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Appendix 4: Accounting Policies

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The following accounting policies outline how the budgets for Project Watershed were compiled and state the underlying accounting practices adopted.

A General Accounting Policies

Project Watershed Budgets have been prepared to meet the requirements of Section 122 of the Local Government Amendment Act (No. 3) 1996. It may not be appropriate for the information disclosed in this document to be used for purposes other than those for which it was prepared.

The accounting principles established by the Institute of Chartered Accountants of New Zealand are applied in preparation of this document. These financial statements constitute a forecast in terms of Financial Reporting Standard No. 29. Actual results for the periods covered are likely to vary from this forecast.

The measurement base adopted is that of historical cost unless otherwise stated. Reliance is placed upon the fact that the Council is a going concern.

Accrual accounting is used to measure costs of services provided and recognise revenues.

B Recognition of Income and Expenditure

  • Grant revenue is recognised at the same time the related expenditure is recognised.
  • Rates and other revenues are recognised when the assessment or invoice has been issued.
  • Expenditure is recognised when the service has been provided or the goods received.

C Work in Progress

Work in progress is stated at the lower of cost or net realisable value.

D Depreciation - Operational Fixed Assets

Fixed and infrastructural assets, apart from land, are depreciated on a straight line basis at rates that will write off the cost over the useful life of each class of asset.

The annual rates applied for fixed assets are:

Buildings (concrete) 1.00
Buildings (wooden) 2.50
Motor vehicles 13.33
Computer equipment 20.00 25.00
Other equipment and office furniture 13.33
Plant items 10.00
Air conditioning 5.00

E Infrastructural Fixed Assets

Infrastructural fixed assets, including land, have been valued by Opus International Limited and Quotable Value New Zealand respectively, as at 1 July 1998. These assets have been valued at depreciated replacement values and at cost for acquisitions subsequent to that date.

As from 1 July 1998, Council began depreciating all infrastructural assets, including stopbanks and the drainage network. This has been based on the review of accounting policies for infrastructural assets and changes to the treatment of capital and maintenance expenditure to accurately reflect the capital nature of the work being performed. The treatment has been applied consistently over all asset categories.

Infrastructural asset depreciation rates are based on the residual useful life for each individual asset component which equates to a range of rates as per our infrastructural asset register.

The base life in years are:

Ballast 200
Bridges 50 - 100
Channels 50 - 100
Conservation Areas Fencing and Planting 20
Culverts 60
Debris Traps 100
Earth Detention Dams 50
Flood Pumps and Motors 25
Pipes 80
Power and Control Equipment 20
Pump Stations - Buildings 60
Retaining Structures - Timber 25
River Training Works 100
Rock Weirs, Bank Protection and Drop Structures 25 - 400
Screens 10
Stopbanks - Clay Foundation 200
Stopbanks - Firm Clay Foundation 500
Stopbanks - Marine Mud 40
Stopbanks - Peat Foundation 50
Stopbanks - Sand Foundation 125
Structures Major 100
Structures Minor 20 - 60
Telemetry / Scada 15
Valves 25

F Goods and Services Tax (GST)

These financial statements have been prepared on a GST exclusive basis. The balance outstanding at balance date is included in the Forecast Statement of Financial Position.

G Overhead Allocations

All overheads are reallocated amongst significant activities on a basis which it is considered to reflect the costs attributable to each activity. The various categories of corporate cost are allocated by determining the most appropriate basis (e.g. labour dollars, staff numbers) applicable to the service provided.

H Notional Interest

This is an internal charge that is made to reflect the true cost of service of each significant output activity. It should be noted that notional interest is eliminated in preparing the Council’s Forecast Statement of Financial Performance.

We have made a notional interest charge against each significant activity at the rate of five percent on the net book value of land and buildings and 10 percent of the net book value of other fixed assets employed in each activity. A rate of 0 percent has been applied to infrastructural assets.

I Reserves

Reserves are the components of equity that have been created for a particular use.

Council created reserves are established by Council decision. Transfers to and from these reserves are at the discretion of the Council.

J Leases

Leases, where the lessor effectively retains all the risks and benefits of ownership, are classified as operating leases. Payments under these leases are charged as expenses in the financial period they are incurred in.

Leases of fixed assets, where substantially all the risks and benefits incidental to the ownership of the asset are transferred to the group, are classified as finance leases. The leased assets and corresponding liabilities are disclosed. The leased assets are depreciated over the period the entity is expected to benefit from their use.

Operating lease payments, where the 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