for the year ended 30 June 2016

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NOTE 1: STATEMENT OF ACCOUNTING POLICIES

Reporting entity

The Ministry of Transport is a government department, as defined by section 2 of the Public Finance Act 1989 (PFA) and is domiciled and operates in New Zealand. The relevant legislation governing the Ministry’s operations includes the PFA. The Ministry’s ultimate parent is the New Zealand Crown.

In addition, the Ministry has reported the Crown activities which it administers.

The primary objective of the Ministry is to provide policy services to the Government, rather than making a financial return. The Ministry has designated itself a public benefit entity for financial reporting purposes.

The financial statements of the Ministry are for the year ended 30 June 2016. The financial statements were authorised for issue by the Chief Executive of the Ministry on 30 September 2016.

The information in these financial statements comprises the revenue, expenses, assets and liabilities associated with the Ministry operating its Wellington, Auckland and Christchurch offices and the Milford Sound/ Piopiotahi Aerodrome for the year.

Basis of preparation

The financial statements have been prepared on a going concern basis, and the accounting policies have been applied consistently throughout the period.

Statement of Compliance

The financial statements of the Ministry have been prepared in accordance with the requirements of the PFA, which includes the requirement to comply with New Zealand generally accepted accounting practice (NZ GAAP) and Treasury Instructions.

The financial statements have been prepared in accordance with Tier 1 PBE Accounting Standards (the Standards) and comply with these Standards.

Presentation currency and rounding

The financial statements are presented in New Zealand dollars and all values are rounded to the nearest thousand dollars ($000). The functional currency of the Ministry is the New Zealand dollar.

Comparative figures

Some figures from 2014/15 have been restated to provide a truer comparison with 2015/16.

Standards issued that are not yet effective and have not been early adopted

There are no standards issued that are not yet effective.

Changes in accounting policies

There have been no changes in accounting policies during the financial year.

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Summary of significant accounting policies

Revenue – Crown and other

The Ministry derives revenue from the provision of outputs to the Crown and for services to third parties. The revenue is deemed to be exchange revenue for the purposes of these financial statements. Such revenue is recognised when earned and is reported in the financial period to which it relates. Revenue is measured at the fair value of the consideration received or receivable.

Capital charge

The Ministry recognises the capital charge as an expense in the period to which it relates.

Foreign currency transactions

The Ministry does not enter into foreign exchange contracts.

It translates foreign currency transactions into New Zealand dollars, using the exchange rates prevailing at the dates of the transactions.

Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies, are recognised in the comprehensive revenue and expense.

Operating leases

An operating lease is where the lessor effectively retains substantially all the risks and benefits of ownership of the leased item. Lease payments under an operating lease are recognised as an expense on a straight-line basis in the period in which they are incurred.

Financial instruments

The Ministry is party to financial instruments as part of its normal operations. These financial instruments include cash and bank balances, and accounts receivable and payable.

Financial assets and financial liabilities are initially measured at fair value plus transaction costs, unless they are carried at fair value through profit or loss, in which case the transaction costs are recognised in the statement of comprehensive revenue and expense.

Cash and cash equivalents

Cash and cash equivalents include cash on hand and deposits on call with banks with original maturities of three months or less, and are measured at their face value. The Ministry is only permitted to expend its cash and cash equivalents within the scope and limits of its appropriations.

Debtors, prepayments and other receivables

Short-term debtors, prepayments and other receivables are recorded at their face value, less any provision for impairment.

The Ministry considers a receivable impaired when there is objective evidence the Ministry will not be able to collect the amount due according to the original terms.

The amount of the impairment is the difference between the asset’s carrying amount and the present value of the amounts expected to be collected.

Property, plant and equipment

Property, plant and equipment consist of leasehold improvements, furniture and fittings, office equipment, and the Milford Sound/Piopiotahi Aerodrome.

Property, plant and equipment is shown at cost or valuation, less accumulated depreciation and impairment losses.

Individual assets costing more than $2,000 are capitalised. Assets of a lower cost are capitalised if they are part of a group, or if they are attractive, to improve the control over them.

Additions

The cost of an item of property, plant and equipment is recognised as an asset if, and only if, it is probable that future economic benefits or service potential associated with the item will flow to the Ministry and the cost of the item can be measured reliably.

In most instances, an item of property, plant and equipment is recognised at its cost. Where an asset is acquired through a non-exchange transaction, it is recognised at fair value, as at the date of acquisition.

Disposal

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount of the asset. Gains and losses on disposals are included in the comprehensive revenue and expense.

When a re-valued asset is sold, the amount included in the revaluation reserve in respect of the asset is transferred to taxpayers funds.

Revaluation

The Ministry does not revalue its assets, except as below:

Milford Sound/Piopiotahi Aerodrome: which is stated at optimised depreciated replacement cost as determined by an independent registered valuer. It is re-valued at least every five years. Additions between revaluations are recorded at cost.

