This is the cached copy of http://www.wellington.govt.nz/plans/dap/2008-09/pdfs/19significant.pdf

Page 1
WELLINGTON CITY COUNCIL DRAFT ANNUAL PLAN 08/09
90 FINANCIAL STATEMENTS
N
STRA
TEG
Y
A
REA
FINANCIA
L
ST
A
TEMEN
TS
WELLINGTON CITY COUNCIL IFRS
ACCOUNTING POLICIES
I) STATEMENT OF COMPLIANCE
The prospective financial statements have been
prepared in accordance with New Zealand generally
accepted accounting practice (GAAP). They comply
with New Zealand equivalents to International
Financial Reporting Standards (NZ IFRS) and other
applicable Financial Reporting Standards, as
appropriate for public benefit entities.
II) SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The prospective financial statements are prepared in
accordance with the Local Government Act 2002.
REPORTING ENTITY
These prospective financial statements are for
Wellington City Council (the Council) as a separate
legal entity. Consolidated prospective financial
statements comprising the Council and its
subsidiaries and associates have not been prepared.
The reporting period for these prospective financial
statements is the year ended 30 June 2009. These
prospective financial statements are presented
in New Zealand dollars rounded to the nearest
thousand, unless otherwise stated.
The measurement basis applied is historical cost,
modified by the revaluation of certain assets and
liabilities as identified in this summary of significant
accounting policies. The accounting policies set
out below have been applied consistently to all
periods presented in these consolidated prospective
financial statements.
JUDGMENTS AND ESTIMATIONS
The preparation of prospective financial statements
in conformity with NZ IFRS requires judgments,
estimates and assumptions that affect the
application of policies and reported amounts of
assets and liabilities, income and expenses.
The estimates and associated assumptions are
based on historical experience and various other
factors that are believed to be reasonable under
the circumstances. Actual results may differ from
these estimates.
The estimates and underlying assumptions are
reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period
in which the estimate is revised if the revision affects
only that period, or in the period of the revision and
future periods if the revision affects both current and
future periods.
REVENUE
Revenue is measured at the fair value of
consideration received. Specific accounting policies
for major categories of revenue are outlined below:
Rates and Levies
Rates are set annually by resolution from Council
and relate to a particular financial year. Ratepayers
are invoiced within the financial year to which the
rates have been set. Rates revenue is recognised
when invoiced.
Operating Activities
Government grants
Revenue from government grants (e.g. Land
Transport New Zealand roading subsidies) is
recognised upon entitlement.
Fines and penalties
Revenue from fines and penalties (e.g. traffic and
parking infringements, library overdue fines) is
recognised when infringement notices are issued
or when fines/penalties are otherwise imposed.
Rendering of services
Revenue from the rendering of services (e.g.
building consent fees) is recognised by reference to
the stage of completion of the transaction at balance
date. Under this method, revenue is recognised in
the accounting periods in which the services are
provided.
Sale of goods
Sales of goods are recognised when products are
sold to the customer and all risks and rewards of
ownership have transferred to the buyer.
Investment Property Leases
Lease rentals are recognised on a straight line basis
over the term of the lease.
Finance Income
Interest
Interest income is recognised using the effective
interest rate method.
Dividends
Dividends are recognised when the shareholders’
rights to receive payment have been established.
Other Revenues and Gains
Donated, subsidised or vested assets
Where a physical asset is acquired for nil or nominal
consideration the fair value of the asset received is
recognised as revenue.
Donated Services
The Council benefits from the voluntary service of
many Wellingtonians in the delivery of its activities
and services (e.g. Beach cleaning, Otari-Wilton’s
Bush guiding and planting, and the Volunteer Rural
Fire Force). Due to the difficulty in determining
the value of these donated services with sufficient
reliability, donated services are not recognised in
these financial statements.
EXPENSES
Specific accounting policies for major categories of
expenditure are outlined below:
Operating Activities
Grants
Expenditure is classified as a grant if it results in
a transfer of resources to another entity in return
for compliance with certain conditions relating
to the operating activities of that entity. Grants
expenditure includes any expenditure arising from
a funding arrangement with another entity that has
been entered into to achieve the objectives of the
Council. Grants are distinct from donations which
are discretionary charitable gifts. Where grants
and subsidies are discretionary until payment, the
expense is recognised when the payment is made.
