1 Statement of Accounting Policies

For the year ended 30 June 2008

Reporting entity

These non-departmental schedules and statements present financial information on public funds managed by the Department on behalf of the Crown.

The non-departmental balances are consolidated into the Financial Statements of the Government. For a complete understanding of the Crown's financial position, and results of operations and cashflows for the year, reference should also be made to the Financial Statements of the Government.

Accounting policies

The non-departmental schedules and statements have been prepared in accordance with the Government's accounting policies as set out in the Financial Statements of the Government, and in accordance with relevant Treasury instructions and Treasury circulars.

Measurement and recognition rules applied in the preparation of these non-departmental schedules statements are consistent with New Zealand generally accepted accounting practice as appropriate for public benefit entities.

This is the first set of non-departmental schedules and statements prepared using New Zealand International Financial Reporting Standards (NZ IFRS). The comparatives for the year ended 30 June 2007 have been restated to NZ IFRS accordingly. Reconciliations of income and expenses and assets and liabilities for the year ended 30 June 2007 under IFRS to the balances reported in the 30 June 2007 financial statements are detailed in note 7.

The accounting policies set out below have been applied consistently to all periods presented in these financial statements, and in preparing an opening NZ IFRS Statement of Financial Position as at 1 July 2006 for the purposes of the transition to NZ IFRS.

The financial statements are presented in New Zealand dollars (NZD) and all values are rounded to the nearest one thousand dollars ($000) unless otherwise stated.

The following particular accounting policies have been applied:

Budget figures

The budget figures are consistent with the financial information in the Main Estimates. In addition, these financial statements also present the updated budget information from the Supplementary Estimates.

Revenue

Revenue is measured at the fair value of consideration received.

Goods and services tax

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. In accordance with Treasury instructions, GST is returned on revenue received on behalf of the Crown, where applicable. However, an input tax deduction is not claimed on non-departmental expenditure. Instead, the amount of GST applicable to non-departmental expenditure is recognised as a separate expense and eliminated against GST revenue on consolidation of the Government financial statements.

Debtors and other receivables

Debtors and other receivables are measured at fair value less any provision for impairment.

Impairment of a receivable is established when there is objective evidence that the Department 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 capital charge rate. The carrying amount is reduced through the use of a provision for doubtful debts accounts, and the amount of the loss is recognised in the Schedule of Non-Departmental Expenses. When a debtor is uncollectible, it is written off against the provision for doubtful debts. Overdue receivables that are renegotiated are reclassified as current (ie not past due).

Inventories

Inventories are held for distribution on a cost-recovery or non-commercial basis. Inventories are valued at the lower of cost (calculated using the weighted average method) and current replacement cost.

Current replacement cost reflects any obsolescence or impairment.

Non-current assets held for sale

An item of physical assets is classified as held for sale when the sale and purchase agreement has been signed.

Non-current assets held for sale are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. Non-current assets held for sale are measured at the lower of their carrying amount and fair value less costs to sell.

Physical assets

Physical assets are categorised as:

1. Crown forest land
2. Crown pastoral land
3. Crown leases
4. surplus government properties
5. unalienated Crown land, and
6. railway properties.

The physical assets value is predominately land. However, the value also includes buildings, plant and equipment.

For Crown forest land, the fair value is deemed to be either (i) the discounted cashflows of future licence fees expected to be received or (ii) market valuation where the land has been market valued for sale purposes or (iii) at rating valuation where the properties value is derived from its rating valuation.

For Crown pastoral land, the fair value is deemed to be the discounted cashflows of future rental income expected to be received.

For surplus government properties, unalienated Crown land and railway properties, the valuations are conducted in accordance with the Rating Valuation Act 1998.

Buildings, plant and equipment are shown at cost or valuation, less accumulated depreciation and any impairment losses.

An independent valuer has confirmed that this valuation approach is appropriate for determining fair value in accordance with NZ IFRS.

Additions

The cost of a physical asset 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 Department 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 at the date of acquisition.

Disposals

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.

Subsequent costs

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

All other costs are recognised in the Statement of Financial Performance as an expense as incurred.

Depreciation

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

Revaluation

Land, buildings and plant and equipment are revalued every year to ensure that the carrying amount does not differ materially from fair value. Fair value is determined on a class of asset basis as detailed in the physical assets section of these policies. The carrying value of revalued items is reviewed at each balance date to ensure that those values are not materially different to fair value. Additions between revaluations are recorded at cost.

Accounting for revaluations

The Department accounts for revaluations on a class of assets basis.

The results of revaluing are credited or debited to an asset revaluation reserve for that class of asset. Where this results in a debit balance in the asset revaluation, this balance is expensed in the Statement of Financial Performance. Any subsequent increase on revaluation that off-sets a previous decrease in value recognised in the Statement of Financial Performance will be recognised first in the Statement of Financial Performance up to the amount previously expensed, and then credited to the revaluation reserve for that class of asset.

Impairment of non-financial assets

Land, buildings and plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

Provisions

A provision is recognised when the Department has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made of the obligation. Provisions are not recognised for future operating losses.

If the effect is material, provisions are determined by discounting the expected future cash flows at a rate that reflects current market rates and, where appropriate, the risks specific to the liability.

Commitments

Future expenses and liabilities to be incurred on noncancellable contracts that have been entered into at balance date are disclosed as commitments to the extent that there are equally unperformed obligations.