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Note 6: Financial position

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6.1 Financial assets

This section analyses the Attorney-General's Department's assets used to conduct its operations and the operating liabilities incurred as a result. Employee related information is disclosed in the People and Relationships section.

  2017
$'000
2016
$'000
  Notes    
6.1A: Cash and cash equivalents
Cash on hand or on deposit   6,637 7,367
Cash in special account - Australian Government Solicitor   37,286 25,786
Total cash and cash equivalents   43,923 33,153

Accounting Policy

Cash and cash equivalents includes cash on hand, cash held with outsiders, demand deposits in bank accounts with an original maturity of three months or less that are readily convertible to known amounts of cash and subject to insignificant risk of changes in value. Cash is recognised at its nominal amount.

6.1B: Trade and other receivables
Goods and services receivables      
Goods and services   52,860 48,978
Appropriations receivable      
Existing programs 3.1B 61,106 41,356
Other receivables      
GST receivable from the Australian Taxation Office   840 74
Other   12 (36)
Total other receivables   852 38
Total trade and other receivables (gross)   114,818 90,372
 
Credit terms for goods and services were within 30 days (2016: 30 days).
 
Less impairment allowance      
Goods and services   (1,247) (1,350)
Total impairment allowance   (1,247) (1,350)
Total trade and other receivables (net)   113,571 89,022

Accounting Policy

The department classifies its financial assets as loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.
Financial assets are recognised and derecognised upon trade date.

The department considers that the carrying amounts of financial instruments reported in the statement of financial position are a reasonable approximation of fair value.

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 $52,860,848 in 2017 (2016: $48,977,679). The department has assessed the risk of default on payment and has allocated $1,247,449 in 2017 (2016: $1,349,985) to an impairment allowance account. This amount has been determined following an assessment of invoices greater than 90 days past due. 

Effective interest method
The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period.
Income is recognised on an effective interest rate basis except for financial assets that are recognised at fair value through profit or loss.

Loans and receivables
Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as 'loans and receivables'. Loans and receivables are measured at amortised cost using the effective interest method less impairment. Interest is recognised by applying the effective interest rate.

Reconciliation of the impairment allowance

Movements in relation to 2017
  Goods and services
$'000
Total
$'000
As at 1 July 2016 1,350 1,350
Amounts recovered and reversed (103) (103)
Increase recognised in statement of comprehensive income - -
Total as at 30 June 2017 1,247 1,247
Movements in relation to 2016    
As at 1 July 2015 53 53
Increase recognised in statement of comprehensive income 848 848
Amounts transferred under restructuring of administrative arrangements 449 449
Total as at 30 June 2016 1,350 1,350

Accounting Policy

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.

  2017
$'000
2016
$'000
Net losses on financial assets    
Loans and receivables    
Impairment 45 (168)
Net losses from loans and receivables 45 (168)

6.2 Non-financial assets

6.2A: Reconciliation of the opening and closing balances of property, plant and equipment and intangibles

Reconciliation of the opening and closing balances of property, plant and equipment and intangibles for 2017
  Land
$'000
Buildings
$'000
Leasehold improvements
$'000
Heritage and cultural 1
$'000
Other property, plant & equipment
$'000
Computer software
$'000
Total
$'000
As at 1 Jul 2016
Gross book value 1,400 510 87,496 4,204 43,410 74,103 211,123
Accumulated depreciation, amortisation and impairment - (41) (24,752) - (25,293) (54,771) (104,857)
Total as at 1 July 2016 1,400 469 62,744 4,204 18,117 19,332 106,266
Additions              
By purchase - - 12,103 - 9,072 114 21,289
Internally developed - - - - - 10,515 10,515
Revaluations and impairments recognised in other comprehensive income - - (107) - - - (107)
Impairments recognised in net cost of services - - - - - - -
Depreciation and amortisation - (20) (9,077) - (6,294) (4,788) (20,179)
Other movements 2 - - (10,822) - - - (10,822)
Disposals - - - - (27) (350) (377)
Total as at 30 June 2017 1,400 449 54,841 4,204 20,868 24,823 106,585
Total as at 30 June 2017 represented by              
Gross book value 1,400 510 83,265 4,204 52,055 81,820 223,254
Accumulated depreciation, amortisation and impairment - (61) (28,424) - (31,187) (56,997) (116,669)
Total as at 30 June 2017 1,400 449 54,841 4,204 20,868 24,823 106,585

1 Land, buildings and other property, plant and equipment that met the definition of a heritage and cultural item were disclosed in the heritage and cultural asset class.
2 During 2016-17, the department vacated levels 2 and 3 of 4 National Circuit, Barton and transferred the fitout to other Government agencies at no cost.

