Annual Report for the year ended 30 June 2001
Departmental operations (continued)
Statement of accounting policies
for the year ended 30 June 2001
1. Reporting Entity
The Ministry of Defence is a Government Department as defined by section 2 of the Public Finance Act 1989.
These are the financial statements of the Ministry of Defence prepared pursuant to section 35 of the Public Finance Act 1989.
2. Measurement System
These financial statements have been prepared on the basis of modified historical cost except for certain items with specific accounting policies outlined below.
3. Accounting policies
The following accounting policies have been applied:
Departmental
Budget Figures
The Budget figures are those presented in the Budget Night Estimates (Main estimates) and those amended by the Supplementary Estimates and any transfer made by Order in Council under section 5 of the Public Finance Act 1989 (Supplementary estimates).
Revenue
The Ministry derives revenue through the provision of outputs to the Crown, for services to third parties and interest on its deposits with the New Zealand Debt Management Office (NZDMO). Such revenue is recognised when earned and is reported in the financial period to which it relates.
Depreciation
Depreciation of fixed assets is provided on a straight line basis so as to allocate the cost of assets, less any estimated residual value, over their useful lives. Revalued fixed assets are depreciated on their revalued amount on a straight line basis over their remaining useful lives.
The estimated economic useful lives are:
- Office Equipment: 3 - 10 years
- Office Furniture: 5 - 10 years
- Computer Equipment: 3 years
- Motor Vehicles: 3 years
- Financial Management and Information Systems: 5 years
- Leasehold Improvements: 3 years
Cost Accounting
The Ministry has derived the costs of outputs using a cost allocation system which is outlined below:
- Criteria For Direct and Indirect Costs
'Direct costs' are those costs directly attributed to an output.'Indirect Costs' are those costs that cannot be identified in an economically feasible manner, with a specific output.
- Direct Costs Assigned to Outputs
Direct costs are charged directly to outputs. Personnel costs are charged by a predetermined percentage of time to be incurred.For the year ended 30 June 2001, direct costs accounted for 69% of the Ministry's costs (30 June 2000 = 67%).
- Basis for Assigning Indirect and Corporate Costs to Outputs
Indirect costs are assigned to outputs based on a predetermined percentage fixed for the year for each output.For the year ended 30 June 2001, indirect costs accounted for 31% of the Ministry's costs (30 June 2000 = 33%).
Receivables
Receivables are recorded at estimated realisable value, after providing for doubtful debts.
Fixed Assets
The initial cost of a fixed asset is the value of the consideration given to acquire or create the asset and any directly attributable costs of bringing the asset to working condition for its intended use.
All fixed assets costing more than $5,000 are capitalised and recorded at historical cost.
Taxation
Government Departments are exempt from the payment of income tax in terms of the Income Tax Act 1976. Accordingly, no charge of income tax has been provided for.
Goods and Services Tax (GST)
The Statement of Financial Performance, Statement of Movements in Equity, Statement of Cash Flows, Statement of Commitments and Statement of Contingent Liabilities are exclusive of GST. The Statement of Financial Position is also exclusive of GST except for the amount of GST owing to or from the Inland Revenue Department at balance date, being the difference between Output GST and Input GST which is included in Creditors and Payables or Debtors and Receivables (as appropriate).
Provision for Employee Entitlements
Annual, long service, resigning, and retirement leave are recognised as they accrue to employees.
Commitments
Future payments are disclosed as commitments at the point a contractual obligation arises, to the extent that there are equally unperformed obligations. Commitments relating to employment contracts are not disclosed.
Contingent Liabilities
Contingent liabilities are disclosed at the point at which the contingency is evident.
Financial Instruments
Revenues and expenses in relation to all financial instruments are recognised in the Statement of Financial Performance. The Ministry enters into foreign currency forward contracts to hedge foreign currency transactions. Any exposure to gains or losses on these exchange contracts is generally offset by a related loss or gain on the item being hedged.
Apart from foreign currency forward contracts, all financial instruments are recognised in the Statement of Financial Position.
Crown
Crown Activities
The management of procurement or refurbishment of military equipment are reflected through the Crown Statement of Cash Flows.
These activities are not reflected in the Crown Statement of Financial Performance because the military equipment procured or refurbished are not traded but passed at cost to the New Zealand Defence Force.
Budget Figures
The Budget figures are those presented in the Budget Night Estimates (Main estimates) and those amended by the Supplementary Estimates and any transfer made by Order in Council under section 5 of the Public Finance Act 1989 (Supplementary estimates).
Goods and Services Tax (GST)
The Input GST arising on the procurement or refurbishment of military equipment is not recoverable. Accordingly this cost is expensed in the Crown Statement of Financial Performance.
Crown Work in Progress
Invoices for progress payments, and other add-on costs incurred in the procurement or refurbishment of various items of equipment on behalf of the Crown, are recognised at the time the liability arises.
Foreign Currency
Foreign currency transactions are converted at the New Zealand dollar exchange rate at the date of the transaction. Where a forward exchange contract has been used to establish the price of a transaction, the forward rate specified in that forward exchange contract is used to convert that transaction to New Zealand dollars. Consequently no exchange gain or loss resulting from the difference between the forward exchange contract rate and the spot exchange rate on date of settlement is recognised.
Monetary assets and liabilities are translated to New Zealand dollars at the closing mid-point exchange rate. The resulting unrealised exchange gain or loss is recognised in the Crown Statement of Financial Performance. Other exchange gains or losses, whether realised or unrealised, are recognised in the Crown Statement of Financial Performance in the period to which they relate.
4. Changes in accounting policies
There have been no changes in accounting policies since the date of the last audited financial statements.
