Note 1
Statement of accounting policies7,8
Model Financial Statements: Te Motu Regional Economic Development Trust 2010/11
| REPORTING ENTITY | ||
| NZ IAS 1.138(a),(c) | Te Motu Regional Economic Development Trust (the Trust) is a trust 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 1.138(b) NZ IAS 1 NZ 15.1(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. 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 1.51(a),(b),(c) NZ IAS 10.17 |
The financial statements for the Trust are for the year ended 30 June 2011, and were approved by the Board of Trustees on 28 September 2011. | |
| BASIS OF PREPARATION | ||
| Statement of compliance | ||
| NZ IAS 1 NZ 15.1(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 generally accepted accounting practice in New Zealand (NZ GAAP). | |
| NZ IAS 1 NZ 15.1(d) | The financial statements comply with NZ IFRS, and other applicable Financial Reporting Standards, as appropriate for public benefit entities. | |
| Measurement base | ||
| NZ IAS 1.117(a) | The financial statements have been prepared on a historical cost basis. | |
| Functional and presentation currency | ||
| NZ IAS 1.51 (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$). | |
| Changes in accounting policies | ||
| NZ IAS 8 NZ 31.1 | There have been no changes in accounting policies during the year. | |
| Early adopted amendments and revisions to standards | ||
| The following amendments and revision to standards have been early adopted: | ||
| NZ IFRS 7.44L |
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| NZ IAS 24.28 |
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| NZ IAS 8.30,31 | Standards, amendments, and interpretations issued that are not yet effective and have not been early adopted9,10 | |
| Standards, amendments, and interpretations issued but not yet effective that have not been early adopted, and which are relevant to the Trust, are: | ||
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| SIGNIFICANT ACCOUNTING POLICIES11 | ||
| 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. | |
| Sales | ||
| NZ IAS 18.14 | Products held for sale are recognised when a product is sold to the customer. | |
| Vested assets | ||
| NZ IAS 16 NZ 15.1 | Where a physical asset is gifted to or vested in the Trust for nil or nominal consideration, the fair value of the asset received is recognised as income. Such income is recognised when control over the asset is obtained. | |
| Interest income | ||
| NZ IAS 18.30(a) | Interest income is recognised using the effective interest method. | |
| Volunteer services | ||
| 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 1.117(b) | Advertising costs | |
| NZ IAS 38.69(c) | Advertising costs are expensed when the related service has been rendered. | |
| NZ IAS 1.117(b) | Borrowing costs | |
| NZ | The Trust has elected to defer adoption of the revised NZ IAS 23 Borrowing Costs (Revised 2007) in accordance with the transitional provisions of NZ IAS 23 that are applicable to public benefit entities. Consequently, all borrowing costs are recognised as an expense in the financial year in which they are incurred. |
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| NZ IAS 1.117(b) | 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, finance leases are recognised 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. | |
| NZ IAS 17.25 | The finance charge is charged to the surplus or deficit 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 17.33 | 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 surplus or deficit 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 presented within borrowings as a current liability in the statement of financial position. | ||
| 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 method, less any provision for impairment. | |
| NZ IAS 39.63 | A provision for impairment of a receivable is established when there is objective evidence that the Trust will not be able to collect amounts due according to the original terms of the receivable. Significant financial difficulties of the debtor, probability that the debtor will enter into bankruptcy, receivership or liquidation, and default in payments are considered indicators that the debt 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 surplus or deficit. When the receivable is uncollectible, it is written-off against the allowance account for receivables. Overdue receivables that have been renegotiated are reclassified as current (that is, not past due). | |
| 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, less any provision for impairment. The indicators and the accounting for impairment of bank deposits is the same as explained for debtors and other receivables. | |
| NZ IAS 2.36(a) | Inventories | |
| NZ IAS 2 NZ 9.1,10.1 NZ IAS 2 NZ 36.1(e) |
Inventories held for distribution in the provision of services that are not supplied on a commercial basis are measured at cost (using the FIFO method), adjusted, when applicable, for any loss of service potential. The loss of service potential of inventory held for distribution is determined on the basis of obsolescence. 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 use in the provision of goods and services on a commercial basis are valued at the lower of cost (using the FIFO method) and net realisable value. | |
