DSDBI Annual Report 2013-14 Financial Report
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03 Financial Report Introduction This financial report covers the Department of State Development, Business and Innovation (the department) as an individual reporting entity and is presented in the Australian currency. The Department of State Development, Business and Innovation is a Government Department of the State of Victoria. The department was established pursuant to an order made by the Premier under the Administrative Arrangements Act 1983. The department’s principal address is: Department of State Development, Business and Innovation 121 Exhibition Street Melbourne VIC 3000 A description of the nature of the department’s operations and its principal activities is included in the Report of Operations section of the annual report which does not form part of this financial report. For inquiries in relation to our reporting please call 9651 9999, or visit the Department of State Development, Business and Innovation website (dsdbi.vic.gov.au). Department of State Development, Business and Innovation Annual Report 2013-14 39 Contents Introduction .......................................................................................................................................................39 Comprehensive operating statement ................................................................................................................41 Balance sheet ...................................................................................................................................................42 Statement of changes in equity ........................................................................................................................43 Cash flow statement .........................................................................................................................................44 Notes to the financial statements .....................................................................................................................45 Note 1. Summary of significant accounting policies ....................................................................................45 Note 2. Departmental (controlled) outputs ..................................................................................................70 Note 3. Administered (non-controlled) items ...............................................................................................74 Note 4. Income from transactions ...............................................................................................................76 Note 5. Expenses from transactions ...........................................................................................................76 Note 6. Other economic flows included in net result ...................................................................................78 Note 7. Receivables ....................................................................................................................................79 Note 8. Inventories ......................................................................................................................................79 Note 9. Restructuring of administrative arrangements ................................................................................80 Note 10. Property, plant and equipment ......................................................................................................81 Note 11. Non-financial physical assets classified as held for sale including disposal group assets and directly associated liabilities .................................................................................................................89 Note 12. Investments accounted for using the equity method ....................................................................89 Note 13. Intangible assets ...........................................................................................................................90 Note 14. Other non-financial assets ............................................................................................................91 Note 15. Payables .......................................................................................................................................91 Note 16. Borrowings ....................................................................................................................................92 Note 17. Provisions .....................................................................................................................................92 Note 18. Superannuation .............................................................................................................................93 Note 19. Other liabilities ..............................................................................................................................94 Note 20. Leases ..........................................................................................................................................94 Note 21. Commitments for expenditure .......................................................................................................96 Note 22. Contingent assets and contingent liabilities ..................................................................................97 Note 23. Financial instruments ....................................................................................................................98 Note 24. Cash flow information .................................................................................................................107 Note 25. Investments .................................................................................................................................108 Note 26. Reserves .....................................................................................................................................108 Note 27. Summary of compliance with annual parliamentary and special appropriations ........................109 Note 28. Ex-gratia expenses .....................................................................................................................110 Note 29. Annotated income agreements ...................................................................................................110 Note 30. Trust account balances ...............................................................................................................110 Note 31. Responsible persons ..................................................................................................................114 Note 32. Remuneration of executives and payments to other personnel .................................................115 Note 33. Remuneration of auditors............................................................................................................117 Note 34. Glossary of terms ........................................................................................................................117 Accountable Officer’s and Chief Finance Officer’s Declaration ......................................................................123 Auditor-General’s report .................................................................................................................................124 Department of State Development, Business and Innovation Annual Report 2013-14 40 Comprehensive operating statement for the financial year ended 30 June 2014 2014* $’000 2013 $’000 Output appropriations 576,223 438,132 Regional Growth Fund appropriations 136,000 – Notes Continuing operations Income from transactions Interest 4(a) 5,312 611 Grants 4(b) 84,008 83,495 Other income 4(c) 139,444 98,654 940,987 620,892 Total income from transactions Expenses from transactions Employee expenses 5(a) (115,787) (78,271) Depreciation and amortisation 5(b) (8,743) (4,060) Interest expense 5(c) (280) (47) Grants and other transfers 5(d) (484,647) (310,279) (9,801) (9,491) (282,883) (203,940) (902,141) (606,088) 38,846 14,804 Capital asset charge Other operating expenses 5(e) Total expenses from transactions Net result from transactions (net operating balance) Other economic flows included in net result Net gain/(loss) on non-financial assets 6(a) (4,850) (3,887) Net gain/(loss) on financial instruments 6(b) (40) – Other gains/(losses) from other economic flows 6(c) (32) 93 Total other economic flows included in net result (4,922) (3,794) Net result 33,924 11,010 5,320 – (5,320) – – – 33,924 11,010 Other economic flows – other comprehensive income Items that will not be classified to net result Transfer of asset revaluation surplus to accumulated surplus Changes in physical asset revaluation reserve Total other economic flows – other comprehensive income Comprehensive result 26 * 2014 includes the impact of Machinery of Government and administrative changes, however comparative amounts for the prior year have not been adjusted. The comprehensive operating statement should be read in conjunction with the notes to the financial statements. Department of State Development, Business and Innovation Annual Report 2013-14 41 Balance sheet as at 30 June 2014 Notes 2014* $’000 2013 $’000 24 396,760 89,229 Receivables 7 155,171 113,626 Investments 25 90 – 552,021 202,855 8 10,168 23,646 Non-financial physical assets classified as held for sale including disposal group assets 11 25 23 Property, plant and equipment 10 559,026 526,159 Investments accounted for using the equity method 12 35,000 35,000 Intangible assets 13 36,232 26,490 Other non-financial assets 14 1,858 966 642,309 612,284 1,194,330 815,139 Assets Financial assets Cash and deposits Total financial assets Non-financial assets Inventories Total non-financial assets Total assets Liabilities Payables 15 100,358 62,672 Borrowings 16 3,201 984 Provisions 17 35,188 20,876 Other liabilities 19 84 194 Liabilities directly associated with assets classified as held for sale including disposal groups 11 25 23 138,856 84,749 1,055,474 730,390 249,103 209,859 25,650 30,970 780,721 489,561 1,055,474 730,390 Total liabilities Net assets Equity Accumulated surplus Physical asset revaluation surplus 26 Contributed capital Total equity * 2014 includes the impact of Machinery of Government and administrative changes, however comparative amounts for the prior year have not been adjusted. Restructure of administrative arrangements 9 Commitments for expenditure 21 Contingent assets and contingent liabilities 22 The balance sheet should be read in conjunction with the notes to the financial statements. Department of State Development, Business and Innovation Annual Report 2013-14 42 Statement of changes in equity for the financial year ended 30 June 2014 Physical Asset Revaluation Accumulate Contributed Surplus d Surplus Capital Notes $’000 $’000 $’000 Balance at 1 July 2012 Total $’000 30,970 198,849 381,204 611,023 Net result for the year – 11,010 – 11,010 Capital appropriations – – 120,511 120,511 Transfers – – (12,154) (12,154) 30,970 209,859 489,561 730,390 Net result for the year – 33,924 – 33,924 Capital appropriations – – 43,835 43,835 – – 266,359 266,359 Transfers via contributed capital – – (19,034) (19,034) Transfer to accumulated surplus (5,320) 5,320 – – Balance at 30 June 2014 25,650 249,103 780,721 1,055,474 Balance at 30 June 2013 Administrative restructure – net assets received 9 The statement of changes in equity should be read in conjunction with the notes to the financial statements. Department of State Development, Business and Innovation Annual Report 2013-14 43 Cash flow statement for the financial year ended 30 June 2014 2014* $’000 2013 $’000 Receipts from Government 676,877 522,913 Receipts from other entities 258,458 91,088 44,549 41,754 5,312 611 985,196 656,366 Payments of grants and other transfers (484,647) (310,278) Payments to suppliers and employees (427,455) (305,858) (9,801) (9,491) (280) (47) (922,183) (625,674) 63,013 30,692 (38,058) (117,440) Sales of non-financial assets 1,090 351 Payments for intangible assets (701) (2,803) (37,669) (119,892) 38,031 117,975 246,257 – (2,101) (591) Net cash flows from/(used in) financing activities 282,187 117,384 Net increase/(decrease) in cash and cash equivalents 307,531 28,184 89,229 61,045 396,760 89,229 Notes Cash flows from operating activities Receipts Goods and Services Tax recovered from the ATO Interest received Total receipts Payments Capital asset charge payments Interest and other costs of finance paid Total payments Net cash flows from/(used) in operating activities 24(c) Cash flows from investing activities Purchases of non-financial assets Net cash flows from/(used in) investing activities Cash flows from financing activities Owner contributions by State Government Restructuring of administrative arrangements Repayment of finance leases Cash and cash equivalents at the beginning of the financial year Cash and cash equivalents at the end of the financial year 24(a) * 2014 includes the impact of Machinery of Government and administrative changes, however comparative amounts for the prior year have not been adjusted. Non-cash transactions 24(b) The cash flow statement should be read in conjunction with the notes to the financial statements. Department of State Development, Business and Innovation Annual Report 2013-14 44 Notes to the financial statements for the financial year ended 30 June 2014 Note 1. Summary of significant accounting policies These annual financial statements represent the audited general purpose financial statements for the Department of State Development, Business and Innovation (the department) for the period ended 30 June 2014. The purpose of the report is to provide users with information about the department’s stewardship of resources entrusted to it. (A) Statement of compliance These general purpose financial statements have been prepared in accordance with the Financial Management Act 1994 and applicable Australian Accounting Standards (AAS), which include Interpretations, issued by the Australian Accounting Standards Board (AASB). In particular, they are presented in a manner consistent with the requirements of the AASB 1049 Whole of Government and General Government Sector Financial Reporting. Where appropriate, those paragraphs of the AASs applicable to not-for-profit entities have been applied. Accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported. To gain a better understanding of the terminology used in this report, a glossary of terms can be found in Note 34. These annual financial statements were authorised for issue by the Secretary of the department on 4 September 2014. (B) Basis of accounting preparation and measurement The accrual basis of accounting has been applied in the preparation of these financial statements whereby assets, liabilities, equity, income and expenses are recognised in the reporting period to which they relate, regardless of when cash is received or paid. Judgements, estimates and assumptions are required to be made about the carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on professional judgements derived from historical experience and various factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. Revisions to accounting estimates are recognised in the period in which the estimate is revised and also in future periods that are affected by the revision. Judgements and assumptions made by management in the application of AASs that have significant effects on the financial statements and estimates relate to: the fair value of land, buildings, infrastructure, plant and equipment (refer to Note 1(Q)) superannuation expense (refer to Note 1(K)); and actuarial assumptions for employee benefit provisions based on likely tenure of existing staff, patterns of leave claims, future salary movements and future discount rates (refer to Note 1(R)). These financial statements are presented in Australian dollars, and prepared in accordance with the historical cost convention except for: Department of State Development, Business and Innovation Annual Report 2013-14 45 non-financial physical assets which, subsequent to acquisition, are measured at a revalued amount being their fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent impairment losses. Revaluations are made with sufficient regularity to ensure that the carrying amounts do not materially differ from their fair value. Consistent with AASB 13 Fair Value Measurement, the department determines the policies and procedures for both recurring fair value measurements such as property, plant and equipment, and financial instruments and for non-recurring fair value measurements such as non-financial physical assets held for sale, in accordance with AASB 13 and the relevant Financial Reporting Directions. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable; and Level 3 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. For the purpose of fair value disclosures, the department has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above. In addition, the department determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. The Valuer-General Victoria (VGV) is the department’s independent valuer. The department, in conjunction with the VGV, monitors changes in the fair value of each asset and liability through relevant data sources to determine whether revaluation is required. (C) Scope and presentation of financial statements Comprehensive operating statement The comprehensive operating statement comprises three components, ‘net result from transactions’ (or termed as ‘net operating balance’), ‘other economic flows included in net result’, as well as ‘other economic flows -other comprehensive income’. The sum of the former two, together with the net result from discounted operations, represents the net result. The net result is equivalent to profit or loss derived in accordance with AASs. This classification is consistent with the whole of Government reporting format and is allowed under AASB 101 Presentation of Financial Statements. Balance sheet Assets and liabilities are presented in liquidity order with assets aggregated into financial assets and nonfinancial assets. Current and non-current assets and liabilities (non-current being those expected to be recovered or settled in more than 12 months after the reporting period) are disclosed in the notes, where relevant. Department of State Development, Business and Innovation Annual Report 2013-14 46 Statement of changes in equity The statement of changes in equity presents reconciliations of non-owner and owner changes in equity from the opening balance at the beginning of the reporting period to the closing balance at the end of the reporting period. It also separately shows changes due to amounts recognised in the ‘comprehensive result’ and amounts recognised in ‘other economic flows – other movements in equity’ related to ‘transactions with owner in its capacity as owner’. Cash flow statement Cash flows are classified according to whether or not they arise from operating, investing or financing activities. This classification is consistent with requirements under AASB 107 Statement of Cash Flows. For cash flow statement presentation purposes, cash and cash equivalents include bank overdrafts, which are included as current borrowings on the balance sheet. Rounding Amounts in the financial statements have been rounded to the nearest $1,000, unless otherwise stated. Figures in the financial statements may not equate due to rounding. Please refer to Note 34 for a style convention for explanations of minor discrepancies resulting from rounding. (D) Changes in accounting policy The following new and revised Standards have been adopted in the current period with their financial impact detailed below. AASB 13 Fair value measurement AASB 13 establishes a single source of guidance for all fair value measurements. AASB 13 does not change when a department is required to use fair value, but rather provides guidance on how to measure fair value under AASs when fair value is required or permitted. The department has considered the specific requirements relating to highest and best use, valuation premise, and principal market. The methods, assumptions, processes, and procedures for determining fair value were revisited and adjusted where applicable. In light of AASB 13, the department has reviewed the fair value principles as well as its current valuation methodologies in assessing the fair value, and the assessment has not materially changed the fair values recognised. AASB 13 has impacted the disclosure by the department as it requires specific disclosure about fair value measurements and disclosures of fair values, some of which replace existing disclosure requirements in other standards, including AASB 7 Financial Instruments: Disclosures. The disclosure requirements of AASB 13 apply prospectively and need not be applied in comparative information before first application. Consequently, the 2012-13 comparatives of these disclosures have not been provided, except for financial instruments, of which the fair value disclosures are required under AASB 7 Financial Instruments: Disclosures. AASB 119 Employee benefits In 2013-14, the department has applied AASB 119 Employee benefits (September 2011, as amended) and the related consequential amendments for the first time. The revised AASB 119 changes the accounting for defined benefit plans and termination benefits. The most significant change relates to the accounting for changes in defined benefit obligation and plan assets. As the current accounting policy is for the Department of Treasury and Finance (DTF) to recognise and disclose the Department of State Development, Business and Innovation Annual Report 2013-14 47 state’s defined benefit liabilities in its financial statements, changes in defined benefit obligations and plan assets will have limited impact on the department. The revised standard also changes the definition of short-term employee benefits. These were previously benefits that were expected to be settled within twelve months after the end of the reporting period in which the employees render the related service, however, short-term employee benefits are now defined as benefits expected to be settled wholly within twelve months after the end of the reporting period in which employees rendered the related service. As a result, accrued annual leave balances which were previously classified as short-term employee benefits no longer meet this definition and are classified as long-term employee benefits. Where this has occurred it will result in a change of measurement for the annual leave provision from an undiscounted to discount basis. The department has undertaken a detailed analysis of accrued annual leave balances for the last three years and considers the accrued annual leave is consistent with the department’s annual leave policy and Victorian Public Service Workplace Determination 2012 (Conditions of Employment), both of which require accrued annual leave to be settled wholly within twelve months after the end of the reporting period in which employees rendered the related service. Accordingly, the department has accounted for the accrued annual leave