4. Assets and Liabilities Administered on Behalf of Government

This section analyses assets and liabilities that the Department does not control but administers on behalf of the Government. Unless otherwise noted, the accounting policies adopted are consistent with those applied for departmental reporting.

4.1 Administered—Financial Assets

4.1A: Cash and cash equivalents
 2017
$'000
2016
$'000
Cash on hand or on deposit 65,905 -
Cash in special accounts 8,271 7,765
Total cash and cash equivalents 74,176 7,765
 2017
$'000
2016
$'000
4.1B: Trade and other receivables
Advances and loans    
Commercial entities 517,807 -
State and Territory Governments 1,042,018 1,047,823
Total advances and loans 1,559,825 1,047,823
     
Other receivables    
Fees 2,616 5,969
Other revenue 10 372
GST receivable from Australian Taxation Office 3,123 2,091
Total other receivables 5,749 8,432
Total trade and other receivables (gross) 1,565,574 1,056,255
     
Less impairment allowance    
Advances and loans (3,681) (9,306)
Other receivables (396) (1,086)
Total impairment allowance (4,077) (10,392)
Total trade and other receivables (net) 1,561,497 1,045,863
4.1C: Reconciliation of the impairment allowance
Movements in relation to 2017   
Advances and loans
2017
$'000
Other receivables
2017
$'000
Total
2017
$'000
As at 1 July 2016 9,306 1,086 10,392
Amounts written off  - (32) (32)
Increase/(Decrease) recognised in net cost of service (5,625) (658) (6,283)
Total as at 30 June 2017 3,681 396 4,077
Movements in relation to 2016   
 Advances and loans
2016
$'000
Other receivables
2016
$'000
Total
2016
$'000
As at 1 July 2015 8,854 487 9,341
Amounts written off  - (3) (3)
Increase/(Decrease) recognised in net cost of service 452 602 1,054
Total as at 30 June 2016 9,306 1,086 10,392
4.1D: Investments
 2017
$'000
2016
$'000
Investments accounted for using the net assets method    
Australian Government authorities    
National Transport Commission 573 571
Australian Maritime Safety Authority 199,380 181,755
Civil Aviation Safety Authority 66,648 59,317
Infrastructure Australia 3,760 3,494
Australian Government companies    
Moorebank Intermodal Company Limited 104,895 52,031
Australian Government controlled entities    
Administration of Norfolk Island - 64,131
Norfolk Island Health and Residential Aged Care Service 1,787 -
Total Investments accounted for using the net assets method 377,043 361,299
Investments accounted for using the discounted cashflow method    
Australia Government authorities    
Airservices Australia 897,506 504,000
Australian Government companies    
Australian Rail Track Corporation Limited 3,502,000 3,456,400
Total Investments accounted for using the discounted cashflow method 4,399,506 3,960,400
Total Investments 4,776,549 4,321,699
4.1E: Accrued revenue
 2017
$'000
2016
$'000
Levies, fees and fines 10,309 12,253
Total accrued revenue 10,309 12,253

Accounting Policy

Loans and Receivables

Credit terms for goods and services were within 30 days (2016: 30 days).

Loans to Australian States and Territories and commercial entities were made for periods ranging from 8 to 118 years. No security is generally required. Interest rates are fixed. Interest payments are due on the last day of each financial year for loans to States and Territories. Interest payments on the commercial loan are capitalised for the first twelve years and are due quarterly thereafter.

Where loans and receivables are not subject to concessional treatment, they are carried at amortised cost using the effective interest method. Gains and losses due to impairment, derecognition and amortisation are recognised through profit or loss.

Administered Investments

Administered investments in subsidiaries, joint ventures and associates are not consolidated because their consolidation is relevant only at the Whole of Government level.

Administered investments other than those held for sale are classified as available-for-sale and are measured at their fair value as at 30 June 2017. Fair value has been determined using the Australian Government's proportional interest in the net assets of the entities as at end of reporting period or a discounted cash flow valuation.

The Department has a 100 per cent interest in the following entities. The principal activities of each of the administered investments are as follows:

