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
2018
$'000
2017
$'000
Cash on hand or on deposit 12,433 65,905
Cash in special accounts 11,913 8,271
Total cash and cash equivalents 24,346 74,176
4.1B: Trade and other receivables
2018
$'000
2017
$'000
Advances and loans
Commercial entities 1,159,058 517,807
State and Territory Governments 991,869 1,042,018
Total advances and loans 2,150,927 1,559,825
Other receivables
Fees 3,662 2,616
Other revenue 11 10
GST receivable from Australian Taxation Office 5,222 3,123
Total other receivables 8,895 5,749
Total trade and other receivables (gross) 2,159,822 1,565,574
Less impairment allowance
Advances and loans (3,402) (3,681)
Other receivables (1,343) (396)
Total impairment allowance (4,745) (4,077)
Total trade and other receivables (net) 2,155,077 1,561,497
4.1C: Reconciliation of the impairment allowance
Movements in relation to 2018
Advances
and loans
2018
$'000
Other
receivables
2018
$'000
Total
2018
$'000
As at 1 July 2017 3,681 396 4,077
Amounts written off  - (98) (98)
Increase/(Decrease) recognised in net cost of service (279) 1,045 766
Total as at 30 June 2018 3,402 1,343 4,745
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
4.1D: Investments
2018
$'000
2017
$'000
Investments accounted for using the net assets method
Australian Government authorities
National Transport Commission 668 573
Australian Maritime Safety Authority 200,611 199,380
Civil Aviation Safety Authority 66,463 66,648
Infrastructure Australia 3,294 3,760
Australian Government companies
Moorebank Intermodal Company Limited 136,963 104,895
WSA Co Limited 365,589 -
Australian Government controlled entities
Norfolk Island Health and Residential Aged Care Service 2,289 1,787
Total Investments accounted for using the net assets method 775,877 377,043
Investments accounted for using the discounted cash flow method
Australia Government authorities
Airservices Australia 893,770 897,506
Australian Government companies
Australian Rail Track Corporation Limited 3,710,800 3,502,000
Total Investments accounted for using the discounted cashflow method 4,604,570 4,399,506
Total Investments 5,380,447 4,776,549
2018
$'000
2017
$'000
4.1E: Accrued revenue
Goods and services 6,177 3,285
Interstate road transport 6,359 6,472
Motor vehicle standards 642 552
Total accrued revenue 13,178 10,309

Accounting Policy

Loans and Receivables

Credit terms for goods and services were within 30 days (2017: 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 in the Administered Schedule of Comprehensive Income.

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 2018. 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 Australian Government has a 100 per cent interest in the following entities, except the National Transport Commission (35%). 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 and community.
  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. The Australian Government has entered into agreements with ARTC to provide equity financing of up to $9.266 billion for ARTC's delivery of the Inland Rail and Adelaide to Tarcoola Rail Upgrade projects of which $143.43 million has been provided during 2017–18 (2017: $81 million).
  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. The Australian Government has entered into an agreement with MICL to provide equity financing of up to $370 million of which $95 million has been provided in 2017–18 (2017: $42 million).
  6. Infrastructure Australia (IA)—advises governments, investors and infrastructure owners on a wide range of issues including Australia's current and future infrastructure needs in terms of projects, policy and regulation; and their impact on investment and the efficient delivery, operation and use of national infrastructure.
  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.
  8. WSA Co Limited—responsible for the construction and operation of the Sydney West Airport at Badgerys Creek NSW. The Australian Government has entered into an agreement with WSA Co Limited to provide equity financing of up to $5.3 billion over ten years of which $275.73 million was provided during 2017–18. WSA Co Limited was established on 7 August 2017.
  9. National Transport Commission (NTC)—advises the Transport and Infrastructure Council on uniform regulatory and operational policies and model legislation for road, rail and intermodal transport. The Australian Government has a 35% interest in the NTC.

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, the difference between the amortised cost and the fair value of the loan is treated as an expense. The expense is recognised at the inception of the loan agreement and a provision is recognised for the concessional cost of loan advances that were committed, but not paid, at 30 June 2018 (refer the change in accounting policy disclosure in the Overview Section and Note 4.4A).

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 flows, 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 in 2016–17 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 affect the loan value over the term of the loan. The largest percentage variances occur in the early years of the loan with a 4.4% increase using the lowest rate in the range and a 4.1% decrease using the highest rate, in loan value at 30 June 2018. 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 from the 2020–21 financial year. No allowance for these repayments had been made at 30 June 2018 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.