Otherwise, the expense is recognised when the
specified criteria have been fulfilled.
Finance Expense
Interest
Interest expense is recognised using the effective
interest rate method. All borrowing costs are
expensed in the period in which they are incurred.
Depreciation and Amortisation
Depreciation (of property, plant and equipment)
and amortisation (of intangible assets) are charged
to the Statement of Financial Performance on
a straight-line basis over the useful life of the
associated assets. Refer to the separate accounting
policies for Property, Plant and Equipment and
Intangible Assets for further information.
Page 2
FINANCIAL STATEMENTS 91
STRA
TEG
Y
A
REA
FINANCIA
L
ST
A
TEMEN
TS
WELLINGTON CITY COUNCIL DRAFT ANNUAL PLAN 08/09
TAXATION
Income tax is charged in the Statement of Financial
Performance in respect of the current period’s
results of council controlled trading organisations
only. Income tax on the profits or loss for the year
comprises current and deferred tax.
Current tax is the expected tax payable on the
taxable income for the year, using tax rates enacted
or substantially enacted at the balance date, and
any adjustment to tax receivable or payable in
respect of previous periods.
Deferred tax is provided using the balance sheet
liability method, providing for temporary differences
between the carrying amounts of assets and
liabilities for financial reporting purposes and
amounts used for taxation purposes. The amount
of deferred tax provided is based on the expected
manner of realisation or settlement of the carrying
amount of assets and liabilities, using tax rates
enacted or substantively enacted at the balance
date. Deferred income tax assets are recognised to
the extent that it is probable that future taxable
profit will be available against which the temporary
differences can be utilised.
GOODS AND SERVICES TAX (GST)
All items in the prospective financial statements are
exclusive of GST, with the exception of receivables
and payables, which are stated as GST inclusive.
Where GST is not recoverable as an input tax (e.g.
residential housing) then it is recognised as part
of the related asset or expense.
FINANCIAL INSTRUMENTS
Financial instruments include financial assets
(cash and cash equivalents, loans and receivables,
available-for-sale financial assets, and investments
in subsidiaries and associates), financial liabilities
(payables and borrowings) and derivative financial
instruments. Financial instruments are initially
recognised at fair value plus transaction costs.
Subsequent measurement of financial instruments
is dependent upon the classification determined
by the Council.
In accordance with NZ IAS 39: Financial Instruments
Recognition and Measurement, financial
instruments are classified into the categories
outlined below based upon the purpose for which
they were acquired. The classification is determined
at initial recognition and re-evaluated at each
balance date.
Financial assets
Financial assets are classified as loans and
receivables, or available for sale financial assets.
Loans and receivables comprise cash and cash
equivalents, trade and other receivables, loans
and deposits.
Cash and cash equivalents comprise cash balances
and call deposits with up to three months maturity
from the date of acquisition.
Trade and other receivables are financial assets
with fixed or determinable payments. They arise
when the Council provides money, goods or services
directly to a debtor, and has no intention of trading
the receivable.
Loans and deposits include loans to other entities
(including loans to subsidiaries and associates), and
bank deposits (with maturity greater than three
months from the date of acquisition).
Financial assets in this category are recognised
initially at fair value plus transaction costs and
subsequently measured at amortised cost using the
effective interest rate method. Fair value is estimated
as the present value of future cash flows, discounted
at the market rate of interest at the reporting date
for assets of a similar maturity and credit risk. Trade
and other receivables issued with duration less than
12 months are recognised at their nominal value.
Allowances for estimated irrecoverable amounts
are recognised when there is objective evidence
that the asset is impaired. As there are statutory
remedies to recover unpaid rates, penalties and
water meter charges, no provision has been made
for impairment in respect of these receivables.
Available for sale financial assets are either
designated in this category by nature or, by
default, if they cannot be classified in one of the
other categories of financial assets. Available for
sale financial assets are initially recorded at fair
value plus transaction costs. Subsequent to initial
recognition, they are measured at fair value and
changes therein, other than impairment losses, are
recognised directly in equity. If there is no active
market and no intention to sell the asset, the asset
is measured at cost. Fair value is equal to Council’s
share of net assets of the entity. On disposal,
the cumulative fair value gain or loss previously
recognised directly in equity is recognised in the
Statement of Financial Performance.