The carrying amount of computer software included $2.795m purchased software and $22.028m internally developed software.

No indicators of impairment were found for land, buildings, other property, plant and equipment and intangibles.

No land, buildings, other property, plant and equipment and intangibles are expected to be sold or disposed of within the next 12 months.

Revaluations of non-financial assets

Land and buildings
All revaluations were undertaken in accordance with the revaluation policy stated at Note 6.2. In 2017 there was a nil increment (2016: nil increment) for buildings on freehold land. In 2017 there was a nil increment (2016: nil increment) for leasehold improvements that were credited to the asset revaluation surplus by asset class and included in the equity section of the balance sheet.                                                                   

Property, plant and equipment
All revaluations were undertaken in accordance with the revaluation policy stated at Note 6.2. In 2017 there was a nil decrement (2016: $1.654m decrement) for heritage and cultural that was credited against the asset revaluation surplus by asset class and included in the equity section of the balance sheet.

All revaluations were undertaken in accordance with the revaluation policy stated at Note 6.2. In 2017 there was a nil increment for property, plant and equipment (2016: nil decrement) was credited against the asset revaluation surplus by asset class and included in the equity section of the balance sheet.

Accounting Policy

Assets are recorded at cost on acquisition except as stated below. The cost of acquisition includes the fair value of assets transferred in exchange and liabilities undertaken. Financial assets are initially measured at their fair value plus transaction costs where appropriate.

Assets acquired at no cost, or for nominal consideration, are initially recognised as assets and income at their fair value at the date of acquisition, unless acquired as a consequence of restructuring of administrative arrangements. In the latter case, assets are initially recognised as contributions by owners at the amount at which they were recognised in the transferor agency's accounts immediately prior to the restructuring.

Asset recognition threshold
Purchases of property, plant and equipment are recognised initially at cost in the balance sheet, except for purchases costing less than $2,000 which are expensed in the year of acquisition (other than where they form part of a group of similar items which are significant in total).

The initial cost of an asset includes an estimate of the 'makegood' cost of dismantling and removing the item and restoring the site on which it is located. This is particularly relevant in property leases taken up by the Department where there exists an obligation to restore the property to its original condition. These costs are included in the value of leasehold improvements with a corresponding provision for the 'makegood' recognised.

Revaluations
Following initial recognition at cost, property, plant and equipment are carried at fair value less subsequent accumulated depreciation and accumulated impairment losses. Valuations are conducted with sufficient frequency to ensure that the carrying amounts of assets do not differ materially from the assets' fair values as at the reporting date. The regularity of independent valuations depends upon the volatility of movements in market values for the relevant assets.

Revaluation adjustments are made on a class basis. Any revaluation increment is credited to equity under the heading of asset revaluation reserve except to the extent that it reverses a previous revaluation decrement of the same asset class that was previously recognised in the surplus/deficit. Revaluation decrements for a class of assets are recognised directly in the surplus/deficit except to the extent that they reverse a previous revaluation increment for that class.

Any accumulated depreciation as at the revaluation date is eliminated against th gross carrying amount of the asset and the asset restated to the revalued amount.

Depreciation
Depreciable property, plant and equipment assets are written-off to their estimated residual values over their estimated useful lives to the Department using, in all cases, the straight-line method of depreciation. Leasehold improvements are depreciated on a straight-line basis over the lesser of the estimated useful life of the improvements or the unexpired period of the lease.

The library assets which have been recognised as heritage assets are not depreciated, and all other library acquisitions are expenses in the year of acquisition.

Depreciation rates (useful lives), residual values and methods are reviewed at each reporting date and necessary adjustments are recognised in the current and future reporting periods, as appropriate.

Depreciation rates applying to each class of depreciable departmental asset are based on the following useful lives:

  2017 2016
Buildings on freehold land 25-50 years 25-50 years
Leasehold improvements Lease term Lease term
Property, plant and equipment 3-10 years 3 – 10 years
Heritage and cultural (where applicable) Up to 480 years Up to 480 years

Impairment
All assets were assessed for impairment at 30 June 2017. Where indications of impairment exist, the asset's recoverable amount is estimated and an impairment adjustment made if the asset's recoverable amount is less than its carrying amount.

