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Note 1: Statement of accounting policies

REPORTING ENTITY

The Ministry of Transport (the Ministry) is a government department as defined by section 2 of the Public Finance Act 1989 and is domiciled in New Zealand.

The primary objective of the Ministry is to provide services to the public rather than to make a financial return. Accordingly, the Ministry has designated itself as a public benefit entity for the purpose of the New Zealand equivalents to International Financial Reporting Standards (NZ IFRS).

The financial statements of the Ministry are for the year ended 30 June 2009. The financial statements were authorised for issue by the Chief Executive of the Ministry on 30 September 2009.

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

In previous years, the Ministry was responsible for the Motor Vehicle Registry and Revenue Management business and the Economic Compliance Unit, both of which were contracted out to Land Transport New Zealand for the full year. The Land Transport Management Act 2003 came into force on 1 August 2008. At that date, Land Transport New Zealand merged with Transit New Zealand to form the NZ Transport Agency and the ownership of the Motor Vehicle Register and the responsibilities of the Registrar function were transferred to the new entity. The Chief Executive of the Ministry remains responsible for the collection, investigation and enforcement of road user charges and fuel excise duty refunds.

These financial statements have been prepared pursuant to section 35 of the Public Finance Act 1989.

In addition, the Ministry has reported the Crown activities which it administered throughout 2008/2009.

BASIS OF PREPARATION

The financial statements of the Ministry have been prepared in accordance with the requirements of the Public Finance Act 1989, which includes the requirement to comply with New Zealand generally accepted accounting practice (NZ GAAP).

These financials statements have been prepared in accordance with, and comply with, NZ IFRS as appropriate for public benefit entities.

The accounting policies set out below have been applied consistently to all periods presented in these financial statements. The financial statements have been prepared on an historical cost basis, modified by the revaluation of certain fixed assets.

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.

Standards, amendments and interpretations issued that are not yet effective and that have not been early adopted, and which are relevant to the Ministry include:

NZ IAS 1 Presentation of Financial Statements (revised 2007) replaces NZ IAS 1 Presentation of Financial Statements (issued 2004) and is effective for reporting periods beginning on or after 1 January 2009. The revised standard requires information in financial statements to be aggregated on the basis of shared characteristics and a statement of comprehensive income to be introduced. This will enable readers to analyse changes in equity resulting from transactions with the Crown in its capacity as ‘owner’ separately from ‘non-owner’ changes. The revised standard gives the Ministry the option of presenting items of income and expense and components of other comprehensive income either in a single statement of comprehensive income with subtotals, or in two separate statements (a separate income statement followed by a statement of comprehensive income). The Ministry expects it will apply the revised standard for the first time for the year ended 30 June 2010, and has yet to decide whether it will prepare a single statement of comprehensive income or a separate income statement followed by a statement of comprehensive income.

 

CAPITAL CHARGE

The capital charge is recognised as an expense in the period to which it relates.

BUDGET FIGURES

The budget figures are those included in the Estimates 2008. In addition, the financial statements also present the updated budget information from the Supplementary Estimates.

REVENUE

The Ministry derives revenue from the provision of outputs to the Crown and from services to third parties. 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.

LEASES

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 charged as expenses 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 financial performance.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash on hand and funds on deposit with banks.

DEBTORS AND OTHER RECEIVABLES

Debtors and other receivables are initially measured at fair value and subsequently measured at amortised cost using the effective interest rate, less impairment changes.

Impairment of a receivable is established when there is objective evidence that the Ministry will not be able to collect amounts due according to the original terms of the receivable. Significant financial difficulties of the debtor, probability that the debtor will enter into bankruptcy, and default in payments are considered indicators that the debtor is impaired. The amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted using the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the statement of financial performance. Overdue receivables that are renegotiated are reclassified as current (ie not past due).

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of leasehold improvements, furniture and fittings, office equipment, and Milford Sound/Piopiotahi Aerodrome. The Ministry’s only motor vehicle was classed as a non-current asset held for sale in 2007/08 and sold in 2008/09.

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

All fixed assets costing more than $2,000 are capitalised. They are valued at historical cost or estimated recoverable amount, less accumulated depreciation. Any write-down of an item to its recoverable amount is recognised in the statement of financial performance.

Additions

The cost of an item of 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 at no cost, or for a nominal cost, 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 statement of financial performance. When revalued assets are sold, the amounts included in the property, plant and equipment revaluation reserves in respect of those assets are transferred to general funds.

