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Note 7.4: Fair value measurement

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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 as follows:

  • 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.

Accounting policy

The Department 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 Department engaged Australian Valuation Solutions to undertake a full revaluation and confirm that the models developed comply with AASB 13 Fair Value Measurement.

7.4A: Fair value measurement

  Fair value measurements at the end of the reporting period using      
  2016
$'000
2015
$'000
Category
(Level 1,2 or 3)
Valuation technique Inputs used Range
(weighted average)
Non-financial assets            
Land 1,400 1,400 Level 3 Market approach Price per square metre $450-600 ($500)
Buildings on
freehold land
469 490 Level 3 Income approach Rental price per square metre  
          Capitalisation rate 7.0%-9.0% (8.0%)
Leasehold improvements 62,744 60,219 Level 3 Depreciated replacement cost Replacement cost new (price per square metre)  
          Consumed economic benefit/obsolescence of asset 4.0%-20.0% (5.4%) per annum
Property, plant
and equipment
8,324 2,843 Level 2 Market approach Adjusted market transactions  
  9,793 15,011 Level 3 Depreciated replacement cost Replacement cost new  
          Consumed economic benefit/obsolescence of asset 3.7%-100.0% (12.2%) per annum
Heritage and cultural
(Artbank artwork)
- 35,652 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 Level 2   Replacement cost new (average acquisition cost per title) $5-$500
Heritage and
cultural (library)
4,204 5,836 Level 3 Depreciated replacement cost Consumed economic benefit/obsolescence of asset 6.7%- 25.0%
(14.4%) per
annum
Total non-financial assets 86,934 121,545        
Total fair value measurements 86,934 121,545        

The Department did not measure any non-financial assets at fair value on a non-recurring basis as at 30 June 2016 (2015: nil).

There have been no changes to valuation techniques from the previous reporting period.

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 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) approach. Under this 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 judgment regarding physical, economic and external obsolescence factors relevant to the asset under consideration.

7.4B: 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
  2016 2016 2016 2016 2016 2016
  $'000 $'000 $'000 $'000 $'000 $'000
As at 1 July 1,400 490 60,219 17,854 5,836 85,799
Total gains/(losses) recognised in other comprehensive income1 - - - - (1,602) (1,602)
Purchases - - 1,826 3,948 - 5,774
Depreciation - (21) (9,268) (5,091) - (14,380)
Other movements - - 9,967 1,623 (30) 11,560
Disposals - - - (217) - (217)
Total as at 30 June 1,400 469 62,744 18,117 4,204 86,934
Changes in unrealised gains/(losses) recognised in net cost of services2 - - - - (1,602) (1,602)

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 income1 - - - (257) - (257)
Purchases - - 3,687 5,285 - 8,972
Depreciation - (20) (7,714) (1,739) - (9,473)
Other movements - - - - - -
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 services2 - - - (257) - (257)

Notes

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’.

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