A. The Reporting Entity B. Measurement System C. Going Concern D. Specific Accounting Policies
E. Changes in Accounting Policies
Statement of Accounting Policies
For the eight months ended 28 February 1998
The Ministry of Agriculture was established on 1 July 1995 with the enactment of the Ministry of Agriculture and Fisheries (Restructuring) Act 1995.
The financial statements for the Ministry of Agriculture have been prepared in terms of section 35 of the Public Finance Act 1989 in accordance with generally accepted accounting practice recognised as appropriate for reporting organisations in the public sector.
The measurement base adopted is that of historical cost with the exception of land and buildings which are revalued by an independent registered valuer on a three year cycle.
The Ministry of Agriculture and Forestry (Restructuring) Act 1997 merged the Ministry
of Agriculture with the Ministry of Forestry forming a new Ministry of Agriculture and
Forestry with effect from 1 March 1998. The additional liabilities to the Ministry of
Agriculture arising as a result of the merger are reflected in the
financial statements for the period ending 28 February 1998. Assets and liabilities shown
in the Statement of Financial Position, commitments contained in the Statement of
Commitments and contingent liabilities contained in the Statement of Contingent
Liabilities have been transferred to the new Ministry of Agriculture and Forestry at net
book value.
The Government has agreed that two State-Owned Enterprises (SOEs) should be formed. One SOE will be for meat inspection and the other for Dairy and Food, and Livestock businesses.
It is anticipated that the new commercial entities decided on by the Government will be established by 1 November 1998.
The Output Classes mainly affected are Meat Quality Assurance Services and Contestable Quality Management Services.
Any additional liabilities arising from the change to MQM are expected to be reflected in the accounts of the new Ministry of Agriculture and Forestry.
D. Specific Accounting Policies
1. Combination
The financial statements show the overall operating results and financial position of the Ministry after eliminating all significant inter-business transactions. The overall results reflect the operations of the Policy, Regulatory Authority, Quality Management (including the Animal Health Board's activities) and Corporate Groups.
2. Estimate Figures
The Estimate figures are those presented in the 1997 Budget as amended by the Supplementary Estimates process.
3. Revenue Recognition
Crown revenue has been recognised on the basis of the supply of outputs to the Crown. External revenue from the supply of goods and services including the Disease Control Levy is recognised when the goods or services have been provided or when work has been completed. General revenues from other levies and licence fees are recognised when assessed.
4. Cost Allocation
The Ministry has determined the cost of outputs using a cost allocation system which is outlined below.
Definition of Terms:
Direct Costs are costs which are charged directly to outputs from the source documents plus costs which are assigned to outputs on the basis of a causal link.
Indirect Costs are all other costs. Indirect costs are allocated to outputs using appropriate cost drivers.
5. Leases
Operating lease payments, where lessors effectively retain substantially all the risks and benefits of ownership of the leased item, are charged as expenses in the periods in which they are incurred.
6. Fixed Assets
Fixed Assets are included as follows:
- Land and buildings are stated at net current value as at 1 July 1996 as established by
an independent valuation with subsequent additions at cost. Valuations are undertaken on a
three yearly cycle and take into account local market conditions and any legal covenants
restricting use of such assets to Ministry only activities. For the purpose of these
financial statements, land and buildings, although owned by the Crown are deemed to be
owned by the Ministry as principal occupier or user.
- All other fixed assets are stated at either cost or Director-General's valuation. The Director-General's valuation applies to those items in the asset category plant and equipment and which were in use when financial statements were first prepared for the period ended 31 March 1988. Only fixed assets with a cost in excess of $5,000 are capitalised.
7. Depreciation
Depreciation has been calculated on all fixed assets except land and capital work in progress on a straight line basis at rates which will write off their cost or revalued amount, less their expected residual values, over their estimated useful lives. The expected useful lives of the major classes of assets are as follows:
| Buildings | 10 to 100 years |
| Plant and equipment | Up to 10 years |
| Motor Vehicles | Up to 10 years |
| Leasehold Improvements | Up to 5 years |
| Computer Equipment | Up to 5 years |
8. Accounts Receivable
Accounts receivable are stated at expected realisable value after making allowance for amounts considered to be doubtful.
9. Inventories
Inventories acquired for use in the provision of goods and services are expensed except for bulk stocks, which are capitalised and expensed when used. Inventories are valued at the lower of cost (assigned to inventory quantities on hand at balance date using the first in first out (FIFO) basis) or net realisable value. Full provision is made for obsolescence where applicable.
10. Work in Progress
Material work in progress on consulting activities is valued at the lower of cost or expected realisable value.
11. Employee Entitlements
Employee entitlements to salaries and wages, annual leave, long service leave and employer superannuation contributions are recognised when they accrue to employees. Retiring leave is recognised for all employees on the basis of an actuarial valuation.
12. Taxation
- Income Tax: No income tax liability is incurred in respect of any operations.
- Fringe Benefit Tax (FBT): FBT is payable on all fringe benefits.
- Goods and Services Tax (GST): The Ministry is a registered trader for GST purposes and is liable for GST on all goods and services supplied. The Statement of Financial Performance, Statement of Movements in Taxpayers' Funds, Statement of Cash Flows, Statement of Commitments and Statement of Contingent Liabilities are prepared exclusive of GST. The Statement of Financial Position is also exclusive of GST except for Accounts Receivable and Accounts Payable which are GST inclusive.
13. Foreign Currencies
Foreign currency transactions are converted at the New Zealand dollar exchange rate at the date of the transactions. Where a forward exchange contract has been used to establish the price of a transaction, the forward rate specified in that foreign exchange contract is used to convert transactions to New Zealand dollars.
14. Financial Instruments
The Ministry is party to financial instrument arrangements as part of its everyday operations. Foreign currency forward exchange contracts are used infrequently to manage significant foreign currency exposure. Outstanding forward contracts are translated into New Zealand dollars at the contract rate. Exchange gains and losses on translation are included in the Statement of Financial Performance in the period in which they arise. The Ministry's exposure to off balance sheet risk with respect to fluctuations in exchange rates and interest rates is negligible. All financial instruments are recognised in the Statement of Financial Position on the basis of the Ministry's general and, where applicable, specific accounting policies. All financial instruments disclosed on the Statement of Financial Position are recorded at fair value.
15. Related Parties
The Ministry of Agriculture is a Government Department. The Government significantly influences the roles of the Ministry as well as being a major source of revenue. The Ministry undertakes a number of trading activities with other Departments, Crown Entities and State-Owned Enterprises. These activities are negotiated at arm's length and follow normal commercial enterprise conditions. These transactions are not considered to be related party transactions.
16. Commitments
Future payments are disclosed as commitments at the point a contractual obligation arises, to the extent that they are equally unperformed obligations. Commitments relating to employment contracts are not disclosed.
17. Contingent Liabilities
Contingent liabilities are disclosed at the point at which the contingency is evident.
E. Changes in Accounting Policies
There have been no changes to accounting policies, including cost allocation policies, affecting the reporting entity during the period.
Contact for Enquiries
Strategy and Performance Group
Ministry of Agriculture and Forestry
Pastoral House
25 The Terrace
PO Box 2526, Wellington
Tel: +64 4 894 0100
Fax: +64 4 894 0738
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