MICL and WSA Co have not generated significant non-government cash inflows to date and have 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 these entities at 30 June 2018.

WSA Co reported a net liability position of $4.4 million at 30 June 2018 and has measured the Western Sydney Airport lease at nil value. The net liability position has been adjusted to incorporate the fair value of land subject to the airport lease of $370 million as determined by an independent expert valuer as at 30 June 2018.

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 at 30 June 2018 has been determined based on the mid-point of a range of values recommended by an independent expert valuer using a discounted cash flow method. The discounted cash flow method incorporated the financial forecasts underpinning the Airservices Australia 2018–19 to 2022–23 Corporate Plan, extrapolated for an additional eleven years and an estimated terminal value. As there are no directly comparable entities, the cash flows are discounted using the estimated Airservices Australia weighted average cost of capital, determined with reference to entities that operate in similar industries.

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 ARTC's valuation of its property, plant and equipment assets, modified for cash flows associated with its other asset and liability categories. As ARTC's property, plant and equipment assets represent a substantial proportion of its total assets, and are valued based on independent expert advice using a discounted cash flow model and the ARTC weighted average cost of capital, this method provides a reasonable basis for determination of fair value.

Confirmations of net assets as at 30 June 2018 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 2018

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 2017
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 1 July 2017 407,048 133,098 33,662 81,235 355,848 79 4,999 1,015,969
Additions
Purchase  - 3,767  - - 12,153 -  - 15,920
Assets acquired at fair value 7,200 - - - 77 - - 7,277
Revaluations and Impairments recognised in other comprehensive income - - - - (974) - - (974)
Depreciation and amortisation - (8,543) - - (26,839) (16) (1,250) (36,648)
Reclassifications - 4,421 - 268 (4,689) - - -
Disposals
Write-downs—Finance Lease (341,025) - - - - - - (341,025)
Write-downs—Other - (529) - (209) (840) - - (1,578)
Total as at 30 June 2018 73,223 132,214 33,662 81,294 334,736 63 3,749 658,941
Total as at 30 June 2018 represented by
Gross book value 73,223 164,969 33,662 81,296 391,285 94 6,250 750,779
Accumulated depreciation, amortisation and impairment - (32,755) - (2) (56,549) (31) (2,501) (91,838)
Total as at 30 June 2018 73,223 132,214 33,662 81,294 334,736 63 3,749 658,941

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.

An impairment loss of $0.974 million was recognised for other property, plant and equipment in 2017–18 (2017: $0.170 million). There were no impairment losses recognised for the other asset classes (2017: Nil).

Revaluations of non-financial assets

No revaluations of non-financial assets were conducted during the 2017–18 financial year.

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

At 30 June 2018, the Department had contractual commitments of $4.528 million for other property, plant and equipment (2017: $7.735 million) and nil for buildings (2017: $0.014 million). Contractual commitments relate to acquisitions in the 2018–19 to 2019–20 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 (2017: $33.6 million), along with 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 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:

  1. buildings, ruins, reserves and collections on Norfolk Island of historical significance with an aggregated value of $72.4 million (2017: $72.3 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
  2. memorials, reserves and temples on Christmas Island with an aggregated value of $0.6 million (2017: $0.6 million) and
  3. historic aircraft with an aggregated value of $8.3 million (2017: $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 purchased software and phosphate mining lease rights on Christmas Island. The useful lives of administered intangibles are from 1 to 21 years (2017: 1 to 21 years).

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

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.

Land at Badgerys Creek NSW, with a carrying value of $333.8 million, was leased to WSA Co on 17 May 2018 for no consideration. The lease has been classified as a finance lease and was measured at nil value at 30 June 2018. Land at Badgerys Creek with a carrying value of $11.1 million was not subject to the airport lease and remains reported at fair value within the land asset class.

The other land in the asset class at 30 June 2018 represents Commonwealth-owned land in the Indian Ocean Territories, Jervis Bay Territory and Norfolk Island. Due to the limited sales transactions at these locations, the Department conducted an internal review during 2017–18 with reference to changes in property prices at locations with similar characteristics that may also suggest a change in the fair value of the asset class. The Department assessed that the risk of a material difference between the carrying value and fair value of the land asset class at 30 June 2018 was low.

Buildings and other property, plant and equipment

The fair value of buildings and other property, plant and equipment assets, including artworks and other heritage and cultural assets, has been taken to be either the market value or depreciated current cost of similar assets as determined by an independent qualified valuer at 30 June 2016, adjusted for subsequent depreciation, acquisitions and disposals.