liability at the reporting date as short-term employee benefits measured at nominal value. (E) Basis of consolidation In accordance with AASB 127 Consolidated and Separate Financial Statements: The consolidated financial statements of the department incorporates assets and liabilities of all reporting entities controlled by the department as at 30 June 2014, and their income and expenses for that part of the reporting period in which control existed (refer Note 1(F)) are controlled and consolidated. The consolidated financial statements exclude bodies within the department’s portfolio that are not controlled by the department and therefore are not consolidated. Bodies and activities that are administered (refer Note 1(G)) are also not controlled and not consolidated. Where control of an entity is obtained during the financial period, its results are included in the comprehensive operating statement from the date on which control commenced. Where control ceases during a financial period, the entity’s results are included for that part of the period in which control existed. Where dissimilar accounting policies are adopted by entities and their effect is considered material, adjustments are made to ensure consistent policies are adopted in these financial statements. In the process of preparing consolidated financial statements for the department, all material transactions and balances between consolidated entities are eliminated. Consistent with the requirements of AASB 1004 Contributions, contributions by owners (i.e. contributed capital and its repayment) are treated as equity transactions and, therefore, do not form part of the income and expenses of the department. Jointly controlled assets or operations Interest in jointly controlled assets or operations are not consolidated by the department, but are accounted for in the financial statements using the equity method. Under the equity method, the share of the profits or losses of the partnership is recognised in the comprehensive operating statement, and the share of movements in reserves is recognised in reserves (non-owner equity) in both the comprehensive operating statement and the statement of changes in equity. The cumulative post-acquisition changes are adjusted against the carrying value of the jointly controlled entity. Details relating to the joint venture are set out in Note 12. Department of State Development, Business and Innovation Annual Report 2013-14 48 The department has a joint venture interest with Monash University in the Australian Regenerative Medical Institute (ARMI). ARMI was established to construct and operate a facility which will promote Victoria as a global leader in regenerative medical research, foster and develop existing research collaboration on both domestic and overseas projects, and provide a major site for both undergraduate and post graduate training programs. The department has no rights to share profits and is not liable for losses of the Joint Venture as set-out in the Joint Venture Funding Agreement. (F) Reporting entity The financial statements cover the department as an individual reporting entity. The department is a Government Department of the State of Victoria, established pursuant to an order made by the Premier under the Administrative Arrangements Act 1983. Its principal address is: Department of State Development, Business and Innovation 121 Exhibition Street, Melbourne VIC 3000 Postal address: PO Box 4509 Melbourne VIC 3001. The department is an administrative agency acting on behalf of the Crown. The financial statements include all the controlled activities of the department. The following statutory body is included in the department’s reporting entity: Victoria Trade and Investment Office Pty Ltd, a wholly owned subsidiary operating in China, was acquired on 1 July 2005 to enable the department to engage in trade and investment promotion activities in the South-East Asian region. In addition, the following entities are included in the department‘s reporting entity: Office of the Small Business Commissioner established under the Small Business Commissioner Act 2003 Major Projects Victoria (MPV) is part of the department but derives its powers through delegation to the Executive Director MPV and other senior officers from the Secretary to the Department of State Development, Business and Innovation, body corporate under the Project Development Construction and Management Act 1994 (Vic). Regional Development Victoria Red Tape Commissioner, and Victorian Mining Warden. A description of the nature of the department’s operations and its principal activities is included in the Report of Operations which does not form part of the financial statements. Details on the restructure of administrative arrangements can be found in Note 9. Objectives and funding The objectives of the department during the reporting period were: assist businesses in accessing skilled workers to align with Victoria’s industry needs provide market intelligence and assistance to organisations to make it easy to invest in Victoria Department of State Development, Business and Innovation Annual Report 2013-14 49 create more opportunities for Victorian communities and businesses to grow and become more productive and competitive in the global marketplace promote Victoria to attract tourists, investors, and students support organisations and Government to boost their productivity through innovation and technology promote the delivery of safe, reliable and competitive energy services, and grow a sustainable resources sector. Information about the department’s output activities, and the income, expenses, assets and liabilities which are reliably attributable to those output activities, is set out in the output activities schedule at Note 2. Information about income, expenses, assets and liabilities administered by the department are given in the schedule of administered expenses and income and the schedule of administered assets and liabilities, refer to Note 3. (G) Administered items Certain resources are administered by the department on behalf of the state. While the department is accountable for the transactions involving administered items, it does not have the discretion to deploy the resources for its own benefit or the achievement of its objectives. Accordingly, transactions and balances relating to administered items are not recognised as departmental income, expenses, assets or liabilities in the body of the financial statements. Administered income includes revenue generated for the state from brown coal and minerals royalties, levies, and mining licences. Administered assets include Government income earned but not yet collected. Administered liabilities include Government expenses incurred but not yet paid. Except as otherwise disclosed, administered resources are accounted for on an accrual basis using the same accounting policies adopted for recognition of the departmental items in the financial statements. Both controlled and administered items of the department are consolidated into the financial statements of the state. Disclosures related to administered items can be found in Notes 3 and 21. (H) Events after the reporting period Assets, liabilities, income or expenses arise from past transactions or other past events. Where the transactions result from an agreement between the department and other parties, the transactions are only recognised when the agreement is irrevocable at or before the end of the reporting period. Adjustments are made to amounts recognised in the financial statements for events which occur after the reporting period and before the date the financial statements are authorised for issue, where those events provide information about conditions which existed in the reporting period. Note disclosure is made about events between the end of the reporting period and the date the financial statements are authorised for issue where the events relate conditions which arose after the end of the reporting period and which may have a material impact on the results of subsequent years. (I) Accounting for goods and services tax (GST) Income, expenses, assets and liabilities are recognised net of the amount of associated GST, except where GST incurred is not recoverable from the taxation authority. In this case GST payable is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the balance sheet. Department of State Development, Business and Innovation Annual Report 2013-14 50 Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from or payable to the taxation authority, are presented as an operating cash flow. Commitments, contingent assets and contingent liabilities are also stated exclusive of GST (refer to Note 1(S) and Note 1(T)). (J) Income from transactions Income is recognised to the extent that it is probable that the economic benefits will flow to the department and the income can be reliably measured at fair value. Appropriation income Appropriated income becomes controlled and is recognised by the department when it is appropriated from the Consolidated Fund by the Victorian Parliament and applied to the purposes defined under the relevant Appropriations Act. Additionally, the department is permitted under Section 29 of the Financial Management Act 1994 to have certain income annotated to the annual appropriation. The income which forms part of a Section 29 agreement is recognised by the department and the receipts paid into the Consolidated Fund as an administered item. At the point of income recognition, Section 29 provides for an equivalent amount to be added to the annual appropriation. Examples of receipts which can form part of a Section 29 agreement are Commonwealth specific purpose grants, municipal council special purpose grants, the proceeds from the sale of assets, and income from the sale of products and services. Where applicable, amounts disclosed as income are net of returns, allowances, duties and taxes. All amounts of income over which the department does not have control are disclosed as administered income in the schedule of administered income and expenses, refer Note 3. Income is recognised for each of the department’s major activities as follows: Output appropriations Income from the outputs the department provides to Government is recognised when those outputs have been delivered and the relevant Minister has certified delivery of those outputs in accordance with specified performance criteria. Interest income Interest income includes interest received on bank term deposits and other investments and the unwinding over time of the discount on financial assets. Interest income is recognised using the effective interest method which allocates the interest over the relevant period. Net realised and unrealised gains and losses on the revaluation of investments do not form part of income from transactions, but are reported as part of income from other economic flows in the net result or as unrealised gains and losses taken directly to equity, forming part of the total change in net worth in the comprehensive result. Trust income Trust income received for a specific purpose is deferred and recognised progressively in the comprehensive operating statement in the period in which conditions relating to the payment of the funds to third parties have been met. Major trusts include the Regional Growth Fund. All other trust income is recognised in the comprehensive operating statement when it is earned by the department and any unapplied amounts as at the end of the reporting period are recognised in the balance sheet under other liabilities until the associated expenditure is incurred. Accordingly, the department Department of State Development, Business and Innovation Annual Report 2013-14 51 recognises current and non current unearned revenue based on the timing of the estimated future payments to be made. Grants Income from grants (other than contribution by owners) is recognised when the department gains control over the assets. Where such grants are payable into the consolidated fund, they are reported as administered income. For reciprocal grants (i.e. equal value is given back by the department to the provider), the department is deemed to have assumed control when the department has satisfied its performance obligations under the terms of the grant. For non reciprocal grants, the department is deemed to have assumed control when the grant is receivable or received. Conditional grants may be reciprocal or non reciprocal depending on the terms of the grant. Fair value of assets and services received free of charge or for nominal consideration Contributions of resources received free of charge or for nominal consideration are recognised at fair value when control is obtained over them, irrespective of whether these contributions are subject to restrictions or conditions over their use. Contributions in the form of services are only recognised when a fair value can be reliably determined and the services would have been purchased if not received as a donation. Other income Other income includes trust income, property rental, and land development sales for the Kew Residential Services Project. Under the Kew Residential Developer Agreement the department, through MPV, is the proprietor for all building lot sales and as such reports the proceeds from sales as well as the costs of the development. (K) Expenses from transactions Expenses from transactions are recognised as they are incurred, and reported in the financial year to which they relate. Grants and other transfers Grants and other transfers to third parties are recognised as an expense in the reporting period in which they are paid or payable. They include transactions such as grants, subsidies and other transfer payments including but not limited to Tourism Victoria and Film Victoria. Employee expenses Refer to the section in Note 1(R) regarding employee benefits. These expenses include all costs related to employment (other than superannuation which is accounted for separately) including wages and salaries, fringe benefits tax, leave entitlements, redundancy payments, and WorkCover premiums. Superannuation – state superannuation defined benefit plans The amount recognised in the comprehensive operating statement is the employer contributions for members of both defined benefit and defined contribution superannuation plans that are paid or payable during the reporting period. Department of State Development, Business and Innovation Annual Report 2013-14 52 The DTF in their Annual Financial Statements, disclose on behalf of the state as the sponsoring employer, the net defined benefit cost related to the members of these plans as an administered liability. Refer to DTF’s Annual Financial Statements for more detailed disclosures in relation to these plans. Depreciation and amortisation All infrastructure assets, buildings, plant and equipment, and other non-financial physical assets (excluding items under operating leases, assets held-for-sale, land and investment properties) that have finite useful lives are depreciated or amortised. Depreciation is generally calculated on a straight-line basis, at rates that allocate the asset’s value, less any estimated residual value, over its estimated useful life. Refer to Note 1(Q) for the depreciation policy for leasehold improvements. The estimated useful lives, residual values, and depreciation method are reviewed at the end of each annual reporting period, and adjustments made where appropriate. The following are typical estimated useful lives for the different asset classes for current and prior years: Useful life 2014 2013 33 to 50 33 to 50 150 150 90 90 Leasehold improvements 8 to 15 8 to 15 Plant and equipment 3 to 10 3 to 10 1 to 5 1 to 5 Asset class Buildings Buildings leasehold Infrastructure Intangible produced assets – software development Core cultural assets, which are considered to have an indefinite life, are not depreciated. Depreciation is not recognised in respect of these assets as their service potential has not, in any material sense, been consumed during the reporting period. Intangible produced assets with finite useful lives are amortised as an expense from transactions on a systematic (typically straight line) basis over the asset’s useful life. Amortisation begins when the asset is available for use (i.e. when it is in the location and condition necessary for it to be capable of operating in the manner intended by management). Intangible assets with indefinite useful lives are not amortised, but are treated annually for impairment. The intangible asset, refer Note 13, is a deferred expense primarily relating to the development of Parkville Gardens, internal software development, and the Resource Rights Allocation and Management (RRAM) system, transferred as part of the Machinery of Government change that took effect on 1 July 2013. The value for the development of Parkville Gardens is progressively recognised (expensed) in line with the sale of properties within the site and is tested for impairment every 12 months, and RRAM’s is amortised over the life of the software. Interest expense Interest expenses are recognised in the period in which they are incurred and mainly relate to finance lease interest charges. Refer to Glossary of terms and style conventions in Note 34 for an explanation of interest expense items. Department of State Development, Business and Innovation Annual Report 2013-14 53 Capital asset charge The capital asset charge is calculated on the budgeted carrying amount of applicable non-financial physical assets. Other operating expenses Other operating expenses generally represent the day-to-day running costs incurred in normal operations and include: Supplies and services Supplies and services are recognised as an expense in the reporting period in which they are incurred. The carrying amounts of any inventories held for distribution are expensed when distributed. Bad and doubtful debts Refer to Note 1(O) Impairment of financial assets. Fair value of assets and services provided free of charge or for nominal consideration Contributions of resources provided free of charge or for nominal consideration are recognised at their fair value by the transferee when the transferee obtains control over them, irrespective of whether restrictions or conditions are imposed over the use of the contributions, unless received from another Government department or agency as a consequence of a restructuring of administrative arrangements. In the latter case, such a transfer will be recognised at carrying value. Contributions in the form of services are only recognised when a fair value can be reliably determined and the services would have been purchased if not donated. (L) Other economic flows included in net result Other economic flows measure the change in volume or value of assets or liabilities that do not result from transactions. These include: Net gain/(loss) on non-financial assets Net gain/(loss) on non-financial assets and liabilities includes realised and unrealised gains and losses as follows: Revaluation gains/(losses) of non-financial physical assets Refer to Note 1(Q) Revaluations of non-financial physical assets. Disposal of non-financial assets Any gain or loss on the disposal of non-financial assets is recognised at the date of disposal and is determined after deducting from the proceeds the carrying value of the asset at that time. Amortisation of non-produced intangible assets Intangible non-produced assets with finite lives are amortised on a systematic (typically straight-line) basis over the asset’s useful life. Amortisation begins when the asset is available for use (i.e. when it is in the location and condition necessary for it to be capable of operating in the manner intended by management). Department of State Development, Business and Innovation Annual Report 2013-14 54 Gain/(Loss) arising from transactions in foreign exchange Refer to Note 1(V) Foreign Currency. Impairment of non-financial assets Intangible assets with indefinite useful lives (and intangible assets not yet available for use) are tested annually for impairment (as described below) and whenever there is an indication that the asset may be impaired. All other non-financial assets are assessed annually for indications of impairment, except for: non-financial physical assets held for sale, refer Note 11 inventories, refer Note 8. If there is an indication of impairment, the assets concerned are tested as to whether their carrying amount exceeds their recoverable amount. Where an asset’s carrying amount exceeds its recoverable amount, the difference is written-off as an other economic flow, except to the extent that the write-down can be debited to an asset revaluation surplus account applicable to that class of asset. If there is an indication that there has been a change in the estimate of an asset’s recoverable amount since the last impairment loss was recognised, the carrying amount shall be increased to its recoverable amount. This reversal of the impairment loss occurs only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss has been recognised in prior years. It is deemed that, in the event of the loss of an asset, the future economic benefits arising from the use of the asset will be replaced unless a specific decision to the contrary has been made. The recoverable amount for most assets is measured at fair value less costs to sell. This is due to the fact most assets held by the department are not primarily used for cash generating purposes, and in the event of their loss, the future economic benefits arising from the use of the asset will be replaced unless a specific decision to the contrary has been made. Recoverable amount for assets held primarily to generate net cash inflows is measured at the higher of the present value of future cash flows expected to be obtained from the asset and fair value less costs to sell. Refer to Note 1(Q) in relation to the recognition and measurement of non-financial assets. Net gain/(loss) on financial instruments Net gain/(loss) on financial instruments includes: realised and unrealised gains and losses from revaluations of financial instruments at fair value; impairment and reversal of impairment for financial instruments at amortised cost (refer to Note 1(N)); and disposals of financial assets and derecognition of financial liabilities. Revaluations of financial instruments at fair value Refer to Note 1(N) Financial Instruments. Other gains/(losses) from other economic flows Other gains/(losses) from other economic flows include the gains or losses from: the revaluation of the present value of the long service leave liability due to changes in bond interest rates; and Department of State Development, Business and Innovation Annual Report 2013-14 55 transfer of amounts from the reserves to accumulated surplus or net result due to disposal or derecognition or reclassification. (M) Administered income Grants from the Commonwealth Government and other jurisdictions The department’s administered grants mainly comprise funds provided by the Commonwealth to assist the State Government in meeting general or specific service delivery obligations, primarily for the purpose of aiding in the financing of the operations of the recipient, capital