Note 1: Statement of significant accounting policies
Te Motu Regional Economic Development Trust: Model financial statements 2008/09.
Statement of significant accounting policies for the year ended 30 June 20097,8,9
| REPORTING ENTITY | ||
| NZ IAS 1.126(a) | Te Motu Regional Economic Development Trust (the Trust) is a charitable trust10 incorporated in New Zealand under the Charitable Trusts Act 1957 and is domiciled in New Zealand. The Trust is controlled by Te Motu Regional Council and is a Council Controlled Organisation as defined under section 6 of the Local Government Act 2002, by virtue of the Council’s right to appoint the Board of Trustees. | |
| NZ IAS 1.126(b) | The primary objective of the Trust is to encourage, promote, and support the establishment and growth of business investment and employment opportunities within the region, rather than making a financial return. | |
| NZ IAS 1 NZ 13.1(b) | Accordingly, the Trust has designated itself as a public benefit entity for the purposes of New Zealand Equivalents to International Financial Reporting Standards (NZ IFRS). | |
| NZ IAS 1.46(b),(c) NZ IAS 10.17 |
The financial statements of the Trust are for the year ended 30 June 2009. The financial statements were authorised for issue by the Board of Trustees on the 28 September 2009. | |
| BASIS OF PREPARATION | ||
| Statement of compliance | ||
| NZ IAS 1 NZ 13.1(a) | The financial statements of the Trust have been prepared in accordance with the requirements of the Local Government Act 2002, which includes the requirement to comply with New Zealand generally accepted accounting practice (NZ GAAP). | |
| NZ IAS 1 NZ 13.1(d) | These financial statements have been prepared in accordance with NZ GAAP. They comply with NZ IFRS, and other applicable Financial Reporting Standards, as appropriate for public benefit entities. | |
| Measurement base | ||
| NZ IAS 1.108(a) | The financial statements have been prepared on a historical cost basis. | |
| Functional and presentation currency | ||
| NZ IAS 1.46 (d),(e) | The financial statements are presented in New Zealand dollars and all values are rounded to the nearest dollar. The functional currency of the Trust is New Zealand dollars. | |
| NZ IAS 8 NZ 31.1 | Changes in accounting policies | |
| With the exception of the initial application of the NZ IAS 2 Inventories (NZ IAS 2) amendment that is explained below, the Trust’s accounting policies have been applied consistently to all periods presented in these financial statements. | ||
| NZ IAS 8.28 | In November 2007 the Accounting Standards Review Board approved an amendment to NZ IAS 2, which requires public benefit entities to measure inventory held for distribution at cost, adjusted when applicable for any loss of service potential. Prior to the amendment, public benefit entities were required to measure inventories held for distribution at the lower of cost and current replacement cost. | |
| NZ IAS 2 NZ 42 | Application of the amendment became mandatory for reporting periods beginning on or after 1 January 2008. The necessary adjustment for the change in accounting policy is required to be made against opening retained earnings at 1 July 2008, and accordingly comparative information is not restated. Refer to the reconciliation of retained surpluses in note 17 for the adjustment recognised at 1 July 2008. | |
| Standards, amendments, and interpretations issued that are not yet effective and have not been early adopted | ||
Standards, amendments, and interpretations issued but not yet effective that have not been early adopted, and are relevant to the Trust include:
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| NZ IAS 1.108(b) | SIGNIFICANT ACCOUNTING POLICIES | |
| NZ IAS 18.35(a) | Revenue | |
| NZ IAS 18.9 | Revenue is measured at the fair value of consideration received. | |
| Grants | ||
| NZ IAS 20.39(b) | Grants received from the Te Motu Regional Council are the primary source of funding to the Trust and are restricted for the purposes of the Trust meeting its objectives as specified in the Trust’s trust deed. The Trust also receives other government assistance for specific purposes, and these grants usually contain restrictions on their use. | |
| NZ IAS 20.39(a) | Council, government, and non-government grants are recognised as revenue when they become receivable unless there is an obligation to return the funds if conditions of the grant are not met. If there is such an obligation, the grants are initially recorded as grants received in advance and recognised as revenue when conditions of the grant are satisfied. | |
| Other revenue | ||
| NZ IAS 18.14 | Products held for sale are recognised when a product is sold to the customer. | |
| NZ IAS 16 NZ 15.1 | Where a physical asset is donated or vested in the Trust for nil or nominal consideration, the fair value of the asset received is recognised as income. Assets vested and the associated income are recognised when control over the asset is obtained. | |
| NZ IAS 18.30(a) | Interest income is recognised using the effective interest rate method. | |