Revaluation

The Ministry does not revalue its assets, except for Milford Sound/Piopiotahi Aerodrome.

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

The result of revaluing Milford Sound/Piopiotahi Aerodrome is credited or debited to an asset revaluation reserve for that class of asset. Where a revaluation results in a debit balance in the revaluation reserve, the debit balance will be expensed in the statement of financial performance.

Subsequent costs

Costs incurred subsequent to initial acquisition are capitalised only when 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.

Depreciation

Depreciation is provided on a straight-line basis on all property, plant and equipment, at rates that will write off the cost (or valuation) of the assets to their estimated residual values over their useful lives. The useful lives and associated depreciation rates of major classes of assets have been estimated as follows:

Furniture and fittings  10 years  10% per annum 
Leasehold improvements  2-10 years  10-50% per annum 
Milford Sound/Piopiotahi Aerodrome  6-100 years  1-17% per annum 
Plant and equipment  3-10 years  10-33.3% per annum 

Leasehold improvements are depreciated over the unexpired period of the lease or the estimated remaining useful lives of the improvements, which ever is the shorter.

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

INTANGIBLE ASSETS

Software acquisition and development

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

Costs associated with maintaining computer software are recognised as an expense when incurred. Costs that are 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.

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 statement of financial performance.

The useful lives and associated amortisation rates of major classes of intangible assets have been estimated as follows:

Crash analysis system  2 years  50% per annum
Motor vehicle software     3 years 33.3% per annum
Other software 3-4 years     25-33.3% per annum

Staff training cost is recognised as an expense when incurred.

IMPAIRMENT OF NON-FINANCIAL ASSETS

An intangible asset that is 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 that 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 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. For revalued assets, the impairment loss is recognised against the revaluation reserve for that class of asset. Where that results in a debit balance in the revaluation reserve, the balance is recognised in the statement of financial performance.

For assets not carried at a revalued amount, the total impairment loss is recognised in the statement of financial performance.

The reversal of an impairment loss on a revalued asset is credited to the revaluation reserve. However, to the extent that an impairment loss for that class of asset was previously recognised in the statement of financial performance, a reversal of the impairment loss is also recognised in that statement.

For assets not carried at a revalued amount, the reversal of an impairment loss is recognised in the statement of financial performance.

CREDITORS AND OTHER PAYABLES

Creditors and other payables are initially measured at fair value and subsequently measured at amortised cost using the effective interest method.

EMPLOYEE ENTITLEMENTS

Current liability for employee entitlements

Employee entitlements that the Ministry expects to be settled within 12 months of balance date are measured at nominal values based on accrued entitlements at current rates of pay. These 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 expected to be settled within 12 months, and sick leave.

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 that 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.

Long-term liability for employee entitlements

Entitlements that are payable beyond 12 months, such as long service leave and retiring leave, have been calculated on an actuarial basis, using a model for use by government entities that was developed by the Treasury during 2008/09 in consultation with a firm of actuaries.

The calculations are based on:

  • likely future entitlements 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.

The discount rates used are detailed below and are in line with the Treasury guidance.  

 

Year to 30 June 2010

Year to 30 June 2011 

Outyears 

Discount rate % 

3.01

3.82

5.96 

Salary inflation factor %

3.00

3.50

3.50

Superannuation schemes

Defined contribution schemes

Obligations for 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 statement of financial performance as incurred.

TAXPAYERS’ FUNDS

Taxpayers’ funds are the Crown’s investment in the Ministry and are measured as the difference between total assets and total liabilities. Taxpayers’ funds are disaggregated and classified as general funds and asset revaluation reserves.

PROVISIONS

The Ministry recognises a provision for future expenditure 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 that an outflow of future economic benefits will be required to settle the obligation
  • a reliable estimate can be made of the amount of the obligation.

Provisions are not recognised for future operating losses.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised as a finance cost.

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, then 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 (IRD) is included as part of receivables or payables in the statement of financial position.

The net GST paid to, or received from the IRD, 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

Government departments are exempt from income tax as public authorities. 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.

COMMITMENTS

Expenses yet to be incurred on non-cancellable contracts that have been entered into on or before balance date are disclosed as commitments to the extent that 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 directly attributed to an output. Indirect costs are those 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 costs 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 that are 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 18 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 in intangible assets

Useful lives of assets are determined by the Ministry based on their 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 2009.

