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.
MAF's forecast financial statements have been prepared in terms of section 41 of the Public Finance Act 1989 in accordance with generally accepted accounting practice recognised as appropriate for reporting organisations in the public sector.
B. significant underlying assumptions
The forecast financial statements have been compiled on the basis of existing Government policies and Output Plans agreed with the Ministers of Agriculture, Biosecurity and Food Safety at the time the statements were finalised. The statements have been prepared on a going concern basis. The measurement base adopted is that of historical cost modified by the revaluation of certain fixed assets.
C. Accounting Policies
1. Revenue
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 relating to services 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 which cannot be identified in an economically feasible manner, with a specific output.
Direct costs are charged directly to outputs. 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
Leases which effectively transfer to the Ministry substantially all the risks and benefits incidental to ownership of the leased items are classified as finance leases. These are capitalised at the lower of the fair value of the asset or the present value of the minimum lease payments. The leased assets and the corresponding lease liabilities are recognised in the Statement of Financial Position. The leased assets are depreciated over the period the Ministry is expected to benefit from their use. The interest expense component of finance lease payments is recognised in the Statement of Financial Performance.
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.
The results of revaluing land and buildings are credited or debited to an asset revaluation reserve for that class of asset. Where a revaluation results in a debit balance in the revaluation reserve, the debit balances will be expensed in the Statement of Financial Performance.
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:
Depreciation |
||
| Buildings | 50 years | (2%) |
| Leasehold improvements | 2-10 years | (10-50%) |
| Plant and equipment | 3-10 years | (10-33%) |
| Lease plant and equipment | 3 years | (33%) |
| Motor vehicles | 4-8 years | (12-25%) |
The cost of lease improvements is capitalised and depreciated over the unexpired period of the lease or the estimated remaining useful life of the improvements, whichever is shorter.
Items under construction are not depreciated. The total cost of a capital project is transferred to the appropriate asset class on its completion and then depreciated.
8. Inventories
Inventories held for distribution are valued at the lower of cost and current replacement value. Inventories acquired for use in the provision of goods and services 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.
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 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 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. Goods and services tax (GST)
The Statement of Financial Position is exclusive of GST, except for Creditors and Payables and Debtors and Receivables which are GST inclusive. All other statements are GST exclusive. The amount of GST owing to or from Inland Revenue Department at balance date is included in Creditors and Payables or Debtors and Receivables (as appropriate).
13. Taxation
Government departments are exempt from the payment of income tax in terms of the Income Tax Act 1994. Accordingly, there is no provision for income tax.
14. Commitments
Future expenses and liabilities to be incurred on contracts entered into at balance date are disclosed as commitments to the extent there are equally unperformed obligations.
15. 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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