Financial liabilities
Financial liabilities comprise trade and other
payables and borrowings. Financial liabilities
with duration more than 12 months are recognised
initially at fair value plus transaction costs and
subsequently measured at amortised cost using
the effective interest rate method. Amortisation
is recognised in the Statement of Financial
Performance. Financial liabilities entered into with
duration less than 12 months are recognised at their
nominal value.
On disposal of financial liabilities, gains or losses are
recognised in the Statement of Financial Performance.
Derivatives
Derivative financial instruments include interest
rate swaps used to hedge exposure to interest rate
risk arising from financing activities. Derivatives are
initially recognised at fair value based on quoted
market prices, and subsequently re-measured at
their fair value at each balance date. Derivatives that
do not qualify for hedge accounting are classified
as held for trading financial instruments with fair
value gains or losses recognised in the Statement of
Financial Performance.
Recognition of fair value gains or losses on
derivatives that qualify for hedge accounting
depends on the nature of the item being hedged.
Where a derivative qualifies as a hedge of variability
in asset or liability cash flows (cash flow hedge), the
effective part of any gain or loss on the derivative
is recognised in equity while the ineffective
part is recognised in the Statement of Financial
Performance. Gains or losses recognised in equity
transfer to the Statement of Financial Performance in
the same periods as when the hedged item affects
the Statement of Financial Performance. As per
the International Swap Dealers’ Association (ISDA)
master agreements, all swap payments or receipts
are settled net.
Page 3
WELLINGTON CITY COUNCIL DRAFT ANNUAL PLAN 08/09
92 FINANCIAL STATEMENTS
N
STRA
TEG
Y
A
REA
FINANCIA
L
ST
A
TEMEN
TS
INVENTORIES
Inventories held for distribution or consumption
in the provision of services that are not supplied
on a commercial basis (such as botanical supplies)
are measured at the lower of cost and current
replacement cost.
Inventories held for use in the production of
goods and services on a commercial basis, such as
printing materials, are recorded at the lower of cost
and net realisable value. This valuation includes
allowances for slow moving and obsolete stock.
Net realisable value is the estimated selling price
in the ordinary course of business, less applicable
variable selling expenses.
INVESTMENT PROPERTIES
Investment properties are properties which are
held primarily to earn rental income, for capital
appreciation or for both. Investment properties
exclude those properties held for strategic purposes
or to provide a social service, including those which
generate cash inflows where the rental revenue is
incidental to the purpose for holding the property.
Such properties include the Council’s social housing
assets, and are accounted for as described in the
Property, Plant and Equipment accounting policy.
Investment properties are measured initially at
cost and subsequently measured at fair value as
determined annually by an independent registered
valuer. The fair value is determined based on
quoted market prices and is the estimated amount
for which a property could be exchanged on the
date of valuation between a willing buyer and a
willing seller in an arm’s length transaction after
proper marketing wherein the parties had each
acted knowledgeably, prudently and without
compulsion. Any gain or loss arising from a change
in fair value is recognised in the income statement.
Investment properties are not depreciated. Rental
income from investment property is accounted
for as described in the Revenue Recognition
accounting policy.
A property interest under an operating lease is
classified and accounted for as an investment
property on a property-by-property basis when
the Council holds it to earn rentals or for capital
appreciation or both. Any such property interest
under an operating lease classified as an investment
property is carried at fair value.
NON-CURRENT ASSETS CLASSIFIED
AS HELD FOR SALE
Non-current assets are separately classified where
their carrying amount will be recovered through a
sale transaction rather than through continuing use.
A non-current asset is classified as held for
sale where:
• The asset is available for immediate sale in its
present condition subject only to terms that are
usual and customary for sales of such assets,
• A plan to sell the asset is in place, and an active
programme to locate a buyer and complete the
plan has been initiated,
• The asset is being actively marketed for sale at a
price that is reasonable in relation to its current
fair value,
• The sale is expected to qualify for recognition as a
sale within one year from the date of classification
or beyond one year where a delay has occurred
which is caused by events beyond the Council’s
control and there is sufficient evidence that the
Council remains committed to its plan to sell the
asset, and
• Actions required to complete the plan to sell the
asset indicate that it is unlikely that significant
changes to the plan will be made or that the plan
will be withdrawn.