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 accommodation leases, and has determined the lease arrangements to be operating leases.

CHANGES IN ACCOUNTING POLICIES

The accounting policies have been applied consistently to all years presented in these schedules.

Certain items have been re-classified to conform to the current year’s presentation of the Ministry’s financial statements. These reclassifications do not have a material impact on the substance of the information presented.

 

Note 2: Revenue Crown

This is revenue earned for the supply of outputs to the Crown.

Note 3: Revenue from the National Land Transport Fund

In previous years, the Ministry received funding from the National Land Transport Fund (the Fund) to cover the cost of the Motor Vehicle Registry and Revenue Management output class. On 1 August 2008, the funding regime changed with the transfer of the Motor Vehicle Register to the NZ Transport Agency and the cessation of this output class from 31 July 2008. Thus the revenue shown for 2008/09 is for July 2008 only.

Note 4: Revenue from fees

This new revenue stream is related to the previous note, Revenue from the National Land Transport Fund.

To replace the Motor Vehicle Registry and Revenue Management output class, the Crown created three new departmental appropriations to be funded from fees collected from motor vehicle registration and road user charges. This funding is utilised to meet the cost of administering the departmental activities:

  • road user charges collection, investigation and enforcement
  • land transport revenue forecasting and strategy  
  • refund of fuel excise duty.

The revenue shown for 2008/09 is for the eleven months to 30 June 2009.

Note 5: Other revenue

 

Actual 2007/08
$000

 

Actual 2008/09
$000
 

513  Departmental      495 
14,178  Crown entities 1,897 
103  Other recoveries 73 
14,794  Total other revenue     2,465 

 
The decrease in revenue from Crown entities is due to the change in output classes described in Notes 3 and 4. Previously, third party revenue was paid to the Ministry by the NZ Transport Agency. Now it is accounted for by the NZ Transport Agency itself.

Note 6: Personnel expenses

 

Actual 2007/08
$000 

 

Actual 2008/09
$000
 

15,309  Salary and wages  17,257 
433  Employer contributions to defined contribution schemes 502 
268  Annual leave 253 
21  Long service leave 21 
Retirement leave
750  Other personnel costs 370 
16,787  Total personnel expenses 18,409 

Note 7: Capital charge

The Ministry pays a capital charge to the Crown on its taxpayers’ funds as at 30 June and 31 December each year. The capital charge rate for the year ended 30 June 2009 was 7.5% (2008: 7.5%).

Note 8: Other operating expenses

 

Actual 2007/08
$000 
  Actual 2008/09
$000
 
  Auditors remuneration:   
72  - Audit fees for the financial statement audit 65 
15  - Audit fees for NZ IFRS transition
- Other services
1,289  Operating lease payments 1,407 
437  Advertising and publicity 306 
8,631  Professional and special services 5,624 
1,672  Computer bureau and software hire 1,787 
3,486  Other operating expenses 2,547 
15,609  Total other operating expenses  11,736 

Note 9: Contractual payments to Crown entities

 

Actual 2007/08
$000 
  Actual 2008/09
$000
 
  NZ Transport Agency:   
65,531   - For motor vehicle register and revenue management activities 4,670 
1,013   - For rules programme activity 1,013 
 - For refund of fuel excise duty activities 392 
 - For road user charges collection, investment and enforcement activities 17,688 
660  Maritime New Zealand for rules programme activity 857 
1,420  Civil Aviation Authority for rules programme activity 1,438 
66,624    26,058 

Note 10: Repayment of surplus to the Crown

The repayment of any surplus is required to be paid by 31 October of each year. The Ministry has no surplus to repay for 2008/09 as it reduced its draw down of funding to reflect its level of activity. At 30 June 2009, the Ministry was owed money by the Crown, as Crown revenue drawn down was lower than expenditure.

Note 11: Capital withdrawal

As noted above, the Motor Vehicle Register was transferred to the NZ Transport Agency on 1 August 2008. The Register was transferred at its book value of $3.019 million.

$6.99 million was repaid to the Crown in relation to the transaction, being the proceeds of sale of $3.019 million plus unspent depreciation on the Register of $3.971 million.

Note 12: Debtors and other receivables

 

Actual 2008/09
$000 
  Actual 2008/09
$000
 
2,162  NZ Transport Agency 
Crown 2,567 
449  Other 263 
2,614  Total debtors and other receivables 2,830 

The carrying value of debtors and other receivables approximates their fair value. No debtor is past due, and the Ministry has assessed that no provision for impairment is required.

