Note 24
Model Financial Statements: Te Motu Regional Economic Development Trust 2010/11
24 Other financial instrument disclosures
24A Categories of financial instruments
| NZ IFRS 7.8 | The carrying amounts of financial instruments in each of the NZ IAS 39 categories are as follows: | ||
| Actual 2011 |
Actual 2010 |
||
| Loans and receivables | |||
| Cash and cash equivalents | 212,183 | 127,400 | |
| Debtors and other receivables | 52,309 | 109,563 | |
| Investments | 121,000 | 119,700 | |
| NZ IFRS 7.8(c) | Total loans and receivables | 385,492 | 356,663 |
| Financial liabilities at amortised cost | |||
| Creditors and other payables | 157,672 | 152,627 | |
| Bank overdraft | 2,687 | 0 | |
| Loans from Te Motu Regional Council | 36,313 | 35,000 | |
| NZ IFRS 7.8(f) | Total financial liabilities at amortised cost | 196,672 | 187,627 |
24B Financial instrument risks
| NZ IFRS 7.31 | The Trust has policies to manage the risks associated with financial instruments. The Trust is risk averse and seeks to minimise exposure from its financial instruments. The Trust has established borrowing and investment policies. These policies do not allow any transactions that are speculative in nature to be entered into. | ||||||
| NZ IFRS 7.33(a),(b) | Market risk | ||||||
| Fair value interest rate risk | |||||||
| Fair value interest rate risk is the risk that the fair value of a financial instrument will fluctuate due to changes in market interest rates. The Trust’s exposure to fair value interest rate risk is limited to its fixed interest borrowings and bank deposits. The Trust does not actively manage its exposure to fair value interest rate risk. Because borrowings and bank deposits are not accounted for at fair value, fluctuations in interest rates do not affect the surplus or deficit of the Trust or their carrying amount. | |||||||
| Cash flow interest rate risk | |||||||
| Cash flow interest rate risk is the risk that the cash flows from a financial instrument will fluctuate because of changes in market interest rates. Borrowings and investments issued at variable interest rates expose the Trust to cash flow interest rate risk. | |||||||
| The Trust’s investment policy requires a spread of investment maturity dates to limit exposure to short-term interest rate movements as investments mature. | |||||||
| The Trust presently has no variable interest rate financial instruments. | |||||||
| Currency risk | |||||||
| Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Trust is not exposed to currency risk, as it does not enter into foreign currency transactions. | |||||||
| Sensitivity analysis | |||||||
| NZ IFRS 7.40 | For financial instruments held at the balance date, the Trust has no exposure to market risks on those financial instruments that give rise to an impact on the surplus or deficit and equity.29 | ||||||
| NZ IFRS 7.33(a),(b) | Credit risk | ||||||
| Credit risk is the risk that a third party will default on its obligation to the Trust, causing it to incur a loss. | |||||||
| Due to the timing of its cash inflows and outflows, the Trust invests surplus cash with registered banks, which gives rise to credit risk. The Trust’s investment policy also limits the amount of credit exposure to any one registered bank at 40% of total term deposits. Cash at bank and term deposits are held with financial institutions that have a current Standard and Poor’s credit rating of AA or greater. | |||||||
| The Trust has processes in place to review the credit quality of customers prior to the granting of credit. | |||||||
| The Trust’s debtors are mostly from Te Motu District Council, government entities, and small businesses in the Te Motu Region. | |||||||
| NZ IFRS 7.36(a) | The Trust’s maximum credit exposure for each class of financial instrument is represented by the total carrying amount of cash equivalents, debtors and other receivables, and investments. | ||||||
| NZ IFRS 7.34(c) | The Trust has no significant concentrations of credit risk, as it has a large number of credit customers and limits have been established that restrict the maximum amount of funds that can be invested in a single registered bank. | ||||||
| Liquidity risk | |||||||
| NZ IFRS 7.33,39(c) | Liquidity risk is the risk that the Trust will encounter difficulty raising liquid funds to meet commitments as they fall due. Prudent liquidity risk management implies maintaining sufficient cash, the availability of funding through an adequate amount of committed credit facilities, and the ability to close out market positions. | ||||||
| The Trust mostly manages liquidity risk by continuously monitoring forecast and actual cash flow requirements. | |||||||
| Contractual maturity analysis of financial liabilities | |||||||
| NZ IFRS 7.39(a) | The table below analyses the Trust’s financial liabilities into relevant maturity groupings based on the remaining period at the balance date to the contractual maturity date. The amounts disclosed are the contractual undiscounted cash flows.30 | ||||||
| Carrying amount | Contractual cash flows | Less than 1 year | 1-2 years | 2-5 years | More than 5 years | ||
|---|---|---|---|---|---|---|---|
| 2011 | |||||||
| Creditors and other payables | 157,672 | 157,672 | 157,672 | 0 | 0 | 0 | |
| Bank overdraft | 2,687 | 2,687 | 2,687 | 0 | 0 | 0 | |
| Loan from Te Motu Regional Council | 36,313 | 55,000 | 8,000 | 0 | 27,000 | 20,000 | |
| Total | 196,672 | 215,359 | 168,359 | 0 | 27,000 | 20,000 | |
| 2010 | |||||||
| Creditors and other payables | 152,627 | 152,627 | 152,627 | 0 | 0 | 0 | |
| Loan from Te Motu Regional Council | 35,000 | 60,000 | 11,000 | 0 | 29,000 | 20,000 | |
| Total | 187,627 | 212,627 | 163,627 | 0 | 29,000 | 20,000 | |
29: Entities are required to disclose a sensitivity analysis for each type of market risk (for example, currency, interest rate, and equity price risk) it is exposed to at the balance date showing how profit or loss and equity would have been affected by changes in the relevant market risk variable that were reasonable possible at that date. For example, a sensitivity analysis would be required for borrowings at floating interest rates, or financial asset investments that are measured at fair value.
30: NZ IFRS 7 does not prescribe the time bands to use. Entities will need to exercise judgement in determining the appropriate time bands to use when presenting the contractual maturity analysis.
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