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Note 6: Fair value measurements

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The following tables provide an analysis of assets and liabilities that are measured at fair value.

The different levels of the fair value hierarchy are defined below.

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the department can access at measurement date.

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3: Unobservable inputs for the asset or liability.

6A: Fair value measurements, valuation techniques and inputs

Fair value measurements at the end of the reporting period using
2015 2014 Category (Level 1,2 or 3) Valuation technique(s) Inputs used Range (weighted average) Sensitivity of the fair value measurement to changes in unobservable inputs
$'000 $'000
Non-financial assets
Land 1,400 1,400 Level 3 Market approach Price per square metre $450 - $600 ($500)
Buildings on freehold land 490 510 Level 3 Income approach Rental price per square metre
Capitalisation rate 7.0% - 9.0% (8.0%) A significant increase (decrease) in this consumed economic benefit / obsolescence of the asset would result in a significantly lower (higher) fair value measurement.
Leasehold improvements 60,219 64,246 Level 3 Depreciated replacement cost (DRC) Replacement Cost New (price per square metre)
Consumed economic benefit/Obsolescence of asset 4.0% - 20.0% (5.4%) per annum A significant increase (decrease) in this consumed economic benefit / obsolescence of the asset would result in a significantly lower (higher) fair value measurement.
Property, plant and equipment 2,843 5,711 Level 2 Market approach Adjusted market transactions
15,011 14,582 Level 3 Depreciated replacement cost (DRC) Replacement cost new
Consumed economic benefit/Obsolescence of asset 3.7% - 100.0% (12.2%) per annum
Heritage and cultural (Artbank Artwork) 35,652 35,265 Level 2 Market approach Adjusted market transactions
Consumed economic benefit/Obsolescence of asset 9.5% - 50.0% (19.9%) per annum
Heritage and cultural (Library) 94 94 Level 2 Replacement cost New (Average Acquisition Cost per title) $5-$500
Heritage and cultural (Library) 5,836 5,836 Level 3 Depreciated replacement cost (DRC) Consumed economic benefit/Obsolescence of asset 6.7% - 25.0% (14.4%) per annum A significant increase (decrease) in this consumed economic benefit / obsolescence of the asset would result in a significantly lower (higher) fair value measurement.
Total non-financial assets 121,545 127,644
Total fair value measurements 121,545 127,644
  1. The Department did not measure any non-financial assets at fair value on a non-recurring basis as at 30 June 2015.
  2. There have been no changes to valuation techniques from the previous reporting period.
  3. Fair value measurements - highest and best use

    The Department's assets are held for operational purposes and not held for the purposes of deriving a profit. The current use of all controlled assets is considered their highest and best use. The Department considers the highest and best use of the artworks associated with Artbank to be its use in the Commonwealth's Art Rental scheme.

  4. Recurring and non-recurring Level 3 fair value measurements - valuation processes

    AGD tests the procedures of the valuation model as an asset materiality review at least once every 12 months (with a formal revaluation undertaken once every three years). If a particular asset class experiences significant and volatile changes in fair value (i.e. where indicators suggest that the value of the class has changed materially since the previous reporting period), that class is subject to specific valuation in the reporting period, where practicable, regardless of the timing of the last specific valuation. The entity engaged Australian Valuation Solutions (AVS) to undertake a full revaluation and confirm that the models developed comply with AASB 13.

  5. The future economic benefits of the department's non-financial assets are not primarily dependent on their ability to generate cash flows. The department has not disclosed quantitative information about the significant unobservable inputs for the level 3 measurements in these classes.

Significant Level 3 inputs utilised by the Department are derived and evaluated as follows:

Leasehold Improvements, Property, Plant and Equipment - Consumed economic benefit / Obsolescence of asset

Assets that do not transact with enough frequency or transparency to develop objective opinions of value from observable market evidence have been measured utilising the cost (Depreciated Replacement Cost or DRC) approach. Under the DRC approach the estimated cost to replace the asset is calculated and then adjusted to take into account its consumed economic benefit / asset obsolescence (accumulated Depreciation). Consumed economic benefit / asset obsolescence has been determined based on professional judgement regarding physical, economic and external obsolescence factors relevant to the asset under consideration.

6B: Level 1 and Level 2 transfers for recurring fair value measurements

There have been no transfers between levels of the hierarchy during the year.

The Department's policy for determining when transfers between levels are deemed to have occurred can be found at Note 1.

6C: Reconciliation for recurring Level 3 fair value measurements

Recurring Level 3 fair value measurements - reconciliation for assets

Non-financial assets
Land Buildings Leasehold improvements Property, plant and equipment Heritage and cultural Total
2015 2015 2015 2015 2015 2015
$'000 $'000 $'000 $'000 $'000 $'000  
As at 1 July 1,400 510 64,246 14,582 5,836 86,574
Total gains/(losses) recognised in other comprehensive income 1 (257) (257)
Purchases 3,687 5,285 8,972
Depreciation (20) (7,714) (1,739) (9,473)
Disposals (17) (17)
Total as at 30 June 1,400 490 60,219 17,854 5,836 85,799
Changes in unrealised gains/(losses) recognised in net cost of services 2 (257) (257)

Recurring Level 3 fair value measurements - reconciliation for assets

Non-financial assets
Land Buildings Leasehold improvements Property, plant and equipment Heritage and cultural Total
2014 2014 2014 2014 2014 2014
$'000 $'000 $'000 $'000 $'000 $'000
As at 1 July 1,400 888 71,492 9,977 1,663 85,420
Total gains/(losses) recognised in other comprehensive income 1 53 100 3,713 3,866
Purchases (400) 989 7,623 8,212
Depreciation (31) (8,372) (3,018) (11,421)
Other movements 86 460 546
Disposals (49) (49)
Total as at 30 June 1,400 510 64,246 14,582 5,836 86,574
Changes in unrealised gains/(losses) recognised in net cost of services 2 53 100 3,713 3,866

1 These gain/(losses) are presented in the Statement of Comprehensive Income under Other Comprehensive Income.

2 These unrealised gains/(losses) are presented in the Statement of Comprehensive Income under Other Comprehensive Income.

The Department's policy for determining when transfers between levels are deemed to have occurred can be found in Note 1.

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