A non-current asset classified as held for sale is
recognised at the lower of its carrying amount and
fair value less costs to sell. Impairment losses on
initial classification as held for sale are included in
profit or loss. Fair value is determined by market
value. The market value of a property is the
estimated amount for which a property could be
exchanged on the date of valuation between a
willing buyer and a willing seller in an arm’s length
transaction after proper marketing wherein the
parties had each acted knowledgeably, prudently
and without compulsion.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists
of operational assets, restricted assets and
infrastructure assets.
Operational assets include land, the landfill post
closure asset, buildings, the Civic Centre complex,
the library collection, and plant and equipment.
Restricted assets include art and cultural assets, zoo
animals, restricted buildings, parks and reserves
and the town belt. These assets provide a benefit or
service to the community and cannot be disposed of
because of legal or other restrictions.
Infrastructure assets include the fixed utility systems
comprising the roading, water reticulation and
drainage systems, and infrastructure land (including
land under roads). Each asset type includes all items
that are required for the network to function.
Vested assets are recognised within their respective
asset classes as above. Vested assets are those
assets where ownership and control is transferred
to the Council from a third party (for example;
infrastructure assets constructed by developers
and transferred to the Council on completion of
a sub-division).
RECOGNITION
Expenditure is capitalised as property, plant and
equipment when it creates a new asset or increases
the economic benefits over the total life of an
existing asset. Costs that do not meet the criteria for
capitalisation are expensed.
MEASUREMENT
Property, plant and equipment is recognised initially
at cost, unless acquired for nil or nominal cost (e.g.
vested assets), in which case the asset is recognised
at fair value at the date of acquisition.
The initial cost of property, plant and equipment
includes the purchase consideration, or the fair
value in the case of vested assets, and those
costs that are directly attributable to bringing the
asset into the location and condition necessary
for its intended purpose. Borrowing costs are not
capitalised. Subsequent expenditure that extends or
expands the asset’s service potential is capitalised.
After initial recognition, certain classes of property,
plant and equipment are revalued to fair value.
Fair value is determined by market value. The
market value of a property is the estimated amount
for which a property could be exchanged on the
date of valuation between a willing buyer and a
willing seller in an arm’s length transaction after
proper marketing wherein the parties had each
acted knowledgeably, prudently and without
compulsion. Where there is no market related
evidence for an asset, fair value is determined by
optimised depreciated replacement.
Page 4
FINANCIAL STATEMENTS 93
STRA
TEG
Y
A
REA
FINANCIA
L
ST
A
TEMEN
TS
WELLINGTON CITY COUNCIL DRAFT ANNUAL PLAN 08/09
Specific measurement policies for categories of
property, plant and equipment are shown below:
Operational Assets
Plant and equipment and the Civic Centre complex
are measured at historical cost.
Library collections are valued at depreciated
replacement cost on a three-year basis by the
Council’s library staff in accordance with guidelines
released by the New Zealand Library Association and
the National Library of New Zealand.
Land and buildings are valued at fair value on a
three-year basis by independent registered valuers.
Wellington Waterfront Project land and buildings
are valued annually to fair value by independent
registered valuers.
Restricted Assets
Art and cultural assets (artworks, sculptures, and
statues) are valued at historical cost. Zoo animals
are stated at estimated replacement cost. All other
restricted assets (buildings, parks and reserves
and the town belt) were valued at fair value as at
30 June 2005 by independent registered valuers.
Under NZ IFRS the Council has elected to use the fair
value of other restricted assets at 30 June 2005 as
deemed cost. These assets are no longer revalued.
Subsequent additions have been recorded at
historical cost.
Infrastructure Assets
Infrastructure assets (roading network, water and
drainage reticulation assets) are valued at optimised
depreciated replacement cost on a three-year basis
by independent registered valuers. Infrastructure
valuations are based on current quotes from actual
suppliers. As such, they include ancillary costs
such as breaking through seal, traffic control and
rehabilitation. Between valuations, expenditure on
asset improvements is capitalised at cost.
Infrastructure land is valued at fair value on a three-
year basis. Land under roads, which represents the
corridor of land directly under and adjacent to the
Council’s roading network, was valued as at 30 June
2005 at the average value of surrounding adjacent
land discounted by 50% to reflect its restricted
nature. Under NZ IFRS the Council has elected to
use the fair value of land under roads at 30 June
2005 as deemed cost. Land under roads is no longer
revalued. Subsequent additions have been recorded
at historical cost.