Note 13: Non-current asset held for sale

In 2007/08, the Ministry owned one motor vehicle. This was sold in 2008/09.

Note 14: Property, plant and equipment

 

  Leasehold
Improvements
$000 
Plant and 
equipment
$000 
Milford Sound/
Piopiotahi Aerodrome
$000 
Furniture
and fittings
$000 
Motor Vehicle
$000 
Total 
$
000 
Cost or Valuation 
Balance at 1 July 2007 2,054  1,422  702  912  32  5,122 
Additions 116  300  32  448 
Non-current asset held (32)  (32) 
Balance at 30 June 2008 2,170  1,722  702  944  5,538 
Balance at 1 July 2008 2,170  1,722  702  944  5,538 
Additions 143  330  480 
Disposals (195)  - (112)  (307) 
Balance at 30 June 2009 2,170  1,670  1,032  839  5,711 
Accumulated depreciation  
Balance at 1 July 2007 256  1,065  17  253  1,596 
Depreciation expense 208  220  83  522 
Non-current asset held for sale (11)  (11) 
Balance at 30 June 2008 464  1,285  22  336  2,107 
Balance at 1 July 2008 464  1,285  22  336  2,107 
Depreciation expense 218  234  84  543 
Disposals (195)  (93)  (288) 
Balance at 30 June 2009 682  1,324  29  327  2,362 
Carrying amounts  
At 1 July 2007 1,798  357  685  659  27  3,526 
At 30 June and 1 July 2008 1,706  437  680  608  3,431 
At 30 June 2009 1,488  346  1,003  512  3,349 

Milford Sound/Piopiotahi Aerodrome was valued at optimised depreciated replacement cost as at 30 June 2004 by an independent valuer, G.Hughson (BE,MIPENZ), of Maunsell Ltd. An updated revaluation was due on 30 June 2009 or earlier. A revaluation is currently underway but cannot be completed until runway resurfacing is finished. This was delayed by cold weather.

Note 15: Intangible assets

 

Motor Vehicle Register
$000 

Crash Analysis System
$000 

Other software
$000 

Total
$000
 

Cost 

       

Balance at 1 July 2007

32,083 

408 

364 

32,855 

Additions

1,303 

427 

1,730 

Balance at 30 June 2008

33,386 

408 

791 

34,585 

Balance at 1 July 2008

33,386 

408 

791 

34,585 

Additions

267 

456 

723 

Disposals

(33,653) 

(115) 

(33,768) 

Balance at 30 June 2009

408 

1,132 

1,540 

Accumulated depreciation

Balance at 1 July 2007

28,318 

408 

281 

29,007 

Amortisation expense

2,141 

90 

2,231 

Balance at 30 June 2008

30,459 

408 

371 

31,238 

Balance at 1 July 2008

30,459 

408 

371 

31,238 

Amortisation expense

175 

172 

347 

Disposals

(30,634) 

(115) 

(30,749) 

Balance at 30 June 2009

408 

428 

836 

Carrying amounts

At 1 July 2007

3,765 

83 

3,848 

At 30 June and 1 July 2008

2,927 

420 

3,347 

At 30 June 2009

704 

704 

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

The Motor Vehicle Register was transferred to the NZ Transport Agency on 1 August 2008 at its book value.

Note 16: Creditors and other payables

 

Actual 2007/08
$000 
  Actual 2008/09
$000
 
729  Trade creditors      395 
2,604  Accrued expenses 1,976 
33  GST payable (102) 
3,366  Total creditors and other payables 2,269 

Creditors and other payables are non-interest bearing and are normally settled on 30-day terms, therefore the carrying value of creditors and other payables approximates their fair value.

Note 17: Creditor for capital expenditure

The NZ Transport Agency (formerly Land Transport New Zealand) was contracted to develop the Motor Vehicle Register asset for the Ministry. As noted above, this asset was transferred to the NZ Transport Agency on 1 August 2008 and so this contract is no longer in force.

Actual 2007/08
$000 
  Actual 2008/09
$000
 
154  NZ Transport Agency     
154  Total creditor for capital expenditure - 

Note 18: Employee Entitlements

 

Actual 2007/08
$000 
  Actual 2008/09
$000
 
  Current liabilities   
795  Annual leave 847 
64  Long service leave 95 
Retirement leave 11 
859  Total of current portion 953 
  Non-current liabilities  
Long service leave 140 
559  Retirement leave 330 
559  Total of non-current portion 470 
1,418  Total provisions for employee entitlements 1,423 

 
The present value of the long service and retirement leave obligations depend on a number of factors that are determined on an actuarial basis using a number of assumptions. Two key assumptions used in calculating this liability include 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 in the accounting policies.