  1. Airservices Australia—provides safe, secure and environmentally responsible air navigation and aviation rescue and firefighting services for the aviation industry.
  2. Australian Maritime Safety Authority (AMSA)—provides maritime safety and other services to the Australian maritime industry, aviation and maritime search and rescue and marine environment protection services.
  3. Civil Aviation Safety Authority (CASA)—regulates the safety of civil air operations in Australia and Australian registered aircraft operating outside Australian territory.
  4. Australian Rail Track Corporation Limited (ARTC)—operates and manages over 8,500 kilometres of standard gauge rail track in South Australia, Victoria, Western Australia, New South Wales and Queensland. ARTC has been tasked by the Australian Government to deliver the Inland Rail project.
  5. Moorebank Intermodal Company Limited (MICL)—facilitates the development of an intermodal freight terminal at Moorebank NSW—a nationally significant infrastructure project that will help Sydney manage the expected growth in freight moving through the city.
  6. Infrastructure Australia (IA)—advises governments, investors and infrastructure owners on a wide range of issues including Australia's current and future infrastructure needs, policy and regulation and their impact on investment and on the efficiency of the delivery, operation and use of national infrastructure networks.
  7. Norfolk Island Health and Residential Aged Care Service (NIHRACS)—delivers health and aged care services to the Norfolk Island community. NIHRACS transitioned from the Norfolk Island Hospital Enterprise on 1 July 2016 and is considered to be controlled by the Australian Government for financial reporting purposes.

The Department holds a 35 per cent interest in the National Transport Commission (NTC) which advises the Transport and Infrastructure Council on uniform regulatory and operational policies and model legislation for road, rail and intermodal transport.

The Administration of Norfolk Island (ANI) was controlled by the Australian Government for the period 18 June 2015 to 30 June 2016 and was responsible for the provision of infrastructure and services to the community of Norfolk Island. The ANI was abolished on 1 July 2016 and its functions were either assumed by the Australian Government or transitioned to the Norfolk Island Regional Council which operates under the NSW Local Government framework.

Accounting Judgements and Estimates

Loans and Receivables

Concessional loans are initially recognised at their fair value. If the rate of interest charged is lower than the counterparty's borrowing rate (for non-government loans) the difference between the amortised cost and the fair value of the loan is treated as an expense.

WestConnex Stage 2 concessional loan

Advances and loans to commercial entities comprise a concessional loan facility provided to a subsidiary of the Sydney Motorway Corporation for construction of Stage 2 of the WestConnex Motorway in Sydney. The loan facility comprises multiple advances over several years of up to $2 billion. The first advance was made on 22 July 2016.

The fair value of each advance is determined using the present value of expected cash inflows, discounted at the prevailing market interest rate. The prevailing market interest rate is fixed for each advance to be consistent with the fixed interest rate in the loan facility agreement. As the loan facility is the first to be made by the Australian Government for a major road project, no comparable products have been identified in the market and the prevailing market interest rate was determined based on external valuation advice.

The Department selected the mid-point from the range of market interest rates recommended by the valuer. The range was based on loans considered to have a similar risk profile including other commercial debt obtained by the Sydney Motorway Corporation, private sector toll road operators, regulated utilities and other entities that operate major infrastructure assets in a public/private partnership context.

As the market interest rate is the key determinant of the fair value of the loan, the Department undertook a sensitivity analysis to determine the impact of using the valuer's highest and lowest interest rates which varied by 0.79%. This analysis confirmed that using different interest rates within the recommended range would not materially impact on the loan value over the term of the loan. The largest percentage variances occur in the early years of the loan with a 4.8% increase using the lowest rate in the range and a 4.4% decrease using the highest rate, in loan value at 30 June 2017. The variances decline over time and fall below 3% by 2021–22.

The loan facility also includes mandatory repayment of principal and/or interest in certain circumstances. No allowance for these repayments had been made at 30 June 2017 as there are no indicators that these circumstances will arise.

Administered Investments

In the absence of an observable market value for administered investments, the Department is required to use an appropriate valuation technique to determine fair value. The use of discounted cash flows is the preferred method for those entities that generate significant non-government cash inflows if the cash flows can be reliably predicted.

NTC, AMSA, CASA, IA, and NIHRACS do not generate significant non-government cash inflows. The Department uses the net assets method of valuation for these entities. The fair value of the ANI was also determined using the net assets method.

MICL has not generated significant non-government cash inflows to date and has been reliant on equity funding from the Australian Government. Therefore the Department has determined that the net assets method of valuation remains the most appropriate estimate of fair value for MICL as at 30 June 2017.

Airservices Australia generates significant non-government cash inflows, and its cash flows have been demonstrated to be able to be reliably predicted. The fair value for Airservices Australia has been determined based on independent valuation advice using a discounted cash flow method.

ARTC generates significant non-government cash inflows. Due to the nature of its operations and assets there are no readily comparable market examples for fair value determination purposes. The Department has estimated the fair value using a discounted cash flow method with reference to the valuation of ARTC's property, plant and equipment, modified for cash flows associated with its other asset and liability categories. As the ARTC's property, plant and equipment represents a substantial proportion of its total assets, and is valued using discounted cash flows and the ARTC weighted average cost of capital, this method provides a reasonable basis for determination of fair value.

Confirmations of audit cleared net assets as at reporting date are obtained from each of the relevant organisations to support the reported figures.

