Statement of Accounting Policies
A. The Reporting Entity
The Ministry of Agriculture and Forestry is a government department as defined by section 2 of the Public Finance Act 1989.
The forecast financial statements for MAF have been prepared in terms of section 34A 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 modified by the revaluation of certain fixed assets.
C. Accounting Policies
1. Revenue Recognition
The Ministry derives revenue through the provision of outputs to the Crown and for services to third parties. Such revenue is recognised when earned and is reported in the financial period to which it relates.
2. Unearned Revenue
Unearned revenue is revenue received in the current accounting period that relates to services that the Ministry will provide in future accounting periods.
3. Cost Allocation
The Ministry has determined the cost of outputs using the cost allocation system as outlined below.
"Direct costs" are costs charged directly to significant activities. "Indirect costs" are charged to significant activities based on cost drivers and related activity/usage information.
"Direct costs" are those costs directly attributed to an output. "Indirect costs" are those costs that cannot be identified in an economically feasible manner with a specific output.
"Indirect costs" are assigned to outputs based on various cost drivers including assessed charges and usage, personnel numbers and estimated allocation of time.
4. Debtors and Receivables
Receivables are recorded at estimated realisable value after providing for doubtful and uncollectible debts.
5. Leases
Assets acquired by way of finance leases are stated initially at an amount equal to the present value of the future minimum lease payments, and are depreciated as assets. The interest expense component of finance lease payments is recognised in the statement of financial performance using the rule of 78 method.
Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased item are classified as operating leases. Operating lease expenses are recognised on a systematic basis over the period of the lease.
6. Property, Plant and Equipment
Land and buildings are stated at fair value as determined by an independent registered valuer. Fair value is determined using market-based evidence. Land and buildings are revalued at least every five years. Additions between revaluations are recorded at cost.
All other fixed assets, or groups of assets forming part of a network which are material in aggregate, costing more than $5,000 are capitalised and recorded at cost. Any write-down of an item to its recoverable amount is recognised in the Statement of Financial Performance.
7. Depreciation
Depreciation is provided on a straight line basis on all fixed assets, other than freehold land and items under construction, at a rate which will write off the cost (or valuation) of the assets to their estimated residual value over their useful lives. The useful lives and associated depreciation rates of major classes of assets have been estimated as follows:
| Buildings | 50 years | (2%) |
| Plant and Equipment | 3-10 years | (10-33%) |
| Motor Vehicles | 4-8 years | (12-25%) |
| Leasehold Improvements | 4-10 years | (10-25%) |
8. 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 basis) or net realisable value. Full provision is made for obsolescence where applicable.
9. Employee Entitlements
Provision is made in respect of the Ministry’s liability for annual leave, long service leave and retirement leave. Annual leave and other entitlements that are expected to be settled within 12 months of reporting date are measured at nominated values on an actual entitlement basis at current rates of pay.
Entitlements that are payable beyond 12 months, such as long service and retiring leave, have been calculated on an actuarial basis based on the present value of expected future entitlements.
10. Foreign Currencies
Foreign currency transactions are converted into New Zealand dollars at the exchange rate at the date of the transaction. 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 transaction to New Zealand dollars.
Consequently, no exchange gain or loss resulting from the difference between the forward exchange contract rate and the spot exchange rate on date of settlement is recognised.
Monetary assets and liabilities are translated to New Zealand dollars at the closing exchange rate. The resulting unrealised exchange gain or loss is recognised in the Statement of Financial Performance. Other exchange gains or losses, whether realised or unrealised, are recognised in the Statement of Financial Performance in the period to which they relate.
11. Financial Instruments
The Ministry is party to financial instrument arrangements as part of its everyday operations. These financial instruments include bank accounts, debtors, creditors, and foreign currency forward exchange contracts. The Ministry enters into foreign currency forward exchange contracts to hedge currency transactions. Any exposure to gains or losses on these contracts is generally offset by a related loss or gain on the item being hedged. Apart from foreign currency forward exchange contracts, all financial instruments are recognised in the Statement of Financial Position and all revenues and expenses in relation to financial instruments are recognised in the Statement of Financial Performance.
Except for those items covered by a separate accounting policy all financial instruments are shown at their estimated fair value.
12. Taxation
Government departments are exempt from the payment of income tax in terms of the Income Tax Act 1994. Accordingly, no charge for income tax is provided for.
13. Commitments
Future expenses and liabilities to be incurred on contracts that have been entered into at balance date are disclosed as commitments to the extent that there are equally unperformed obligations.
14. Contingent Liabilities
Contingent liabilities are disclosed at the point at which the contingency is evident.
D. Changes in Accounting Policies
No changes to accounting policies, including cost allocation policies, are anticipated over the forecast 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
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