| Good practice | Volunteer services received are not recognised as revenue or expenditure as the Trust is unable to reliably measure the fair value of the services received. | |
| NZ IAS 1.110 | Advertising costs | |
| NZ IAS 38.69(c) | Advertising costs are expensed when the related service has been rendered. | |
| NZ IAS 23.9,29(a) | Borrowing costs | |
| Borrowing costs are recognised as an expense in the period in which they are incurred. | ||
| NZ IAS 1.110 | Income Tax | |
| Good practice | The Trust has been granted Charitable status by the Inland Revenue Department, and therefore is exempt from income tax. | |
| NZ IAS 1.110 | Leases | |
| Finance leases | ||
| NZ IAS 17.4 | A finance lease is a lease that transfers to the lessee substantially all the risks and rewards incidental to ownership of an asset, whether or not title is eventually transferred. | |
| NZ IAS 17.20 | At the commencement of the lease term, the Trust recognises finance leases as assets and liabilities in the statement of financial position at the lower of the fair value of the leased item or the present value of the minimum lease payments. | |
| The finance charge is recognised in the statement of financial performance over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability. | ||
| NZ IAS 17.27 | The amount recognised as an asset is depreciated over its useful life. If there is no certainty as to whether the Trust will obtain ownership at the end of the lease term, the asset is fully depreciated over the shorter of the lease term and its useful life. | |
| Operating leases | ||
| NZ IAS 17.4,33 | An operating lease is a lease that does not transfer substantially all the risks and rewards incidental to ownership of an asset. Lease payments under an operating lease are recognised as an expense on a straight-line basis over the lease term. | |
| NZ SIC 15.5 | Lease incentives received are recognised in the statement of financial performance over the lease term as an integral part of the total lease expense. | |
| NZ IAS 7.46 | Cash and cash equivalents | |
| Cash and cash equivalents includes cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings as a current liability in the statement of financial position. |
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| NZ IFRS 7.21 | Debtors and other receivables | |
| NZ IAS 39.43 NZ IAS 39.46(a) |
Debtor and other receivables are initially measured at fair value and subsequently measured at amortised cost using the effective interest rate method, less any provision for impairment. | |
| NZ IAS 39.63 | A provision for impairment of receivables is established when there is objective evidence that the Trust will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter into bankruptcy, and default in payments are considered indicators that the receivable is impaired. The amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted using the original effective interest rate. The carrying amount of an impaired receivable is reduced through the use of an allowance account, and the amount of the loss is recognised in the statement of financial performance. When the receivable is uncollectible, it is written off against the allowance account. Overdue receivables that have been renegotiated are reclassified as current (i.e. not past due). | |
| NZ IAS 2.36(a) | Inventories | |
| NZ IAS 2 NZ 9.1 | Inventories held for distribution that are not supplied on a commercial basis are measured at the lower of cost, adjusted when applicable, for any loss of service potential. Where inventories are acquired at no cost or for nominal consideration, the cost is the current replacement cost at the date of acquisition. | |
| NZ IAS 2.9 | Inventories held for sale on a commercial basis are valued at the lower of cost and net realisable value. The cost of the inventory is determined using the first-in first-out method. | |
| NZ IAS 2.34 | The amount of any write-down for the loss of service potential or from cost to net realisable value is recognised in the statement of financial performance in the period of the write-down. | |
| NZ IFRS 7.21 | Investments | |
| NZ IAS 39.43 | Investments in bank deposits are initially measured at fair value plus transaction costs (if any). | |
| NZ IAS 39.46(a) | After initial recognition investments in bank deposits are measured at amortised cost using the effective interest rate method, less any provision for impairment. The indicators and the accounting for impairment of bank deposits is the same as explained above for debtors and other receivables. | |
| NZ IAS 1.110 | Property, plant and equipment | |
| NZ IAS 16.73(a) | Property, plant and equipment is shown at cost, less accumulated depreciation and impairment losses. | |
| NZ IAS 16.7 | Additions | |
| The cost of an item of property, plant and equipment is recognised as an asset if, and only if, it is probable that future economic benefits or service potential associated with the item will flow to the Trust and the cost of the item can be measured reliably. | ||
