Specific Accounting Policies
Rendering of Services
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.
Sale of Goods
Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer and can be measured reliably. Risks and rewards are considered passed to the buyer at the time of delivery of the goods to the customer.
The capital charge is recognised as an expense in the period to which the charge relates.
The Ministry has determined the cost of outputs using a specific cost allocation system. Costs that can be specifically attributed to an output are charged directly to that output. All other costs are assigned using the methodology set out below.
The Ministry’s cost accounting policies have remained unchanged since the date of the last audited financial statements.
An operating lease is a lease that does not transfer substantially all the risks and rewards incidental to ownership of an asset. Lease payments under an operating lease are recognised as an expense on a straight-line basis over the lease term.
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.
An estimate for doubtful debts is made when collection of the full amount is no longer probable. Impairment of a debtor 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 debtor. Significant financial difficulties of the debtor, the probability that the debtor will enter into bankruptcy, and default in payments are considered indicators that the debtor is impaired. Bad debts are written off when identified and approved.
Property, Plant and Equipment
Property, plant and equipment consists of land, buildings, leasehold improvements, plant and equipment, motor vehicles, vessels and capital work in progress.
Motor vehicles and plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment in value.
Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, and any other costs directly attributable to bringing the asset to a working condition for its intended use. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.
For the purposes of these financial statements, land and buildings, although owned by the Crown, are deemed as being owned by the Ministry as principal occupier or user.
Only property, plant, and equipment with a cost in excess of $5,000 is capitalised.
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.
An item of property, plant, and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset.
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.
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 is provided on a straight-line basis on all property, plant, and equipment, other than land and work in progress, at rates that will write off the cost of the assets to their estimated residual values over their useful lives. The useful lives have been estimated as follows:
Buildings 10–100 years
Motor vehicles up to 10 years
Vessels 4–25 years
Plant and equipment up to 10 years
The cost of leasehold improvements is capitalised and depreciated over the unexpired period of the lease or the estimated remaining useful lives of the improvement, whichever is the shorter.
The residual value and useful life of an asset is reviewed, and adjusted if applicable, at each financial year end.
Research costs are expensed as incurred.
Costs associated with maintaining computer software and related staff training costs are recognised as an expense when incurred.
Software development expenditure is capitalised only if development costs can be measured reliably, the product or process is technically and operationally feasible, future service potential are probable and the Ministry intends to and has sufficient resources to complete development and to use the asset. The expenditure capitalised includes the cost of materials, direct labour and overhead costs that are directly attributable to preparing the asset for its intended use.
Capitalised development expenditure is measured at cost less accumulated amortisation and accumulated impairment losses.
Gains and losses arising from de-recognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the statement of financial performance when the asset is derecognised.
Subsequent expenditure is capitalised only when it increases the future service potential embodied in the specific asset to which it relates. All other expenditure is recognised in the statement of financial performance when incurred.
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 asset is amortised over the period of expected future benefit. The amortisation charge for each period is recognised in the statement of financial performance.
The useful lives and associated amortisation rates of major classes of intangible assets have been estimated as follows:
- Software development costs: up to 10 years.
The amortisation period for an intangible asset with a finite useful life is reviewed at least at each financial year end.
Impairment of Non-financial Assets
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. The total 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 rate method.
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 and a reliable estimate can be made of the amount of the obligation.
Provision is made in respect of the Ministry’s liability for annual leave, long service leave, retirement leave and sick leave.
Short–term 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 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.
Long–term Employee Entitlements
Employee entitlements that are payable beyond 12 months such as long service leave and retirement leave are recognised for all employees on the basis of a six monthly actuarial valuation based on the present value of expected future entitlements.
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 in the statement of financial performance as incurred.
Non-derivative financial instruments
The Ministry is party to financial instruments as part of its normal operations. These financial instruments include cash, debtors and other receivables and creditors and other payables. 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.
Foreign currency transactions (including those for which forward exchange rate contracts are held) are translated into New Zealand dollars using the exchange rate 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 statement of financial performance.
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 capital injections by, or repayment of capital to, the Crown.
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.
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.
Government departments are exempt from income tax as public authorities. Accordingly, no charge for income tax has been provided for.
Expenses yet to be incurred on non-cancellable operating leases, fisheries and biodiversity research contracts and registry services contracts entered into on or before balance date are disclosed as commitments to the extent that they are equally unperformed obligations.
Contingent liabilities are disclosed at the point at which the contingency is evident.
Taxpayers’ funds is the Crown’s investment in the Ministry and is measured as the difference between total assets and total liabilities.
The Budget figures are those presented in the Budget Night Estimates (Main Estimates) and those amended by the Supplementary Estimates and any transfers made by Order-in-Council under section 26A of the Public Finance Act 1989.
Changes in Accounting Policies
The accounting policies of the Ministry have not changed since the last audited financial statements. All policies have been applied on a basis consistent with the previous financial year.