purposes, and/or for on-passing to other recipients. The department also receives grants for on-passing to other jurisdictions. The department does not have control over these grants, and the income is not recognised in the department’s financial statements. Administered grants are disclosed in the Schedule of Administered items in Note 3. (N) Financial instruments Financial instruments arise out of contractual agreements that give rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Due to the nature of the department’s activities, certain financial assets and financial liabilities arise under statute rather than a contract. Such financial assets and financial liabilities do not meet the definition of financial instruments in AASB 132 Financial Instruments: Presentation. For example, statutory receivables arising from taxes, fines, and penalties do not meet the definition of financial instruments as they do not arise under contract. However, guarantees issued by the Treasurer on behalf of the department are financial instruments because, although authorised under statute, the terms and conditions for each financial guarantee may vary and are subject to an agreement. Where relevant, for note disclosure purposes, a distinction is made between those financial assets and financial liabilities that meet, and do not meet the definition of financial instruments in accordance with AASB 132 Financial Instruments: Presentation. The following refers to financial instruments unless otherwise stated: Categories of non-derivative financial instruments Loans and receivables Loans and receivables are financial instrument assets with fixed and determinable payments that are not quoted on an active market. These assets are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial measurement, loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Loans and receivables category includes cash and deposits (refer to Note 1(O)), term deposits with maturity greater than three months, trade receivables, loans and other receivables, but not statutory receivables. Financial liabilities at amortised cost Financial instrument liabilities are initially recognised on the date they are originated. They are initially measured at fair value plus any directly attributable costs. Subsequent to initial recognition, these financial instruments are measured at amortised cost with any difference between the initial recognised amount and the redemption value being recognised in profit and loss over the period of the interest-bearing liability, using the effective interest rate method, refer Note 34. Financial instrument liabilities measured at amortised cost include all of the department’s contractual payables, deposits held and advances received, and interest-bearing arrangements other than those designated at fair value through profit and loss. Department of State Development, Business and Innovation Annual Report 2013-14 56 Offsetting financial instruments Financial instrument assets and liabilities are offset and the net amount presented in the consolidated balance sheet when, and only when, the department concerned has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. Reclassification of financial instruments Subsequent to initial recognition and under rare circumstances, non-derivative financial instruments assets that have not been designated at fair value through profit or loss upon recognition, may be reclassified out of the fair value through profit or loss category, if they are no longer held for the purpose of selling or repurchasing in the near term. Financial instrument assets that meet the definition of loans and receivables may be reclassified out of the fair value through profit and loss category into the loans and receivables category, where they would have met the definition of loans and receivables had they not been required to be classified as fair value through profit and loss. In these cases, the financial instrument assets may be reclassified out of the fair value through profit and loss category, if there is the intention and ability to hold them for the foreseeable future or until maturity. Available-for-sale financial instrument assets that meet the definition of loans and receivables may be reclassified into the loans and receivables category if there is the intention and ability to hold them for the foreseeable future or until maturity. (O) Financial assets Cash and deposits Cash and deposits recognised on the balance sheet comprise cash equivalents, cash on hand and cash at bank, deposits at call and highly liquid investments (with an original maturity of three months or less), which are held for the purpose of meeting short term cash commitments rather than for investment purposes, and which are readily convertible to known amounts of cash and are subject to insignificant risk of changes in value. For cash flow statement presentation purposes, cash and cash equivalents includes bank overdrafts, which are included as borrowings on the balance sheet. Receivables Receivables consist of: contractual receivables, such as debtors in relation to goods and services, loans to third parties, accrued investment income, and finance lease receivables (refer to Note 1(P) Leases); and statutory receivables, such as amounts owing from the Victorian Government and GST input tax credits recoverable. Contractual receivables are classified as financial instruments and categorised as loans and receivables (refer to Note 1(N) Financial Instruments for recognition and measurement). Statutory receivables, are recognised and measured similarly to contractual receivables (except for impairment), but are not classified as financial instruments because they do not arise from a contract. Receivables are subject to impairment testing as described below. A provision for doubtful receivables is recognised when there is objective evidence that the debts may not be collected, and bad debts are writtenoff when identified. Department of State Development, Business and Innovation Annual Report 2013-14 57 For the measurement principle of receivables, refer to Note 1(N). Investments and other financial assets Investments are classified in the following categories: financial assets at fair value through profit or loss loans and receivables held-to-maturity; and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition. Any dividend or interest earned on the financial asset is recognised in the comprehensive operating statement as a transaction. Derecognition of financial assets A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when: the rights to receive cash flows from the asset have expired; or the department retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a ‘pass through’ arrangement; or the department has transferred its rights to receive cash flows from the asset and either: – has transferred substantially all the risks and rewards of the asset; or – has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. Where the department has neither transferred nor retained substantially all the risks and rewards or transferred control, the asset is recognised to the extent of the department’s continuing involvement in the asset. Impairment of financial assets At the end of each reporting period, the department assesses whether there is objective evidence that a financial asset or group of financial assets is impaired. All financial instrument assets, except those measured at fair value through profit and loss, are subject to annual review for impairment. Receivables are assessed for bad and doubtful debts on a regular basis. Those bad debts considered as written-off by mutual consent are classified as a transaction expense. Bad debts not written-off by mutual consent and the allowance for doubtful receivables are classified as other economic flows in the net result. In assessing impairment of statutory (non-contractual) financial assets, which are not financial instruments, professional judgement is applied in assessing materiality using estimates, averages and other computational methods in accordance with AASB 136 Impairment of Assets. (P) Leases A lease is a right to use an asset for an agreed period of time in exchange for payment. Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so as to reflect the risks and rewards incidental to ownership. Department of State Development, Business and Innovation Annual Report 2013-14 58 Leases of infrastructure, property, plant and equipment are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Finance leases Department as lessor Amounts due from lessees under finance leases are recorded as receivables. Finance lease receivables are initially recorded at amounts equal to the present value of the minimum lease payments receivable plus the present value of any unguaranteed residual value expected to accrue at the end of the lease term. Finance lease receipts are apportioned between periodic interest income and reduction of the lease receivable over the term of the lease in order to reflect a constant periodic rate of return on the net investment outstanding in respect of the lease. Department as lessee At the commencement of the lease term, finance leases are initially recognised as assets and liabilities at amounts equal to the fair value of the lease property or, if lower, the present value of the minimum lease payment, each determined at the inception of the lease. The leased asset is accounted for as a non-financial physical asset and depreciated over the shorter of the estimated useful life of the asset or the term of the lease. Minimum finance lease payments are apportioned between reduction of the outstanding lease liability, and periodic finance expense which is calculated using the interest rate implicit in the lease and charged directly to the comprehensive operating statement. Contingent rentals associated with finance leases are recognised as an expense in the period in which they are incurred. Operating leases Department as lessor Rental income from operating leases is recognised on a straight line basis over the term of the relevant lease. All incentives for the agreement of a new or renewed operating lease are recognised as an integral part of the net consideration agreed for the use of the leased asset, irrespective of the incentive’s nature or form or the timing of payments. In the event that lease incentives are given to the lessee, the aggregate cost of incentives are recognised as a reduction of rental income over the lease term on a straight-line basis, unless another systematic basis is more representative of the time pattern in which economic benefits of the leased asset is diminished. Department as lessee Operating lease payments, including any contingent rentals, are recognised as an expense in the comprehensive operating statement on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern of the benefits derived from the use of the leased asset. The leased asset is not recognised in the balance sheet. All incentives for the agreement of a new or renewed operating lease are recognised as an integral part of the net consideration agreed for the use of the leased asset, irrespective of the incentive’s nature or form or the timing of payments. Department of State Development, Business and Innovation Annual Report 2013-14 59 In the event that lease incentives are received to enter into operating leases, the aggregate cost of incentives are recognised as a reduction of rental expense over the lease term on a straight-line basis, unless another systematic basis is more representative of the time pattern in which economic benefits of the leased asset are consumed. (Q) Non-Financial assets Inventories Inventories include goods and other property held either for sale, or for distribution at zero or nominal cost, or for consumption in the ordinary course of business operations. Inventories held for distribution are measured at cost, adjusted for any loss of service potential. All other inventories, including land held for sale, are measured at the lower of cost and net realisable value. Where inventories are acquired for no cost or nominal consideration, they are measured at current replacement cost at the date of acquisition. Cost, includes an appropriate portion of fixed and variable overhead expenses. Cost is assigned to land held for sale (undeveloped, under development and developed) and to other high value, low volume inventory items on a specific identification of cost basis. Cost for all other inventory is measured on the basis of weighted average cost. Bases used in assessing loss of service potential for inventories held for distribution include current replacement cost and technical or functional obsolescence. Technical obsolescence occurs when an item still functions for some or all of the tasks it was originally acquired to do, but no longer matches existing technologies. Functional obsolescence occurs when an item no longer functions the way it did when it was first acquired. Non-financial physical assets classified as held for sale, including disposal group assets Non-financial physical assets (including disposal group assets) are treated as current assets and classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when: the asset is available for immediate use in the current condition; and the sale is highly probable and the asset’s sale is expected to be completed in twelve months from the date of classification. These non-financial physical assets, related liabilities and financial assets are measured at the lower of carrying amount and fair value less costs to sell, and are not subject to depreciation or amortisation. Property, plant and equipment All non-financial physical assets, are measured initially at cost and subsequently revalued at fair value less accumulated depreciation and impairment. Where an asset is acquired for no or nominal cost, the cost is its fair value at the date of acquisition. Assets transferred as part of a Machinery of Government change are transferred at their carrying amount. The initial cost for non-financial physical assets under a finance lease (refer to Note 1(P)) is measured at amounts equal to the fair value of the leased asset or, if lower, the present value of the minimum lease payments, each determined at the inception of the lease. Department of State Development, Business and Innovation Annual Report 2013-14 60 Non-financial physical assets such as crown land are measured at fair value with regard to the property’s highest and best use after due consideration is made for any legal or constructive restrictions imposed on the asset, public announcements or commitments made in relation to the intended use of the asset. Theoretical opportunities that may be available in relation to the asset are not taken into account until it is virtually certain that the restrictions will no longer apply. Therefore, unless otherwise disclosed, the current use of these non-financial physical assets will be their highest and best uses. The fair value of heritage assets, and other non-financial physical assets (including crown land and infrastructure assets) that the department intends to preserve because of their unique attributes, is measured at the replacement cost of the asset less, where applicable, accumulated depreciation (calculated on the basis of such cost to reflect the already consumed or expired future economic benefits of the asset) and any accumulated impairment. These policies and any legislative limitations and restrictions imposed on their use and/or disposal may impact their fair value. The fair value of infrastructure assets and plant, equipment and vehicles, is normally determined by reference to the asset’s depreciated replacement cost, or where the infrastructure is held by a for-profit entity, the fair value may be derived from estimates of the present value of future cash flows. For plant, equipment and vehicles, existing depreciated historical cost is generally a reasonable proxy for depreciated replacement cost because of the short lives of the assets concerned. Certain assets are acquired under finance leases, which may form part of a service concession arrangement. Refer to Notes 1(P) Leases and 1(S) Commitments for more information. The cost of constructed non-financial physical assets includes the cost of all materials used in construction, direct labour on the project, and an appropriate proportion of variable and fixed overheads. For the accounting policy on impairment of non-financial physical assets, refer to impairment of non-financial assets under Note 1(L) Impairment of non-financial assets. Leasehold improvements The cost of a leasehold improvement is capitalised as an asset and amortised over the shorter of the remaining term of the lease or the estimated useful life of the improvements. Revaluations of non-financial physical assets Non-financial physical assets are measured at fair value on a cyclical basis, in accordance with the Financial Reporting Directions (FRDs) issued by the Minister for Finance. A full revaluation normally occurs every five years, based upon the asset’s Government purpose classification but may occur more frequently if fair value assessments indicate material changes in values. Independent valuers are generally used to conduct these scheduled revaluations. Certain infrastructure assets are revalued using specialised advisors. Any interim revaluations are determined in accordance with the requirements of the FRDs. Revaluation increases or decreases arise from differences between an asset’s carrying amount and fair value. Net revaluation increases (where the carrying amount of a class of assets is increased as a result of a revaluation) are recognised in ‘Other economic flows – other movements in equity’, and accumulated in equity under the asset revaluation surplus. However, the net revaluation increase is recognised in the net result to the extent that it reverses a net revaluation decrease in respect of the same class of property, plant and equipment previously recognised as an expense (other economic flows) in the net result. Net revaluation decrease is recognised in ‘Other economic flows – other movements in equity’ to the extent that a credit balance exists in the asset revaluation surplus in respect of the same class of property, plant and equipment. Otherwise, the net revaluation decreases are recognised immediately as other economic Department of State Development, Business and Innovation Annual Report 2013-14 61 flows in the net result. The net revaluation decrease recognised in ‘Other economic flows – other movements in equity’ reduces the amount accumulated in equity under the asset revaluation surplus. Revaluation increases and decreases relating to individual assets in a class of property, plant and equipment, are offset against one another in that class but are not offset in respect of assets in different classes. Any asset revaluation surplus is not normally transferred to accumulated funds on derecognition of the relevant asset. Intangible assets Intangible assets are initially recognised at cost. Subsequently, intangible assets with finite useful lives are carried at cost less accumulated depreciation/amortisation and accumulated impairment losses. Costs incurred subsequent to initial acquisition are capitalised when it is expected that additional future economic benefits will flow to the department. When the recognition criteria in AASB 138 Intangible Assets are met, internally generated intangible assets are recognised and measured at cost less accumulated amortisation and impairment. Refer to Note 1(K) Depreciation, Amortisation of non-produced intangible assets and Note 1(L) Impairment of non-financial assets. Expenditure on research activities is recognised as an expense in the period in which it is incurred. An internally-generated intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, all of the following are demonstrated: (a) the technical feasibility of completing the intangible asset so that it will be available for use or sale; (b) an intention to complete the intangible asset and use or sell it; (c) the ability to use or sell the intangible asset; (d) the intangible asset will generate probable future economic benefits; (e) the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and (f) the ability to measure reliably the expenditure attributable to the intangible asset during its development. Other non-financial assets Prepayments Other non-financial assets include prepayments which represent payments in advance of receipt of goods or services or that are part of expenditure made in one accounting period covering a term extending beyond that period. (R) Liabilities Payables Payables consist of: contractual payables, such as accounts payable, and unearned income including deferred income. Accounts payable represent liabilities for goods and services provided to the department as at the end of the financial year that are unpaid, and arise when the department becomes obliged to make future payments in respect of the purchase of those goods and services; and statutory payables, such as GST and fringe benefits tax payables. Department of State Development, Business and Innovation Annual Report 2013-14 62 Contractual payables are classified as financial instruments and categorised as financial liabilities at amortised cost, refer Note 1(N). Statutory payables are recognised and measured similarly to contractual payables, but are not classified as financial instruments and not included in the category of financial liabilities at amortised cost, because they do not arise from a contract. Borrowings All interest bearing liabilities are initially recognised at fair value of the consideration received, less directly attributable transaction costs, refer Note 1(P) Leases. The measurement basis subsequent to initial recognition depends on whether the department has categorised its interest-bearing liabilities as either financial liabilities designated at fair value through profit and loss, or financial liabilities at amortised cost. Any difference between the initial recognised amount and the redemption value is recognised in net result over the period of the borrowing using the effective interest method. Financial guarantees Payments that are contingent under financial guarantee contracts are recognised as a liability at the time the guarantee is issued. The liability is initially measured at fair value, and if there is a material increase in the likelihood that the guarantee may have to be exercised, then it is measured at the higher of the amount determined in accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets and the amount initially recognised less cumulative amortisation, where appropriate. In the determination of fair value, consideration is given to factors including the overall capital management/prudential supervision framework in operation, the protection provided by the State Government by way of funding should the probability of default increase, probability of default by the guaranteed party and the likely loss to the department in the event of default. The value of loans and other amounts guaranteed by the Treasurer is disclosed in Note 22 Contingent assets and contingent liabilities. Derecognition of financial liabilities A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised as an other economic flow in the estimated consolidated comprehensive operating statement. Provisions Provisions are recognised when the department has a present obligation, the future sacrifice of economic benefits is probable, and the amount of the provision can be measured reliably. