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• A. The Reporting Entity
• B. Measurement System
• C. Ministry Creation
• D. Continued Restructuring
• E. Specific Accounting Policies
• F. Changes in Accounting Policies

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STATEMENT OF ACCOUNTING POLICIES

For the four months ended 30 June 1998

A. The Reporting Entity

The Ministry of Agriculture and Forestry was established on 1 March 1998 with the enactment of the Ministry of Agriculture and Forestry (Restructuring) Act 1997.
The financial statements for the Ministry of Agriculture and Forestry have been prepared in terms of section 35 of the Public Finance Act 1989 in accordance with generally accepted accounting practice recognised as appropriate for reporting organisations in the public sector.

B. Measurement System

The measurement base adopted is that of historical cost with the exception of land and buildings which are revalued by an independent registered valuer on a three year cycle.

C. Ministry Creation

The Ministry of Agriculture and Forestry (Restructuring) Act 1997 merged the Ministry of Agriculture with the Ministry of Forestry forming a new Ministry of Agriculture and Forestry with effect from 1 March 1998. The opening assets and liabilities shown in the Statement of Financial Position, commitments contained in the Statement of Commitments and contingent liabilities contained in the Statement of Contingent Liabilities have been transferred to the new Ministry of Agriculture and Forestry from the Ministry of Agriculture and the Ministry of Forestry at their respective closing values. These closing values have been shown in the accompanying financial statements as at 1 March 1998. As this is the first period of the Ministry there are no comparatives.

D. Continued Restructuring

MAF Quality Management is continuing to be restructured. On 1 July 1998 the Animal Health Board (AHB) became an accredited pest management agency under the Biosecurity Act 1993. The Government has also agreed that two State-Owned Enterprises (SOEs) should be formed. One SOE will be for meat inspection and the other for Dairy and Food, and Livestock businesses.
It is anticipated that the new commercial entities decided on by the Government will be established by 1 November 1998.
The Output Classes mainly affected are Meat Quality Assurance Services and Contestable Quality Management Services.

E. Specific Accounting Policies

1. Combination
   The financial statements show the overall operating results and financial position of the Ministry after eliminating all significant inter-business transactions. The overall results reflect the operations of the Forest Management, Operations, Policy, Regulatory Authority, Quality Management (including the Animal Health Board's activities) and Corporate Groups.

2. Estimate Figures
   The Estimate figures are those presented in 1997/98 Supplementary Estimates.

3. Revenue Recognition
   Crown revenue has been recognised on the basis of the supply of outputs to the Crown. External revenue from the supply of goods and services including the Disease Control Levy is recognised when the goods or services have been provided or when work has been completed. General revenues from other levies and licence fees are recognised when assessed.

4. Cost Allocation
   The Ministry has determined the cost of outputs using a cost allocation system which is outlined below.
   Definition of Terms:
   Direct Costs are costs which are charged directly to outputs from the source documents plus costs which are assigned to outputs on the basis of a causal link.
   Indirect Costs are all other costs. Indirect costs are allocated to outputs using appropriate cost drivers.

5. Leases
   Operating lease payments, where lessors effectively retain substantially all the risks and benefits of ownership of the leased item, are charged as expenses in the periods in which they are incurred.

6. Fixed Assets
   Fixed Assets are included as follows:
   (a) Land and buildings are stated at net current value as established by independent valuations during 1996/97 with subsequent additions at cost. Valuations are undertaken on a three yearly cycle and take into account local market conditions and any legal covenants restricting use of such assets to Ministry only activities. For the purpose of these financial statements, land and buildings, although owned by the Crown are deemed to be owned by the Ministry as principal occupier or user.
   (b) All other fixed assets are stated at either cost or Director-General's valuation. Only fixed assets with a cost in excess of $5,000 are capitalised.
   

7. Depreciation
   Depreciation has been calculated on all fixed assets except land and capital work in progress on a straight line basis at rates which will write-off their cost or revalued amount, less their expected residual values, over their estimated useful lives. The expected useful lives of the major classes of assets are as follows:
   Buildings 10 to 100 years
   Plant and equipment Up to 10 years
   Motor Vehicles Up to 10 years
   Leasehold Improvements Up to 5 years
   Computer Equipment Up to 5 years

8. Accounts Receivable
   Accounts receivable are stated at expected realisable value after making allowance for amounts considered to be doubtful.

9. Inventories
   Inventories acquired for use in the provision of goods and services are expensed except for bulk stocks, which are capitalised and expensed when used. Inventories are valued at the lower of cost (assigned to inventory quantities on hand at balance date using the first in first out (FIFO) basis) or net realisable value. Full provision is made for obsolescence where applicable.

10. Work in Progress
    Material work in progress on consulting activities is valued at the lower of cost or expected realisable value.

11. Employee Entitlements
    Employee entitlements to salaries and wages, annual leave, long service leave and employer superannuation contributions are recognised when they accrue to employees. Retiring leave is recognised for all employees on the basis of an actuarial valuation.
    

12. Taxation
    (a) Income Tax: No income tax liability is incurred in respect of any operations.
    (b) Fringe Benefit Tax (FBT): FBT is payable on all fringe benefits.
    (c) Goods and Services Tax (GST): The Ministry is a registered trader for GST purposes and is liable for GST on all goods and services supplied. The Statement of Financial Performance, Statement of Movements in Taxpayers' Funds, Statement of Cash Flows, Statement of Commitments and Statement of Contingent Liabilities are prepared exclusive of GST. The Statement of Financial Position is also exclusive of GST except for Accounts Receivable and Accounts Payable which are GST inclusive. The Statement of Departmental Appropriations and Expenditure and Statement of Unappropriated Expenditure are prepared inclusive of GST.

13. Foreign Currrencies
    Foreign currency transactions are converted at the New Zealand dollar exchange rate at the date of the transactions. Where a forward exchange contract has been used to establish the price of a transaction, the forward rate specified in that foreign exchange contract is used to convert that transactions to New Zealand dollars.

14. Financial Instruments
    The Ministry is party to financial instrument arrangements as part of its everyday operations. These include bank accounts, short term deposits, accounts receivable, accounts payable, and foreign currency forward exchange contracts.
    Foreign currency forward exchange contracts are used infrequently to manage significant foreign currency exposure. Outstanding forward contracts are translated into New Zealand dollars at the contract rate. Exchange gains and losses on translation are included in the Statement of Financial Performance in the period in which they arise. The Ministry's exposure to off-balance sheet risk with respect to fluctuations in exchange rates and interest rates is negligible. All financial instruments are recognised in the Statement of Financial Position on the basis of the Ministry's general and, where applicable, specific accounting policies. All financial instruments disclosed on the Statement of Financial Position are recorded at fair value.

15. Commitments
    Future expenses and liabilities are disclosed as commitments at the point at which a contractual obligation arises, to the extent that they are equally unperformed obligations. Commitments relating to employment contracts are not disclosed.

16. Contingent Liabilities
    Contingent liabilities are disclosed at the point at which the contingency is evident.

F. Changes in Accounting Policies

There have been no changes to accounting policies, including cost allocation policies, affecting the reporting entity during the period.

Contact for Enquiries

Strategy and Performance Group
Ministry of Agriculture and Forestry
Pastoral House
25 The Terrace
PO Box 2526, Wellington

Tel: +64 4 894 0100
Fax: +64 4 894 0738 Contact this person