Kaikohe land: the Ministry has held some land at Kaikohe at $0 value. During 2015/16 it revalued the land based on market value prior to a transfer to Land Information New Zealand.

The net revaluation result is credited or debited to the statement of financial position and accumulated to an asset revaluation reserve in equity.

Where this would result in a debit balance in the aerodrome asset revaluation reserve, this balance is not recognised in other comprehensive revenue and expense, but is recognised in the comprehensive revenue and expense.

Any subsequent increase on revaluation that reverses a previous decrease in value recognised in the surplus or deficit will be recognised first in the surplus or deficit, up to the amount previously expensed, and then recognised in other comprehensive revenue and expense.

The revaluation reserve will not be distributed without the authorisation of the Crown.

Subsequent costs

Costs incurred subsequent to initial acquisition are capitalised only when it is probable future economic benefits or service potential associated with the item will flow to the Ministry and the cost of the item can be measured reliably.

The Ministry recognises the costs of day-to-day servicing of property, plant and equipment in the surplus or deficit as they are incurred.

Depreciation

Depreciation is provided on a straight-line basis on all property, plant and equipment, other than land, at rates that will write off the cost (or valuation) of the assets to their estimated residual values over their useful lives.

The Ministry is relocating in August 2016. Most of its furniture and plant and equipment will not be suitable for the new property and so will be disposed of.

Replacement of IT equipment has been delayed as the Ministry proposes to move to laptops on relocation.

Most of these assets have already reached the end of their useful lives and so have no book value, but those that do, have had their useful life adjusted to August 2016.

The life of leasehold improvements has been to the end of the lease at 1 March 2018, but this date is now August 31 2016.

The useful lives and the usual depreciation rates of major asset classes have been estimated as follows:

 Asset class  Useful life  Depreciation rate
Furniture and fittings 10 years or to August 2016   10% per annum or more
Leasehold improvements  To August 2016 9.65% per annum 
Milford Sound/Piopiotahi Aerodrome  3-100 years 1-33.3% per annum 
Plant and equipment  2-10 years or to August 2016  10-50% per annum 

Capital work in progress is not depreciated. The total cost of this work is transferred to the relevant asset category on the completion of the project and then depreciated. The Ministry has no assets of this nature.

The residual value and useful life of an asset is reviewed, and adjusted if appropriate, at each financial year end.

Intangible assets

Software acquisition and development

Individual assets costing more than $2,000 are capitalised. Assets of a lower cost are capitalised if they are part of a group, or if they are attractive, to improve the control over them.

Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring to use the specific software.

Costs directly associated with the development of software for internal use by the Ministry are recognised as an intangible asset. Direct costs include the software development, employee costs and an appropriate portion of relevant overheads. Costs associated with the development and maintenance of the Ministry’s website are recognised as an expense when incurred.

Costs associated with maintaining computer software are recognised as an expense when incurred. Costs of upgrades or updates are only capitalised when they increase the useful life or value of the software. Staff training cost is recognised as an expense when incurred.

Amortisation

The carrying value of an intangible asset with a finite life is amortised on a straight-line basis over its useful life.

Amortisation begins when the asset is available for use and ceases at the date that the asset is derecognised. The amortisation charge for each period is recognised in the comprehensive revenue and expense.

The useful lives and associated amortisation rates of software have been estimated as follows:

Asset class Useful life Depreciation rate
Software 3-5 years 20-33.3% per annum

Capital work in progress is not amortised. The total cost of this work is transferred to the relevant asset category on the completion of the project and then amortised.

Impairment of property, plant and equipment and intangible assets

All of these Ministry assets are classed as non-cash generating for impairment testing, including the Milford Sound/ Piopiotahi Aerodrome because its primary purpose is to provide a service rather than to generate a return.

An intangible asset not yet available for use at the balance sheet date is tested annually for impairment.

Property, plant and equipment and intangible assets that have a finite useful life are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell, and value in use.

Value in use is the depreciated replacement cost for an asset, where the future economic benefits or service potential of the asset are not primarily dependent on the asset’s ability to generate net cash inflows and where the entity would, if deprived of the asset, replace its remaining future economic benefits or service potential.

If an asset’s carrying amount exceeds its recoverable amount, the asset is impaired and the carrying amount is written down to the recoverable amount. The impairment loss is recognised in the surplus or deficit, as is the reversal of an impairment loss.

Creditors and other payables

Short-term creditors and other payables are recorded at their face value.

Employee entitlements

Employee entitlements include salaries and wages accrued up to balance date, annual leave earned but not yet taken at balance date, retirement and long service leave entitlements, and sick leave.

Presentation of employee entitlements

Employee entitlements expected to be settled within 12 months of the end of the period in which the employee renders the related service are classified as current liabilities. Employee entitlements expected to be settled beyond 12 months after the end of the reporting period in which the employee renders the related service, are classified as non-current liabilities.

Current liability for employee entitlements

These employee entitlements are measured at nominal values, based on accrued entitlements at current rates of pay.

