Statement of Intent 1 July 2003 - 30 June 2004
Part 2: Departmental forecast report (continued)
Financial highlights
| 2002/03 Budgeted $000 |
2002/03 Estimated actual $000 |
2003/04 Budget $000 |
|
|---|---|---|---|
| Revenue: Crown | 8,297 | 7,897 | 8,053 |
| Revenue: Other | 3,990 | 3,990 | 1,866 |
| Interest | - | 35 | - |
| Output expenses | 12,287 | 11,887 | 9,919 |
| Net surplus | - | 35 | - |
| Taxpayers' funds | 1,555 | 1,555 | 1,555 |
| Net cash flows from operating, investing and financing activities | (170) | (55) | (25) |
- Revenue: Crown is forecast to decrease by $0.244 million due to time-limited funding for Light Operational Vehicle tender phase costs being removed.
- Revenue: Other and output expenses are forecast to decrease due to changes in initial project costs incurred by the Ministry and recovered from New Zealand Defence Force.
Details of what the appropriations will be spent on appear in Parts B1, C and E of Vote Defence in the 2003/04 Estimates.
Statement of significant underlying assumptions
The Ministry of Defence is a government department as defined by section 2 of the Public Finance Act 1989.
The Ministry's financial statements have been prepared in accordance with section 34A of the Public Finance Act 1989, and generally accepted accounting practice.
In addition, the Ministry has reported the Crown activities which it administers.
The following general accounting policies have been adopted in the preparation of these financial statements:
- The Ministry is assumed to be a going concern.
- The Ministry has accepted historical cost as a measurement base.
- Revenues earned and expenses incurred are matched using the principles of accrual accounting.
These statements have been compiled on the basis of government policies and the Ministry's agreement with the Minister of Defence at the time the statements were finalised.
Statement of significant accounting policies
Accounting Policies
The following particular accounting policies which materially affect the measurement of financial results and financial position have been applied:
Budget Figures
The Budget Figures are those presented in the Budget Estimates (Main estimates) and those amended by the Supplementary Estimates (Supp. estimates) and any transfer made by Order in Council under section 5 of the Public Finance Act 1989.
Revenue Recognition
The Ministry derives revenue through the provision of outputs to the Crown and for services to third parties. Such revenue is recognised when earned and is reported in the financial period to which it relates.
Interest Income
Interest income is recognised in the period in which it is earned.
Receivables
Receivables are recorded at estimated realisable value, after providing for doubtful debts and uncollectable debts.
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 assigned to outputs by charging payments to specific job numbers. Selection of a "general cost" job number within an output class will treat the expense as a direct cost to the output class even though a specific job within the output class has not been identified. - Basis for Assigning Indirect and Corporate Costs to Outputs
Indirect costs are assigned to outputs by charging payments to a corporate job number. The accounting system is programmed to allocate corporate job costs to the three output classes on a predetermined percentage for each expense item. The percentage number is a subjective assessment of services to be provided to each output class in the ensuing year. The percentage numbers remain constant for the financial year.
Expenses
Expenses are recognised when incurred and are reported in the financial period to which they relate.
Property, Plant and Equipment
All fixed assets costing more than $5,000 are capitalised and recorded at cost. Any write-down of an item to its recoverable amount is recognised in the statement of financial performance.
Depreciation
Depreciation is provided on a straight line basis at a rate which will write off the cost (or valuation) of the assets to their estimated residual value over their useful lives.
The useful lives of major classes of assets have been estimated as follows:
- Office equipment: 3-10 years
- Office furniture: 5-10 years
- Computer equipment: 3 years
- Information management systems: 5 years
The cost of leasehold improvements is capitalised and depreciated over the estimated remaining useful life of the improvement.
Employee Entitlements
Provision is made in respect of the Ministry's liability for annual, long service and retirement leave and time off in lieu. Annual leave, time off in lieu and other entitlements that are expected to be settled within 12 months of reporting date, are measured at nominal values on an actual entitlement basis at current rates of pay.
Entitlements that are payable beyond 12 months, such as long service leave and retirement leave, have been calculated on an actuarial basis based on the present value of expected future entitlements.
Statement of Cash Flows
Cash means balances on hand, 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 capital injections by, or repayment of capital to, the Crown.
Foreign Currencies
Foreign currency transactions are converted into New Zealand dollars at the 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 foreign 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 exchange rate. The resulting unrealised exchange gain or loss is recognised in the statement of financial performance. Other exchange gains or losses, whether realised or unrealised, are recognised in the statement of financial performance in the period to which they relate.
Financial Instruments
The Ministry is party to financial instruments as part of its normal operations. These financial instruments include bank accounts, short-term deposits, debtors, creditors and foreign currency forward contracts. The Ministry enters into foreign currency forward contracts to hedge currency transactions. Any exposure to gains or losses on those 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 and all revenues and expenses in relation to financial instruments are recognised in the statement of financial performance.
Except for those items covered by a separate accounting policy all financial instruments are shown at their estimated fair value.
Goods and Services Tax (GST)
The statement of forecast financial performance, statement of forecast movements in taxpayers' funds and statement of forecast cash flows, 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, is included in payables and provisions or receivables and advances as appropriate.
Taxation
Government Departments are exempt from the payment of income tax in terms of the Income Tax Act 1994. Accordingly, no charge of income tax has been provided for.
Taxpayers' Funds
This is the Crown's net investment in the Ministry.
Changes in Accounting Policies
The accounting policy for Employee Entitlements payable beyond 12 months was changed in 2002/03 from a nominal basis to a present value basis.
All other accounting policies are expected to remain unchanged during the forecast period.
