only the owner (the local council) may transfer municipal property under the right of usufruct. Hence, before it can be transferred, it must be held as municipal property.
This means that the local council can transfer only movable and immovable property to a municipal utility company. However, the above laws and regulations do not cover the possibility of transferring capital investments and inventories under the right of usufruct.
Property to be accounted for by the local council
Water supply facilities are structures designed to transport and treat clean and relatively clean water, as well as water mixtures: water treatment plants, pumping stations, main and distribution pipelines with associated equipment, surface and groundwater intakes, water storage tanks and equipment for their normal operation (Clause 1.9.17 of the Guidelines for the Examination and Certification of Hydraulic Structures of Systems for the Hydraulic Extraction and Storage of Industrial Waste and Tailings, approved by Order of the State Committee for Urban Development and Architecture No. 252 of 19 December 1995).
Therefore, a water main can be considered a water supply (hydraulic engineering) facility.
Water mains (water supply facilities) are recorded as fixed assets in public sector entities (local councils), as they are engineering structures designed to supply water and are intended for long-term use.
Sub-account 1013, “Buildings, Facilities and Transmission Equipment”, is used to record buildings, facilities, their structural components, transmission equipment and residential buildings.
This sub-account is used to record hydraulic engineering structures, including canals, dams, flood protection facilities, drainage networks, water gauging stations and other structures (Clause 1.1.5 of Section II of the Guidelines on the Accounting Policy for Public Sector Entities, approved by Order of the Ministry of Finance No. 11 of 23 January 2015).
Therefore, water mains are classified as fixed assets for accounting purposes.
The water main is commissioned on the basis of a Statement of Readiness and the Commissioning Certificate for Fixed Assets.
Upon commissioning of a fixed asset (constructed using earmarked funding), the following entries are recorded in the accounts:
- the transfer of capital investment assets to fixed assets upon commissioning: Dt 1013 Kt 1311;
- simultaneously, the contributed capital is recorded as: Dt 54 “Earmarked funding” Kt 51 “Contributed capital”.
Accordingly, if the water pipeline is transferred to a municipal utility company under a right of usufruct over municipal property, the local council must reflect its disposal in the accounts.
Can a water main intended for the transfer to a municipal utility company be credited to sub-account 1815?
Sub-account 1815, “Assets held for distribution, transfer or sale”, is used to record assets that have been acquired (manufactured or received) and are held for the purpose of subsequent distribution, transfer or sale, including goods made of precious metals, precious stones, organogenic gemstones and semi-precious stones, textbooks and other materials for educational (training) institutions, stocks of weapons, etc.
Is it appropriate to record real estate that has been completed and commissioned in this account?
If the council intends to transfer the water main to a municipal utility company under a right of usufruct over municipal property, this is problematic for several reasons.
Firstly, sub-account 1815 ultimately belongs to the ‘Inventories’ class. It is used to record receipts, factoring in the costs of acquiring and bringing purchased and otherwise received non-financial assets to a condition in which they are fit for their intended use. Clearly, this does not apply to a construction project.
Secondly, only specifically identified property is subject to transfer under the right of usufruct. When transferring this type of asset, the transfer document must specify the inventory number, the initial and residual value, a description and technical specifications, as well as include the inventory card and other technical documentation.
Thirdly, the water main, once constructed and commissioned, is the property of the municipality (represented by the local council); it meets the definition of an asset and is transferred only for possession and use for a specified period.
Fourthly, if the construction of the water main was financed using earmarked funds (sub-account 5411, “Earmarked funds for budget administrators”), the local council should, upon the facility being commissioned, receive a non-current asset.
It is therefore advisable to first record the water main on the council’s balance sheet as a fixed asset, and only then transfer it to the municipal utility company.
Procedure for transferring a water main under the right of usufruct
Decisions regarding the transfer of municipal property under the right of usufruct are to be made exclusively at regular meetings of village, settlement and town councils (Article 26(1)(30) of the Law on LSG).
Therefore, the decision to transfer the water main under the right of usufruct of municipal property is made by the relevant local council.
In accordance with Clause 8 of Procedure 1103, a decision by the administrative body establishing a right of usufruct over state or municipal property must specify the following:
- for real estate: a description of the asset sufficient for its identification, including the name of the asset, its location, inventory number, the initial and residual value as at the last reporting date, details of the state registration of property rights to the relevant real estate asset, and other information deemed necessary by the administrative body;
- for movable property: a description of the asset (for vehicles, this also includes the registration number, make, model, body type, engine number and year of manufacture), the initial and residual value (where appropriate);
- full name and identification code of the usufructuary;
- period for which the right of usufruct over state/municipal property is established (five years or indefinite);
- intended purpose of use of the property under the right of usufruct of state/municipal property;
- conditions of possession and use of the property under the right of usufruct of state/municipal property;
- grounds for termination of the right of usufruct of state/municipal property, as established by law.
The local council may also impose additional restrictions on the use of municipal property transferred under the right of usufruct.
The transfer of property to a municipal enterprise under a usufruct agreement must be formalised by a deed of transfer. This primary document (together with the council’s decision) serves as the basis for withdrawing the water main from the local council’s balance sheet and transferring it to the balance sheet of the municipal utility company.
Municipal utility company as a licensee
Drinking water supply is regulated by the Law of Ukraine “On Drinking Water and Drinking Water Supply” No. 2918-III of 10 January 2002 (hereinafter Law 2918).
Drinking water supply utilities operate on the basis of the following documents:
- permit for special water use or permit for subsoil use (in the case of groundwater use);
- licence for commercial activities relating to centralised water supply;
- state deed of permanent use or a document certifying ownership of or the right to use a land plot;
- technical design for the layout of water supply networks, structures and equipment, agreed and approved in accordance with the established procedure.
Thus, the water supply system must be transferred to the municipal utility company’s balance sheet together with the land plot it is located on.
CONCLUSION:
- Once construction of the water main is complete, the local council must record it as a fixed asset on the basis of the Statement of Readiness and the Commissioning Certificate.
- The local council then decides to transfer the water supply system to the municipal utility company under the right of usufruct of municipal property (provided that this municipal property is not subject to privatisation), and to transfer the land plot to it under the right of use.
- The transfer of the asset under the right of usufruct is formalised by a deed of transfer.