The Department conducted an internal review of the buildings and other property, plant & equipment asset classes during 2017–18 with reference to changes in economic and other factors that could affect the fair value of each class. The Department assessed that the risk of a material difference between the carrying value and fair value of each asset class at 30 June 2018 was low.

Artworks, museum collections and other heritage and cultural assets

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 at 30 June 2016. 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.

The Department conducted an internal review of the artworks asset class with reference to auction results for similar artworks by Sir Sidney Nolan since the last valuation. The Department also conducted an interim review of other heritage and cultural assets with reference to changes in economic and other factors that could affect their fair value. The Department assessed that the risk of a material difference between the carrying value and fair value of the artworks and other heritage & cultural assets classes at 30 June 2018 was low.

Intangible assets

The fair value of phosphate mining lease rights was determined by an independent qualified valuer as at 30 June 2016, measured as the present value of expected royalties on the estimated phosphate reserves remaining. The Department conducted an internal assessment during 2017–18 and confirmed that the assumptions underpinning the last valuation remained appropriate as at 30 June 2018.

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 at the Western Sydney Airport site was leased to WSA Co on 17 May 2018 for no consideration for an initial term of 50 years and is also reported at nil value.

Land owned by the Australian Government at Moorebank NSW has been leased to a subsidiary of MICL 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
2018
$'000
2017
$'000
Inventories held for distribution 2,568 2,277
Total inventories 2,568 2,277
4.2C: Prepayments
2018
$'000
2017
$'000
Grant prepayments 1,887 11,260
Total prepayments 1,887 11,260

Accounting Policy

Inventories

During 2018, $12.6 million (2017: $8.7 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 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
2018
$'000
2017
$'000
Trade creditors and accruals 20,224 12,320
Total suppliers 20,224 12,320

Settlement is usually made within 30 days.

4.3B: Subsidies
2018
$'000
2017
$'000
Subsidies in connection with
External parties 11,640 8,196
Total subsidies 11,640 8,196
4.3C: Grants
2018
$'000
2017
$'000
Australian Government entities 10,728 17,846
State and Territory Governments 1,578 9,178
Non-profit organisations 11,801 2,194
Other 4,897 332
Total grants 29,004 29,550

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

4.3D: Other payables
2018
$'000
2017
$'000
Salaries and wages 87 81
Superannuation 11 11
Other 266 244
Total other payables 364 336

4.4 Administered—Other Provisions

4.4A: Concessional loan commitments
Commercial
entities
$'000
Local
Government
$'000
Total
$'000
As at 1 July 2017 213,280  - 213,280
Additional commitments made  - 2,468 2,468
Commitments paid (121,455)  - (121,455)
Unwinding 7,763 15 7,778
Total as at 30 June 2018 99,588 2,483 102,071
4.4B: Other provisions
Asbestos
Removal
$'000
Phosphate
Mine
Rehabilitation
$'000
Total
$'000
As at 1 July 2017 146 2,919 3,065
Additional provisions made  - 1,540 1,540
Amounts used  - (1,253) (1,253)
Amounts reversed (146) - (146)
Total as at 30 June 2018 - 3,206 3,206

Accounting Policy

Concessional loan commitments

Concessional loan commitments represent the concessional cost of commitments to provide loan advances at a below-market interest rate. Commitments to commercial entities reflect the concessional cost of loan advances that were committed, but not paid, from the WestConnex Stage 2 concessional loan facility as at 30 June 2018. These advances are expected to be paid in the 2018–19 and 2019–20 financial years.

Commitments to local government entities reflect loan advances that were committed, but not paid, to the Sunshine Coast Regional Council to assist with expansion of the Sunshine Coast Airport. The advances are expected to be paid between the 2018–19 and 2020–21 financial years.

Other Provisions

Certain materials containing asbestos have been identified in buildings 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

Concessional loan commitments

Concessional loan commitments are initially measured at their fair value, calculated as the present value of cash flows associated with loan advances committed, but not paid, at 30 June 2018, discounted at the prevailing market interest rate.

The provision is subsequently measured at amortised cost and reduced for the concessional component of each advance as it is paid.

The provision for Commercial entities (WestConnex loan) was recognised in 2017–18 as a change in accounting policy (refer Overview Section).

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, where there is a present obligation for remediation. The Department assessed, based on asbestos risk registers and management plans for these properties, that it did not have a present obligation to remediate properties at 30 June 2018. The estimated cost of remediation to properties if conditions change is disclosed as a contingent liability (refer Note 7.1B).

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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