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 Note 6: Financial position

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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.

6.1 Financial assets1

6.1A: Cash and cash equivalents

     
Notes 2018
$'000
2017
$'000
Cash on hand or on deposit   2,046 2,304
Cash in special account – Australian Government Solicitor 3.2 53,689 41,619
Total cash and cash equivalents   55,735 43,923

 

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

     
Notes 2018
$'000
2017
$'000
Goods and services receivables      
Goods and services   48,218 52,860
       
Appropriations receivable      
Existing programs 3.1B 57,927 61,106
       
Other receivables      
GST receivable from the Australian Taxation Office   140 840
Other   12
Total other receivables   140 852
Total trade and other receivables (gross)   106,285 114,818
       
Less impairment allowance      
Goods and services   (1,393) 1,247)
Total impairment allowance   (1,393) (1,247)
Total trade and other receivables (net)   104,892 113,571

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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 $48,218,705 in 2018 (2017: $52,860,848). The department has assessed the risk of default on payment and has allocated $1,392,573 in 2018 (2017: $1,247,449) 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 2018

   
Goods and services
$'000
Total
$'000
As at 1 July 2017 1,247 1,247
Increase recognised in statement of comprehensive income 146 146
Total as at 30 June 2018 1,393 1,393
     

Movements in relation to 2017

   
As at 1 July 2016 1,350 1,350
Amounts recovered and reversed (103) (103)
Total as at 30 June 2017 1,247 1,247

 

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.

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1In accordance with the Administrative Arrangements Orders of 20 December 2017 and 10 May 2018, national security, commonwealth emergency management, natural disaster relief and Australian Government Disaster Recovery Payment programs and functions were transferred to the Department of Home Affairs.

6.2 Non-financial assets1

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

Land Buildings Leasehold improvements Heritage
and cultural 2
Other property, plant & equipment Computer software Total
$'000 $'000 $'000 $'000 $'000 $'000 $'000
As at 1 July 2017
             
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 1 July 2017 1,400 449 54,841 4,204 20,868 24,823 106,585
Additions
             
By purchase 15,291 4,187 539 20,017
Internally developed 6,370 6,370
Revaluations and impairments recognised in other comprehensive income 200 (9) 3,668 234 4,093
Depreciation and amortisation (20) (9,641) (4,537) (4,389) (18,587)
Other movements (442) 51 (391)
Disposals
From disposal of entities or operations (including restructuring)1 (12,337) (430) (10,732) (18,038) (41,537)
Other (30) (103) (34) (167)
Total as at 30 June 2018 1,600 420 51,350 3,774 9,968 9,271 76,383
 
Total as at 30 June 2018 represented by
Gross book value 1,600 420 51,350 3,774 27,375 60,221 144,740
Accumulated depreciation, amortisation and impairment (17,407) (50,950) (68,357)
Total as at 30 June 2018 1,600 420 51,350 3,774 9,968 9,271 76,383

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1In accordance with the Administrative Arrangements Orders of 20 December 2017 and 10 May 2018, national security, commonwealth emergency management, natural disaster relief and Australian Government Disaster Recovery Payment programs and functions were transferred to the Department of Home Affairs.

2Land, 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.

The carrying amount of computer software included $1.322m (2017: $2.795m) purchased software and $7.950m (2017: $22.028m) internally developed software.

No indicators of impairment were identified 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 below. In 2018 there was a $0.200m increment (2017: nil increment) for land; a $0.009m decrement (2017: nil increment) for buildings on freehold land; and a $3.668m increment (2017: 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 below. In 2018 there was a nil decrement (2017: nil decrement) for heritage and cultural and there was a $0.234m increment for property, plant and equipment (2017: nil decrement) that was credited against the asset revaluation surplus by asset class and included in the equity section of the balance sheet.

On 30 June 2018, Jones Lang LaSalle conducted the revaluations.

Contractual commitments for the acquisition of property, plant, equipment and intangible assets

Contractual commitments for the acquisition of property, plant, equipment and intangibles of $0.897m are payable within one year and $0.635m are payable within one to five years (2017: nil).

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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 the 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 expensed 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:

Buildings on freehold land 2018
25-50 years
2017
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 2018. 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 its 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 or 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 (2016-17: 3 to 5 years).

All software assets were assessed for indications of impairment at 30 June 2018.

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6.2B: Fair value measurement

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 Jones Lang LaSalle (JLL) 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
2018
$'000
2017
$'000
Non-financial assets
Land 1,600 1,400
Buildings on freehold land 420 449
Leasehold improvements 51,350 54,841
Property, plant and equipment 9,968 20,868
Heritage and cultural (Library) 3,774 4,204
Total non-financial assets 67,112 81,762
Total fair value measurements 67,112 81,762
There have been no changes to valuation techniques from the previous reporting period.
 

6.2C: Other non-financial assets

Prepayments 8,047 10,662
No indicators of impairment were found for other non-financial assets.

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6.3 Payables1

6.3A: Suppliers

   
2018
$'000
2017
$'000
Trade creditors 6,927 13,651
Accrued payables 13,619 16,031
Dividend payable – Australian Government Solicitor 8,854
Operating lease rentals 10,847 12,143
Total suppliers 40,247 41,825
     
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
Total grants 300
     
Grant payables are expected to be settled in no more than 12 months.    
     

6.3C: Other payables

   
Wages and salaries 6,126 4,806
Separations and redundancies 35 537
Other employee payables 206 601
Unearned income 6,922 10,595
Lease incentives 16,290 13,691
Total other payables 29,579 30,230

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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.

Where an asset is acquired by means of a finance lease, the asset is capitalised at either the fair value of the lease property or, if lower, the present value of minimum lease payments at the inception of the contract and a liability is recognised at the same time and for the same amount.

The discount rate used is the interest rate implicit in the lease. Leased assets are amortised over the period of the lease. Lease payments are allocated between the principal component and the interest expense.

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 be settled within 12 months.

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 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).

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1In accordance with the Administrative Arrangements Orders of 20 December 2017 and 10 May 2018, national security, commonwealth emergency management, natural disaster relief and Australian Government Disaster Recovery Payment programs and functions were transferred to the Department of Home Affairs.

2The department has received incentives in the form of cash and discounted rent on entering into property operating leases.

6.4 Other provisions

6.4A: Makegood provisions

   
2018
$'000
2017
$'000
Provision for restoration obligations 316 41
     
     
  Provision for restoration
$'000
Total
$'000
As at 1 July 2017 41 41
Additional provisions made 274 274
Unwinding of discount or change in discount rate 1 1
Total as at 30 June 2018 316 316
     

6.4B: Other provisions

   
Provision for onerous lease 13 142
     
     
  Provision for onerous lease
$'000
Total
$'000
As at 1 July 2017 142 142
Amounts reversed (129) (129)
Total as at 30 June 2018 13 13

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