The Ministry recognises a liability for sick leave to the extent that absences in the coming year are expected to be greater than the sick leave entitlements earned in the coming year. The amount is calculated based on the unused sick leave entitlement that can be carried forward at balance date, to the extent the Ministry anticipates it will be used by staff to cover those future absences.

The Ministry recognises a liability and an expense for bonuses where it is contractually obliged to pay them, or where there is a past practice that has created a constructive obligation.

Non-current employee entitlements

These employee benefits are calculated on an actuarial basis. The calculations of likely future entitlements are based on:

  • years of service
  • years to entitlement
  • the likelihood that staff will reach the point of entitlement
  • contractual entitlements information
  • the present value of the estimated future cash flows

Expected future payments are discounted using market yields on Government bonds at balance date with terms to maturity that match, as closely as possible, the estimated future cash outflows for entitlements. The inflation factor is based on the expected long-term increase in remuneration for employees.

The discount rates used are provided by the Treasury.

Defined contribution superannuation schemes

Obligations for employer contributions to the State Sector Retirement Savings Scheme, Kiwisaver and the Government Superannuation Fund are accounted for as defined contribution schemes, and are recognised as an expense in the comprehensive revenue and expense as incurred.

Equity

Equity is the Crown’s investment in the Ministry, and is measured as the difference between total assets and total liabilities. Equity is disaggregated and classified as taxpayers funds and property revaluation reserves.

Property revaluation reserves

The reserve relates to the revaluation of Milford Sound/ Piopiotahi Aerodrome and Kaikohe land to fair value.

Provisions

The Ministry recognises a provision for future expenses of uncertain amount or timing when:

  • there is a present obligation (either legal or constructive) as a result of a past event
  • it is probable an outflow of future economic benefits will be required to settle the obligation and
  • a reliable estimate can be made of the amount of the obligation

Provisions are not recognised for deficits from future operating activity.

Provisions are measured at the present value of the expenditure and are discounted using market yields on Government bonds at balance dates with terms to maturity that match as closely as possible the estimated timing of future cash outflows. The increase in the provision due to the passage of time is recognised as a interest expense and is included in finance costs.

Goods and services tax (GST)

All items in the financial statements, including appropriation statements, are stated exclusive of GST, except for receivables and payables, which are stated on a GST inclusive basis. Where GST is not recoverable as input tax, it is recognised as part of the related asset or expense.

The net amount of GST recoverable from, or payable to, the Inland Revenue Department is included as part of receivables or payables in the statement of financial position.

The net GST paid to, or received from the Inland Revenue Department, including the GST relating to investing and financing activities, is classified as an operating cash flow in the statement of cash flows.

Commitments and contingencies are disclosed exclusive of GST.

Income tax

The Ministry is a public authority and so is exempt from the payment of income tax. Accordingly, no charge for income tax has been provided.

Statement of cash flows

Cash means cash balances on hand and held in bank accounts.

Operating activities include cash received from all income sources of the Ministry and record the cash payments made for the supply of goods and services.

Investing activities are those activities relating to the acquisition and disposal of non-current assets.

Financing activities comprise the payment to the Crown of the operating surplus achieved by the Ministry and any capital withdrawals or investments by the Crown.

Commitments

Expenses yet to be incurred on non-cancellable contracts entered into on or before balance date are disclosed as commitments, to the extent there are equally unperformed obligations.

Contingent liabilities and contingent assets

Contingent liabilities and contingent assets are disclosed at the point at which the contingency is evident.

Statement of cost accounting policies

The Ministry has determined the cost of outputs, using the cost allocation system outlined below.

Types of cost

Direct costs are those costs directly attributed to an output. Indirect costs are those costs that cannot be identified with a specific output in an economically feasible manner.

Method of assigning direct costs to outputs

Direct costs, such as consultants, are charged to outputs on the basis of the cost of the service provided.

Personnel costs are allocated to outputs, based on the time recording data from the Ministry’s time recording system.

Method of assigning indirect costs to outputs

Indirect costs are allocated to outputs through a two- stage process. The costs are assigned to cost centres within the Ministry, and then the costs are allocated to outputs on the basis of the direct staff time attributable to the outputs of that cost centre.

Critical accounting estimates and assumptions

In preparing these financial statements, the Ministry has made estimates and assumptions about the future. These estimates and assumptions may differ from the subsequent actual results.

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events believed to be reasonable under the circumstances. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Retirement and long service leave

Note 13 provides an analysis of the exposure in relation to estimates and uncertainties surrounding retirement and long service leave liabilities.

Useful lives of property, plant and equipment and intangible assets

The Ministry determines the useful lives of assets based on its best assessment of the asset’s use.

Critical judgements in applying the Ministry’s accounting policies

Management has exercised the following critical judgements in applying the Ministry’s accounting policies for the year ended 30 June 2016.

Operating lease

Determining whether a lease agreement is a finance lease or an operating lease requires judgement as to whether the agreement transfers substantially all the risks and rewards of ownership to the Ministry.