If the discount rate were to differ by 1 percent from the Ministry’s estimates, with all other factors held constant, the estimated carrying amount of the liability would be $6,000 higher or lower.

If the inflation factor were to differ by 1 percent from the Ministry’s estimates, with all other factors held constant, the estimated carrying amount of the liability would be $7,000 higher or lower.

Note 19: Provision for lease make-good 

 

Actual 2007/08
$000 
  Actual 2008/09
$000
 
Opening balance 1 July  552 
552  Additional provisions made
552  Balance at 30 June 552 

 In respect of a number of its leased premises, the Ministry is required at the expiry of the lease term to make good any damage caused to the premises and to remove any fixtures or fittings installed by the Ministry. In many cases, the Ministry has the option to renew these leases, which impacts on the timing of expected cash outflows.

Note 20: Reconciliation of the net surplus in the Statement of Financial Performance with net cash flows from operating activities in the Statement of Cash Flows for the year ended 30 June 2009

 

Actual 2007/08
$000 
  Actual 2008/09
$000
 

 3,659

Net surplus 

 -

  Add non-cash items:   
522  Depreciation of property, plant and equipment 543 
2,231  Amortisation of intangible assets  347 
2,753  Total of non-cash items  890 
  Add/deduct movements in working capital items   
(5)  (Increase)/decrease in prepayments 
(1,290)  (Increase)/decrease in debtors and other receivables  (216) 
812  Increase/(decrease) in payables and provisions  (1,251) 
195  Increase/(decrease) in employee entitlements 
(288)  Net movements in working capital items  (1,456) 
  Add/deduct items classified as investing activities   
Loss on non-current assets held for sale 
Work in progress expensed  38 
(1)  (Profit)/loss on disposal of property, plant and equipment  19 
Total of investing activities  58 
6,126  Net cash flows from operating activities  (508) 

Note 21: Financial instruments

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

Credit risk
Credit risk is the risk that a third party will default on its obligations to the Ministry, causing the Ministry to incur a loss. In the normal course of its business, the Ministry incurs credit risk from trade debtors, and from transactions with financial institutions and the New Zealand Debt Management Office (NZDMO).

The Ministry does not require any collateral or security to support financial instruments with the financial institutions that the Ministry deals with, or with the NZDMO, as these entities have high credit ratings. For its other financial instruments, the Ministry does not have significant concentrations of credit risk.

The fair value of financial instruments is equivalent to the carrying amount disclosed in the Statement of Financial Position.

Liquidity risk
Liquidity risk is the risk that the Ministry will encounter difficulty in 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 drawdowns 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 notes 16 and 17.

Actual 2007/08
$000 

 

Actual 2008/09
$000
 

3,520  Less than 6 months  2,269 
Greater than 6 months

Interest Rate Risk
The Ministry has no significant exposure to interest risk on its financial instruments.

Note 22: 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 2007/08
$000 
  Actual 2008/09
$000
 
  Loans and receivables   
9,148  Cash and cash equivalents 345 
2,614  Debtors and other receivables (note 12) 2,830 
  Financial liabilities measured at amortised cost  
3,520  Creditors and other payables (notes 16 & 17) 2,269 

Note 23: Related party information

The Ministry is a wholly owned entity of the Crown. The government significantly influences the role of the Ministry as well as being its major source of revenue.

The Ministry enters into transactions with other government departments, Crown entities and State Owned Enterprises on an ‘arm’s length’ basis. Those transactions that occur within a normal supplier and client relationship on terms and conditions no more or less favourable than those which it is reasonable to expect the Ministry would have adopted if dealings with that entity at arm’s length in the same circumstances are not disclosed.

Key management personnel compensation

 

Actual 2007/08
$000 
  Actual 2008/09
$000
 
1,879  Salaries and other short-term employee benefits  1,922 
17  Post employment benefits
Termination benefits 340 
1,896  Total key management personnel compensation 2,269 

Key management personnel includes the Chief Executive and the six members (2007:8 members) of the senior management team.