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows, using a discount rate that reflects the time value of money and risks specific to the provision. When some or all of the economic benefits required to settle a provision are expected to be received from a third party, the receivable is recognised as an asset if it is virtually certain that recovery will be received and the amount of the receivable can be measured reliably. Department of State Development, Business and Innovation Annual Report 2013-14 63 Employee benefits Provision is made for benefits accruing to employees in respect of wages and salaries, annual leave and long service leave for services rendered to the reporting date. (i) Salaries and wages, annual leave and sick leave Liabilities for salaries and wages, including non-monetary benefits and annual leave, are recognised in the provision for employee benefits as ‘current liabilities’, because the department does not have an unconditional right to defer settlements of the liabilities. Those liabilities which are expected to be settled within twelve months of the reporting period, are measured at their nominal values. Those liabilities that are not expected to be settled within twelve months are also recognised in the provision for employee benefits as current liabilities, but are measured at present value of the amounts expected to be paid when the liabilities are settled using the remuneration rate expected to apply at the time of settlement. (ii) Long service leave Liability for long service leave (LSL) is recognised in the provision for employee benefits. Unconditional LSL is disclosed in the notes to the financial statements as a current liability, even where the department does not expect to settle the liability within twelve months because it will not have the unconditional right to defer the settlement of the entitlement should an employee take leave within twelve months. The components of this current LSL liability are measured at: undiscounted value – if the department expects to settle within twelve months; and present value – if the department does not expect to settle within twelve months. Conditional LSL is disclosed as a non-current liability. There is an unconditional right to defer the settlement of the entitlement until the employee has completed the requisite years of service. This non-current LSL liability is measured at present value. Any gain or loss following revaluation of the present value of non-current LSL liability is recognised as a transaction, except to the extent that a gain or loss arises due to changes in bond interest rates for which it is then recognised as an other economic flow (refer to Note 1(L)). (iii) Termination benefits Termination benefits are payable when employment is terminated before the normal retirement date, or when an employee accepts voluntary redundancy in exchange for these benefits. The department recognises termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than twelve months after the end of the reporting period are discounted to present value. Employee benefits on-costs Employee benefits on-costs such as payroll tax, workers compensation and superannuation are recognised separately from the provision of employee benefits. (S) Commitments Commitments for future expenditure include operating and capital commitments arising from contracts. These commitments are disclosed by way of a note (refer to Note 21 Commitments for expenditure) at their Department of State Development, Business and Innovation Annual Report 2013-14 64 nominal value and exclusive of the GST payable. In addition, where it is considered appropriate and provides additional relevant information to users, the net present values of significant individual projects are stated. These future expenditures cease to be disclosed as commitments once the related liabilities are recognised in the balance sheet. (T) Contingent assets and contingent liabilities Contingent assets and contingent liabilities are not recognised in the balance sheet, but are disclosed by way of a note (refer Note 22 Contingent assets and contingent liabilities) and, if quantifiable, are measured at nominal value. Contingent assets and liabilities are presented exclusive of GST receivable or payable respectively. (U) Equity Contributions by owners Additions to net assets which have been designated as contributions by owners are recognised as contributed capital. Other transfers that are in the nature of contributions or distributions have also been designated as contributions by owners. Transfers of net assets arising from administrative restructurings are treated as distributions to or contributions by owners. Transfers of net liabilities arising from administrative restructurings are treated as distributions to owners. (V) Foreign currency All foreign currency transactions are brought to account using the exchange rate in effect at the date of the transaction. Foreign monetary items existing at the date of the end of the reporting period are translated at the closing rate at the date of the end of the reporting period. Non-monetary assets carried at fair value that are denominated in foreign currencies are translated to the functional currency at the rates prevailing at the date when the fair value was determined. Foreign currency translation differences are recognised in other economic flows and accumulated in a separate component of equity, in the period in which they arise. (W) AASS issued that are not yet effective Certain new AASs have been published that are not mandatory for 30 June 2014 reporting period. DTF assesses the impact of all these new standards and advises department of their applicability and early adoption where applicable. In addition the Department of State Development, Business and Innovation undertakes a detailed assessment of the impact on its operations of transitional AAS. Department of State Development, Business and Innovation Annual Report 2013-14 65 As at 30 June 2014, the following AASs have been issued by the AASB but not yet effective. They become effective for the first financial statements for reporting periods commencing after the stated operative dates as follows: Standard / Interpretation Summary Applicable for annual reporting periods beginning on Impact on departmental financial statements AASB 9 Financial Instruments The Standard simplifies requirements for the classification and measurement of financial assets resulting from Phase 1 of the International Accounting Standards Board’s (IASB) project to replace IAS 39 Financial Instruments: recognition and measurement (AASB 139 financial instruments: recognition and measurement). Beginning 1 January 2017 No material impact on the department AASB 10 Consolidated Financial Statements This Standard applies to both for-profit and not-for- Beginning 1 profit entities. However, prior to the 1 January 2013 January 2014 mandatory application date of this Standard, the AASB will consider whether this Standard should be modified for application by not-for-profit entities. Not-for-profit entities are not permitted to apply this Standard prior to the mandatory application date. No material impact on the department AASB 11 This standard requires entities that have an interest Beginning 1 Joint Arrangements in arrangements that are controlled jointly to January 2014 assess whether the arrangement is a joint operation or joint venture. AASB 11 shall be applied for an arrangement that is a joint operation. It also replaces parts of requirements in AASB 131 Interests in Joint Ventures. No material impact on the department AASB 12 Disclosure of Interests in Other Entities This Standard requires disclosure of information that enables users of financial statements to evaluate the nature of, and risks associated with interests in other entities and the effects of those interests on the financial statements. Beginning 1 January 2014 No material impact on the department AASB 127 Separate Financial Statements This revised Standard prescribes the accounting Beginning 1 and disclosure requirements for investments in January 2014 subsidiaries, joint ventures and associates when an entity prepares separate financial statements. No material impact on the department AASB 128 Investments in Associates and Joint Ventures This revised Standard sets out the requirements for Beginning 1 the application of the equity method when January 2014 accounting for investments in associates and joint ventures. No material impact on the department AASB 1055 Budgetary Reporting This Standard sets out budgetary reporting requirements for not-for-profit entities within the General Government Sector, and, together with AASB 2013-1 Amendments to AASB 1049 – Relocation of Budgetary Reporting Requirements, relocates the corresponding budgetary reporting requirements from AASB 1049. Beginning 1 July 2014 No material impact on the department AASB 1056 Superannuation Entities This Standard replaces AAS 25 Financial Reporting by Superannuation Plans. Beginning 1 July 2016 No material impact on the department Department of State Development, Business and Innovation Annual Report 2013-14 66 Standard / Interpretation Summary Applicable for annual reporting periods beginning on Impact on departmental financial statements AASB 2010-7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) This Standard addresses consequential Beginning 1 amendments in relation to the introduction of AASB January 2015 9. No material impact on the department AASB 2011-7 Amendments to Australian Accounting Standards arising from the Consolidation and Joint Arrangements Standards This Standard is applicable only when AASB 10, 11, 12, 127 and 128 are applied. Some amendments will result in accounting changes for presentation, recognition or measurement purposes, while other amendments will relate to terminology and editorial changes. Beginning 1 January 2014 No material impact on the department AASB 2012-3 Amendments to Australian Accounting Standards – Offsetting Financial Assets and Financial Liabilities (AASB 132) This Standard adds application guidance to AASB Beginning 1 132 to address inconsistencies identified in January 2014 applying some of the offsetting criteria of AASB 132, including clarifying the meaning of “currently has a legally enforceable right of set-off” and that some gross settlement systems may be considered equivalent to net settlement. No material impact on the department AASB 2013-1 Amendments to AASB 1049 – Relocation of Budgetary Reporting Requirements This Standard makes amendments to AASB 1049 Beginning 1 to remove the requirements relating to the July 2014 disclosure of budgetary information specified in that Standard for whole of Governments and GGSs, as a consequence of the issuance of AASB 1055 Budgetary Reporting. No material impact on the department AASB 2013-3 Amendments to AASB 136 – Recoverable Amount Disclosures for Non-Financial Assets This Standard amends the disclosure requirements Beginning 1 in AASB 136. The amendments include the January 2014 requirement to disclose additional information about the fair value measurement when the recoverable amount of impaired assets is based on fair value less costs of disposal. In addition, a further requirement has been included to disclose the discount rates that have been used in the current and previous measurements if the recoverable amount of impaired assets based on fair value less costs of disposal was measured using a present value technique. The intention of this amendment is to harmonise the disclosure requirements for fair value less costs of disposal and value in use when present value techniques are used to measure the recoverable amount of impaired assets. No material impact on the department Department of State Development, Business and Innovation Annual Report 2013-14 67 Standard / Interpretation Summary Applicable for annual reporting periods beginning on Impact on departmental financial statements AASB 2013-4 Amendments to Australian Accounting Standards – Novation of Derivatives and Continuation of hedge Accounting This Standard makes amendments to AASB 139 to Beginning 1 permit the continuation of hedge accounting in January 2014 circumstances where a derivative, which has been designated as a hedging instrument, is novated from one counterparty to a central counterparty as a consequence of laws or regulations. No material impact on the department AASB 2013-5 Amendments to Australian Accounting Standards – Investment Entities [AASB 1, AASB 3, AASB 7, AASB 10, AASB 12, AASB 107, AASB 112, AASB 124, AASB 127, AASB 132, AASB 134 & AASB 139] The Standard amendments define an investment Beginning 1 entity and require that, with limited exceptions, an January 2014 investment entity not consolidate its subsidiaries or apply AASB 3 Business Combinations when it obtains control of another entity. These amendments require an investment entity to measure unconsolidated subsidiaries at fair value through profit or loss in accordance with AASB 9 Financial Instruments in its consolidated and separate financial statements. The amendments also introduce new disclosure requirements for investment entities to AASB 2 Disclosure of Interests in Other Entities and AASB 127 Separate Financial Statements. No material impact on the department AASB 2013-6 Amendments AASB 136 arising from Reduced Disclosure Requirements This Standard amends the AAS – Reduced Beginning 1 Disclosure Requirements for AASB 136 Impairment January 2014 of Assets. AASB 1053 provides further information regarding the differential reporting framework and the two tiers of reporting requirements for preparing general purpose financial statements. No material impact on the department AASB 2013-7 Amendments to AASB 1038 arising from AASB 10 in relation to consolidation and interests of policyholders [AASB 1038] This Standard removes the specific requirements in Beginning 1 relation to consolidation from AASB 1038 (in January 2014 particular, paragraphs 1.1.1, 4.1, 4.1.1, and 4.2 – 4.2.2), which leaves AASB 10 as the sole source for consolidation requirements applicable to life insurer entities. No material impact on the department AASB 2013-8 Amendments to Australian Accounting Standards – Australian Implementation Guidance for Notfor-Profit Entities – Control and Structured Entities [AASB 10, AASB 12 & AASB 1049] The Standard amendments to AASB 10 add Beginning 1 Appendix E Australian Implementation Guidance January 2014 for Not-for-Profit Entities as an integral part of the Standard. The appendix explains various principles in AASB 10 regarding the criteria for determining whether one entity controls another entity from the perspective of not-for-profit entities, and illustrates the principles with examples. No material impact on the department Department of State Development, Business and Innovation Annual Report 2013-14 68 Standard / Interpretation AASB 2013-9 Amendments to Australian Accounting Standards – Conceptual framework, Materiality and Financial Instruments (Operative dates: Part A Conceptual Framework – 20 December 2013; Part B Materiality – 1 January 2014; and Part C Financial Instruments – 1 January 2015) Summary The Standard Part A makes various editorial corrections to AAS. It updates references to the Framework in a manner that is consistent with the amendments made by the IASB in its corresponding pronouncements. This includes, to be consistent with the AASB’s IFRS adoption policy, retaining references to specific superseded paragraphs of the Framework in Accounting Standards and Interpretations where the IASB has not yet updated the corresponding reference in the body of its pronouncements. AASB 2014-2 This Standard amends AASB 1053 to: Amendments to (a) clarify that AASB 1053 only applies to general AASB 1053 – purpose financial statements; Transition to and between Tiers, and (b) make AASB 1053 consistent with the related Tier 2 availability of the option under AASB 1 FirstDisclosure time Adoption of AAS to apply AAS Requirements retrospectively in accordance with AASB 108 (AASB 1053) Accounting Policies, Changes in Accounting Estimates and Errors; Applicable for annual reporting periods beginning on Impact on departmental financial statements Beginning 1 January 2014 and 1 January 2015 No material impact on the department Beginning 1 July 2014 No material impact on the department (c) clarify certain circumstances in which entities resuming Tier 2 reporting requirements can apply the AASB 108 option in AASB 1; (d) permit an entity applying Tier 2 reporting requirements for the first time. AASB Interpretation This Interpretation clarifies the circumstances Beginning 1 21 Levies under which a liability to pay a levy imposed by a January 2014 Government should be recognised, and whether that liability should be recognised in full at a specific date or progressively over a period of time. Department of State Development, Business and Innovation Annual Report 2013-14 No material impact on the department 69 Note 2. Departmental (controlled) outputs A description of each output group of the department during the year ended 30 June 2014, together with the objectives of each output group are summarised below. Investment attraction, facilitation and major projects Output description Provides investment attraction and facilitation assistance to attract new international investment and encourage additional investment by companies already operating in Victoria. In addition it also supports an increased share of national business investment in Victoria through the management and delivery of nominated development projects. Objectives Provide market intelligence and assistance to organisations to make it easy to invest in Victoria. Regional development and regional cities Output description Guides the development and implementation of regional plans and strategies to manage growth and change in regional and rural Victoria. Provides for better infrastructure, facilities and services to strengthen the economic base of communities and to create jobs and improve career opportunities for regional Victorians. Objectives Provide market intelligence and assistance to organisations to make it easy to invest in Victoria. Energy and resources Output description Develops policy frameworks and delivers programs to: ensure that consumers benefit from competitive, efficient, reliable and safe energy services; facilitate investment in coal, gas, renewable energy, targeted mineral resources; responsibly manage and support access to earth resources for current and future use; and, support, technological development within these sectors. Objectives Provide market intelligence and assistance to organisations to make it easy to invest in Victoria. Create more opportunities for businesses to grow and become more productive and competitive in the global market place. Small business assistance Output description Provide business information, advisory and referral services that contribute to the growth and development of small and medium sized enterprises across Victoria. Department of State Development, Business and Innovation Annual Report 2013-14 70 Objectives Create more opportunities for businesses to grow and become more productive and competitive in the global market place. Trade and export facilitation Output description Promotes business growth opportunities by providing development assistance and facilitation services to support increased productivity and competitiveness. Objectives Create more opportunities for businesses to grow and become more productive and competitive in the global market place. Innovation and technology Output description Supports innovation by providing access to information and building capacity for the development and effective use of new practices and technologies to support increased productivity and competitiveness in Victoria. Objectives Support organisations and Government to boost their productivity through innovation. Tourism and marketing Output description Facilitates employment and long-term economic benefits of tourism, investment and international students coming to Victoria by positioning and marketing the state as a competitive tourism, investment and study destination. Objectives Promote Victoria to attract tourists, investors and students. Employment Output description Provides programs to link business workforce needs with skilled migration and untapped labour sources to meet Victoria’s skills requirements. Objectives Assist businesses in accessing skilled workers to align with Victoria’s industry needs. Department of State Development, Business and Innovation Annual Report 2013-14 71 Schedule A – Controlled income and expenses for the year ended 30 June 2014 Trade and Export facilitation 2014 $'000 2013 $'000 Innovation and Technology 2014 $'000 Tourism and Marketing Employment Regional Development & Regional Cities Investment Attraction, Facilitation and Major Projects Small Business Assistance Departmental Total 2014 $'000 2013 $'000 2014 $'000 2013 $'000 – 113,117 135,543 27,793 30,741 Energy & Resources 2013 $'000 2014 $'000 2013 $'000 2014 $'000 2013 $'000 2014 $'000 2013 $'000 2014 $'000 33,743 165,224 149,753 77,043 74,034 10,904 14,318 59,329 – 90,905 2013 $'000 2014 $'000 2013 $'000 Continuing operations Income from transactions Output appropriations 31,909 576,223 438,132 Regional Growth Fund appropriations – – – – – – – – 136,000 – – – – – – – 136,000 – Interest – – 21 91 – (0) – – 5,016 – – – 276 519 – – 5,312 611 Grants – – 2,000 6,300 74,268 74,755 – 440 7,740 – – – (0) 2,000 – – 84,008 83,495 1,113 195 1,071 3,022 375 58 67 565 3,687 – 22,137 – 110,247 93,083 746 1,730 139,444 98,654 33,022 33,938 168,316 159,166 151,685 148,847 10,971 15,323 211,771 – 113,042 – 223,639 231,145 28,539 32,471 (7,471) (8,608) (15,677) (17,966) (7,974) (8,069) (3,094) (5,476) (21,796) – (25,467) – (25,373) (28,042) Other income Total Income from transactions 940,987 620,892 Expenses from transactions Employee expenses Depreciation and amortisation Interest expense Grants and other transfers Capital asset charge (8,935) (10,111) (115,787) (78,271) (456) (186) (1,441) (939) (581) (446) (122) (90) (1,084) – (1,666) – (2,777) (2,152) (615) (246) (8,743) (4,060) (16) (7) (49) (9) (20) (6) (4) (4) (47) – (79) – (43) (14) (22) (7) (280) (47) (7,312) (97,234) (89,522) (131,446) (126,526) (4,389) – (27,020) – (54,987) (79,153) (2,892) – – (11,488) (59) Other operating expenses (13,971) (15,263) (26,007) (24,953) (10,055) (14,541) (3,516) (4,913) (17,164) – (42,762) – (152,950) (124,098) (16,461) (20,172) (282,883) (203,940) Total expenses from transactions (33,624) (31,534) (143,578) (136,751) (151,605) (151,293) (11,184) (16,380) (195,808) – (97,804) – (239,316) (237,421) (29,224) (32,709) (902,142) (606,088) – (15,676) (6,275) (685) (238) 38,846 14,804 (602) (159) (3,170) (3,363) (1,529) (81) (527) (810) (3,185) (3,961) (299) (1,951) (484,647) (310,279) (1,705) Net result from