Judgement is required on various aspects that include, but are not limited to, the fair value of the leased asset, the economic life of the leased asset, whether or not to include renewal options in the lease term and determining an appropriate discount rate to calculate the present value of the minimum lease payments.

Classification as a finance lease means the asset is recognised in the statement of financial position as property, plant and equipment. With an operating lease, no such asset is recognised.

The Ministry has exercised its judgement on the appropriate classification of its accommodation lease, and has determined it to be an operating lease.

Budget figures

The 2016 budget figures are for the year ended 30 June 2016. They are consistent with the Ministry’s best estimate financial forecast information submitted to the Treasury for the Budget Economic Forecast Update (BEFU) for the year ended 30 June 2016 (the Main Estimates) and for BEFU for the year ended 30 June 2017 (the Supplementary Estimates).

The 2017 forecast figures are for the year ending 30 June 2017, and are consistent with the best estimate financial forecast information submitted to the Treasury for the Budget Economic Forecast Update for the year ending 30 June 2017. Some figures in the statements have been adjusted as they were not reasonable for the most up to date assumptions. None of these adjustment is material.

The Ministry prepared the 30 June 2017 forecast financial statements, as required by the PFA, to communicate forecast financial information for accountability purposes. It prepared the forecast figures in accordance with PBE FRS 42 Prospective Financial Statements and they comply with PBE FRS 42.

The forecast financial statements (excluding any adjustments) were approved for issue by the Chief Executive on 21 April 2016. The Chief Executive is responsible for the forecast financial statements, including the appropriateness of the assumptions underlying them and all other required disclosures.

The Ministry regularly updates its forecasts, but will not publish updated forecast financial statements for the year ending 30 June 2017.

The budget and forecast figures are unaudited and have been prepared using the accounting policies adopted in preparing these financial statements.

Significant assumptions used in preparing the forecast financials

The forecast figures contained in these financial statements reflect the Ministry’s purpose and activities and are based on a number of assumptions on what may occur during 2016/17. The forecast figures have been compiled on the basis of existing government policies and Ministerial expectations at the time the Main Estimates were finalised.

The main assumptions, which were adopted as at 21 April 2016, were as follows:

  • the Ministry’s activities and output expectations will remain substantially the same as the previous year, focusing on the Government’s priorities
  • estimated year-end information for 2015/16 was used as the opening position for the 2016/17 forecasts.
  • personnel costs were based on 155 full-time equivalent staff, with an allowance for staff turnover
  • operating costs were based on historical experience and other factors believed to be reasonable in the circumstances and are the Ministry’s best estimate of future costs that will be incurred
  • remuneration rates are based on current wages and salary costs, adjusted for anticipated remuneration changes

The actual financial results achieved for 30 June 2017 are likely to vary from the forecast information presented, and the variations may be material.

Since the approval of the forecasts, there has been no significant change or event that would have a material impact on the forecasts. However as noted, some immaterial adjustments have been made to them.

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NOTE 2: REVENUE CROWN

Actual 2014/15
$000
  Actual 2015/16
$000
Unaudited Main Estimates 2015/16
$000
Unaudited Supplementary Estimates 2015/16
$000
Unaudited forecast 2016/17
$000
29,597 Policy advice and related outputs multi category appropriation  30,477 30,843  31,062  30,761 
1,201 Search and rescue activity co-ordination PLA 1,201 1,201 1,201 1,201
475 Fuel excise duty refund administration 545 429 545 803
31,273 Total revenue Crown 32,223 32,473 32,808 32,765

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NOTE 3: OTHER REVENUE

Acutal 2014/15
$000
  Actual 2015/16
$000
Unaudited forecast 2016/17
$000
192 Crown entities and other departments 368 115
237 Milford Aerodrome landing fees 270 230
- Other recoveries 22 -
429 Total other revenue 660 345

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NOTE 4: PERSONNEL EXPENSES

Actual 2014/15
$000
  Actual 2015/16
$000
Unaudited forecast 2016/17
$000
15,379 Salary and wages 16,023 15,500
561 Employer contributors to defined contribution schemes 571 560
88 Annual leave (127) 20
28 Long service leave (16) 50
164 Retirement leave 52 110
(1) Sick leave (14) -
245 Other personnel costs 193 680
16,464 Total personnel expenses 16,682 16,920

Employer contributions to defined contribution plans include contributions to State Sector Retirement Savings Scheme, KiwiSaver, and the Government Superannuation Fund.

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NOTE 5: OTHER OPERATING EXPENSES

Actual 2014/15
$000
  Actual 2015/16
$000
Unaudited forecast 2016/17
$000
4,623 Consultant, research and legal expenses 5,605 7,139
2,500 Other operating expenses 2,351 1,690
1,822 Information technology expenses 1,980 1,600
1,585 Operating lease payments 1,553 1,453
180 Advertising and publicity 129 263
81 Audit NZ - the financial statement audit 83 86
2 Loss on disposal of assets 18 -
10,793 Total other operating expenses 11,719 12,213

During the year, software no longer used was written-off before the end of its useful life to generate the loss shown above.