Note 24: Capital management

The Ministry’s capital is its equity (or taxpayers funds), which comprise general funds and revaluation reserves. Equity is represented by net assets.
The Ministry manages its revenues, expenses, assets, liabilities and general financial dealings prudently. The Ministry’s 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 that the Ministry effectively achieves its goals and objectives for which it was established, while remaining a going concern.

Note 25: Major changes to the departmental output budgets

Changes were made to the Ministry’s departmental appropriations for the year 2008/09 by way of the Supplementary Estimates. The net changes appear in the following table.

 

  Budget Estimates
$000 
Supplementary Estimates
$000 
Cumlative Vote
$000
 
Appropriations for departmental output expenses 
Policy advice  31,287  (207)  31,080 
Motor vehicle registry and revenue management  67,060  (61,863)  5,197 
Road user charges collection, investigation and enforcement  17,688  17,688 
Refund of fuel excise duty  392  392 
Land transport revenue forecasting and strategy  1,716  1,716 
Airport operation and administration  200  (40)  160 
Sector leadership and support  2,100  2,000  4,100
Distress radio beacons national education campaign  243  243 
Next steps review implementation  400  40  440 
Total departmental appropriations  101,290  (40,274)  61,016 

Explanations for the major changes were outlined in the 2008/09 Supplementary Estimates (page 263). They were:

Policy advice
The decrease in this appropriation is mainly due to the transfer of funding to the Sector Leadership output class, offset by an in-principle transfer of $1.415 million from 2007/08, and funding of $0.1 million from the New Zealand Energy Strategy contingency fund.

Motor vehicle registry and revenue management
This appropriation was disestablished following the transfer of the Motor Vehicle Register from the Ministry to the NZ Transport Agency on 1 August 2008.

Road user charges collection, investigation and enforcement
Land transport revenue forecasting and strategy
Refund of fuel excise duty

These three appropriations were created from 1 August 2008 to fund the activities that are still the responsibility of the Ministry following the transfer of the Motor Vehicle Register as noted above. They total less than the disestablished appropriation because the bulk of the activity has been transferred to the NZ Transport Agency as a non-departmental output.

Airport operation and administration
The decrease is due to reduced third party revenue received from Milford aerodrome operations.

Sector leadership and support
The increase in appropriation is a reflection of the actual activity expected in this output class and a transfer of funds from policy advice.

Next Steps review implementation
The increase is due to additional third party revenue.

Note 26: Explanation of major variances between actual and budget figures

The significant variances between the actual results and the figures included in the Estimates of Appropriations for the year ended 30 June 2009 are:

Statement of financial performance
Revenue Crown increased by $1.6 million between the Main Estimates and the Supplementaries. The main reasons for this are a carry forward of $1.4 million from 2007/08 relating to Policy Advice and some additional funding obtained during the year. The actual figure is $3.4 million below the Supplementaries figure because that amount was not drawn down as it was not required.

Revenue from the National Land Transport Fund decreased by $50.6 million between the Main Estimates and the Supplementaries. This reflected the cessation of this funding stream for Motor Vehicle Register and related activities, as well as the transfer of some activities to the NZ Transport Agency.

Revenue from fees increased by $18.9 million with the remaining Motor Vehicle Register related activities of the Ministry now being funded from this revenue stream (see Note 25) not the National Land Transport Fund.
Other revenue decreased by $10.3 million between the Main Estimates and the Supplementaries. With the change in funding and responsibility for the Motor Vehicle Register related activities, ACC revenue previously paid to the Ministry is now collected by the NZ Transport Agency.

Contractual payments to Crown entities were $40.9 million lower in the Supplementary Estimates than in the Budget. This is due to the transfer of Motor Vehicle registry related activity to the NZ Transport Agency and is balanced by the lower revenue described above.

Other operating expenses increased between the Estimates and the Supplementaries to reflect the funds carried forward from 2007/08, and some additional funding. Actual expenditure was less than this as the Ministry acted to control its expenditure in the current economic climate.

Statement of financial position (and cash flows)
Cash and bank balances were $4.6 million lower than budget and $2.8 million lower than the Supplementary Estimates, due to the Ministry repaying to the Crown the retained accumulated depreciation on the Motor Vehicle Register, and not drawing down its full entitlement of Crown revenue.
Debtors and other receivables were $1.5 million below Budget and $2.4 million below the Supplementary Estimates, due mainly to the balance owed from the Crown for Crown revenue of $2.6 million (budget $nil).

Note 27: 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 2009.


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