Statement of Accounting Policies for the Year Ended 30 June 2005
Reporting Entity
The Ministry of Economic Development is a government department as defined by the Public Finance Act 1989.
The financial statements are prepared pursuant to the Public Finance Act 1989 and covers all the activities of the Ministry of Economic Development as set out in the 2004/2005 Estimates of Annual Appropriations and Departmental Budgets, including Votes: Economic, Industry and Regional Development; Commerce; Communications; Consumer Affairs; Energy; and Tourism.
In addition, the Ministry has reported the Crown activities and trust monies that it administers.
Measurement Basis
The financial statements have been prepared on an historical basis modified by the revaluation of certain fixed assets.
Accounting Policies
The following particular accounting policies which materially affect the measurement of financial results and financial position have been applied:
Budget Figures
The budget figures are those presented in the Budget Night Estimates (Main Estimates) and those amended by the Supplementary Estimates.
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.
Realised gains arising from sales of fixed assets are recognised in the Statement of Financial Performance in the period in which the transaction occurs.
Expenditure
Expenses are recognised in the financial period to which they relate. Realised losses arising from sale of fixed assets are recognised in the Statement of Financial Performance in the period in which the transaction occurs.
Unrealised losses arising from changes in the value of fixed assets are recognised in the period in which they occur. Unrealised losses are first applied against the revaluation reserve for that class of asset. The balance, if any, is charged to the Statement of Financial Performance.
Cost Allocation
The Ministry has derived costs shown in these statements using a costing system which directly charged 83.1% of 2004/2005 actual costs and indirectly allocated the remaining 16.9% (2003/2004 86.4%, 13.6%).
Direct costs are those attributable to outputs on the basis of resource consumption. Costs which bear no direct relationship to outputs are classified as indirect. These indirect costs are confined to corporate support costs.
The following are the cost drivers employed to assign direct and indirect costs to outputs for the major cost groupings:
| Cost Groupings | Cost Driver |
|---|
| Direct Costs | |
|---|
| Accommodation | Amount of floor space occupied |
|---|
| Cafeteria administration | Staff numbers |
|---|
| Depreciation on leasehold improvements | Amount of floor space occupied |
|---|
| Depreciation on furniture and fittings | Amount of floor space occupied |
|---|
| Other personnel and operating | Direct charging |
|---|
| Indirect Costs | |
|---|
| Corporate support costs and time | Assessed usage and staff numbers |
|---|
Receivables and Advances
Receivables and advances are recorded at estimated realisable value, after providing for doubtful debts.
Inventories
Inventories are stated at the lower of cost or net realisable value.
Operating Leases
The Ministry leases office premises and office equipment, mainly photocopiers. As all the risks of ownership are retained by the lessor, these leases are classified as operating leases. Operating lease costs are expensed in the period in which they are incurred.
Fixed Assets
Leasehold improvements are stated at net current values determined by an independent registered valuer. A revaluation of all leasehold improvements was completed by Lockwood and Associates on 30 June 2001. Leasehold improvements are revalued every five years.
Unrealised gains arising from changes in the value of fixed assets are recognised at balance date. To the extent gains reverse losses previously charged to the Statement of Financial Performance, the gains are credited to the Statement of Financial Performance. Otherwise, gains are credited to an asset revaluation reserve for that class of assets.
All other fixed assets costing $2,000 (excluding GST) or more are capitalised and recorded at historical cost.
Depreciation
Depreciation of fixed assets, other than leasehold improvements and work in progress, is provided on a straight line basis so as to allocate the depreciable amount of assets over their useful lives. The depreciable amount is the historical cost or revalued amount, less the residual value. The estimated useful lives are:
| Buildings | 20 years |
|---|
| Computer equipment and software | 4 years |
|---|
| Furniture and fittings | 5 years |
|---|
| Office equipment | 5 years |
|---|
| Testing equipment | 10 years |
|---|
| Motor vehicles | 5 years |
|---|
All fixed assets other than motor vehicles ($5,000) are assumed to have no residual value.
The cost (or valuation) of leasehold improvements is capitalised and depreciated over the unexpired period of the lease.
Capital work in progress is recognised as costs are incurred. Depreciation is not recorded until the asset is fully operational.
Taxation
The Ministry of Economic Development, as an institution of the Crown, is not required to pay income tax in terms of the Income Tax Act 1994. The Ministry is subject to Fringe Benefit Tax, Goods and Services Tax and Pay-As-You-Earn tax (PAYE).
Goods and Services Tax (GST)
The Statement of Unappropriated Expenditure and the Statements of Departmental and Non-Departmental Expenditure and Appropriations are inclusive of GST. The Statement of Financial Position is exclusive of GST, except for Creditors and payables and Receivables and advances, which are GST inclusive. All other statements are GST exclusive.
The amount of GST owing to or from the Inland Revenue Department at balance date, being the difference between Output GST and Input GST, is included in Creditors and payables, or Receivables and advances (as appropriate).
Provision for Employee Entitlements
Provision is made in respect of the Ministry's liability for annual leave, long service leave and retirement leave. Annual leave is recognised as it accrues to employees at current rates of pay. Long service leave and retirement leave are determined on an actuarial basis based on the present value of expected future entitlements.
Financial Instruments
The Ministry is party to financial instruments as part of its normal operations. These financial instruments include bank accounts, short-term deposits, debtors, creditors and foreign currency forward contracts. The Ministry enters into the foreign currency forward contracts to hedge currency transactions. Any exposure to gains or losses on those contracts is generally offset by a related loss or gain on the item being hedged. Apart from foreign currency forward 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.
Statement of Cash Flows
The following are definitions of the terms used in the Statement of Cash Flows:
- cash means coins, notes and current accounts;
- investing activities are those activities relating to the acquisition and disposal of non-current assets;
- financing activities comprise changes in the capital structure; and
- operating activities include all transactions and other events that are not investing or financing activities.
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.
Contingent Liabilities
Contingent liabilities are disclosed at the point at which the contingency is evident.
Taxpayers' Funds
This is the Crown's net investment in the Ministry.
Changes in Accounting Policies
Presentation of some current year costs or balances has been reviewed and for comparative purposes prior year costs or balances have been restated.
In the year ended 30 June 2005, there were no changes in accounting policies. All policies have been applied on a basis consistent with prior years.
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