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NOTE 6: CONTRACTUAL PAYMENTS TO CROWN ENTITIES

Actual 2014/15
$000
  Actual 2015/16
$000
Unaudited forecast 2016/17
$000
  NZ Transport Agency:    
899 For rules programme activity 899 902
561 For fuel excise duty refund activity 660 918
1,200 Civil Aviation Authority: for rules programme activity 1,200 1,194
899 Maritime New Zealand: for rules programme activity 899 902
3,559 Total contractual payments to Crown entities 3,658 3,916

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NOTE 7: CAPITAL CHARGE

The Ministry pays a capital charge to the Crown based on its taxpayers funds as at 30 June and 31 December each year for the previous 6 months. The capital charge rate for the year ended 30 June 2016 was 8 percent (2014/15: 8 percent).

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NOTE 8: EQUITY

Actual 2014/15
$000
  Actual 2015/16
$000
Unaudited forecast 2016/17
$000
  Taxpayers funds    
1,947 Balance at 1 July 1,947 2,322
20 Net surplus/(deficit) 375 (375)
(20) Provision to repay surplus - -
1,947 Balance 30 June 2,322 1,947
  Property revaluation reserve    
761 Balance at 1 July 863 863
102 Revaluation 505 -
- Loss on transfer of assets (505) -
863 Balance at 30 June 863 863
2,810 Total equity 3,185 2,810

For a number of years the Ministry has been responsible for a piece of land at Kaikohe. This was surplus to requirements and so was revalued prior to a transfer at the year end to Land Information NZ.

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NOTE 9: DEBTORS, PREPAYMENTS AND OTHER RECEIVABLES UNDER EXCHANGE TRANSACTIONS

Actual 2014/15
$000
  Actual 2015/16
$000
Unaudited forecast 2016/17
$000
3,406 Due from the Crown 3,880 3,432
48 Other receivables 82 21
3,454 Total debtors, prepayments and other receivables under exchange transactions 3,962 3,453

The carrying value of debtors, prepayments and other receivables approximates their fair value. Other receivables greater than 30 days in age are considered to be past due. No debtor is past due (2014/15: $nil), and the Ministry has assessed that no provision for impairment is required (2014/15: $nil).

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NOTE 10: PROPERTY, PLANT AND EQUIPMENT

  Leasehold improvements $000 Plant and equipment $000 Kaikohe land $000 Milford Sound/Piopiotahi Aerodrome $000 Furntiure and fittings $000 Total $000 
Cost or valuation            
Balance at 1 July 2014 2,170 1,308 - 1,345 833 5,656
Additions - 81 - - 3 84
Revaluations - - - (35) - (35)
Disposals - (93) - - - (93)
Balance at 30 June 2015 2,170  1,296  - 1,310  836  5,612 
Balance at 1 July 2015 2,170  1,296  1,310  836  5,612 
Additions 23  107  130 
Revaluations - - 505 - - 505
Disposals (49)  (505)  - (554) 
Balance at 30 June 2016  2,170  1,270  1,417  836  5,693 
Accumulated depreciation             
Balance at July 2014 1,699 958  118  710  3,485 
Depreciation  268  155  26  70  519 
Revaluations  (137)  (137) 
Disposals  (91)  - (91) 
Balance at 30 June 2015  1,967  1,022  - 780  3,776 
Balance at 1 July 2015  1,967  1,022    780  3,776 
Depreciation  183  276  30  50  539 
Disposals - (49) (49) 
Balance at 30 June 2016  2,150 1,249  37  830 4,266 
Carrying amounts             
At 1 July 2014 471 350  1,227  123  2,171 
At 30 June and 1 July 2015  203  274  1,303  56  1,836 
At 30 June 2016  20  21  1,380  1,427 
Unaudited forecast at 30 June 2017  526  1,357  1,883 

Milford Sound/Piopiotahi Aerodrome (the aerodrome) was valued at 31 March 2015 by an independent valuer, M Gordon (BE Hons, MBA, CPEng, MIPENZ), of AECOM (NZ) Limited. This valuation was done on the basis of the aerodrome’s optimised depreciated replacement cost.

For a number of years, the Ministry has been responsible for a piece of land at Kaikohe, that it has held at $0 value. The land was surplus to requirements and so was revalued by Moir McBain Valuations at January 2016, prior to a transfer at 30 June 2016 to Land Information NZ.

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NOTE 11: INTANGIBLE ASSETS

The only intangible asset is purchased software.

Actual 2014/15
$000
  Actual 2015/16
$000
  Cost  
1,749 Balance at 1 July 1,664
61 Additions 9
(146) Disposals (125)
1,664 Balance at 30 June 1,548
  Accumulated amorisation  
1,632 Balance at 1 July 1,560
74 Amorisation expense 60
(146) Disposals (107)
1,560 Balance at 30 June 1,513
  Carrying amounts  
117 At 1 July 104
104 At 30 June 35
35 Unaudited forecast at 30 June 2017 459

There are no restrictions over the title of the Ministry’s intangible assets, nor are any intangible assets pledged as security for liabilities.