| NZ IAS 16 NZ 15.1 | In most instances, an item of property, plant and equipment is recognised at its cost. Where an asset is acquired at no cost, or for a nominal cost, it is recognised at fair value when control over the asset is obtained. | |
| NZ IAS 16.68 | Disposals | |
| NZ IAS 16.71 | Gains and losses on disposals are determined by comparing the proceeds with the carrying amount of the asset. Gains and losses on disposals are recognised in the statement of financial performance. | |
| NZ IAS 16.12,13 | Subsequent costs | |
| Costs incurred subsequent to initial acquisition are capitalised only when it is probable that future economic benefits or service potential associated with the item will flow to the Trust and the cost of the item can be measured reliably. | ||
| NZ IAS 16.73(b),(c) | Depreciation11 | |
| Depreciation is provided on a straight-line basis on all property, plant and equipment at rates that will write-off the cost of the assets to their estimated residual values over their useful lives. The useful lives and associated depreciation rates of major classes of assets have been estimated as follows: | ||
| Furniture and fittings | 5 years (20%) | |
| Computer equipment | 3 to 5 years (20% to 33%) | |
| Motor vehicles | 5 years (20%) | |
| NZ IAS 16.51 | The residual value and useful life of an asset is reviewed, and adjusted if applicable, at each financial year end. | |
| NZ IAS 1.110 | Intangible assets | |
| Software acquisition | ||
| NZ IAS 38.27,28 | Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. | |
| Costs associated with maintaining computer software are recognised as an expense when incurred. | ||
| NZ SIC 32.8 | Costs associated with the development and maintenance of the Trust’s website are recognised as an expense when incurred because the website is primarily for promoting the Trust’s services. | |
| NZ IAS 38.15,29,67 | Staff training costs are recognised as an expense when incurred. | |
| Amortisation | ||
| NZ IAS 38.97 NZ IAS 38.118(a),(b) NZ IAS 38.118(d) |
Computer software licenses are amortised on a straight-line basis over their estimated useful life of 3 years. Amortisation begins when the asset is available for use and ceases at the date that the asset is disposed of. The amortisation charge for each period is recognised in the statement of financial performance. | |
| NZ IAS 1.110 | Impairment of property, plant and equipment and intangible assets | |
| NZ IAS 36.9 NZ IAS 36.18 |
Property, plant and equipment and intangible assets are reviewed for indicators of impairment at each balance date. When there is an indicator of impairment the asset’s recoverable amount is estimated. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. | |
| NZ IAS 36 NZ 6.1 NZ IAS 36.22 |
Value in use is depreciated replacement cost for an asset where the future economic benefits or service potential of the asset are not primarily dependent on the asset’s ability to generate net cash inflows and where the Trust would, if deprived of the asset, replace its remaining future economic benefits or service potential. | |
| NZ IAS 36.60 | If an asset’s carrying amount exceeds its recoverable amount, the asset is impaired and the carrying amount is written down to the recoverable amount. The impairment loss is recognised in the statement of financial performance. | |
| NZ IFRS 7.21 | Creditors and other payables | |
| NZ IAS 39.43 NZ IAS 39.47 |
Creditors and other payables are initially measured at fair value and subsequently measured at amortised cost using the effective interest method. | |
| NZ IAS 1.110 | Employee entitlements | |
| NZ IAS 19.10 | Short-term entitlements | |
| Entitlements that the Trust expects to be settled within 12 months of balance date are measured at nominal values based on accrued entitlements at current rates of pay. These include salaries and wages accrued up to balance date, annual leave earned to, but not yet taken at balance date, retiring and long service leave entitlements expected to be settled within 12 months, and sick leave. The Trust recognises a liability for sick leave to the extent that compensated absences in the coming year are expected to be greater than the sick leave entitlements earned in the coming year. The amount is calculated based on the unused sick leave entitlement that can be carried forward at balance date, to the extent the Trust anticipates it will be used by staff to cover those future absences. |
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| Long-term entitlements | ||
| NZ IAS 19.126-131 | Entitlements that are payable beyond 12 months, such as long service leave and retiring leave, have been calculated on an actuarial basis. The calculations are based on:
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| NZ IAS 1.110 | Provisions | |
| NZ IAS 37.14 | The Trust recognises a provision for future expenditure of uncertain amount or timing when there is a present obligation (either legal or constructive) as a result of a past event, it is probable that expenditures will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are not recognised for future operating losses. | |
