Department of Defence Annual Report 2008-2009

| Department of Defence | Vote 19 |
SPECIAL DEFENCE ACCOUNT
ACCOUNTING POLICY
for year ended 31 March 2009 (continued)
6. Disclosure Notes
6.1 Commitments
Commitments are not recognised as a liability in the statement of nancial position
but are reected in the disclosure notes. The outstanding commitments as at 31
March comprise the amount still outstanding on delivery plus estimated related costs
based on historical information, as well as contracts approved but not yet contracted.
The commitments for the SDP represent the capital amount outstanding as at 31 March. The
foreign portion is converted to ZAR at the prevailing exchange rates at year-end. The local and
foreign portions exclude escalation and other related costs.
Commitments are thus reected at net present value (fair value) as at 31 March.
| Financial Performance |
6.2 Contingent Liabilities
Contingent liabilities are measured at cost which is based on the xed contract value including the
legal costs. Contingent liabilities are reected on the disclosure notes (note 10).
6.3 Defence Industrial Participation (DIP)
Obligations. DIP obligations are formalised in a DIP agreement and concluded in either the
foreign currency of the main agreement, or in USD. For reporting purposes, DIP obligations are
converted to ZAR at the exchange rate ruling on the date of the signature of the DIP agreement,
of which the rate is xed.
Credits. DIP credits are converted to the currency of the obligation using the exchange rate
ruling on the date of the transaction and set off against the DIP obligation. For reporting
purposes, DIP credits are converted to ZAR at the same xed rate than the DIP obligation.
Planned DIP credits. Planned DIP credits are the difference between the contractually agreed
milestone achievement at the end of the reporting period and the cumulative DIP credits at the
beginning of the reporting period.
Outstanding DIP obligations. Outstanding DIP obligations are the difference between the
DIP obligation and the cumulative DIP credits awarded.
6.4 Strategic Defence Procurement Programme (SDP)
The SDPs form part of the Defence Vote. SDP foreign expenditure is nanced from a loan by
National Treasury and expensed by Armscor. To recognise the SDP transactions in the books of
the SDA, Armscor (on behalf of the DOD) records the expense against the expenditure ledgers
of the SDA and the contra account is the National Treasury account in the books of the DOD.
The loan is recognised in the books of the National Treasury.
SDP local expenditure is recognised in the statement of nancial performance.
Annual Report FY 2008 - 2009 368