Work in progress

The total amount of software in the course of construction is $nil. (2014/15: $nil).

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NOTE 12: CREDITORS AND OTHER PAYABLES UNDER EXCHANGE TRANSACTIONS

Actual 2014/15 $000   Actual 2015/16 $000 Unaudited forecast 2016/17 $000
1,669 Accrued expenses 1,791 1,781
245 Trade creditors under exchange transactions 253 245
61 GST payable 250 -
21 Revenue received in advance - -
1,996 Total creditors and other payables under exchange transactions 2,294 2,026

Creditors and other payables are non-interest bearing and are normally settled on the 20th of the next month, therefore the carrying value of creditors and other payables approximates their fair value.

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NOTE 13: EMPLOYEE ENTITLEMENTS

Actual 2014/15
$000
  Actual 2015/16
$000
Unaudited forecast 2016/17
$000
  Current liabilities    
124 Accrued salary 38 232
1,040 Annual leave 913 951
95 Long service leave 81 184
221 Retirement leave 146 221
30 Sick leave 16 30
1,510 Total of current portion 1,194 1,618
  Non-current liabilities    
163 Long service leave 161 163
914 Retirement leave 1,041 914
1,077 Total of non-current portion 1,202 1,077
2,587 Total provision for employee entitlements 2,396 2,695

Accrued salary arises through the paydate being based on fortnightly cycle, and that on 30 June 2016 there had been 1 working day from the last paydate of 29 June 2016 (2014/15: 9). Annual leave reflects the entitlement yet to be taken by staff.

Long service and retirement leave obligations are determined on an actuarial basis using several assumptions. Two key assumptions used are the discount rate and the salary inflation factor. Any changes in this assumption will impact on the carrying amount of the liability. The discount rate and inflation factors used are detailed below.

  2015/16
%
2016/17
%
Outyears
%
Discount rate 2.12 1.95 4.75
Salary inflation factor % 3.00 2.00 2.00

If the discount rate were to differ by one percent from the Ministry’s estimates, with all other factors held constant, the estimated carrying amount of the liability would be $108,000 higher/ lower.

If the inflation factor were to differ by one percent from the Ministry’s estimates, with all other factors held constant, the estimated carrying amount of the liability would be $126,000 higher/ lower.

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 NOTE 14: PROVISION FOR LEASE MAKE-GOOD

Actual 2014/15
$000
  Actual 2015/16
$000
Unaudited forecast 2016/17
$000
688 Balance at 1 July 744 -
- Release of provision (244) -
56 Disount unwind (Finance cost) - -
744 Balance at 30 June 500 -
- Current liabilities 500 -
744 Non-current liabilities - -

At the expiry of the lease term for its leased premises, the Ministry is required to make good any damage caused to the premises and to remove any fixtures or fittings installed by the Ministry. The finance cost reflects the annual cost incurred in making this provision and is based on an actuarial determination.

As the Ministry is relocating in August 2016, it employed Rawlinsons Ltd an independent valuer to assess the current value of the provision. Their valuation was $500,000 and so the provision was reduced. Refer to note 15 for more detail.

The Ministry is to pass the provision to the Ministry of Social Development, which has taken over the premises.

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NOTE 15: RELEASE OF PROVISIONS

The Ministry has approval from the Ministers of Transport and Finance to release $375,000 in provisions accrued in prior years, to fund its relocation costs in 2016/17 from its existing baseline, rather than seeking additional funding from the Crown. This transaction generated a surplus in 2015/16, which has been retained by the Ministry. The released provisions comprised:

  Actual 2015/16
$000
Unaudited forecast 2016/17
$000
Make good provision: Release of make good provision as noted in note 14. 244 -
Rent increase provision: The Ministry had accrued $71,000 at 30 June 2015 for a rent increase. The landlord did not seek an increase. 71 -
Christchurch lease expenses: The Ministry provided for various liabilities following the earthquake, but now believes that it can release the provision. 60 -
Total 375 -

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NOTE 16: RECONCILIATION OF THE NET SURPLUS IN THE STATEMENT OF COMPREHENSIVE REVENUE AND EXPENSE WITH NET CASH FLOWS FROM OPERATING ACTIVITIES IN THE STATEMENT OF CASH FLOWS

Actual 2014/15
$000
  Actual 2015/16
$000
Unaudited forecast 2016/17
$000
20 Net surplus 375 (375)
  Add non-cash items    
519 Depreciation of property, plant and equipment  539 156 
74  Amortisation of intangible assets  60 60 
Loss of disposable assets  18 
595  Total of non-cash items  617  216 
  Add/(deduct) movements in working capital items     
(386)  (Increase)/decrease in debtors and pther recievables  (508)  (345) 
(603)  Increase/(decrease) in payables and provisions  54  (32) 
(95)  Increase/(decrease) in employee entitlements (191) 232 
(1,084)  Net movements in working capital items (645) 
(469)  Net cash flows from operating activities  347  (304) 

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NOTE 17: RECONCILIATION OF CASH AND CASH EQUIVALENTS IN THE STATEMENT OF FINANCIAL POSITION WITH TOTAL CASH AT 30 JUNE IN THE STATEMENT OF CASH FLOWS

Total cash at 30 June each year in the Statement of cash flows matches cash and cash equivalents in the Statement of financial position at 30 June each year.