| NZ IAS 2.34, NZ 34.1 | The amount of any write-down for the loss of service potential or from cost to net realisable value is recognised in the surplus or deficit in the year of the write-down. | |
| NZ IAS 1.117 | Property, plant, and equipment | |
| NZ IAS 16.73(a) | Property, plant, and equipment is shown at cost, less accumulated depreciation and impairment losses. | |
| Additions | ||
| NZ IAS 16.7 | The cost of an item of property, plant, and equipment is recognised as an asset only when it is probable that 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 initially recognised at its cost. Where an asset is acquired at no cost, or for a nominal cost, it is recognised at its fair value when control over the asset is obtained. | |
| NZ IAS 16.4,68,71 | Disposals | |
| Gains and losses on disposals are determined by comparing the disposal proceeds with the carrying amount of the asset. Gains and losses on disposals are presented net in the surplus or deficit. | ||
| NZ IAS 16.7 | Subsequent costs | |
| Costs incurred subsequent to initial acquisition are capitalised only when it is probable that service potential associated with the item will flow to the Trust and the cost of the item can be measured reliably. | ||
| NZ IAS 16.12,13 | The costs of day-to-day servicing of property, plant, and equipment are recognised as an expense as they are incurred. | |
| Depreciation12 | ||
| NZ IAS 16.73(b),(c) | 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 are reviewed, and adjusted if applicable, at each financial year end. | |
| NZ IAS 1.117(b) | 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. | |
| NZ IAS 38.15,29,67 | Staff training costs are recognised as an expense when incurred. | |
| Costs associated with maintaining computer software are recognised as an expense when incurred. | ||
| NZ SIC 32.8 | Costs associated with development and maintenance of the Trust’s website are recognised as an expense when incurred because the website is primarily used for promoting the Trust’s services. | |
| Amortisation | ||
| NZ IAS 38.97 NZ IAS 38.118(a),(b) |
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 when the asset is disposed of. The amortisation charge for each year is recognised in surplus or deficit. | |
| NZ IAS 1.117(b) | 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 as at each balance date. When there is an indicator of impairment, the asset’s recoverable amount is estimated. 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 service potential of the asset is 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 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 surplus or deficit. | |
| 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 IFRS 7.21 | Borrowings | |
| NZ IAS 39.43 NZ IAS 39.46(a) |
Borrowings are initially recognised at their fair value plus transaction costs, if any. After initial recognition, all borrowings are measured at amortised cost using the effective interest method. | |
| NZ IAS 1.69 | Borrowings are classified as current liabilities unless the Trust has an unconditional right to defer settlement of the liability for at least 12 months after balance date or if the borrowings are not expected to be settled within 12 months of balance date. | |
| NZ IAS 1.117(b) | Employee entitlements | |
| NZ IAS 19.10 | Short-term employee entitlements | |
| Employee benefits that are due to be settled within 12 months after the end of the period in which the employee renders the related service 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, and sick leave. | ||
| NZ IAS 19.14 | A liability for sick leave is recognised to the extent that 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 that it will be used by staff to cover those future absences. | |
| Long-term entitlements | ||
| NZ IAS 19.126-131 | Employee benefits that are due to be settled beyond 12 months after the end of period in which the employee renders the related service, such as long service leave and retirement gratuities, have been calculated on an actuarial basis. The calculations are based on: | |
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| Expected future payments are discounted using market yields on government bonds at balance date with terms to maturity that match, as closely as possible, the estimated future cash outflows for entitlements. The inflation factor is based on the expected long‑term increase in remuneration for employees. | ||
| Good practice | Presentation of employee entitlements | |
| NZ IAS 1.69 | Sick leave, annual leave, and vested long service leave are classified as a current liability. Non-vested long service leave and retirement gratuities expected to be settled within 12 months of balance date are classified as a current liability. All other employee entitlements are classified as a non-current liability. | |
| NZ IAS 1.117(b) | Provisions | |