transactions (net operating balance) (222) (5,816) (155,191) (222) (9,801) (9,491) 2,404 24,738 22,415 81 (2,446) (213) (1,057) 15,963 – 15,238 7 2 23 (729) 9 (1) 2 0 17 – 26 – (4,944) (3,234) 10 75 (4,850) (3,887) Net gain/(loss) on financial instruments (3) 2 (9) 10 (1) 5 (1) (26) (6) – (8) – (8) 7 (4) 3 (40) – Other gains/(losses) from other economic flows (2) 7 (6) 35 (3) 17 (1) 3 (5) – (7) – (6) 22 (3) 9 (32) 93 2 10 8 (684) 5 20 – (23) 6 – 11 – (4,958) (3,205) 3 87 (4,922) (3,794) Other economic flows included in net result Net gain/(loss) on non-financial assets Total other economic flows included in net result Department of State Development, Business and Innovation Annual Report 2013-14 72 Trade and Export facilitation Net result Innovation and Technology Tourism and Marketing Employment Regional Development & Regional Cities Investment Attraction, Facilitation and Major Projects Small Business Assistance Departmental Total 2014 $'000 2013 $'000 2014 $'000 2013 $'000 2014 $'000 2013 $'000 – (20,634) (9,480) (681) (151) 33,924 11,010 Energy & Resources 2014 $'000 2013 $'000 2014 $'000 2013 $'000 2014 $'000 2013 $'000 2014 $'000 2013 $'000 2014 $'000 2013 $'000 2014 $'000 (600) 2,415 24,746 21,731 86 (2,426) (213) (1,080) 15,969 – 15,247 2013 $'000 Other economic flows – other comprehensive income Items that will not be reclassified to net result Transfer of asset revaluation surplus to accumulated surplus – – – – – – – – – – – – 5,320 – – – 5,320 – Changes in physical asset revaluation surplus – – – – – – – – – – – – (5,320) – – – (5,320) – Total other economic flows – other comprehensive income – – – – – – – – – – – – – – – – – – (600) 2,415 24,746 21,731 86 (2,426) (213) (1,080) 15,969 – 15,247 – (20,634) (9,480) (681) (151) 33,924 11,010 Comprehensive result Schedule B – Controlled assets and liabilities as at 30 June 2014 Trade and Export facilitation Innovation and Technology Tourism and Marketing Employment Investment Regional Attraction, Development & Facilitation and Major Regional Cities Energy & Resources Projects Small Business Assistance Departmental Total 2014 $'000 2013 $'000 2014 $'000 2013 $'000 2014 $'000 2013 $'000 2014 $'000 2013 $'000 2014 $'000 2013 $'000 2014 $'000 2013 $'000 2014 $'000 2013 $'000 2014 $'000 2013 $'000 2014 $'000 2013 $'000 17,066 9,844 101,958 69,669 11,726 24,160 7,243 5,475 266,119 – 47,888 – 84,029 78,481 15,992 15,226 552,021 202,855 Non-financial assets 5,359 5,621 35,913 29,287 31,241 19,390 1,429 2,886 14,735 – 19,595 – 528,804 547,216 5,233 7,884 642,309 612,284 Total Assets 22,425 15,465 137,871 98,956 42,967 43,550 8,672 8,361 280,854 – 67,483 – 612,833 625,697 21,225 23,110 1,194,330 815,139 Total Liabilities (5,395) (2,934) (16,057) (18,547) (11,493) (13,748) (1,266) (289) (23,484) – (21,228) – (53,129) (44,919) (6,804) (4,312) (138,856) (84,749) Net Assets 17,030 12,531 121,814 80,409 31,474 29,802 7,407 8,072 (257,370) – 46,256 – 559,704 580,778 14,421 18,798 1,055,474 730,390 Assets Financial assets Department of State Development, Business and Innovation Annual Report 2013-14 73 Note 3. Administered (non-controlled) items In addition to the specific departmental operations which are included in the financial statements (comprehensive operating statement, balance sheet, statement of changes on equity and cash flow statement), the department administers or manages other activities and resources on behalf of the state. The transactions relating to these activities are reported as administered items (refer to Notes 1(E) and 1(F)). Trade and Export facilitation Innovation and Technology Tourism and Marketing Employment Regional Development & Regional Cities Energy & Resources Investment Attraction, Facilitation and Major Projects Small Business Assistance Departmental Total 2014 $'000 2013 $'000 2014 $'000 2013 $'000 2014 $'000 2013 $'000 2014 $'000 2013 $'000 2014 $'000 2013 $'000 2014 $'000 2013 $'000 2014 $'000 2013 $'000 2014 $'000 2013 $'000 2014 $'000 2013 $'000 – – – – 60,878 59,000 – – – – – – – – – – 60,878 59,000 (1) 7 1,063 1,054 2,092 2,104 – 2 393 – 276 – (4) 16,014 (2) 3 3,817 19,184 Regulatory fees, fines, leases and licences – – – – – – – – – – 5,177 – – – – – 5,177 – Royalties – – – – – – – – – – 51,997 – – – – – 51,997 – Interest – – – – 10,404 16,837 – – – – 42 – – – – – 10,446 16,837 – – – – – – – – – – – – 357 1,078 – – 357 1,078 (1) 7 1,063 1,054 73,374 77,941 – 2 393 – 57,492 – 353 17,092 (2) 3 132,672 96,099 (8,354) (7,692) – – (396) – (57,527) – (21,107) (30,215) – – (89,650) (43,254) Administered financial assets Appropriations payments made on behalf of the state Sale of goods and services Commonwealth grants Total administered Income from transactions Administered expenses from transactions Payments into Consolidated Fund – – (2,266) (5,347) Bad debts – – – (66) – – – – – – – – – – – – – (66) Other operating expenses – – – – (20,207) (18,391) – – – – – – (12,509) – – – (32,716) (18,391) Interest expense – – – – (40,671) (40,609) – – – – – – – – – – (40,671) (40,609) Total administered expenses from transactions – – (2,266) (5,413) (69,232) (66,692) – – (396) – (57,527) – (33,616) (30,215) – – (163,037) (102,320) (1) 7 (1,203) (4,359) 4,142 11,249 – 2 (3) – (35) – (33,263) (13,123) (2) Total administered net result from transactions (net operating balance) Department of State Development, Business and Innovation Annual Report 2013-14 3 (30,365) (6,221) 74 Trade and Export facilitation 2014 $'000 2013 $'000 Innovation and Technology 2014 $'000 Tourism and Marketing 2013 $'000 Employment Regional Development & Regional Cities Energy & Resources Investment Attraction, Facilitation and Major Projects Small Business Assistance Departmental Total 2014 $'000 2013 $'000 2014 $'000 2013 $'000 2014 $'000 2013 $'000 2014 $'000 2013 $'000 2014 $'000 2013 $'000 2014 $'000 2013 $'000 2014 $'000 2013 $'000 Administered other economic flows included in administered net result Net gain/(loss) on nonfinancial assets – – – – – – – – – – – – 20,721 13,325 – – 20,721 13,325 Net gain/(loss) on financial instruments – – – – – – – – – – 12 – – – – – 12 – Total administered other economic flows – – – – – – – – – – 12 – 20,721 13,325 – – 20,733 13,325 Administered net result (1) 7 (1,203) (4,359) 4,142 11,249 – 2 (3) – (23) – (12,542) 202 (2) 3 (9,632) 7,104 Total administered comprehensive result (1) 7 (1,203) (4,359) 4,142 11,249 – 2 (3) – (23) – (12,542) 202 (2) 3 (9,632) 7,104 Receivables – – 1,891 3,083 5,473 5,212 – – 321 – 50,536 – – – – – 58,221 8,295 Loans – – 6,035 6,035 279,646 277,597 – – – – – – – – – – 285,681 283,632 Investments – – 333,907 210,654 894,776 888,977 – – – – 6,727 – – – – – 1,235,410 1,099,631 Trust funds (14) (13) (37) (33) (20) (18) (5) (5) (3) – 584 – (30) (26) (8) (7) Total administered financial assets (14) (13) 341,796 219,739 1,179,875 1,171,768 (5) (5) 318 – 57,847 – (30) (26) (8) (7) 1,579,779 1,391,456 Administered nonfinancial assets – – – – – – – – – – – – – – – – – – Total administered nonfinancial assets – – – – – – – – – – – – – – – – – – (14) (13) 341,796 219,739 1,179,875 1,171,768 (5) (5) 318 – 57,847 – (30) (26) (8) Creditors and accruals – – – – (16,128) (14,969) – – – – (147) – – – – – (16,275) (14,969) Unearned income – – – – (69,882) (71,976) – – – – (1,260) – – – – – (71,142) (71,976) Interest bearing liabilities – – – – (460,266) (461,103) – – – – – – – – – – (460,266) (461,103) Total administered liabilities – – – – (546,276) (548,048) – – – – (1,407) – – – – – (547,683) (548,048) (14) (13) 341,796 (5) (5) 318 – 56,440 – (30) (26) (8) Administered financial assets Total administered assets 467 (102) (7) 1,579,779 1,391,456 Administered liabilities Total administered net assets 219,739 633,599 623,720 Department of State Development, Business and Innovation Annual Report 2013-14 (7) 1,032,096 843,408 75 Note 4. Income from transactions (a) 2014 $’000 2013 $’000 5,312 611 5,312 611 Grants from State Government 84,008 83,495 Total grants 84,008 83,495 29,898 4,856 113 127 100,877 85,913 8,556 7,758 139,444 98,654 2014 $’000 2013 $’000 Salaries, wages, and long service leave (115,787) (78,271) Total employee expenses (115,787) (78,271) Depreciation of non-current assets (4,712) (3,651) Amortisation of non-current physical assets (1,341) (409) Amortisation from internal development of intangible assets (2,690) – Total depreciation and amortisation (8,743) (4,060) Interest on finance leases (280) (47) Total interest expense (280) (47) (2,127) (50) Employment and Trade (16,396) (15,378) Energy and Resources (25,369) – Innovation (72,005) (77,716) Major Projects (4,305) (3,731) Manufacturing (10,843) (4,421) (153,968) (524) Interest Interest from financial assets not at fair value through P/L: – Interest on bank deposits Total interest (b) (c) Grants Other income Trust income Rental income Land development (Kew Residential Services Project) Miscellaneous income Total other income Note 5. Expenses from transactions (a) (b) (c) (d) Employee expenses Depreciation and amortisation Interest expense Grants and other transfers by portfolio Aviation Regional Development and Regional Cities Department of State Development, Business and Innovation Annual Report 2013-14 76 2014 $’000 2013 $’000 (1,949) (2,996) State Development (45,070) (72,050) Technology (21,767) (9,052) Tourism and Major Events (130,848) (124,361) Total grants and other transfers by portfolio (484,647) (310,279) Consultants and professional services (64,248) (31,752) Contracts and services (29,370) (26,120) (7,698) (3,785) Marketing and media (10,577) (9,893) Computer services and equipment (19,387) (9,254) Travel and related expenses (4,506) (3,880) Postage and communications (3,556) (1,990) Stationery and office requisites (2,238) (1,446) Educational (1,959) (1,663) Meetings (3,363) (3,275) Books and publications (1,556) (815) Motor vehicles (1,383) (380) (658) (712) (1,013) (497) (151,512) (95,462) Fair value of assets and services provided free of charge or for nominal consideration – (387) Total fair value of assets and services provided free of charge or for nominal consideration – (387) (16,606) (10,788) (16,606) (10,788) (114,765) (97,303) (282,883) (203,940) Small Business (e) Other operating expenses Supplies and services Accommodation Audit remuneration (internal & external) (a) Other expenses Total supplies and services Operating lease rental expenses – Minimum lease payments Total operating lease rental expenses Cost of goods sold/distributed (b) Total other operating expenses (a) See Note 33 for external auditor’s remuneration. (b) Costs relate primarily to Kew Residential Services Project. Department of State Development, Business and Innovation Annual Report 2013-14 77 Note 6. Other economic flows included in net result (a) 2014 $’000 2013 $’000 113 (654) Disposal of intangible assets (i) (4,963) (3,233) Total net gain/(loss) on non-financial assets (4,850) (3,887) (40) – (40) – Net gain/(loss) arising from revaluation of long service leave liability (iii) (32) 93 Total other gains/(losses) from other economic flows (32) 93 Total (72) 93 Net gain/(loss) on non-financial assets Net gain / (loss) on disposal of property, plant and equipment (b) Net gain/(loss) on financial instruments Impairment of ─ Listed securities (ii) Total net gain/(loss) on financial instruments (c) Other gains/(losses) from other economic flows (i) Parkville Gardens are expensed in line with the sale of properties. (ii) Fair value adjustment to listed securities. (iii) Revaluation gain/(loss) due to changes in bond rates. Department of State Development, Business and Innovation Annual Report 2013-14 78 Note 7. Receivables 2014 $’000 2013 $’000 Other receivables Government (i) 10,369 8,945 Other receivables Non-Government 12,004 8,044 – (27) 22,373 16,962 122,989 89,756 4,969 5,242 127,958 94,998 150,331 111,960 1,996 293 1,996 293 Amounts owing from Victorian Government (ii) 2,844 1,373 Total non-current receivables 4,840 1,666 155,171 113,626 Current receivables Contractual Provision for doubtful contractual receivables (i) Statutory Amounts owing from Victorian Government (ii) GST input tax credit recoverable Total current receivables Non-current receivables Contractual Other receivables Government (i) Statutory Total Receivables (i) The average credit period for the provision of goods and services is 30 days. The majority of receivables relate to non-trading activities and the credit terms will differ. No interest is charged on other receivables. (ii) The amounts recognised from Victorian Government represent funding for all commitments incurred through the appropriations and are drawn from the Consolidated Fund as the commitments fall due. Note 8. Inventories Notes 2014 $’000 2013 $’000 1(Q) 10,168 23,646 10,168 23,646 Current inventories Work in progress: – At net realisable value (i) Total Inventories (i) MPV is responsible for managing the Kew Residential Services Project. The land for the project is held as inventory until it is sold. Department of State Development, Business and Innovation Annual Report 2013-14 79 Note 9. Restructuring of administrative arrangements In respect of Machinery of Government and administrative changes announced on 9 April 2013, the financial statements of the department reflect the actual period of responsibility for the outputs, being the period of 1 July 2013 to 30 June 2014. Regional Development Victoria, including Community Group outputs have been transferred from the former Department of Planning and Community Development. The Energy and Resources output has been transferred from the former Department of Primary Industries. The Industrial Relations Private Sector unit has been transferred to DTF. The Red Tape Commissioner output and the Whole of Government Information and Communications Technology output have been transferred from DTF. Comparative amounts for the prior year have not been adjusted. Net assets relinquished and/or acquired by the department as a result of the re-assignment of these outputs are recognised in the balance sheet immediately at the carrying amount of those assets in the balance sheet prior to the transfer. Controlled assets and liabilities acquired/relinquished at the date of financial transfer – 1/07/2013 Regional Development and Regional Cities 2014 $'000 Energy and Resources 2014 $'000 Innovation and Technology 2014 $'000 Industrial Relations 2014 $'000 Total $'000 40,886 7,624 722 (166) 49,066 1,328 24,739 – – 26,067 200,334 – – – 200,334 – 16,693 – – 16,693 7,508 5,958 – – 13,466 250,056 55,014 722 (166) 305,626 (4,956) (5,590) (722) 166 (11,102) Other liabilities (14,986) (13,179) – – (28,165) Total liabilities transferred (in)/out (19,942) (18,769) (722) 166 (39,267) Net assets transferred in/(out) 230,114 36,245 – – 266,359 Assets Cash/SAU Other financial assets Cash - TCV investments Intangibles Property plant and equipment and leases Total assets transferred in/(out) Liabilities Employee benefits Department of State Development, Business and Innovation Annual Report 2013-14 80 Administered assets and liabilities acquired/relinquished at the date of financial transfer – 1/07/2013 Regional Development and Regional Cities 2014 $'000 Energy and Resources 2014 $'000 Innovation and Technology 2014 $'000 Industrial Relations 2014 $'000 Total $'000 Cash/SAU – 3,214 – – 3,214 Other financial assets – 51,506 – – 51,506 Total assets transferred in/(out) – 54,720 – – 54,720 Other liabilities – (1,574) – – (1,574) Total liabilities transferred (in)/out – (1,574) – – (1,574) Net assets transferred in/(out) – 53,146 – – 53,146 Assets Liabilities Note 10. Property, plant and equipment Classification by ‘Purpose Groups’ (i) – carrying amounts Public Administration 2014 $’000 2013 $’000 107,650 93,887 Buildings at fair value 6,459 10,323 Less: Accumulated depreciation (470) (279) 5,989 10,044 Building leasehold – at fair value (ii) 6,094 6,094 Less: Accumulated amortisation (122) (60) 5,972 6,034 31,719 26,530 (15,773) (12,194) 15,946 14,336 135,557 124,301 4,854 2,529 Land Crown land – fair value Buildings Building leasehold Leasehold improvements – at fair value Less: Accumulated amortisation Total land, buildings, building leasehold and leasehold improvements Plant and equipment Plant and equipment at fair value Department of State Development, Business and Innovation Annual Report 2013-14 81 Public Administration 2014 $’000 2013 $’000 (3,830) (2,216) 1,024 313 4,985 1,464 (1,812) (487) 3,173 977 4,197 1,290 Property, plant and equipment in the course of construction – at fair value 355,235 335,397 Total property, plant and equipment, and in course of construction 494,989 460,988 Infrastructure at fair value 66,305 66,305 Less: Accumulated depreciation (2,268) (1,134) Total infrastructure 64,037 65,171 559,026 526,159 Less: Accumulated depreciation Plant and equipment under finance lease – at fair value Less: Accumulated depreciation Total plant and equipment Infrastructure Net carrying amount of PPE Property, plant and equipment are classified primarily by the ‘purpose’ for which the assets are used, according to one of six purpose groups based upon Government purpose classifications. All assets within a purpose group are further sub-categorised according to the asset’s ‘nature’ (i.e. buildings, plant and equipment, etc.), with each sub-category being classified as a separate class of asset for financial reporting purposes. (ii) Building Leasehold is for a term of 150 years from the year 1990. (i) Department of State Development, Business and Innovation Annual Report 2013-14 82 Classification by ‘public administration’ purpose group – movements in carrying amounts Crown Land at Fair Value Buildings at fair value 2014 $'000 2013 $'000 2014 $'000 2013 $'000 2014 $'000 2013 $'000 2014 $'000 2013 $'000 2014 $'000 2013 $'000 2014 $'000 2013 $'000 2014 $'000 2013 $'000 2014 $'000 2013 $'000 2014 $'000 2013 $'000 Opening balance 93,887 93,887 10,045 10,323 6,033 6,094 14,336 15,910 313 515 976 913 335,398 228,880 65,171 66,305 526,159 422,827 Additions 16,150 – – – – – 1,580 485 539 464 1,609 677 19,838 116,859 – – 39,716 118,485 Disposals – – – – – – (73) (99) (129) – (751) (243) – – – – (953) (342) (7,425) – (5,809) – – – – – – – (48) – – (9,616) – – (13,282) (9,616) Impairment of assets – – – – – – – – – – – – – (725) – – – (725) Transfers to classified as held for sale – – – – – – – – – – (25) (23) – – – – (25) (23) 5,038 – 2,044 – – – 2,843 – 847 – 2,692 – – – – – 13,464 – Depreciation/amortisation expense – – (291) (278) (61) (61) (2,740) (1,960) (546) (279) (1,280) (348) – – (1,135) (1,134) (6,053) (4,060) Received / given free of charge – – – – – – – – – (387) – – – – – – – (387) 107,650 93,887 5,989 10,045 5,972 6,033 15,946 14,336 1,024 313 3,173 976 355,236 335,398 64,036 65,171 559,026 526,159 Transfers via contributed capital Machinery of Government transfer in Closing balance Buildings Leasehold Department of State Development, Business and Innovation Annual Report 2013-14 Leasehold Improvements Plant and Equipment Leased Plant and Equipment In Course of Construction Infrastructure Total 83 The following useful lives of assets are used in the calculation of depreciation and amortisation: 2014 Years 2013 Years 33 to 50 33 to 50 150 150 90 90 Leasehold improvements 8 to 15 8 to 15 Plant and equipment 3 to 10 3 to 10 Leased plant and equipment 1 to 3 1 to 3 Intangible produced assets – software development 1 to 5 1 to 5 2014 $’000 2013 $’000 291 279 62 60 Infrastructure 1,135 1,134 Leasehold improvements 2,739 1,960 546 279 Leased plant and equipment 1,280 348 Total 6,053 4,060 Buildings Buildings leasehold Infrastructure Aggregate depreciation and amortisation allocated and recognised as an expense: Buildings Buildings leasehold Plant and equipment Note: Amortisation of $2.690 million relating to intangible produced assets is disclosed in Note 5. Restricted assets The department holds $1.053 million of properties listed as heritage assets. These heritage assets cannot be modified nor disposed of without formal Ministerial approval. Freehold land An independent valuation of the department’s land and buildings was performed by the Valuer General Victoria to determine the fair value of the land and buildings. The valuation, which conforms to Australian Valuation Standards, was determined by reference to the amounts for which assets could be exchanged between knowledgeable willing parties in an arm’s length transaction. Fair value is determined by direct reference to recent market transactions on arm’s length terms for land and buildings of comparable size and location to the department. The valuation was based on independent assessments. The effective date of the valuation was 30 June 2012 (refer Note 1(Q)). Department of State Development, Business and Innovation Annual Report 2013-14 84 Fair value measurement hierarchy for assets as at 30 June 2014 Carrying amount as at 30 June 2014 $’000 Fair value measurement at end of reporting period using: Level 1 (i) $’000 Level 2 (i) $’000 Level 3 (i) $’000 99,850 – 99,850 – 7,800 – – 7,800 107,650 – 99,850 7,800 Specialised/heritage buildings 5,989 – – 5,989 Total of buildings at fair value 5,989 – – 5,989 Vehicles (ii) 3,173 – – 3,173 Plant and equipment 1,024 – – 1,024 Total plant, equipment & vehicles at fair value 4,197 – – 4,197 Infrastructure 64,037 – – 64,037 Total of infrastructure at fair value 64,037 – – 64,037 Leasehold improvements 15,946 – – 15,946 Total leasehold improvements at fair value 15,946 – – 15,946 Building leasehold 5,972 – 5,972 – Total building leasehold at fair value 5,972 – 5,972 – In course of construction 355,235 – – 355,235 Total in course of construction at fair value 355,235 – – 355,235 Total property, plant and equipment at fair value 559,026 – 105,822 453,204 Land at fair value Non-specialised land Specialised land Total of land at fair value Buildings at fair value Plant, equipment and vehicles at fair value Infrastructure at fair value Leasehold improvements at fair value Building leasehold at fair value In course of construction at fair value (i) Classified in accordance with the fair value hierarchy. (ii) Vehicles are categorised to level 3 assets as depreciated replacement cost is used in estimating fair value. There have been no transfers between levels during the period. Non-specialised land and non-specialised buildings Non-specialised land and non-specialised buildings are valued using the market approach. Under this valuation method, the assets are compared to recent comparable sales or sales of comparable assets which are considered to have nominal or no added improvement value. For non-specialised land and non-specialised buildings, an independent valuation was performed by the VGV to determine the fair value using the market approach. Valuation of the assets was determined by Department of State Development, Business and Innovation Annual Report 2013-14 85 analysing comparable sales and allowing for share, size, topography, location, and other relevant factors specific to the asset being valued. From the sales analysed, an appropriate rate per square metre has been applied to the subject asset. The effective date of the valuation was 30 June 2012. To the extent that non-specialised land and non-specialised buildings do not contain significant, unobservable adjustments, these assets are classified as