The carrying values of revalued property, plant and
equipment are reviewed at each balance date to
ensure that those values are not materially different
to fair value.
REVALUATIONS
The result of any revaluation of the Council’s
property, plant and equipment is credited or
debited to the asset revaluation reserve for that
class of property, plant and equipment. Where
this results in a debit balance in the reserve
for a class of property, plant and equipment,
the balance is expensed in the Statement of
Financial Performance. Any subsequent increase
on revaluation that off-sets a previous decrease
in value recognised in the Statement of Financial
Performance, will be recognised firstly in the
Statement of Financial Performance up to the
amount previously expensed, and then secondly
credited to the revaluation reserve for that class of
property, plant and equipment.
Accumulated depreciation at revaluation date is
eliminated against the gross carrying amount so that
the carrying amount after revaluation equals the
revalued amount.
IMPAIRMENT
The carrying amounts of property, plant and
equipment are reviewed at least annually to
determine if there is any indication of impairment.
Where an asset’s recoverable amount is less than
its carrying amount, it will be reported at its
recoverable amount and an impairment loss will
be recognised. The recoverable amount is the
higher of an item’s fair value less costs to sell and
value in use. Losses resulting from impairment are
reported in the Statement of Financial Performance,
unless the asset is carried at a revalued amount in
which case any impairment loss is treated as
a revaluation decrease.
DISPOSAL
Realised gains and losses arising from the disposal
of property, plant and equipment are recognised
in the Statement of Financial Performance in
the period in which the transaction occurs.
Any balance attributable to the disposed asset
in the asset revaluation reserve is transferred to
retained earnings.
DEPRECIATION
Depreciation is provided on all property, plant
and equipment, with certain exceptions. The
exceptions are land, restricted assets other than
buildings, and assets under construction (work in
progress). In accordance with NZ IAS 16: Property
Plant and Equipment, depreciation is required to be
provided in the Statement of Financial Performance.
Depreciation is calculated on a straight line basis,
to allocate the cost or value of the asset (less any
residual value) over its useful life. The estimated
useful lives of the major classes of property, plant
and equipment are as follows:
Land
indefinite
Buildings
10 to 100 years
Civic Centre amenities
10 to 100 years
Plant and equipment
3 to 100 years
Library collections
3 to 10 years
Restricted assets
indefinite
(excluding buildings)
Infrastructure assets Land
indefinite
(including land under roads)
Roading
Formation/earthworks
indefinite
Pavement
3 to 40 years
Traffic Islands
60 years
Bridges and tunnels
3 to 150 years
Drainage
10 to 120 years
Retaining walls
40 to 100 years
Pedestrian walkway
5 to 50 years
Pedestrian furniture
10 to 25 years
Barriers & lighting
2 to 50 years
Cycle-way network
15 to 40 years
Parking equipment
8 to 10 years
Passenger transport facilities 25 years
Traffic infrastructure
5 to 10 years
Drainage, waste and water
Pipework
40 to 150 years
Fittings
10 to 111 years
Water pump stations
20 to 100 years
Water reservoirs
40 to 100 years
Equipment
25 years
Sewer pump stations
20 to 100 years
Tunnels
150 years
Treatment plants
3 to 100 years
The landfill post closure asset is depreciated over the
life of the landfill based on the capacity used.
Page 5
WELLINGTON CITY COUNCIL DRAFT ANNUAL PLAN 08/09
94 FINANCIAL STATEMENTS
N
STRA
TEG
Y
A
REA
FINANCIA
L
ST
A
TEMEN
TS
Work in progress
The cost of projects within work in progress is
transferred to the relevant asset class when the
project is completed and then depreciated.
INTANGIBLE ASSETS
Intangible assets comprise computer software
which has a finite life and is initially recorded at
cost less any amortisation and impairment losses.
Amortisation is charged to the Statement of Financial
Performance on a straight-line basis over the useful
life of the asset. Typically, the estimated useful lives
of these assets are as follows:
• Computer Software
3-5 years
Realised gains and losses arising from disposal of
intangible assets are recognised in the Statement of
Financial Performance in the period in which the
transaction occurs. Intangible assets are reviewed at
least annually to determine if there is any indication
of impairment. Where an intangible asset’s
recoverable amount is less than its carrying amount,
it will be reported at its recoverable amount and an
impairment loss will be recognised. Losses resulting
from impairment are reported in the Statement of
Financial Performance.
