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

Critical accounting estimates and assumptionsIn preparing these financial statements PNCC has madeestimates and assumptions concerning the future. Theseestimates and assumptions may differ from the subsequentactual results. Estimates and assumptions are continuallyevaluated and are based on historical experience and otherfactors, including expectations of future events that arebelieved to be reasonable under the circumstances. Theestimates and assumptions that have a significant risk ofcausing a material adjustment to the carrying amountsof assets and liabilities within the next financial year arediscussed below.Landfill aftercare provisionNote 21 discloses an analysis of the exposure of PNCC inrelation to the estimates and uncertainties surrounding thelandfill aftercare provision.Infrastructural assetsThere are a number of assumptions and estimates usedwhen performing Depreciation Replacement Cost (DRC)valuations over infrastructural assets. These include:• the physical deterioration and condition of an asset,for example PNCC could be carrying an asset at anamount that does not reflect its actual condition. Thisis particularly so for those assets which are not visible,for example stormwater, wastewater and water supplypipes that are underground. This risk is minimisedby PNCC performing a combination of physicalinspections and condition modelling assessments ofunderground assets.• estimating any obsolescence or surplus capacity of anasset.• estimates are made when determining theremaining useful lives over which the asset will bedepreciated. These estimates can be impacted bythe local conditions, for example weather patternsand traffic growth. If useful lives do not reflect theactual consumption of the benefits of the asset, thenPNCC could be over or under estimating the annualdeprecation charge recognised as an expense inthe surplus or deficit. To minimise this risk PNCC’sinfrastructural asset useful lives have been determinedwith reference to the NZ Infrastructural Asset Valuationand Depreciation Guidelines published by the NationalAsset Management Steering Group, and have beenadjusted for local conditions based on past experience.Asset inspections, deterioration and conditionmodelling are also carried out regularly as part ofthe PNCC’s asset management planning activities,which gives PNCC further assurance over its useful lifeestimates.Financial Statements Note 1Experienced staff engineers perform PNCC’s infrastructuralasset revaluations which are certified by independentvaluers.Critical judgements in applying PNCC’saccounting policiesManagement has exercised the following criticaljudgements in applying the PNCC’s accounting policies forthe period ended 30 June 2012:Classification of propertyPNCC owns a number of residential rental properties(community housing), which are maintained primarily toprovide housing to pensioners and people with specialneeds. The receipt of market-based rental from theseproperties is incidental to holding these properties. Theseproperties are held for service delivery objectives as partof PNCC’s social housing policy. These properties areaccounted for as property, plant and equipment and notinvestment property.Palmerston North City Council Annual Report 2011/12145