| NZ IAS 37.45 | Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised as a finance cost. | |
| NZ IFRS 7.21 | Borrowings | |
| NZ IAS 39.43 NZ IAS 39.47 |
Borrowings are initially recognised at their fair value. After initial recognition, all borrowings are measured at amortised cost using the effective interest rate method. | |
| NZ IAS 1.110 | Good and Service Tax (GST) | |
| All items in the financial statements are stated exclusive of GST, except for receivables and payables, which are stated on a GST inclusive basis. Where GST is not recoverable as input tax then it is recognised as part of the related asset or expense. The net amount of GST recoverable from, or payable to, the Inland Revenue Department (IRD) is included as part of receivables or payables in the statement of financial position. The net GST paid to, or received from the IRD, including the GST relating to investing and financing activities, is classified as an operating cash flow in the statement of cash flows. |
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| Commitments and contingencies are disclosed exclusive of GST. | ||
| NZ IAS 1 NZ 41.1 | Budget figures | |
| The budget figures are those approved by the Trustees at the beginning of the year in the statement of intent. The budget figures have been prepared in accordance with NZ IFRS, using accounting policies that are consistent with those adopted by the Trust for the preparation of the financial statements. | ||
| NZ IAS 1.116 | Critical accounting estimates and assumptions | |
| In preparing these financial statements the Trust has made estimates and assumptions concerning the future. These estimates and assumptions may differ from the subsequent actual results. Estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below: | ||
| Leasehold restoration provision | ||
| An analysis of the Trust’s exposure surrounding the leasehold restoration provision is disclosed in Note 16. | ||
| Property, plant and equipment useful lives and residual values | ||
| At each balance date the Trust reviews the useful lives and residual values of its property, plant and equipment. Assessing the appropriateness of useful life and residual value estimates of property, plant and equipment requires the Trust to consider a number of factors such as the physical condition of the asset, expected period of use of the asset by the Trust, and expected disposal proceeds from the future sale of the asset. An incorrect estimate of the useful life or residual value will impact on the depreciable amount of an asset, therefore impacting on the depreciation expense recognised in the statement of financial performance, and carrying amount of the asset in the statement of financial position. The Trust minimises the risk of this estimation uncertainty by:
The carrying amounts of property, plant and equipment are disclosed in note 11. |
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| NZ IAS 1.113 | Critical judgements in applying the Trust’s accounting policies | |
| The Trustees must exercise their judgement when recognising grant income to determine if conditions of the grant contract have been satisfied. This judgement will be based on the facts and circumstances that are evident for each grant contract. | ||
7: The going concern concept is assumed when preparing financial statements. If management is aware of conditions or events that cast doubt over the ability to continue as a going concern, those facts shall be disclosed. If the financial statements are not prepared on a going concern basis that fact shall also be disclosed, together with the basis on which the financial statements are prepared and the reason why the entity is not regarded as a going concern (NZ IAS 1.23).
8: NZ IAS 1.108(b) requires entities to disclose all accounting policies that are relevant to an understanding of the financial statements.
9: NZ IAS 1.126 requires the following information to be included in the annual report, it does not necessarily have to be in the financial statements: domicile and legal form, country of incorporation, address of registered office, description of operations, principal activities, name of parent and ultimate parent of the group.
10: Because Te Motu Regional Economic Development Trust is a charitable trust, it is not subject to limitations on its life by law. Under New Zealand law trusts that are not charitable may be restricted to a finite number of years before they must be wound up. The financial statements of trusts with a finite life may have some significant differences to this model as the trust “equity” may need to be accounted for as a liability. A recent amendment to NZ IAS 32, Puttable Financial Instruments and Obligations Arising on Liquidation, may permit a limited life trust’s “equity” to be presented as equity if certain conditions are satisfied. Limited life trusts should refer to this amendment and seek professional advice where appropriate.
11: The useful lives and depreciation rates that have been listed above are only illustrative. Each entity will need to set these based on their specific circumstances.
