Departmental Forecast Report
for the year ending 30 June 2002
Statement of accounting policies
The forecast financial statements comply with the Public Finance Act 1989
1. Reporting Entity
The Ministry of Defence is a Government Department as defined by section 2 of the Public Finance Act 1989.
These are the forecast financial statements of the Ministry of Defence prepared pursuant to section 34 of the Public Finance Act 1989.
2. Measurement Systems
These forecast financial statements have been prepared on the basis of historical cost modified by certain items with specific accounting policies outlined below.
3. Accounting Policies
The following accounting policies have been applied:
Departmental
Revenue Recognition
Crown Revenue is recognised when earned and is reported in the financial period to which it relates.
Interest Income
Interest income is recognised in the period in which it is earned.
Expenses
Expenses are recognised when incurred and are reported in the financial period to which they relate.
Depreciation
Depreciation of property, plant and equipment is provided on a straight line basis so as to allocate cost of the property, plant and equipment, less any estimated residual value, over their useful lives. Revalued property, plant and equipment is depreciated on the revalued amount on a straight line basis over the remaining useful lives. The estimated economic useful lives are:
- office equipment: 3-10 years
- office furniture: 5-10 years
- computer equipment: 3 years
- motor vehicles: 3 years
- financial and management information systems: 5 years
The cost of leasehold improvements is capitalised and amortised over the estimated useful lives of the improvements.
Foreign Currencies
Foreign currency transactions are converted at the New Zealand dollar exchange rate at the date of the transaction. Where a forward exchange contract has been used to establish the price of a transaction, the forward rate specified in that forward exchange contract is used to convert that transaction to New Zealand dollars. Consequently no exchange gain or loss resulting from the difference between the forward exchange contract rate and the spot exchange rate on date of settlement is recognised.
Receivables
Receivables are recorded at estimated realisable value, after providing for doubtful debts.
Property, Plant and Equipment
The initial cost of property, plant and equipment is the value of the consideration given to acquire or create the asset and any directly attributable costs of bringing the asset to working condition for its intended use.
All property, plant and equipment costing more than $2000 is capitalised and recorded at historical cost.
Taxation
Government Departments are exempt from the payment of income tax in terms of the Income Tax Act 1976. Accordingly, no charge of income tax has been provided for.
Goods and Services Tax (GST)
The Statement of Financial Performance, Statement of Movements in Equity, Statement of Cash Flows, are exclusive of GST. The Statement of Financial Position is also exclusive of GST except for the amount of GST owing to or from the Inland Revenue Department at balance date, being the difference between Output GST and Input GST, is included in Payables and provisions or Receivables and advances (as appropriate).
Provision for Employee Entitlements
Annual, long service, resigning, and retirement leave are recognised as they accrue to employees.
Cost Accounting
The Ministry has derived the costs of outputs using a cost allocation system which is outlined below:
Criteria For Direct and Indirect Costs
"Direct costs" are those costs directly attributed to an output. "Indirect Costs" are those costs that cannot be identified in an economically feasible manner, with a specific output.
Direct Costs Assigned to Outputs
Direct costs are charged directly to outputs. Depreciation and capital charge are charged on the basis of asset utilisation. Personnel costs are charged by a predetermined percentage of time to be incurred. Property and other premises costs are charged on the basis of floor area occupied for the production of each output.
Basis for Assigning Indirect and Corporate Costs to Outputs
Indirect costs are assigned to outputs based on a predetermined budgetary percentage fixed for the year for each output.
Crown
Crown Activities
The management of procurement or refurbishment of military equipment are reflected through the Crown Statement of Cash Flows. These activities are not reflected in the Crown Statement of Forecast Financial Performance because the military equipment procured or refurbished are not traded but sold at cost to the New Zealand Defence Force.
Goods and Services Tax (GST)
The GST inputs arising on the procurement or refurbishment of military equipment are not recoverable. Accordingly these costs have been expensed in the Crown Statement of Forecast Financial Performance.
Crown Work in Progress
Invoices for progress payments, and other add-on costs incurred in the procurement or refurbishment of various items of equipment on behalf of the Crown, are recognised at the time the liability arises.
Foreign Currency
Foreign currency transactions are converted at the New Zealand dollar exchange rate at the date of the transaction. Where a forward exchange contract has been used to establish the price of a transaction, the forward rate specified in that forward exchange contract is used to convert that transaction to New Zealand dollars. Consequently no exchange gain or loss resulting from the difference between the forward exchange contract rate and the spot exchange rate on date of settlement is recognised.
Monetary assets and liabilities are translated to New Zealand dollars at the closing mid-point exchange rate. The resulting unrealised exchange gain or loss is recognised in the Crown Statement of Forecast Financial Performance. Other exchange gains or losses, whether realised or unrealised, are recognised in the Crown Statement of Forecast Financial Performance in the period to which they relate.
4. Changes in Accounting Policies
There have been no changes in accounting policies since the date of the last audited financial statements.