4.2 Administered—Non-Financial Assets

4.2A: Reconciliation of the opening and closing balances of property, plant and equipment and intangibles
Reconciliation of the opening and closing balances of property, plant and equipment for 2017
 Land
$'000
Buildings
$'000
Artwork
$'000
Heritage
and
cultural
$'000
Other
property,
plant &
equipment
$'000
Computer
software
purchased
$'000
Phosphate
mine
leases
$'000
Total
$'000
As at 1 July 2016                
Gross book value 233,858 156,084 33,662 81,121 360,046 109 6,250 871,130
Accumulated depreciation, amortisation and impairment - (363) - (2) (1,358) (30) (1) (1,754)
Total as at 1 July 2016 233,858 155,721 33,662 81,119 358,688 79 6,249 869,376
Additions                
Purchase  - 2,526  -  - 24,981 4  - 27,511
Assets acquired at fair value 5,185     106 121     5,412
Contributions by owners 351,900 145 - - 4,231 - - 356,276
Revaluations and Impairments recognised in other comprehensive income 173,635 - - - (170) - - 173,465
Depreciation and amortisation - (23,937) - - (28,673) (4) (1,250) (53,864)
Reclassifications - (1,191) - 10 1,181 - - -
Disposals                
Write-downs—Finance Lease (357,085) (145) - - (4,231) - - (361,461)
Write-downs—Other (445) (21) - - (280) - - (746)
Total as at 30 June 2017 407,048 133,098 33,662 81,235 355,848 79 4,999 1,015,969
Total as at 30 June 2017 represented by                
Gross book value 407,048 157,348 33,662 81,237 385,785 113 6,250 1,071,443
Accumulated depreciation, amortisation and impairment - (24,250) - (2) (29,937) (34) (1,251) (55,474)
Total as at 30 June 2017 407,048 133,098 33,662 81,235 355,848 79 4,999 1,015,969

Land, buildings and other property, plant and equipment that met the definition of a heritage and cultural item are disclosed in the heritage and cultural asset class.

No impairment losses were recognised on buildings in 2017 (2016: Nil). An impairment loss of $0.170 million was recognised for other property, plant and equipment in 2017 (2016: Nil).

Revaluations of non-financial assets

All revaluations were conducted in accordance with the revaluation policy at Note 3.2A. An independent valuer conducted a revaluation of the administered land asset class as at 30 June 2017.

Contractual commitments for the acquisition of property, plant and equipment and intangible assets

At 30 June 2017, the Department had contractual commitments of $0.014 million for buildings (2016: Nil) and $7.735 million for other property, plant and equipment (2016: Nil). Contractual commitments relate to acquisitions in the 2017–18 and 2018–19 financial years.

Accounting Policy

Administered artworks and other heritage and cultural assets

The Administered artworks asset class comprises paintings and other artworks by Sir Sidney Nolan (Nolan collection) with an aggregated value of $33.6 million (2016: $33.6 million), along with several artworks held on Norfolk Island. The Nolan collection is maintained by the Canberra Museum and Gallery (CMAG), an ACT Government entity, on behalf of the Commonwealth. Curatorial and preservation arrangements are managed in accordance with a Memorandum of Understanding between CMAG and the Department. The collection is deemed to have an indefinite useful life.

The Other heritage and cultural assets class comprises assets that are held and/or used primarily for purposes that relate to their historical or cultural significance. They include:

  • buildings, ruins, reserves and collections on Norfolk Island of historical significance with an aggregated value of $72.82 million (2016: $72.82 million). The conservation and preservation of these assets are managed in accordance with the Kingston and Arthur's Vale Historic Area Heritage Management Plan 2016;
  • memorials, reserves and temples on Christmas Island with an aggregated value of $0.6 million (2016: $0.6 million); and
  • historic aircraft with an aggregated value of $8.3 million (2016: $8.3 million) on display at Brisbane Airport, Adelaide Airport and the Queen Victoria Museum and Gallery in Launceston, Tasmania. The conservation and preservation of each aircraft is managed through an agreement with the relevant entity.

All assets in the class are deemed to have indefinite useful lives.

Curatorial and preservation policies for these assets are developed and monitored by qualified personnel and include the following:

  1. a clearly stated objective about the holding and preservation of items;
  2. a well-developed plan to achieve the objective, including demonstration of how the policy will be implemented based on advice by appropriately qualified experts;
  3. monitoring procedures; and
  4. periodic reviews.

Administered Intangibles

Administered intangibles include internally developed software, purchased software and phosphate mining lease rights on Christmas Island. The useful lives of Administered intangibles are from 1 to 21 years
(2016: 1 to 21 years).

Software assets are carried at cost less accumulated amortisation and accumulated impairment losses.

Following initial recognition at cost, phosphate mining lease rights are carried at fair value less subsequent accumulated depreciation and accumulated impairment losses.