LEASES
Leases where the lessor effectively retains
substantially all the risks and rewards of ownership
of the leased items are classified as operating leases.
Payments made under these leases are expensed
in the Statement of Financial Performance in the
period in which they are incurred. Payments
made under operating leases are recognised in
the Statement of Financial Performance on a
straight-line basis over the term of the lease.
Lease incentives received are recognised in the
Statement of Financial Performance as an integral
part of the total lease payment.
Finance leases transfer to the Council as lessee
substantially all the risks and rewards incident on
the ownership of a leased asset. Initial recognition
of a finance lease results in an asset and liability
being recognised at amounts equal to the lower
of the fair value of the leased property or the
present value of the minimum lease payments.
The capitalised values are amortised over the
period in which the Council expects to receive
benefits from their use.
EMPLOYEE BENEFITS
A provision for employee benefits (holiday leave,
long service leave, and retirement gratuities) is
recognised as a liability when benefits are earned
but not paid.
Holiday Leave
Holiday leave (annual leave, long service leave
qualified for and time off in lieu) is calculated on an
actual entitlement basis at the greater of the average
or current hourly earnings in accordance with
sections 16(2) & 16(4) of the Holidays Act 2003.
Long Service Leave and Retirement Gratuities
Long-service leave (not yet qualified for) and
retirement gratuities have been calculated on
an actuarial basis based on the likely future
entitlements accruing to staff, after taking into
account years of service, years to entitlement,
the likelihood that staff will reach the point of
entitlement, and other contractual entitlements
information. The present value of the estimated
future cash flows has been calculated using an
inflation factor and a discount rate. The inflation
rate used is the annual Consumer Price Index to
31 March prior year end. The discount rate used
represents the Council’s average cost of borrowing.
Other Contractual Entitlements
Other contractual entitlements include termination
benefits. Termination benefits are recognised in the
Statement of Financial Performance only when there
is a demonstrable commitment to either terminate
employment prior to normal retirement date or
to provide such benefits as a result of an offer to
encourage voluntary redundancy. Termination
benefits settled within 12 months are reported
at the amount expected to be paid, otherwise
they are reported as the present value of the
estimated future cash outflows.
PROVISIONS
Provisions are recognised for future expenditure
of uncertain timing or amount when there is a
present obligation as a result of a past event, it
is probable that expenditures will be required to
settle the obligation and a reliable estimate of the
obligation can be made. Provisions are measured
at the expenditure expected to be required to
settle the obligation. Liabilities and provisions to
be settled beyond 12 months are recorded at their
present value.
Landfill Post Closure Costs
The Council, as operator of the Southern Landfill,
has a legal obligation to apply for resource consents
when the landfill or landfill stages reach the
end of their operating life and are to be closed.
These resource consents will set out the closure
requirements and the requirements for ongoing
maintenance and monitoring services at the
landfill site after closure. A provision for post
closure costs is recognised as a liability when the
obligation for post closure arises, which is when
each stage of the landfill is commissioned and
refuse begins to accumulate.
The provision is measured based on the present
value of future cash flows expected to be incurred,
taking into account future events including
known changes to legal requirements and known
improvements in technology. The provision
includes all costs associated with landfill post
closure including final cover application and
vegetation; incremental drainage control features;
completing facilities for leachate collection and
monitoring; completing facilities for water quality
monitoring; completing facilities for monitoring
and recovery of gas.
Amounts provided for landfill post closure are
capitalised to the landfill asset where they give rise
to future economic benefits or if they are incurred to
enable future economic benefits to be obtained.
The capitalised landfill asset is depreciated over the
life of the landfill based on the capacity used.
The Council has a 21.5% joint venture interest in
the Spicer Valley landfill. The Council’s provision
for landfill post closure costs includes the Council’s
proportionate share of the Spicer Valley landfill
provision for post closure costs.
The present value of the estimated future cash
flows has been calculated using an inflation factor
and discount rates for the Council and the Spicer
Valley landfill. The inflation rate used is the annual
Consumer Price Index to 31 March prior to year end.
The discount rate used represents the Council’s
average cost of borrowing.
