Landcorp - Crown Ownership Monitoring Unit

LANDCORP FARMING LIMITED AND SUBSIDIARIESNOTES TO THE FINANCIAL STATEMENTS CONTINUEDNote 4 – Significant Accounting Judgements, Estimates and Assumptions (continued)ForestsForests are valued based on estimated pre-tax cashflows, using a market discount rate of 12% and current log prices. Forested blocks less thantwo hectares are not valued as these are considered too small to be economic to harvest. The impact of biological transformation on forests under10 years old is assumed to have minimal effect on their market value, and these are recorded at cost. Factors affecting the valuation of Landcorp’sforests are detailed in Note 25.LivestockLandcorp values its breeding and production livestock using Inland Revenue Department’s National Average Market Values (NAMV). The geographicspread and quality of livestock used in the NAMV are considered to approximate Landcorp’s breeding and production livestock. Factors affectingthe valuation of Landcorp’s livestock are detailed in Note 24.Slaughter livestock that are at marketable weight are valued based on published schedule prices at 30 June. Slaughter livestock that is not yet atmarketable weight is valued based on estimated sales value in the store market.Livestock income due to growth and change in numbers is calculated based on internally assessed accrued values. These values are set andreviewed annually by the Board based on year end livestock values.Effect of droughtAs described in Note 20, the effect of the drought is disclosed as a material agricultural event. Determining the effect of the drought requires anestimation of the cost of the drought, which is based on several assumptions as described in Note 20. Events such as drought have numerousindirect effects, which cannot be easily quantified. The estimated cost is necessarily based on those factors that can be directly identified asoriginating from drought conditions, and, as such, provides a conservative estimate of the cost.Estimation of useful lives of property, plant and equipmentThe useful lives of property, plant and equipment is based on historical experience. Replacement policies, for motor vehicles, and the risk oftechnological developments leading to obsolescence, for computer equipment, is also considered.Note 5 – Operational ManagementLandcorp’s operational functions are delivered via the Group company structure and comprise:Pastoral farming – Pastoral farming on owned and leased land. Revenues from this function predominantly arise from the sale of livestockfor slaughter purposes and milk production.Land development – development and disposal of land with a higher alternative use than farming. Revenues from this function arise fromthe sale of developed sections, either directly or through joint-venture development companies.Protected land management – Holding of protected land under the Agreement Concerning Landcorp Land Protected From Sale. Protectedland is managed by the owned land function, with rental paid to the protected land function equal to the profits generated on theprotected land. A management fee is charged based on the value of the pastoral farming function’s assets used on protected land, plusoperational and management costs.All other functions – includes land development management and holding company activities.Transactions between functions are undertaken at arm’s length prices, in a manner similar to transactions with third parties. Inter-functiontransactions result in revenues and expenses for the affected functions, which are eliminated on consolidation.62