Accounting Judgements and Estimates

Land

The fair value of land administered on behalf of the Australian Government has been taken to be the market value of similar assets as determined by an independent qualified valuer at 30 June 2017. The fair value of individual land parcels is considered representative of their highest and best use and the fundamental assumption that they could be sold on a freehold basis.

Buildings and other property, plant and equipment

The fair value of buildings and other property, plant and equipment assets has been taken to be either the market value or depreciated replacement cost of similar assets as determined by an independent qualified valuer at 30 June 2016. The Department assessed that the carrying value of these assets continued to approximate their fair value as at 30 June 2017.

Artworks and museum collections

The fair value of artworks and other collections administered on behalf of the Australian Government have been taken to be the market value of similar assets as determined by an independent qualified valuer. High value items are valued on an individual basis. The fair value of museum collections comprising a large number of similar artefacts were valued based on a stratified multi-stage sampling basis.

Land and structures at Australian Government owned airports and the Moorebank Logistics Park

The land and structures at 21 civilian airports owned by the Australian Government and leased to private sector interests are subject to lease arrangements with an initial lease term of 50 years and a 49-year extension option exercisable by the lessees. Consideration consisted of upfront payments by the lessees, without any subsequent lease payments being payable, including in the event of the exercise of the lease extension option. These leases have been assessed as having no reportable fair value because of the extended period before any future revenue stream will accrue.

Land owned by the Australian Government at Moorebank NSW has been leased to a subsidiary of the Moorebank Intermodal Company Ltd for 99 years for a nominal annual rental to develop an intermodal freight terminal. The lease has been assessed as having no reportable fair value as the present value of minimum lease payments is negligible.

4.2B: Inventories
 2017
$'000
2016
$'000
Inventories held for distribution 2,277 2,717
Total inventories 2,277 2,717
4.2C: Prepayments
 2017
$'000
2016
$'000
Grant prepayments 11,260 3,245
Other prepayments - 5,913
Total prepayments 11,260 9,158

No indicators of impairment were found for other non-financial assets.

Accounting Policy

Inventories

During 2017, $8.7 million (2016: $6.7 million) of inventory held for distribution was recognised as an expense.

All inventories are expected to be sold or distributed in the next 12 months.

Inventories held for sale are valued at the lower of cost and net realisable value.

Inventories held for distribution are valued at cost, adjusted for any loss of service potential.

Costs incurred in bringing each item of inventory to its present location and condition are assigned as follows:

  1. raw materials and stores—purchase cost on a first in-first out basis; and
  2. finished goods and work-in-progress—cost of direct materials and labour plus attributable costs that can be allocated on a reasonable basis.

Inventories acquired at no cost or nominal consideration are initially measured at current replacement cost at the date of acquisition.

4.3 Administered—Payables

4.3A: Suppliers
 2017
$'000
2016
$'000
Trade creditors and accruals 12,320 12,010
Total suppliers 12,320 12,010
Settlement was usually made within 30 days.    
4.3B: Subsidies
 2017
$'000
2016
$'000
Subsidies in connection with    
External parties 8,196 12,773
Total subsidies 8,196 12,773
4.3C: Grants
 2017
$'000
2016
$'000
Australian Government entities 17,846 21,267
Local Governments 9,178 271
Non-profit organisations 440 607
Other 2,086 1,374
Total grants 29,550 23,519

Settlement was due according to the terms and conditions of each grant within 30 days of performance eligibility.

4.3D: Other payables
 2017
$'000
2016
$'000
Salaries and wages 81 39
Superannuation 11 5
Other 244 163
Total other payables 336 207

4.4 Administered—Other Provisions

 Asbestos
Removal
$'000
Phosphate
Mine
Rehabilitation
$'000
Total
$'000
As at 1 July 2016 142 2,950 3,092
Amounts used  - (880) (880)
Amounts reversed 4 849 853
Total as at 30 June 2017 146 2,919 3,065

Accounting Policy

Other Provisions

Instances of materials containing asbestos have been identified in buildings owned by the Australian Government that are administered by the Department. Provision has been made where the Department has a present obligation to take reasonable action to remediate the risk of harmful exposure to employees and the public. The timing of this remediation depends on the condition and extent of each item of asbestos containing material.

The Australian Government also has an obligation to rehabilitate land on Christmas Island affected by phosphate mining.

Accounting Judgements and Estimates

Provisions for Asbestos Removal and Phosphate Mine Rehabilitation

The provision for asbestos removal is based on estimates of future obligations relating to the underlying assets.

The provision for phosphate mine rehabilitation is equal to the balance of the Christmas Island Phosphate Mining Rehabilitation Special Account, adjusted for accrued payments and revenue at year end.

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