| NZ IAS 37.14 | A provision is recognised 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 expenditure 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 expenditure 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 in “finance costs”. | |
| NZ IAS 1.117(b) | Goods and services tax | |
| All items in the financial statements are presented exclusive of goods and service tax (GST), except for receivables and payables, which are presented 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 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 a net operating cash flow in the statement of cash flows. | ||
| Commitments and contingencies are disclosed exclusive of GST. | ||
| NZ IAS 1.117(b) | Income tax | |
| NZ IAS 12.6 | Income tax expense is the aggregate of current period movements in relation to both current and deferred tax. | |
| NZ IAS 12.5,46 | Current tax is the amount of income tax payable based on the taxable surplus for the current year, plus any adjustments to income tax payable in respect of prior years. Current tax is calculated using tax rates (and tax laws) that have been enacted or substantively enacted at balance date. | |
| NZ IAS 12.5 | Deferred tax is the amount of income tax payable or recoverable in future periods in respect of temporary differences and unused tax losses. Temporary differences are differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable surplus. | |
| NZ IAS 12.47,51 | Deferred tax is measured at the tax rates that are expected to apply when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at balance date. The measurement of deferred tax reflects the tax consequences that would follow from the manner in which the group expects to recover or settle the carrying amount of its assets and liabilities. | |
| NZ IAS 12.24 | Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that taxable surpluses will be available against which the deductible temporary differences or tax losses can be utilised. | |
| NZ IAS 12.58,61A | Current and deferred tax is recognised against the surplus or deficit for the period, except to the extent that it relates to items recognised in other comprehensive income or equity. | |
| Good practice | Budget figures | |
| The budget figures are derived from the statement of intent as approved by the Board at the beginning of the financial year. The budget figures have been prepared in accordance with NZ GAAP, using accounting policies that are consistent with those adopted by the Board of Trustees in preparing these financial statements. | ||
| NZ IAS 1.125 | Critical accounting estimates and assumptions13 | |
| 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: | ||
| Estimating the leasehold restoration provision | ||
| An analysis of the Trust’s exposure surrounding the leasehold restoration provision is disclosed in note 16. | ||
| Estimating useful lives and residual values of property, plant, and equipment | ||
| 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 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 affect the depreciable amount of an asset, therefore affecting the depreciation expense recognised in the surplus or deficit and the asset’s carrying amount. The Trust minimises the risk of this estimation uncertainty by:
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| NZ IAS 1.122 | Critical judgements in applying the Trust’s accounting policies | |
| Judgement is exercised 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.
8: NZ IAS 1.138 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 of the entity, country of incorporation of the entity, address of the entity’s registered office, description of operations, principal activities, and name of parent and ultimate parent of the group.
9: NZ IAS 8.31 requires entities that chose not to apply standards or interpretations issued but not yet effective to disclose this fact, including: the title of the Standard or Interpretation, the nature of the impending change or changes in accounting policy, the date by which application of the Standard or Interpretation is required, and the date at which the entity plans to apply the Standard or Interpretation; and either a discussion of the known impact of the new Standard or Interpretation on the entity in the initial year of application, or, where the impact is not known or reasonably estimatable, a statement to that effect.
10: Entities will also need to disclose information about those relevant standards, amendments, and interpretations that are issued after 30 April 2011.
11: Entities are required to disclose all accounting policies that are relevant to an understanding of the financial statements (NZ IAS 1.117(b)).
12: The useful lives and depreciation rates that have been listed are only illustrative. Each entity will need to set these based on their specific circumstances.
13: The examples provided are not intended to be exhaustive. Entities will need to consider their own circumstances to ensure that the disclosures required by NZ IAS 1 paragraphs 122 and 125 are relevant and complete.
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