The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use. Value in use is the present value of the future cash flows expected to be derived from the asset. Where the future economic benefit of an asset is not primarily dependent on the asset's ability to generate future cash flows, and the asset would be replaced if the Department were deprived of the asset, its value in use is taken to be it depreciated replacement cost.

Derecognition
An item of property, plant and equipment is derecognised upon disposal or when no further economic benefits are expected from its use of disposal.

Heritage and cultural
Heritage and cultural items include items that are of national, historical or cultural significance.

Intangibles
The Department's intangibles comprise internally developed software and purchased software for internal use. These assets are carried at cost less accumulated amortisation and accumulated impairment losses.

Software is amortised on a straight-line basis over its anticipated useful life. The useful lives of the Department's intangibles are 3 to 5 years (2015-16: 3 to 5 years).

All software assets were assessed for indications of impairment at 30 June 2017.

6.2B: Fair value measurement

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.

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 (AVS) to undertake a full revaluation and confirm that the models developed comply with AASB 13.

  Fair value measurements at the end of the reporting period using    
  2017
$'000 
2016
$'000
Category (Level 1,2 or 3) Valuation technique(s) Inputs used
Non-financial assets          
Land 1,400 1,400 Level 3 Market approach Price per square metre
Buildings on freehold land 449 469 Level 3 Income approach Rental price per square metre
            Capitalisation rate
Leasehold improvements 54,841 62,744 Level 3 Depreciated replacement cost (DRC) Replacement Cost New
(price per square metre)
            Consumed economic benefit/Obsolescence of asset
Property, plant and equipment 3,977 8,324 Level 2 Market approach Adjusted market transactions
    16,891 9,793 Level 3 Depreciated replacement cost (DRC) Replacement cost new
            Consumed economic benefit/Obsolescence of asset
Heritage and cultural (Library) 4,204 4,204 Level 3 Depreciated replacement cost (DRC) Consumed economic benefit/Obsolescence of asset
Total non-financial assets 81,762 86,934      
Total fair value measurements 81,762 86,934      

The department did not measure any non-financial assets at fair value on a non-recurring basis as at 30 June 2017 (2016: nil).

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

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.

  2017
$'000
2016
$'000
6.2C: Other non-financial assets    
Prepayments 10,662 6,907

No indicators of impairment were found for other non-financial assets.

6.3 Payables

  2017
$'000
2016
$'000
6.3A: Suppliers
Trade creditors and accruals 13,651 9,311
Accrued payables 16,031 9,538
Operating lease rentals 10,650 14,688
Total suppliers 40,332 33,537
 
Supplier payables are expected to be settled in no more than 12 months.
 
Settlement is usually made net 30 days.
 
6.3B: Grants
Other 300 266
Total grants 300 266
 
Grant payables are expected to be settled in no more than 12 months.
 
6.3C: Other payables
Wages and salaries 8,555 4,319
Superannuation 3,225 3,060
Separations and redundancies 537 717
Other employee payables 601 125
Unearned income 10,595 13,389
Lease incentives 1 15,184 9,871
Total other payables 38,697 31,481

Accounting Policy

A distinction is made between finance leases and operating leases.  Finance leases effectively transfer from the lessor to the lessee substantially all the risks and rewards incidental to ownership of leased assets.  An operating lease is a lease that is not a finance lease.  In operating leases, the lessor effectively retains substantially all such risks and benefits.

Operating lease payments are expensed on a straight-line basis which is representative of the pattern of benefits derived from the leased assets.

Financial liabilities
Financial liabilities are classified as other financial liabilities.

Financial liabilities are recognised and derecognised upon 'trade date'.

The department considers that the carrying amounts of financial instruments reported in the statement of financial position are a reasonable approximation of fair value. 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 (eg 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 1 year.

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'.

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.

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).

1 The department has received incentives in the form of cash and discounted rent on entering into property operating leases.

6.4 Other provisions

  2017
$'000
2016
$'000
6.4A: Makegood provisions
Provision for restoration obligations 41 41
 
  Provision for restoration
$'000
Total
$'000
As at 1 July 2016 41 41
Unwinding of discount or change in discount rate
Total as at 30 June 2017 41 41
 
6.4B: Other provisions
Provision for onerous lease 142 3,614
Total other provisions 142 3,614

The department currently has 17 (2016: 17) agreements for the lease of premises some of which have provisions requiring the department to restore the premises to their original condition at the conclusion of the lease. The department has made a provision to reflect the present value of this obligation.

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