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Note 7.2: Financial instruments

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7.2A: Categories of financial instruments

    2016 2015
  Notes $'000 $'000
Financial assets      
Loans and receivables      
Cash and cash equivalents 3.1A 33,153 6,306
Goods and services receivable 3.1B 48,978 11,153
Total financial assets   82,131 17,459
Financial liabilities      
Financial liabilities measured at amortised cost      
Trade creditors 3.3A 9,311 6,426
Accrued payables 3.3A 9,538 10,879
Operating lease rentals 3.3A 14,688 13,764
Grants payable 3.3B 266 24
Total financial liabilities   33,803 31,093

Accounting policy

Impairment of financial assets

Financial assets are assessed for impairment at the end of each reporting period.

Financial assets held at amortised cost

If there is objective evidence that an impairment loss has been incurred for loans and receivables held at amortised cost, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted as the asset’s original effective interest rate. The carrying amount is reduced by way of an allowance account. The loss is recognised in the statement of comprehensive income.

Financial liabilities

Financial liabilities are classified as ‘other financial liabilities’.

Financial liabilities are recognised and derecognised upon ‘trade date’.

Other financial liabilities

Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis.

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.

Supplier and other payables are recognised at amortised cost. Liabilities are recognised to the extent that the goods or services have been received (irrespective of having been invoiced).

7.2B: Net gains or losses on financial assets

Loans and receivables      
Impairment 1.1D (168) (46)
Net gain/(loss) from loans and receivables   (168) (46)

7.2C: Categories of financial instruments

The Department considers that the carrying amounts of financial instruments reported in the balance sheet are a reasonable approximation of fair value.

7.2D: Credit risk

The Department is exposed to minimal credit risk as loans and receivables are cash and trade receivables. The maximum exposure to credit risk is the risk that arises from potential default of a debtor. This amount is equal to the total amount of trade receivables of $48,977,679 in 2016 (2015: $11,153,227). The Department has assessed the risk of default on payment and has allocated $1,349,985 in 2016 (2015: $52,654) to an impairment allowance account. This amount has been determined following an assessment of invoices greater than 90 days past due.

The Department has policies and procedures that guide employees in debt-recovery techniques that are to be applied.

Gross exposure to credit risk, excluding any collateral or credit enhancements

  Notes 2016 2015
  $'000 $'000
Loans and receivables      
Cash and cash equivalents 3.1A 33,153 6,306
Trade receivables 3.1B 48,978 11,153
Total   82,131 17,459

The Department holds no collateral to mitigate against credit risk.

Credit quality of financial instruments not past due or individually determined as impaired

  Not past due nor impaired Not past due nor impaired Past due or impaired Past due or impaired
  2016 2015 2016 2015
  $'000 $'000 $'000 $'000
Loans and receivables        
Cash and cash equivalents 33,153 6,306 - -
Trade receivables 1,884 10,060 47,094 1,093
Total 35,037 16,366 47,094 1,093

Ageing of financial assets that were past due but not impaired for 2016

  0 to 30 days
31 to 60 days
61 to 90 days
91+ days
Loans and receivables          
Trade receivables 38,735 2,998 3,196 815 45,744
Total 38,735 2,998 3,196 815 54,744

Ageing of financial assets that were past due but not impaired for 2015

Loans and receivables          
Trade receivables 499 178 191 172 1,040
Total 499 178 191 172 1,040

7.2E: Liquidity risk

The Department’s financial liabilities are trade creditors. The exposure to liquidity risk is based on the notion that the Department will encounter difficulty in meeting its obligations associated with financial liabilities.

This is highly unlikely due to appropriation funding and other funding mechanisms available to the Department (e.g. advance to the Finance Minister) to ensure it has adequate funds to meet payments as they fall due. In addition, the Department has policies in place to ensure timely payments are made when due and has no past experience of default.

All financial liabilities are expected to mature within one year.

7.2F: Market risk

The Department holds basic financial instruments that do not expose it to market risks. The Department is not exposed to ‘Currency risk’ or ‘Other price risk’.

Interest rate risk

The only interest-bearing items on the statement of financial position are finance leases. All bear interest at a fixed interest rate and will not fluctuate due to changes in the market interest rate.

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