Page 6
FINANCIAL STATEMENTS 95
STRA
TEG
Y
A
REA
FINANCIA
L
ST
A
TEMEN
TS
WELLINGTON CITY COUNCIL DRAFT ANNUAL PLAN 08/09
ACC Partnership programme
The Council belongs to the ACC Partnership
Programme and therefore accepts the management
and financial responsibility of work related
illnesses and accidents of employees. Under the
ACC Partnership Programme the Council is effectively
providing accident insurance to employees and
this is accounted for as an insurance contract.
The value of this liability represents the expected
future payments in relation to accidents and
illnesses occurring up to the balance sheet date for
which Council has responsibility under the terms of
the Partnership Programme.
Financial Guarantee Contracts
A financial guarantee contract is a contract that
requires the Council to make specified payments
to reimburse the contract holder for a loss it incurs
because a specified debtor fails to make payment
when due.
Financial guarantee contracts are initially recognised
at fair value. The Council measures the fair value
of a financial guarantee by determining the
probability of the guarantee being called by the
holder. The probability factor is then applied to the
principal and the outcome discounted to fair value.
Financial guarantees are subsequently measured
at the higher of the Council’s best estimate of the
obligation in accordance with NZ IAS 37: Provisions,
Contingent Liabilities and Contingent Assets, or the
amount initially recognised less any amortisation.
EQUITY
Equity is the community’s interest in the Council and
is measured as the difference between total assets
and total liabilities. Equity is disaggregated and
classified into a number of components to enable
clearer identification of the specified uses of equity
within the Council.
The components of equity are accumulated funds
and retained earnings, revaluation reserves, a
hedging reserve and restricted funds (special funds,
reserve funds, trusts and bequests).
Restricted funds are those reserves that are subject
to specific conditions of use, whether under statute
or accepted as binding by the Council, and that may
not be revised without reference to the Courts or
third parties. Transfers from these reserves may be
made only for specified purposes or when certain
specified conditions are met.
STATEMENT OF CASH FLOWS
The statement of cash flows has been prepared
using the direct approach subject to the netting
of certain cash flows. Cash flows in respect of
investments and borrowings that have been
rolled-over under arranged finance facilities
have been netted in order to provide more
meaningful disclosures.
Operating activities include cash received from
all income sources of the Council and record the
cash payments made for the supply of goods and
services. Investing activities relate to the acquisition
and disposal of assets. Financing activities include
interest expense and activities that change the
equity and debt capital structure of the Council.
COST ALLOCATION
The Council has derived the cost of service for each
significant activity using the following cost allocation
methodology. Direct costs can be directly attributed
to the activity. Indirect costs include things like staff
time, office space and information technology costs
which relate to the overall costs of running the
organisation. These indirect costs are allocated as
overheads across all activities.
CHANGES IN ACCOUNTING POLICIES
There have been no changes in accounting
policies. The Council has applied all NZ IFRS that
are applicable at the date of preparation of these
prospective financial statements.
FINANCIAL REPORTING STANDARD
42: PROSPECTIVE FINANCIAL
STATEMENTS (FRS 42) DISCLOSURES
The Council has complied with FRS 42 in the
preparation of these prospective financial
statements. In accordance with FRS 42, the following
information is provided:
(i) Description of the nature of the entity’s current
operations and its principal activities
The Council is a territorial local authority, as
defined in the Local Government Act 2002. The
Council’s principal activities are outlined within
this Annual Plan.
(ii) Purpose for which the prospective financial
statements are prepared
It is a requirement of the Local Government Act
2002 to present prospective financial statements
that span 1 year and include within the Annual
Plan. This provides an opportunity for ratepayers
and residents to review the projected financial
results and position of the Council. Prospective
financial statements are revised annually to reflect
updated assumptions and costs.
(iii) Bases for assumptions, risks and uncertainties
The financial information has been prepared on
the basis of best estimate assumptions as to future
events which the Council expects to take place.
The Council has considered factors that may lead to
a material difference between information in the
prospective financial statements and actual results.
These factors, and the assumptions made in relation
to the sources of uncertainty and potential effect,
are outlined within the LTCCP.
(iv) Cautionary Note
The financial information is prospective. Actual
results are likely to vary from the information
presented, and the variations may be material.
(v) Other Disclosures
The prospective financial statements were
authorised for issue on 27 March 2008 by
Wellington City Council. The Council is responsible
for the prospective financial statements presented,
including the assumptions underlying the
prospective financial statements and all other
disclosures. The Annual Plan is prospective and as
such contains no actual operating results.