The Ministry leases office premises and office equipment, mainly photocopiers. As the lessor retains all the risks of ownership, 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.

Items of Computer software costing $5,000 (excluding GST) or more are capitalised and recorded at historical cost.

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 assets other than "motor vehicles" ($5,000) are assumed to have no residual value.

The cost (or valuation) of leasehold improvements is capitalised and amortised 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.

Gains/Losses on Fixed Assets

Realised gains and losses arising from the disposal or sale of physical assets are recognised in the Statement of Financial Performance in the period in which the transaction occurs.

Revenue Recognition

Revenue is derived through the provision of outputs to the Crown, from services to third parties and from interest on deposits with the New Zealand Debt Management Office. 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.

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.

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.

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 is determined on an actuarial basis based on the present value of expected future entitlements.

Taxation

The Ministry of Economic Development, as an institution of the Crown, is not required to pay income tax. 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 Financial Position is exclusive of GST, except for Payables and Receivables 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 Payables or Receivables (as appropriate).

Financial Instruments

The Ministry is party to financial instruments as part of its normal operations. These financial instruments include bank accounts, receivables, payables 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 as financing activities.

Cost Allocation

The Ministry has derived costs shown in these statements using a costing system which will directly charge 86% of 2004/2005 actual costs and indirectly allocate the remaining 14%.

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. In this Ministry these indirect costs are confined to corporate overheads.

The cost drivers that will be employed to assign direct and indirect costs to outputs for the major cost groupings are as follows:

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 & fittings	Amount of floor space occupied
Other personnel & operating	Direct charging
Indirect Costs
Corporate overheads and time	Assessed usage, staff numbers

Changes in Accounting Policies

The Ministry has changed its accounting policy of the value for capitalisation of fixed assets. Effective from 1 July 2003 all items of Computer software costing $5,000 (excluding GST) or more are capitalised and recorded at historical cost and all other fixed assets costing $2,000 (excluding GST) or more are capitalised and recorded at historical cost.

There have been no other changes in accounting policies for 2004/2005.

All policies, other than as noted above, have been applied on a basis consistent with other years.

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Printed: 25/11/2009