2011-2012 Annual Report - Full Version - PDF - Palmerston North ...

Financial Statements Note 1Insufficient information is available to use defined benefitaccounting, as it is not possible to determine from theterms of the scheme the extent to which the scheme’ssurplus/deficit will affect future contributions by individualemployers, as there is no prescribed basis for allocation. Thescheme is therefore accounted for as a defined contributionscheme. Further information on this scheme is disclosed innote 27.ProvisionsPNCC recognises a provision for future expenditure ofuncertain amount or timing when there is a presentobligation (either legal or constructive) as a result of a pastevent, it is probable that expenditures will be required tosettle the obligation, and a reliable estimate can be madeof the amount of the obligation.Provisions are measured at the present value of theexpenditures expected to be required to settle theobligation using a pre-tax discount rate that reflects currentmarket assessments of the time value of money and therisks specific to the obligation. The increase in the provisiondue to the passage of time is recognised as an interestexpense and is included in “finance costs”.Financial guarantee contractsA financial guarantee contract is a contract that requiresPNCC to make specified payments to reimburse the holderfor a loss it incurs because a specified debtor fails to makepayment when due.Financial guarantee contracts are initially recognised atfair value. If a financial guarantee contract was issued in astand-alone arm’s length transaction to an unrelated party,its fair value at inception is equal to the considerationreceived. When no consideration is received a provision isrecognised based on the probability PNCC will be requiredto reimburse a holder for a loss incurred discounted topresent value. The portion of the guarantee that remainsunrecognised, prior to discounting to fair value, is disclosedas a contingent liability.Financial guarantees are subsequently measured at theinitial recognition amount less any amortisation, howeverif PNCC assesses that it is probable that expenditure will berequired to settle a guarantee, then the provision for theguarantee is measured at the present value of the futureexpenditure.BorrowingsBorrowings are initially recognised at their fair value netof transaction costs incurred. After initial recognition, allborrowings are measured at amortised cost using theeffective interest method.Borrowings are classified as current liabilities unless PNCChas an unconditional right to defer settlement of theliability for at least 12 months after the balance date.EquityEquity is the community’s interest in PNCC and is measuredas the difference between total assets and total liabilities.Equity is disaggregated and classified into the followingcomponents:• retained earnings,• special funds reserves,• asset revaluation reserves,• investment revaluation reserve, and• fair value through other comprehensive income.Special funds reserves are those subject to specificconditions accepted as binding by PNCC and which maynot be revised by PNCC without reference to the Courts or athird party. Transfers from these reserves may be made onlyfor certain specified purposes or when certain specifiedconditions are met.Also included in special funds reserves are reservesrestricted by Council decision. The Council may alter themwithout reference to any third party or the Courts. Transfersto and from these reserves are at the discretion of theCouncil.PNCC’s objectives, policies and processes for managingcapital are described in note 35.Asset revaluation reservesAsset revaluation reserves relates to the revaluation ofproperty, plant and equipment to fair value.Investment revaluation reserveInvestment revaluation reserve relates to the cumulativenet change of fair value of financial assets at fair valuethrough other comprehensive income.Goods and Services Tax (GST)All items in the financial statements are stated exclusive ofGST, except for trade and other receivables and trade andother payables, which are stated on a GST inclusive basis.Where GST is not recoverable as input tax it is recognised aspart of the related asset or expense.The net amount of GST recoverable from, or payable to,the Inland Revenue Department (IRD) is included as partof receivables or payables in the statement of financialposition.The net GST paid to, or received from the IRD, includingthe GST relating to investing and financing activities, isclassified as an operating cash flow in the statement of cashflows.Commitments and contingencies are disclosed exclusive ofGST.Budget figuresThe budget figures are those approved by the Council atthe beginning of the year in the Long Term Plan or AnnualPlan. The budget figures have been prepared in accordancewith NZ GAAP, using accounting policies that are consistentwith those adopted by PNCC for the preparation of thesefinancial statements.Cost allocationPNCC has derived the cost of service for each significantactivity of PNCC using the cost allocation system outlinedbelow.Direct costs are those costs directly attributable to asignificant activity. Indirect costs are those costs whichcannot be identified in an economically feasible mannerwith a specific significant activity.Direct costs are charged directly to significant activities.Indirect costs are charged to significant activities usingappropriate cost drivers such as actual usage, staff numbersand floor area.144Special funds reservesSpecial funds reserves are a component of equity generallyrepresenting a particular use to which various parts ofequity have been assigned. Special funds reserves may belegally restricted or created by PNCC.Palmerston North City Council Annual Report 2011/12