level 2 under the market approach. Specialised land and specialised buildings The market approach is also used for specialised land, although it is adjusted for the community service obligation (CSO) to reflect the specialised nature of the land being valued. The CSO adjustment is a reflection of the valuer’s assessment of the impact of restrictions associated with an asset to the extent that is also equally applicable to market participants. This approach is in light of the highest and best use consideration required for fair value measurement, and takes into account the use of the asset that is physically possible, legally permissible, and financially feasible. As adjustments of CSO are considered as significant unobservable inputs, specialised land would be classified as level 3 assets. For the department’s majority of specialised buildings, the depreciated replacement cost method is used, adjusting for the associated depreciation. As depreciation adjustments are considered as significant, unobservable inputs in nature, specialised buildings are classified as level 3 fair value measurements. An independent valuation of the department’s specialised land and specialised buildings was performed by the VGV. The valuation was performed using the market approach adjusted for CSO. The effective date of the valuation was 30 June 2012. Heritage and infrastructure assets Heritage and infrastructure assets are valued using the depreciated replacement cost method. This cost represents the replacement cost of the asset after applying depreciation rates on a useful life basis. Replacement costs relate to costs to replace the current service capacity of the asset. Economic obsolescence has also been factored into the depreciated replacement cost calculation. Where it has not been possible to examine hidden works such as structural frames and floors, the use of reasonable materials and methods of construction have been assumed bearing in mind the age and nature of the building. The estimated cost of reconstruction including structure services and finishes, also factors in any heritage classifications as applicable. An independent valuation of the department’s heritage assets and infrastructure was performed by the VGV. The valuation was performed based on the depreciated replacement cost of the assets. The effective date of the valuation was 30 June 2012. Vehicles Vehicles are valued using the depreciated replacement cost method. The department acquires new vehicles and at times disposes of them before the end of their economic life. The process of acquisition, use and disposal in the market is managed by experienced fleet managers who set relevant depreciation rates during use to reflect the utilisation of the vehicles. Plant and equipment Plant and equipment is held at fair value. When plant and equipment is specialised in use, such that it is rarely sold other than as part of a going concern, fair value is determined using the depreciated replacement cost method. Department of State Development, Business and Innovation Annual Report 2013-14 86 There were no changes in valuation techniques throughout the period to 30 June 2014. For all assets measured at fair value, the current use is considered the highest and best use. Reconciliation of level 3 fair value 2014 Opening balance Plant and SpecialequipSpecialised ment and ised land buildings vehicles $'000 $'000 $'000 Infrastructure $'000 Leasehold In course improve of consments truction $'000 $'000 Total $'000 5,400 4,057 1,289 65,171 14,336 335,397 425,650 Purchases – – 2,146 – 1,580 19,838 23,564 Disposals – – (879) – (73) – (952) Transfers in (out) of level 3 – – – – – – – Administrative restructure/transfers via contributed capital 2,400 1,997 3,467 – 2,843 – 10,707 Gains or losses recognised in net result – – – – – – – Depreciation – (65) (1,826) (1,135) (2,739) – (5,765) Impairment – – – – – – – 2,400 1,932 2,908 (1,135) 1,611 19,838 27,554 Gains or losses recognised in other economic flows – other comprehensive income – – – – – – – Revaluation – – – – – – – Subtotal – – – – – – – 7,800 5,989 4,197 64,036 15,947 355,235 453,204 – – – – – – – Subtotal Closing balance Unrealised gains/(losses) on nonfinancial assets Department of State Development, Business and Innovation Annual Report 2013-14 87 Description of significant unobservable inputs to level 3 valuations Valuation technique (i) Significant unobservable inputs (i) Specialised land Market approach Specialised land Income cash flow Present value discount rate of 4.5% Specialised Depreciated /heritage buildings replacement cost Infrastructure (i) Depreciated replacement cost Sensitivity of fair value measurement to changes Range (weighted in significant average) (i) unobservable inputs Community 10% CSO Service Obligation adjustment (CSO) adjustment A significant increase or decrease in the CSO adjustment would result in a significantly lower or higher fair value +/- 1% interest rate A significant increase or decrease in the discount rate would result in a significantly lower or higher fair value Direct cost per square metre $1,300 to $2,800 per square metre (average $2,000 per square metre) A significant increase or decrease in direct cost per square metre adjustment would result in a significantly higher or lower fair value Useful life of specialised buildings 33 to 50 years A significant increase or decrease in the estimated useful life of the asset would result in a significantly higher or lower valuation Cost per unit $800 to $9,000 per square metre (weighted average $1,500 per square metre) A significant increase or decrease in cost per unit would result in a significantly higher or lower fair value Useful life of infrastructure 90 years A significant increase or decrease in the estimated useful life of the asset would result in a significantly higher or lower valuation Illustrations on the valuation techniques, significant unobservable inputs and related quantitative range of those inputs are indicative and should be directly used without consultation with the department’s independent Valuer. Department of State Development, Business and Innovation Annual Report 2013-14 88 Note 11. Non-financial physical assets classified as held for sale including disposal group assets and directly associated liabilities 2014 $’000 2013 $’000 25 23 25 23 25 23 25 23 Non-financial physical assets including disposal group assets classified as held for sale Current assets Leased Plant and equipment held for sale (i) Total Liabilities directly associated with assets classified as held for sale including disposal groups Current liabilities Finance lease liabilities Total (i) The department holds a leased motor vehicle which it intends to sell in the next 12 months. The fair value hierarchy of the department’s non-financial physical assets held for sale is Level 2(ii). (ii) Classified in accordance with the fair value hierarchy, refer Note 10. Note 12. Investments accounted for using the equity method The department has a joint venture interest with Monash University in the Australian Regenerative Medical Institute (ARMI). ARMI was established to construct and operate a facility which will promote Victoria as a global leader in regenerative medical research, foster and develop existing research collaboration on domestic and overseas projects, and provide a major site for undergraduate and post graduate training programs. 2014 $’000 2013 $’000 Non-current investments in jointly controlled entities 35,000 35,000 Total 35,000 35,000 Name of entity Principal Activity Jointly controlled entities Australian Regenerative Medicine Institute (ARMI). (i) To construct and operate a regenerative medical research facility. Ownership Interest % (i) 2014 2013 20 20 The interest of the department in the joint venture is 20% in accordance with the agreement. The fair value of the ownership interest held by the department is equal to the value of cash invested in the Joint Venture which amounts to $35 million at 30 June 2014 ($35 million at 30 June 2013). Department of State Development, Business and Innovation Annual Report 2013-14 89 Summarised financial information of jointly controlled entities At balance date, the department’s share of net assets and the net result after tax of its jointly controlled entities are: 2014 $’000 2013 $’000 318 306 Non-current assets 129,111 135,312 Total assets 129,429 135,618 Current liabilities – – Non-current liabilities – – Total liabilities – – 129,429 135,618 35,000 35,000 Share of jointly controlled entity’s result after tax – – Dividends received from jointly controlled entity – – Current assets Net assets Share of jointly controlled entity’s net assets Contingent liabilities and capital commitments The department’s share of the contingent liabilities, capital commitments, and other expenditure commitments of its jointly controlled entities are disclosed in Notes 22 and 21 respectively. Note 13. Intangible assets 2014 $’000 2013 $’000 26,490 26,920 701 2,802 Machinery of Government transfers 16,694 – Disposals or classified as held for sale (4,963) (3,232) Closing balance 38,922 26,490 – – (2,690) – – – Closing balance (2,690) – Net book value at end of financial year 36,232 26,490 Gross carrying amount Opening balance Additions Accumulated amortisation Opening balance Amortisation of intangible produced assets Disposals or classified as held for sale Significant intangible assets The intangible assets relate to deferred expenditure of $20.597 million at 30 June 2014 (2013: $24.947 million) for the development of Parkville Gardens by MPV and the development of internal software – the Resource Rights Allocation Management (RRAM) system. The value for the development of Parkville Department of State Development, Business and Innovation Annual Report 2013-14 90 Gardens is progressively expensed in line with the sale of properties. Parkville Gardens Development was tested for impairment at 30 June 2014 (2013: nil) and no write-down was charged to the net result. Note 14. Other non-financial assets 2014 $’000 2013 $’000 1,832 965 26 1 1,858 966 2014 $’000 2013 $’000 Amounts payable to other Government agencies (i) 10,540 5,932 Other payables (ii) 79,467 47,593 90,007 53,525 9,151 9,147 9,151 9,147 99,158 62,672 Other payables 1,200 – Total Non-current payables 1,200 – 100,358 62,672 Current other assets Prepayments Other Total current other assets Note 15. Payables Current payables Contractual Statutory Other payables Total current payables Non-current payables Contractual Total payables (i) Terms and conditions of amounts payable to other Government agencies vary according to a particular agreement with that agency. (ii) The average credit period is 30 days. No interest is charged on late payments. (a) Maturity analysis of contractual payables Refer to table 23.5 in Note 23 for the ageing analysis of contractual payables. (b) Nature and extent of risk arising from contractual payables Refer to Note 23 for the nature and extent of risks arising from contractual payables. Department of State Development, Business and Innovation Annual Report 2013-14 91 Note 16. Borrowings 2014 $’000 2013 $’000 Finance lease liabilities (i) (Note 20) 1,750 469 Total current borrowings 1,750 469 Finance lease liabilities (i) (Note 20) 1,451 515 Total non-current borrowings 1,451 515 Total borrowings 3,201 984 Current borrowings Non-current borrowings (i) Secured by the assets leased. (a) Maturity analysis of interest borrowings Refer to table 23.5 in Note 23 for the ageing analysis of borrowings. (b) Nature and extent of risk arising from borrowings Refer to table 23.6 in Note 23 for the nature and extent of risks arising from borrowings. (c) Defaults and breaches During the current and prior year, there were no defaults and breaches of loans. Note 17. Provisions 2014 $’000 2013 $’000 Unconditional and expected to be settled within 12 months (i) 11,177 7,190 Unconditional and expected to be settled after 12 months (ii) 15,933 9,479 Unconditional and expected to be settled within 12 months (i) 1,875 1,032 Unconditional and expected to be settled after 12 months (ii) 2,845 1,577 31,830 19,278 2,850 1,370 508 228 3,358 1,598 35,188 20,876 9,509 5,633 16,921 10,050 680 986 Current provisions Employee benefits (iii) Provisions related to employee benefit on-costs Total current provisions Non-current provisions Employee benefits (iii) Provisions related to employee benefit on-costs Total non-current provisions Total provisions Employee benefits and related on-costs Current employee benefits Annual leave entitlements Unconditional long service leave entitlements Other entitlements Non-current employee benefits Department of State Development, Business and Innovation Annual Report 2013-14 92 Conditional long service leave entitlements Total employee benefits Current on-costs Non-current on-costs Total on-costs Total employee benefits and related on-costs 2014 $’000 2013 $’000 2,849 1,370 29,959 18,039 4,721 2,609 508 228 5,229 2,837 35,188 20,876 (i) Nominal amounts are disclosed. (ii) The amounts disclosed are discounted to present value. (iii) Provisions for employee benefits consist of amounts for annual leave and long service leave accrued by employees, not including on-costs. Note 18. Superannuation Employees of the department are entitled to receive superannuation benefits and the department contributes to both defined benefit and defined contribution plans. The defined benefit plan provides benefits based on years of service and final average salary. The department does not recognise any defined benefit liability in respect of the plan because the department has no legal or constructive obligation to pay future benefits relating to its employees; its only obligation is to pay superannuation contributions as they fall due. DTF discloses the state’s defined benefit liabilities in its disclosure for administered items. However, superannuation contributions paid or payable for the reporting period are included as part of the employee benefits in the comprehensive operating statement of the department. The name, details and amounts expensed in relation to the major employee superannuation funds and contributions made by the department are as follows: Paid contribution for the Contribution outstanding year at year end 2014 $’000 2013 $’000 2014 $’000 2013 $’000 1,350 1,112 – – VicSuper 5,326 3,135 – – Other 2,097 979 – – Total 8,773 5,226 – – Fund Defined benefit plans: State Superannuation Fund – revised and new Defined contributions plans: (a) The bases for contributions are determined by the various schemes. (b) The above amounts were measured as at 30 June of each year, or in the case of employer contributions they relate to the years ended 30 June. Department of State Development, Business and Innovation Annual Report 2013-14 93 Note 19. Other liabilities 2014 $’000 2013 $’000 Other liabilities 84 194 Total other liabilities 84 194 Current other liabilities Note 20. Leases Finance leases Leasing arrangements Finance leases entered into by the department relate to motor vehicles with lease terms between 1 and 3 years. The department has options to purchase the vehicles at the conclusion of the lease agreements. Minimum future lease payments Present value of minimum future lease payments 2014 $’000 2013 $’000 2014 $’000 2013 $’000 Not longer than 1 year 1,885 516 1,750 469 Longer than 1 year but not longer than 5 years 1,505 547 1,451 515 Minimum future lease payments (i) 3,390 1,063 3,201 984 Less future finance charges (189) (79) – – Present value of minimum lease payments 3,201 984 3,201 984 Current borrowings (Note 16) 1,750 469 Non-current borrowings (Note 16) 1,451 515 Total 3,201 984 Finance lease liabilities Finance lease liabilities payable Included in the financial statements as: (i) Minimum future lease payments includes the aggregate of all lease payments and any guaranteed residual. Department of State Development, Business and Innovation Annual Report 2013-14 94 Lessee – Operating leases Leasing arrangements Operating leases mainly relate to accommodation with lease terms of between two and 15 years. All operating lease contracts contain market review clauses in the event that the department exercises its option to renew. The department does not have an option to purchase the leased asset at the expiry of the lease period. 2014 $’000 2013 $’000 Not longer than 1 year 18,450 11,026 Longer than 1 year but not longer than 5 years 69,345 41,597 Longer than 5 years 42,363 33,273 130,158 85,896 2014 $’000 2013 $’000 Not longer than 1 year – 128 Longer than 1 year but not longer than 5 years – 546 Longer than 5 years – 764 Total – 1,438 Non-cancellable operating leases Total Lessor – Operating leases (i) Non-cancellable operating lease receivables (i) Assets previously leased are no longer owned by the department. Department of State Development, Business and Innovation Annual Report 2013-14 95 Note 21. Commitments for expenditure The following commitments have not been recognised as liabilities in the financial statements. Controlled commitments are payable as follows: (a) 2014 $’000 2013 $’000 500 318 – 636 500 954 Not longer than 1 year 255,667 89,534 Longer than 1 year but not longer than 5 years 190,074 86,529 1,110 1,832 446,851 177,895 46,491 193,154 Longer than 1 year but not longer than 5 years 753 20,910 Longer than 5 years 192 – 47,436 214,064 Lease commitments Finance lease liabilities and non-cancellable operating lease commitments are disclosed in Note 20 to the financial statements. (b) Other expenditure commitments Outsourcing commitments Commitments under outsourcing contracts for information technology and internal audit services at the reporting date but not recognised as liabilities and payable are: Not longer than 1 year Longer than 1 year but not longer than 5 years Total Grant commitments Commitments for the payment of grants under long-term contracts in existence at the reporting date but not recognised as liabilities and payable are: Longer than 5 years Total Major Projects Victoria Commitments for payments under contract in relation to projects in existence at the reporting date but not recognised as liabilities and payable are: Not longer than 1 year Total Melbourne Convention Centre Development Project (Administered entity) In May 2006, the State of Victoria entered into an agreement under its Partnerships Victoria policy for the development and maintenance of the Melbourne Convention Centre (MCC) facility by a private sector consortium (the lessor). The lessor was responsible for construction of the new facility which commenced in June 2006 and commercial acceptance was achieved on 31 March 2009. Upon its completion, the department on behalf of the State of Victoria was granted a 25 year finance lease by the lessor, and entered into an agreement under which the new facility will be operated by the Melbourne Convention and Exhibition Trust (MCET). Department of State Development, Business and Innovation Annual Report 2013-14 96 It is estimated as at 30 June 2014 that future lease payments relating to the facility amount to $460.3 million (2013: $461.1 million) in net present value terms, or $1,072.8 million (2013: $1,114.0 million) in nominal dollars, to be paid to the lessor over a 25 year period which commenced 1 January 2009. At the same time, the department on behalf of the State of Victoria has entered into a loan agreement with MCET under which MCET undertakes to repay the State of Victoria fifty per cent ($227.5 million) of the value of the asset ($455 million) over a 25 year period. As part of the 25 year lease arrangement the lessor will provide services, maintenance, and refurbishments in return for a fixed (inflation adjusted) quarterly service payment from the State of Victoria. It is estimated that as at 30 June 2014, these future service payments amount to $218.3 million (2013: $219.0 million) in net present value terms, or $459.1 million (2013: $477.1 million) in nominal dollars, over the 25 year lease term. Ownership of the MCC facility will transfer to the State of Victoria at the end of the 25 year lease period at no cost. Finance lease commitments in relation to the MCC development project for construction of the new facility: Nominal value Net present value (i) 2014 $’000 2013 $000 2014 $’000 2013 $000 42,307 41,245 39,987 38,999 Longer than 1 year but not longer than 5 years 180,414 175,880 136,377 133,207 Longer than 5 years 850,036 896,877 283,902 288,897 1,072,757 1,114,002 460,266 461,103 Not longer than 1 year Total value of expected future commitments (i) The net present value is calculated using a discount rate of 9.4% per annum. Operating lease commitments in relation to the MCC development project for services, maintenance, and refurbishments: Nominal value Net present value (i) 2014 $’000 2013 $000 2014 $’000 2013 $000 Not longer than 1 year 18,480 18,045 17,597 17,183 Longer than 1 year but not longer than 5 years 78,463 76,625 61,525 60,086 Longer than 5 years 362,123 382,441 139,149 141,759 Total value of expected future commitments 459,066 477,111 218,271 219,028 (i) The net present value is calculated using a discount rate of 8.14% per annum. Note 22. Contingent assets and contingent liabilities 2014 $’000 2013 $’000 307 307 67 – 374 307 Contingent liabilities Financial guarantee – letter of credit ICAAN, arrangement with Westpac Mining rehabilitation (i) Total (i) The contingent liability transferred to the department through Machinery of Government changes. Department of State Development, Business and Innovation Annual Report 2013-14 97 Non-quantifiable contingent liabilities (Controlled entity) As part of the wind-up of the National Electricity Code Administrator (NECA), the State of Victoria has undertaken to indemnify the actions of the NECA Directors for a period of seven years, from completion of their tenure in 2008, until 2015. There are a number of litigation matters underway at balance date, the details of which are not disclosed so as not to prejudice the cases. Contingent liabilities are not secured over any of the assets of the department. Note 23. Financial instruments (a) Financial risk management objectives and policies The department’s activities expose it primarily to the financial risk of changes in interest rates. The department does not enter into derivative financial instruments to manage its exposure to interest rate and foreign currency risk. The department does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes. The department’s principal financial instruments comprise: cash assets term deposits investments-equities receivables (excluding statutory receivables) payables (excluding statutory payables) borrowings, and finance lease liabilities payable. Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement, and the basis on which income and expenses are recognised, with respect to each class of financial asset, financial liability and equity instrument above are disclosed in Note 1 to the financial statements. The main purpose in holding financial instruments is to prudentially manage the department’s financial risks within the Government policy parameters. Investments in associates or joint ventures are disclosed separately in Note 12. The department uses different methods to measure and manage the different risks to which it is exposed. The carrying amounts of the department’s contractual financial assets and financial liabilities by category are disclosed in the table below: Department of State Development, Business and Innovation Annual Report 2013-14 98 Table 23.1: Categorisation of financial instruments Contractual Contractual Financial Financial assets – liabilities at loans and amortised receivables cost $’000 $’000 Total $’000 396,760 – 396,760 24,369 – 24,369 90 – 90 421,219 – 421,219 – 91,207 91,207 Borrowings – 3,201 3,201 Total contractual financial liabilities – 94,408 94,408 Cash and deposits 89,229 – 89,229 Receivables (i) 17,255 – 17,255 106,484 – 106,484 – 53,525 53,525 Borrowings – 984 984 Total contractual financial liabilities – 54,509 54,509 2014 Contractual Financial assets Cash and deposits Receivables (i) Investments-equities Total contractual financial assets Contractual Financial liabilities Payables (i) – Supplies and services 2013 Contractual Financial assets Total contractual financial assets Contractual financial liabilities Payables (i) – Supplies and services (i) Receivables and payables disclosed above exclude Statutory Receivables (i.e. GST recoverable) and Statutory Payables (i.e. Taxes payable). Department of State Development, Business and Innovation Annual Report 2013-14 99 Table 23.2: Net holding gain/(loss) on financial instruments by category Net holding gains/ (loss) $’000 Total interest income/ (expense) $’000 Total $’000 Cash and deposits – 5,312 5,312 Total contractual financial assets – 5,312 5,312 Financial liabilities at amortised cost – (280) (280) Total contractual financial liabilities – (280) (280) Cash and deposits – 611 611 Total contractual financial assets – 611 611 Financial liabilities at amortised cost – (47) (47) Total contractual financial liabilities – (47) (47) 2014 Contractual financial assets Contractual financial liabilities 2013 Contractual financial assets Contractual financial liabilities The net holding gains or losses disclosed above are determined as follows: For cash and cash equivalents, loans or receivables, and available-for-sale financial assets, the net gain or loss is calculated by taking the movement in the fair value of the asset, the interest income, plus or minus foreign exchange gains or losses arising from revaluation of the financial assets, and minus any impairment recognised in the net result. For financial liabilities measured at amortised cost, the net gain or loss is calculated by taking the interest expense, and plus or minus foreign exchange gains or losses arising from the revaluation of financial liabilities measured at amortised cost. (b) Credit risk Credit risk arises from the contractual financial assets of the department, which comprise cash and deposits, non-statutory receivables and available-for-sale contractual financial assets. The department’s exposure to credit risk arises from the potential default of the counter party on their contractual obligations resulting in financial loss to the department. Credit risk is measured at fair value and is monitored on a regular basis. Credit risk associated with the department’s financial assets is minimal because its main debtor is the Victorian Government. For debtors other than Government, it is the department’s policy to only deal with entities with high credit ratings of a minimum triple-B rating and to obtain sufficient collateral or credit enhancements where appropriate. The department does not engage in hedging for its financial assets and mainly holds financial assets that are on fixed interest except for cash assets which are mainly cash at bank. As with the policy for debtors, the department’s policy is to only deal with domestic banks with high credit ratings. Department of State Development, Business and Innovation Annual Report 2013-14 100 Provision for impairment for contractual financial assets is recognised when there is objective evidence that the department will not be able to collect a receivable. Objective evidence includes financial difficulties of the debtor, default payments, debts which are more than 60 days overdue, and changes in debtor credit ratings. Except as otherwise detailed in the following table, the carrying amount of financial assets recorded in the financial statements, net of any allowances for losses, represents the department’s maximum exposure to credit risk without taking account of the value of any collateral obtained. Table 23.3: Credit quality of contractual financial assets that are neither past due nor impaired. Government agencies (AAA credit rating) $’000 Other (minimum BBB credit rating) $’000 Internally rated bank deposits $’000 Other $’000 Total $’000 348,329 46,600 1,831 – 396,760 12,365 –- – 12,004 24,369 – – – 90 90 360,694 46,600 1,831 12,094 421,219 43,563 44,339 1,327 – 89,229 9,239 – – 8016 17,255 52,802 44,339 1,327 8,016 106,484 2014 Cash and deposits Receivables (i) Investments-equities Total contractual financial assets 2013 Cash and deposits Receivables (i) Total contractual financial assets (i) The carrying amounts disclosed exclude statutory receivables (e.g. amounts owing from the State of Victoria and GST recoverable). Contractual financial assets that are either past due or impaired There are no material financial assets which are individually determined to be impaired. Currently the department does not hold any collateral as security nor credit enhancements relating to any of its financial assets. There are no financial assets that have had their terms renegotiated so as to prevent them from being past due or impaired, and they are stated at the carrying amounts as indicated. The aging analysis table 23.4 discloses the aging only of contractual financial assets that are past due but not impaired. Table 23.4 discloses the ageing of financial assets that are past due but not impaired. (c) Liquidity risk Liquidity risk is the risk that the department would be unable to meet its financial obligations as and when they fall due. The department operates under the Government fair payments policy of settling financial obligations within 30 days and in the event of a dispute, making payments within 30 days from the date of resolution. The department’s maximum exposure to liquidity risk is the carrying amounts of financial liabilities as disclosed in the balance sheet. The department manages its liquidity risk by: maintaining an adequate level of uncommitted funds that can be drawn at short notice to meet its short term obligations; Department of State Development, Business and Innovation Annual Report 2013-14 101 holding investments and other contractual financial assets that are readily tradeable in the financial markets; careful maturity planning of its financial obligations based on forecasts of future cash flows; a high credit rating for the State of Victoria (Moody’s Investor Services & Standard & Poor’s triple-A), which assists in accessing debt market at a lower interest rate. The department’s exposure to liquidity risk is deemed insignificant based on prior period’s data and current assessment of risk. Maximum exposure to liquidity risk is the carrying amounts of financial liabilities as disclosed in the balance sheet. Table 23.5 discloses the contractual maturity analysis for the department’s contractual financial liabilities. (d) Market risk The department’s exposures to market risk are primarily through interest rate risk with only insignificant exposure to foreign currency and other price risks. Objectives, policies and processes used to manage each of these risks are disclosed in the paragraphs below: Foreign currency risk The department is exposed to insignificant foreign currency risk through its payables relating to purchases of supplies and consumables from overseas. This is because of a limited amount of purchases denominated in foreign currencies and a short timeframe between commitment and settlement. The department manages its risk through continuous monitoring of movements in exchange rates and ensures availability of funds through rigorous cash flow planning and monitoring. Based on past and current assessment of economic outlook, it is deemed unnecessary for the department to enter into any hedging arrangements to manage risk. Interest rate risk Exposure to interest rate risk is insignificant and might arise primarily through the department’s interest bearing liabilities and assets. The only interest bearing liabilities and assets are the motor vehicle finance lease liabilities and term deposits. The department’s interest bearing assets are managed by Treasury Corporation Victoria and any movement in interest rates are monitored on a daily basis. The carrying amounts of financial assets and financial liabilities that are exposed to interest rates are set out in Table 23.6. In addition, the department’s sensitivity to interest rate risk is set out in Table 23.7. Sensitivity analysis disclosure The department’s sensitivity to market risk is determined based on the observed range of actual historical data for the preceding five year period, with all variables other than the primary risk variable held constant. The department’s fund managers cannot be expected to predict movements in market rates and prices; sensitivity analyses are shown for illustrative purposes only. The following movements are “reasonably possible” over the next 12 months: A shift of +100 basis points (1%) per cent and -100 basis points (1%) per cent in market interest rates (AUD) from year-end rates. Table 23.7 discloses the impact on the department’s net result and equity for each category of financial instrument held by the department at the end of the reporting period as presented to key management personnel if the above movements were to occur. Department of State Development, Business and Innovation Annual Report 2013-14 102 Table 23.4: Ageing analysis of contractual financial assets Carrying amount $’000 Not past Past due but not impaired due and not Less than 1 1–3 3 – 12 impaired month months months 1 – 5 years $’000 $’000 $’000 $’000 $’000 2014 396,760 396,760 – – – – 24,369 23,281 37 1,006 43 2 90 90 – – – – 421,219 420,131 37 1,006 43 2 Cash and deposits 89,229 89,229 – – – – Receivables (i) 17,255 13,079 2,031 584 1,508 53 106,484 102,308 2,031 584 1,508 53 Cash and deposits Receivables (i) Investments Total 2013 Total (i) The carrying amounts disclosed here exclude statutory receivables (e.g. amounts owing from Victorian Government and GST input tax credit recoverable). Table 23.5: Maturity analysis of contractual financial liabilities (ii) Maturity dates Carrying amount $’000 Nominal Less than 1 amount month $’000 $’000 1–3 months $’000 3 – 12 months $’000 1 – 5 years $’000 2014 Payables (i) Finance lease liabilities Total 91,207 91,207 91,207 – – – 3,202 3,390 289 235 1,360 1,506 94,409 94,597 91,496 235 1,360 1,506 53,525 53,525 53,525 – – – 984 1,062 108 67 340 547 54,509 54,587 53,633 67 340 547 2013 Payables (i) Finance lease liabilities Total (i) The carrying amounts disclosed exclude statutory amounts (e.g. GST payables). (ii) Maturity analysis is presented using the contractual and discounted cash flow. Department of State Development, Business and Innovation Annual Report 2013-14 103 Table 23.6: Interest rate exposure of financial instruments Interest rate exposure Weighted average interest rate % Carrying amount $’000 Fixed interest rate $’000 Variable interest rate $’000 Noninterest bearing $’000 2.43% 252,310 – 252,310 – 144,450 – – 144,450 24,369 – – 24,369 90 – – 90 421,219 – 252,310 168,909 91,207 – – 91,207 3,202 3,202 – – 94,409 3,202 – 91,207 47,372 – 47,372 – Cash and deposits 41,858 – – 41,858 Receivables (i) 17,255 – – 17,255 106,485 – 47,372 59,113 53,525 – – 53,525 984 984 – – 54,509 984 – 53,525 2014 Financial assets Cash and deposits Cash and deposits Receivables (i) Investments-equities Total financial assets Financial liabilities Payables Financial lease liabilities 6.19% Total financial liabilities 2013 Financial assets Cash and deposits 2.34% Total financial assets Financial liabilities Payables (i) Financial lease liabilities Total financial liabilities (i) 6.54% The carrying amounts disclosed exclude statutory receivables and payables (e.g. amounts owing from Victorian Government, GST recoverable and GST payable). Department of State Development, Business and Innovation Annual Report 2013-14 104 Table 23.7: Interest rate risk sensitivity Interest rate -100 basis points Carrying amount $’000 +100 basis points Availablefor-sale revaluation Net Result surplus $’000 $’000 Availablefor-sale revaluation Net Result surplus $’000 $’000 2014 Contractual financial assets Cash and deposits Receivables Investments-equities 396,760 (2,523) – 2,523 – 24,369 – – – – 90 – – – – (2,523) – 2,523 – 91,207 – – – – 3,202 – – – – – – – – Total impact Contractual financial liabilities Payables Borrowings Total impact 2013 Contractual financial assets Cash and deposits 89,229 (474) – 474 – Receivables 17,255 – – – – (474) – 474 – 53,525 – – – – 984 – – – – – – – – Total impact Contractual financial liabilities Payables Borrowings Total impact (e) Fair value The fair values and net fair values of financial instrument assets and liabilities are determined as follows: Level 1 – the fair value of financial instrument with standard terms and conditions and traded in active liquid markets are determined with reference to quoted market prices; Level 2 – the fair value is determined using inputs other than quoted prices that are observable for the financial asset or liability, either directly or indirectly; and Level 3 – the fair value is determined in accordance with generally accepted pricing models based on discounted cash flow analysis using unobservable market inputs. The department considers that the carrying amount of financial instrument assets and liabilities recorded in the financial statements to be a fair approximation of their fair values, because of the short-term nature of the financial instruments and the expectation that they will be paid in full. Department of State Development, Business and Innovation Annual Report 2013-14 105 Table 23.8: Comparison between carrying amount and fair value Carrying amount 2014 $’000 Fair value 2014 $’000 Carrying amount 2013 $’000 Fair value 2013 $’000 396,760 396,760 89,229 89,229 24,369 24,369 17,255 17,255 90 90 – – 421,219 421,219 106,484 106,484 91,207 91,207 53,525 53,525 3,202 3,202 984 984 94,409 94,409 54,509 54,509 Contractual financial assets Cash and deposits Receivables (i) Investments-equities Total contractual financial assets Contractual financial liabilities Payables (i) – Supplies and services Borrowings Total contractual financial liabilities (i) The carrying amounts exclude statutory amounts (e.g. amounts owing from Government, GST input tax credit recoverable, and GST payable). Table 23.9: Financial assets measured at fair value (ii) Fair value measurement at end of reporting period using: Carrying amount $’000 $’000 Level 1 (i) $’000 Level 2 (i) $’000 Level 3 396,760 396,760 – – 24,369 24,369 – – 90 90 – – 421,219 421,219 – – Cash and deposits 89,229 89,229 – – Receivables 17,255 17,255 – – 106,484 106,484 – – 2014 Financial assets at fair value through profit or loss Cash and deposits Receivables Investments-equities Total 2013 Financial assets at fair value through profit or loss Total contractual financial assets (i) There is no difference between level 1 and level 2. (ii) The fair value hierarchy are disclosed by class of financial instrument. There have been no transfers between levels during the period. The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Department of State Development, Business and Innovation Annual Report 2013-14 106 Note 24. Cash flow information (a) Reconciliation of cash and cash equivalents For the purpose of the cash flow statement, cash includes cash-on-hand and in bank (including funds held in trust), net of outstanding bank overdrafts. Cash at the end of the financial year as shown in the cash flow statement is reconciled to the related items in the balance sheet as follows: 2014 $’000 2013 $’000 48,432 45,673 Funds held in trust Note 30 (b) 348,328 43,556 Balance as per cash flow statement 396,760 89,229 Cash (i) (i) Due to the State of Victoria’s investment policy and Government funding arrangements, the department does not hold a large cash reserve in it bank accounts. Cash received by the department from the generation of income is generally paid into the state’s bank account, known as the Public Account. Similarly, any departmental expenditure, including those in the form of cheques drawn by the department for the payment of goods and services to its suppliers and creditors are made via the Public Account. The process is such that, the Public Account would remit to the department the cash required for the amount drawn on the cheques. This remittance by the Public Account occurs upon the presentation of the cheques by the department’s suppliers or creditors. The above funding arrangements often result in department having a notional shortfall in the cash at bank required for payment of unpresented cheques at the reporting period. At 30 June 2014, cash at bank includes the amount of a notional shortfall for the payment of unpresented cheques at the end of the reporting period. At 30 June 2014, cash at bank included the amount of a notional shortfall for the payment of unpresented cheques of $66,021 (2013: $106,085). (b) Non-cash financing and investing activities 2014 $’000 2013 $’000 Acquisition of plant and equipment by way of finance lease 1,609 677 Total 1,609 677 Department of State Development, Business and Innovation Annual Report 2013-14 107 (c) Reconciliation of net result for the period 2014 $’000 2013 $’000 33,924 11,010 Loss on sale or disposal of non-current assets 4,850 3,162 Depreciation & amortisation of non-financial assets and intangible assets 8,743 4,060 (28) – 43 725 (11,513) (12,959) (853) 50 24,697 25,289 (Decrease)/increase in current provisions 1,914 (368) (Decrease)/increase in non-current provisions 1,236 (277) 63,013 30,692 2014 $’000 2013 $’000 Listed securities 90 – Total current and non-current investments and other financial assets 90 – 2014 $’000 2013 $’000 30,970 30,970 Revaluation increment/(decrements) – – Transfers to accumulated surplus (ii) (5,320) – Balance at end of financial year 25,650 30,970 Net change in reserves (5,320) – Net result for the period Non-cash movements: Provision for doubtful debts Impairment of non-current assets Movements in assets and liabilities Increase in current receivables (Increase)/decrease in other current assets Increase in current payables Net cash flows from/(used) in operating activities Note 25. Investments Current investments Term deposits: the department had no current investments with maturity > 3 months. Non-current investments Equity and management investments Note 26. Reserves Physical asset revaluation surplus (i) Balance at beginning of financial year (i) The physical asset revaluation surplus arises on the revaluation of land and buildings. (ii) Relates to the transfer of land and buildings at Beacon Cove to Port of Melbourne Authority and the City of Port Phillip. Department of State Development, Business and Innovation Annual Report 2013-14 108 Note 27. Summary of compliance with annual parliamentary and special appropriations The following table discloses the details of parliamentary appropriations received by the department for the year. In accordance with accrual output-based management procedures ‘provision of outputs’ and ‘additions to net assets’ are disclosed as ‘controlled’ activities of the department. Administered transactions are those that are undertaken on behalf of the State of Victoria over which the department has no control or discretion. Appropriation Act Financial Management Act 1994 Annual Appropriation Advance from Treasurer 2014 $000 2013 $000 2014 $000 2013 $000 2014 $000 2013 $000 2014 $000 2013 $000 2014 $000 2013 $000 2014 $000 2013 $000 2014 $000 615,786 477,893 – 9,250 – – 4,823 1,078 10,000 4,070 64,285 42,126 81,367 194,043 – – – – – – (5,000) (9,070) 30,780 Section 3(2) Section 29 Section 30 Section 32 Section 35 Advances 2013 $000 Total Parliamentary Authority Appropriations Applied 2014 $000 2014 $000 2013 $000 2013 $000 Variance 2014 $000 2013 $000 – – 694,894 534,417 576,223 438,132 118,671 96,285 (i) 6,961 – – 107,147 191,934 63,313 71,423 (ii) – – – 59,000 657 – Controlled Provision of outputs Additions to net assets Regional Growth Fund 43,834 120,511 136,000 – – – – – – – – – – – – – 136,000 – 136,000 64,000 54,000 2,535 – – – – – (5,000) 5,000 – – – – 897,153 725,936 2,535 9,250 – – 4,823 1,078 – – 95,065 49,087 – – 999,576 785,351 816,935 617,643 182,641 167,708 Administered Payments made on behalf of the state Total 61,535 59,000 60,878 A number of the department’s output programs have been rescheduled to the next financial year due to delays in commencements, completion of milestones, and/or contract finalisation. As a result the department has obtained approval to rephase a component of this unspent funding into future years and has also applied for the remaining output budget to be carried over into the next financial year. (ii) A number of the department’s capital projects have experienced delays and the outstanding works have been re-programmed to the next financial year. As a result the department has obtained approval to rephase a component of this unspent funding into future years and has also applied for the remaining capital budget to be carried over into the next financial year. (i) Department of State Development, Business and Innovation Annual Report 2013-14 109 Note 28. Ex-gratia expenses The department has not incurred ex-gratia expenses (2013: nil). Note 29. Annotated income agreements The following is a listing of the Financial Management Act 1994 Section 29 annotated income agreements approved by the Treasurer: Actual 2014 $’000 2013 $’000 357 1,078 4,050 – 396 – 20 – 4,823 1,078 Commonwealth Specific Purpose Payments National Urban Water and Desalination Plan : New Melbourne Wholesale Market Stormwater Harvesting and Reuse Project Commonwealth National Partnerships Payments Coal Seam Gas and Large Coal Mining Development Other Revenue Regional Victoria Living Expo Research and Experimental Projects Industry Total annotated income agreements Note 30. Trust account balances (a) Trust account balances relating to trust accounts controlled by the department July 2013 $’000 Revenue* $’000 Expense $’000 June 2014 $’000 Solar Systems Stage 2* – 3,000 (3,000) – Earth and Energy Trust* – 6,524 (91) 6,433 Community Regional Industry Skills Program (CRISP) 1,808 – – 1,808 Science and Technology Research and Development Fund 1,605 – (135) 1,470 Victorian Greenhouse Strategy Funds 103 – – 103 Victorian Government Business Office 353 – – 353 Youth Employment Scheme 345 – (94) 251 9 – – 9 1,573 74,063 (73,270) 2,366 155 – – 155 State Trusts Energy and Earth Resources Department Working Trust Account (i) Infrastructure Precincts Melbourne Major Events Real Estate Agents Guarantee Fund Department of State Development, Business and Innovation Annual Report 2013-14 110 July 2013 $’000 Revenue* $’000 Expense $’000 June 2014 $’000 27 60 (51) 36 25,103 23,800 (6,540) 42,363 2,630 