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NOTE 18: FINANCIAL INSTRUMENTS

The Ministry’s activities expose it to a variety of financial instrument risks, including market risk, credit risk, and liquidity risk. The Ministry has a series of policies to manage the risks associated with financial instruments and seeks to minimise exposure from financial instruments. These policies do not allow the Ministry to enter into any transactions that are speculative in nature.

Credit risk

Credit risk is the risk a third party will default on its obligation to the Ministry, causing the Ministry to incur a loss. In the normal course of its business, the Ministry’s credit risk arises from debtors and deposits with banks. The Ministry is only permitted to deposit funds with Westpac which has a high credit rating. The Ministry does not enter into foreign exchange forward contacts.

For its other financial instruments, the Ministry does not have significant concentrations of credit risk.

The Ministry’s maximum credit exposure for each class of financial instrument is represented by the total carrying amount of cash and cash equivalents, net debtors, and derivative financial instrument assets. There is no collateral held as security against these financial instruments, including those instruments overdue or impaired.

Liquidity risk

Liquidity risk is the risk the Ministry will encounter difficulty raising liquid funds to meet commitments as they fall due.

In meeting its liquidity requirements, the Ministry closely monitors its forecast cash requirements with expected cash draw downs from the New Zealand Debt Management Office. The Ministry maintains a target level of available cash to meet liquidity requirements.

The table below analyses the Ministry’s financial liabilities that will be settled, based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed are the contractual undiscounted cash flows, based on the liabilities in note 12.

Actual 2014/15
$000
  Actual 2015/16
$000
Unaudited forecast 2016/17
$000
1,996 Less than 6 months (note 12) 2,294 2,058
- Greater than 6 months - -

Market risk

Interest rate risk

Interest rate risk is the risk the fair value of a financial instrument will fluctuate, or the cash flows from a financial instrument will fluctuate, due to changes in market interest rates. The Ministry has no exposure to interest rate risk because it has no interest-bearing financial instruments.

Currency risk

Currency risk is the risk the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Ministry has no exposure to currency risk because it does not enter into foreign exchange forward contracts.

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NOTE 19: CATEGORIES OF FINANCIAL INSTRUMENTS

The carrying amount of the financial assets and financial liabilities in each of the NZ IAS 39 categories are as follows:

Actual 2014/15
$000
  Actual 2015/16
$000
Unaudited forecast 2016/17
$000
  Loans and receivables    
2,763 Cash and cash equivalents 2,951 1,736
3,454 Debtors, prepayments and other receivables under exchange transactions (note 9) 3,962 3,453
  Financial liabilities measured at amortised cost    
1,996 Creditors and other payables under exchange transactions (note 12) 2,294 2,026

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NOTE 20: RELATED PARTY INFORMATION

The Ministry has not made related party disclosures for transactions with related parties within a normal supplier or client/ recipient relationship, on terms and condition no more or less favourable than those it is reasonable to expect the Ministry would have adopted, in dealing with the party at arm’s length in the same circumstances.

On the same basis, the Ministry has not disclosed as related transactions any transactions with other Government agencies, when the transactions are consistent with the normal operating arrangements between Government agencies and undertaken on normal terms and conditions ie at arms length. The Ministry received revenue from other entities controlled by the Crown to reimburse it for costs – see note 3, and purchased transport outputs from other transport entities controlled by the Crown – see note 6.

Transactions with key management personnel

The Ministry did not enter into any transactions with key management personnel or their close families in 2015/16 or 2014/15.

Key management personnel compensation

Actual 2014/15
$000
  Actual 2015/16
$000
1,730 Salaries and other short-term employee benefits 1,795
- Termination benefits -
1,730 Total key management personnel compensation 1,795

At 30 June 2016, key management personnel includes the Chief Executive and the 5 members (2014/15: 5) of the senior management team. This is 6 FTE (2014/15: 6)

Ministers of the Crown are not included in key management personnel and so the compensation shown above excludes the remuneration and other benefits that the Minister and the Associate Minister of Transport receive. Their remuneration and other benefits are not received only for their roles as members of key management personnel of the Ministry. Their remuneration and other benefits are set by the Remuneration Authority under the Civil List Act 1979 and are paid under Permanent Legislative Authority, and not paid by the Ministry of Transport.

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NOTE 21: CAPITAL MANAGEMENT

The Ministry’s capital is its equity, which comprises taxpayers funds and the revaluation reserve. Equity is represented by net assets.

The Ministry manages its revenues, expenses, assets, liabilities and general financial dealings prudently. Its equity is largely managed as a by-product of managing income, expenses, assets, liabilities and compliance with the Government budget process and the Treasury instructions.

The objective of managing the Ministry’s equity is to ensure the Ministry effectively achieves the goals and objectives for which it has been established, whilst remaining a going concern.

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NOTE 22: MAJOR CHANGES TO THE DEPARTMENTAL OUTPUT BUDGETS FOR 2015/16

Changes were made to the Ministry’s departmental output budgets by way of the Supplementary Estimates for 2015/16. Explanations for the changes were outlined in that document (page 711 onwards) and the net changes are shown below.

Appropriations for departmental output expenses Unaudited Main Estiamtes
$000
Changes in Supplementary Estimates
$000
Cumulative Vote
$000
Policy advice and related outputs MCA 30,843 482 31,325
Fuel excise duty refund administration 519 141 660
Milford Sound/Piopiotahi Aerodrome operation and administration 230 54 284
Search and rescue activity coordination PLA 1,201 - 1,201
Total departmental appropriations 32,793 677 33,470

The adjustments to the appropriations were:

  • additional revenue of $0.482 million in the Policy advice and related outputs MCA, mainly from staff secondments
  • additional revenue of $0.141 million for Fuel excise duty refund administration as Ministers approved an increase in the appropriation
  • additional revenue of $0.054 million for Milford Sound Aerodrome operation and administration from landing fees

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NOTE 23: EXPLANATION OF MAJOR VARIANCES BETWEEN ACTUAL AND BUDGET FIGURES

The significant variances between the actual results and the figures included in the Supplementary Estimates of Appropriations for the year ended 30 June 2016 are:

Statement of comprehensive revenue and expense

Revenue Crown

The actual revenue Crown figure was $0.585 million below the Supplementary Estimates. This amount was not drawn down because the Ministry did not spend the full appropriation.

Expenses

Total expenditure was $0.587 million below the Supplementary Estimates, because the Ministry did not spend the full appropriation.

Statement of financial position

Assets

Debtors, prepayments and other receivables

Debtors were $0.509 million higher than Supplementary Estimates. The Ministry did not draw down some of its Crown revenue because it has sufficient cash to meet its needs in the short term.

Property, plant and equipment

Property, plant and equipment were $0.452 million lower than Supplementary Estimates because the Supplementary Estimates assumed that assets for the relocation would be purchased earlier and that more would be spent on the replacement Document Management System.

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NOTE 24: EXPLANATIONS OF MAJOR VARIANCES BETWEEN ACTUAL 2015/16 AND FORECAST 2016/17 FIGURES

The significant variances between the actual results and the forecast 2016/17 figures are as below. The forecast 2016/17 figures are not subject to audit.

Statement of comprehensive revenue and expense

Revenue Crown

Forecast 2016/17 Revenue Crown is $0.542 million higher than 2015/16 actual. This is mainly combination of:

  • $0.258 million increase to the Fuel excise duty refund administration revenue for 2016/17 as Ministers have approved an increase in the appropriation
  • $0.585 million was not required to fund expenditure in 2015/16. The 2016/17 forecast assumes full expenditure.

Other revenue

Forecast 2016/17 Other revenue is $0.315 million lower than 2015/16 actual due to a forecast reduction in staff secondments and lower Milford aerodrome revenue.

Expenses

Forecast 2016/17 other operating expenses are $0.639 million higher than 2015/16 actual, due to:

  • $0.375 million forecast for the move to the new office
  • planning to spend the full budget

Statement of financial position

Assets

Forecast 2016/17 cash and cash equivalents is $1.171 million lower than 2015/16 actual, mainly due to debtors being forecast to be higher in 2016/17.

Debtors, prepayments and other receivables

Forecast 2016/17 debtors, prepayments and other receivables is $0.509 million lower than 2015/16 actual. Drawing of some 2015/16 Crown revenue was deferred because the Ministry had sufficient cash available to meet its needs in the short term.

Property, plant and equipment

Forecast 2016/17 property, plant and equipment is $0.956 million higher than 2015/16 actuals due to the purchase of new equipment on the move to the new office.

Intangible assets

Forecast 2016/17 intangible assets is $0.424 million higher than 2015/16 actual. Expenditure on the Ministry’s Document Management System and Disaster Recovery System is forecast to start in 2016/17.

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NOTE 25: EVENTS AFTER BALANCE SHEET DATE

No event has occurred since the end of the financial period (not otherwise dealt with in the financial statements) that has affected, or may significantly affect, the Ministry’s operations or state of affairs for the year ended 30 June 2016.

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NOTE 26: POSSIBLE FRAUDULENT ACTIVITY

The Ministry has uncovered potentially fraudulent activity by a staff member. The matter is now before the courts with the Serious Fraud Office laying three representative charges totalling $726,000. The resolution of this is unknown at this date. The Ministry is taking expert advice on further action.

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