121 (151) 2,600 2 – – 2 Workforce Participation Trust 1,406 260 (206) 1,460 CAT General Purpose Trust 1,151 218 (333) 1,036 International Education Trust 2,055 – (10) 2,045 Small Business Services Policy 113 – – 113 RDV Projects* 935 16,730 (1,533) 16,132 e-GIF Program 2,000 3,000 (338) 4,662 Greater Geelong Industry Fund 2,000 – (695) 1,305 CSF Funding – Community Commitments* – 2,810 (1,546) 1,264 CSF Funding – Victorian Community Support* – 1,322 (1,152) 170 Victorian Transactions Refer Program – 2,000 – 2,000 – 353,806 (127,813) 225,993 Treasury Trust 42 7,140 (7,140) 42 Vicfleet Finance Lease Sales* 92 392 (46) 438 428 (31) – 397 CarbonNet Funding Agreement #801* – 3,114 (2,095) 1,019 CarbonNet Funding Agreement #2633* – 11,498 (882) 10,616 Broadband Broker Program 270 – (74) 196 Regional Development Australia* 556 3,844 (4,017) 383 – 14,190 – 14,190 2,704 21 (2,724) 1 – 4,997 (3,788) 1,209 (101) (21) – (122) Lysterfield Levy Trust Fund* – 3,717 – 3,717 Securities – DTF Trust Fund* – – (9) (9) 47,364 533,575 (234,733) 346,206 STI Awareness Project Funds Ezybiz Greening Our Automotive Industry Regional Growth Fund* Revenue Clearing Account Commonwealth Trusts Commonwealth Treasury Trust Fund (ii) Advanced Lignite Demonstration Program Agreement Australian Synchrotron Contributions Fund Natural Disasters Relief Administered Trust Public Service Commuters Club Total * Includes Machinery of Government changes. (i) For the purpose to assist in facilitating, encouraging, promoting and carrying out activities leading to a balanced economic development of the state. The governing legislation is Sector 19 of the Financial Management Act 1994. (ii) For the purpose of holding funds from the Commonwealth Government. The governing legislation is Sector 19 of the Financial Management Act 1994. Department of State Development, Business and Innovation Annual Report 2013-14 111 July 2012 $’000 Revenue $’000 Expense $’000 June 2013 $’000 Community Regional Industry Skills Program (CRISP) 2,013 – (205) 1,808 Science and Technology Research and Development Fund 1,633 – (28) 1,605 Victorian Greenhouse Strategy Funds 138 – (35) 103 Victorian Government Business Office 421 – (68) 353 Youth Employment Scheme 394 – (49) 345 9 – – 9 100 – (100) – 1,216 74,755 (74,398) 1,573 155 – – 155 STI Awareness 45 60 (78) 27 ICT Skills 27 – (27) – Project Funds 5,773 20,432 (1,102) 25,103 Ezybiz 2,658 551 (579) 2,630 10 – (8) 2 3,032 690 (2,316) 1,406 992 189 (30) 1,151 2,133 – (78) 2,055 Small Business Services Policy 353 – (240) 113 RDV Projects 995 – (60) 935 e-GIF Program – 2,000 – 2,000 Greater Geelong Industry Fund – 2,000 – 2,000 42 – – 42 Vicfleet Finance Lease Sales (28) 120 – 92 Revenue Clearing Account 423 5 – 428 Broadband Broker Program 347 38 (115) 270 Regional Development Australia 762 1,519 (1,725) 556 2,613 591 (500) 2,704 (155) 54 – (101) 26,101 103,004 (81,741) 47,364 State Trusts Department Working Trust Account (i) Infrastructure Precincts Recoup trusts Melbourne Major Events Real Estate Agents Guarantee Fund Greening Our Automotive Industry Workforce Participation Trust CAT General Purpose Trust International Education Trust Treasury Trust Commonwealth Trusts Commonwealth Treasury Trust Fund (ii) Australian Synchrotron Contributions Fund Administered Trust Public Service Commuters Club Total (i) For the purpose to assist in facilitating, encouraging, promoting and carrying out activities leading to a balanced economic development of the State of Victoria. The governing legislation is Section 19 of the Financial Management Act 1994. Department of State Development, Business and Innovation Annual Report 2013-14 112 (ii) For the purpose of holding funds from the Commonwealth Government. The governing legislation is Section 19 of the Financial Management Act 1994. (b) Trust account cash balances The following is a list of cash held in trust account balances relating to trusts controlled and administered by the department. (i) 2014 $’000 2013 $’000 6,403 – 82,269 40,048 236,143 – 22,710 275 41 41 Vic Fleet Finance Lease Sales 365 57 Revenue Clearing Account 397 429 – 2,706 348,328 43,556 Lysterfield Levy Trust Fund 450 – Securities – DTF Trust Fund 139 – (122) (101) 467 (101) Controlled trusts Energy and Earth Resources Department Working Trust Account Regional Growth Fund Commonwealth Treasury Trust Account Treasury Trust Account Australian Synchrotron Contributions Fund Total controlled trusts (ii) Administered trusts Public Service Commuters Club Trust Total administered trusts (Note 3) The department’s portion of the Public Service Commuters Club Trust is temporarily in deficit due to the timing between the purchase of travel tickets and reimbursement from employees. The Trust’s working capital is funded by DTF, and the overall trust balance is in surplus. (c) Trust accounts opened and closed by the department During the 2014 financial year the following Trust Accounts were opened: Regional Growth Fund, CSF Funding – Community Commitments, CSF Funding – Victorian Community Support, CarbonNet Funding Agreements, Solar Systems Stage 2, Earth and Energy Trust, Natural Disasters Relief, Victorian Transactions Refer Program Lysterfield Levy Trust Fund and Advanced Lignite Demonstration Program Agreement. During the 2014 financial year the Australian Synchrotron Contributions Fund was closed. The governing legislation is Section 19 of the Financial Management Act 1994. Department of State Development, Business and Innovation Annual Report 2013-14 113 Note 31. Responsible persons In accordance with the Ministerial Directions issued by the Minister for Finance under the Financial Management Act 1994, the following disclosures are made regarding responsible persons for the reporting period. Names The persons who held the positions of Ministers and Accountable Officer in the department are as follows: Minister for Innovation, Services and Small Business The Hon Louise Asher MP 2 December 2010 to 17 March 2014 Minister for Innovation The Hon Louise Asher MP 17 March 2014 to 30 June 2014 Minister for Tourism and Major Events The Hon Louise Asher MP 2 December 2010 to 30 June 2014 Minister for Employment and Trade The Hon Louise Asher MP 13 March 2013 to 30 June 2014 Minister for Major Projects The Hon David Hodgett MP 13 March 2013 to 30 June 2014 Minister for Regional Cities The Hon Dr Denis Napthine MP 2 December 2010 to 30 June 2014 Minister for Manufacturing The Hon David Hodgett MP 13 March 2013 to 30 June 2014 Minister for State Development The Hon Peter Ryan MP 13 March 2013 to 30 June 2014 Minister for Regional and Rural Development The Hon Peter Ryan MLA 2 December 2010 to 30 June 2014 Minister for Technology The Hon Gordon Rich-Phillips MLC 2 December 2010 to 30 June 2014 Minister responsible for the Aviation Industry The Hon Gordon Rich-Phillips MLC 2 December 2010 to 30 June 2014 Minister for Small Business The Hon Russell Northe MP 17 March 2014 to 30 June 2014 Minister for Energy and Resources The Hon Russell Northe MP 17 March 2014 to 30 June 2014 Minister for Energy and Resources The Hon Nicholas Kotsiras MP 13 March 2013 to 17 March 2014 Secretary Mr Howard Ronaldson 14 May 2008 to 30 June 2014 Remuneration Total remuneration received or receivable by the accountable officer in connection with the management of the department during the reporting period was in the range $420,000 to $429,999 (2013: $430,000 – $439,999). Other related transactions and loans requiring disclosure under the Directions of the Minister for Finance have been considered and there are no matters to report. Amounts relating to Ministers are reported in the financial statements of the Department of Premier and Cabinet. Department of State Development, Business and Innovation Annual Report 2013-14 114 Note 32. Remuneration of executives and payments to other personnel (a) Remuneration of executives The number of executive officers, other than ministers and accountable officers, and their total remuneration during the reporting period are shown in the first two columns in the table below in their relevant income bands. The base remuneration of executive officers is shown in the third and fourth columns. Base remuneration is exclusive of bonus payments, long service leave payments, redundancy payments and retirement benefits. The total annualised employee equivalent provides a measure of full-time equivalent executive officers over the reporting period. Several factors have affected total remuneration payable to executives during the year. The Office of State Development was created which resulted in the filling of two of three executive officer positions. In addition, a number of employment contracts were renewed during the year. The Premier approved an annual adjustment to executive officer remuneration of 2.5 per cent for the 201314 financial year. Bonus payments were also paid to eligible executive officers as part of their performance review for 2013-14. A number of executive officers retired or resigned in the past year. This has had a significant impact on total remuneration figures due to the inclusion of annual leave, and long service leave payments. Total Remuneration Base Remuneration 2014 No. 2013 No. 2014 No. 2013 No. 17 8 21 10 $100,000 – $109,999 2 – 1 1 $110,000 – $119,999 1 2 1 2 $120,000 – $129,999 – – 1 – $130,000 – $139,999 – 1 – – $140,000 – $149,999 4 – 2 1 $150,000 – $159,999 4 3 2 3 $160,000 – $169,999 3 3 6 1 $170,000 – $179,999 4 3 6 5 $180,000 – $189,999 6 1 2 – $190,000 – $199,999 2 1 3 5 $200,000 – $209,999 2 5 4 1 $210,000 – $219,999 4 1 3 – $220,000 – $229,999 3 – 1 – $230,000 – $239,999 2 3 2 4 $240,000 – $249,999 1 1 2 1 $250,000 – $259,999 2 1 – – $260,000 – $269,999 – – 2 – $270,000 – $279,999 1 – 1 1 $280,000 – $289,999 2 – 3 1 Income Band $0 – $99,999 Department of State Development, Business and Innovation Annual Report 2013-14 115 Total Remuneration Base Remuneration 2014 No. 2013 No. 2014 No. 2013 No. $290,000 – $299,999 2 – – – $300,000 – $309,999 1 2 – – $310,000 – $319,999 1 – 1 – $320,000 – $329,999 – – – 1 $330,000 – $339,999 – – 1 – $340,000 – $349,999 – 1 – – $350,000 – $359,999 1 1 – 1 $360,000 – $369,999 – – 1 – $370,000 – $379,999 1 – – – $400,000 – $409,999 – 1 – – 66 38 66 38 47.9 28.3 47.9 28.3 11,074 6,844 10,300 5,930 Income Band Total numbers Total annualised employee equivalent (AEE) (a) Total amount ($’000) (a) Annualised employee equivalent is based on working 38 ordinary hours per week over the reporting period. (b) Payments to other personnel (i.e. contractors with significant management responsibilities) The following disclosures are made in relation to other personnel of the department (i.e. contractors charged with significant management responsibilities). Payments have been made to a number of contractors with significant management responsibilities, which are disclosed in the $10,000 expense band. These contractors are responsible for planning, directing or controlling, directly or indirectly, the department’s activities. The change in the total expenses from 2013 to 2014 was mainly driven by new functions being undertaken by the department in the 2014 reporting period. Total other personnel 2014 No. 2013 No. $0 – $99,999 2 1 $110,000 – $119,999 1 – $130,000 – $139,999 1 – $140,000 – $149,999 1 – $160,000 – $169,999 – 1 $180,000 – $189,999 – 1 $190,000 – $199,999 – 1 $230,000 – $239,999 – 1 $280,000 – $289,999 1 1 $290,000 – $299,999 2 – Expense band Department of State Development, Business and Innovation Annual Report 2013-14 116 Total other personnel 2014 No. 2013 No. $310,000 – $319,999 – 1 $350,000 – $359,999 2 – 10 7 2,043 1,446 2014 $’000 2013 $’000 295 274 295 274 Expense band Total numbers Total amount (exclusive of GST) Note 33. Remuneration of auditors Victorian Auditor General’s Office Audit of the financial statements Note 34. Glossary of terms Amortisation Amortisation is the expense which results from the consumption, extraction or use over time of a nonproduced physical or intangible asset. Associates Associates are all entities over which an entity has significant influence but not control, generally accompanying a shareholding and voting rights of between 20 per cent and 50 per cent. Borrowings Borrowings refers to interest-bearing liabilities mainly raised from public borrowings raised through the Treasury Corporation of Victoria, finance leases and other interest-bearing arrangements. Comprehensive result The net result of all items of income and expense recognised for the period. It is the aggregate of operating result and other comprehensive income. Capital asset charge The capital asset charge represents the opportunity cost of capital invested in the non-financial physical assets used in the provision of outputs. Commitments Commitments include those operating, capital and other outsourcing commitments arising from noncancellable contractual or statutory sources. Department of State Development, Business and Innovation Annual Report 2013-14 117 Current grants Amounts payable or receivable for current purposes for which no economic benefits of equal value are receivable or payable in return. Depreciation Depreciation is an expense that arises from the consumption through wear or time of a produced physical or intangible asset. This expense is classified as a ‘transaction’ and so reduces the ‘net result from transaction’. Effective interest method The effective interest method is used to calculate the amortised cost of a financial asset or liability and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument, or, where appropriate, a shorter period. Employee benefits expenses Employee benefits expenses include all costs related to employment including wages and salaries, fringe benefits tax, leave entitlements, redundancy payments, defined benefits superannuation plans and defined contribution superannuation plans. Ex-gratia expenses Ex-gratia expenses mean the voluntary payment of money or other non-monetary benefit (e.g. a write-off) that is not made either to acquire goods, services or other benefits for DSDBI or to meet a legal liability, or to settle or resolve a possible legal liability or claim against DSDBI. Financial asset A financial asset is any asset that is: (a) cash; (b) an equity instrument of another entity; (c) a contractual or statutory right: – to receive cash or another financial asset from another entity; or – to exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable to the entity; or (d) a contract that will or may be settled in the entity’s own equity instruments and is: – a non-derivative for which the entity is or may be obliged to receive a variable number of the entity’s own equity instruments; or – a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity’s own equity instruments. Financial instrument A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial assets or liabilities that are not contractual (such as statutory receivables or payables that arise as a result of statutory requirements imposed by governments) are not financial instruments. Department of State Development, Business and Innovation Annual Report 2013-14 118 Financial liability A financial liability is any liability that is: (a) A contractual or statutory obligation: (i) To deliver cash or another financial asset to another entity; or (ii) To exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the entity; or (b) a contract that will or may be settled in the entity’s own equity instruments and is: – a non-derivative for which the entity is or may be obliged to receive a variable number of the entity’s own equity instruments; or – a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity’s own equity instruments. For this purpose the entity’s own equity instruments do not include instruments that are themselves contracts for the future receipt or delivery of the entity’s own equity instruments. Financial statements Depending on the context of the sentence where the term ‘financial statements’ is used, it may include only the main financial statements (i.e. comprehensive operating statement, balance sheet, cash flow statements, and statement of changes in equity); or it may also be used to replace the old term ‘financial report’ under the revised AASB 101 (Sept 2007), which means it may include the main financial statements and the notes. Grants and other transfers Transactions in which one party provides goods, services, assets (or extinguishes a liability) or labour to another party without receiving approximately equal value in return. Grants can either be operating or capital in nature. While grants to governments may result in the provision of some goods or services to the transferor, they do not give the transferor a claim to receive directly benefits of approximately equal value. Receipt and sacrifice of approximately equal value may occur, but only by coincidence. For example, governments are not obliged to provide commensurate benefits, in the form of goods or services to particular taxpayers in return for their taxes. For this reason, grants are referred to by the AASB as involuntary transfers and are termed non reciprocal transfers. Grants can be paid as general purpose grants which refer to grants that are not subject to conditions regarding their use. Alternatively, they may be paid as specific purpose grants which are paid for a particular purpose and/or have conditions attached regarding their use. General Government sector The General Government sector comprises all Government departments, offices and other bodies engaged in providing services free of charge or at prices significantly below their cost of production. General Government services include those which are mainly non-market in nature, those which are largely for collective consumption by the community and those which involve the transfer or redistribution of income. These services are financed mainly through taxes, or other compulsory levies and user charges. Grants for on passing All grants paid to one institutional sector (e.g. a state General Government) to be passed on to another institutional sector (e.g. local government or a private non profit institution). Department of State Development, Business and Innovation Annual Report 2013-14 119 Intangible produced assets Refer to produced assets in this glossary. Intangible non-produced assets Refer to non-produced assets in this glossary. Interest expense Costs incurred in connection with the borrowing of funds. Interest expenses include interest on bank overdrafts and short term and long-term borrowings, amortisation of discounts or premiums relating to borrowings, interest component of finance leases repayments, and the increase in financial liabilities and non employee provisions due to the unwinding of discounts to reflect the passage of time. Interest income Interest income includes unwinding over time of discounts on financial assets and interest received on bank term deposits and other investments. Investment properties Investment properties represent properties held to earn rentals or for capital appreciation or both. Investment properties exclude properties held to meet service delivery objectives of the State of Victoria. Joint ventures Joint ventures are contractual arrangements between the department and one or more other parties to undertake an economic activity that is subject to joint control. Joint control only exists when the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control (the venturers). Net acquisition of non-financial assets (from transactions) Purchases (and other acquisitions) of non financial assets less sales (or disposals) of non financial assets less depreciation plus changes in inventories and other movements in non financial assets. Includes only those increases or decreases in non financial assets resulting from transactions and therefore excludes write offs, impairment write downs and revaluations. Net result Net result is a measure of financial performance of the operations for the period. It is the net result of items of income, gains and expenses (including losses) recognised for the period, excluding those that are classified as ‘other economic flows – other comprehensive income’. Net result from transactions/net operating balance Net result from transactions or net operating balance is a key fiscal aggregate and is income from transactions minus expenses from transactions. It is a summary measure of the ongoing sustainability of operations. It excludes gains and losses resulting from changes in price levels and other changes in the volume of assets. It is the component of the change in net worth that is due to transactions and can be attributed directly to Government policies. Department of State Development, Business and Innovation Annual Report 2013-14 120 Net worth Assets less liabilities, which is an economic measure of wealth. Non-financial assets Non-financial assets are all assets that are not ‘financial assets’. It includes inventories, land, buildings, infrastructure, road networks, land under roads, plant and equipment, investment properties, cultural and heritage assets, and intangible assets. Non-produced assets Non produced assets are assets needed for production that have not themselves been produced. They include land, subsoil assets, and certain intangible assets. Non produced intangibles are intangible assets needed for production that have not themselves been produced. They include constructs of society such as patents. Other economic flows are changes in the volume or value of an asset or liability that do not result from transactions. It includes: gains and losses from disposals, revaluations and impairments of non financial physical and intangible assets; fair value changes of financial instruments and agricultural assets; and depletion of natural assets (non produced) from their use or removal. Other economic flows – other comprehensive income Other economic flows – other comprehensive income comprises items (including reclassification adjustments) that are not recognised in net result as required or permitted by other AAS. The components of other economic flows – other comprehensive income include: change in physical asset revaluation surplus; share of net movement in revaluation surplus of associates and joint venturers; and gains and losses on remeasuring available-for-sale financial assets. Payables Includes short and long-term trade debt and accounts payable, grants and interest payable. Produced assets Produced assets include buildings, plant and equipment, inventories, cultivated assets and certain intangible assets. Intangible produced assets may include computer software, motion picture films, and research and development costs (which do not include the start up costs associated with capital projects). Public financial corporation sector Public financial corporations (PFCs) are bodies primarily engaged in the provision of financial intermediation services or auxiliary financial services. They are able to incur financial liabilities on their own account (e.g. taking deposits, issuing securities or providing insurance services). Estimates are not published for the public financial corporation sector. Department of State Development, Business and Innovation Annual Report 2013-14 121 Public non financial corporation sector The public non financial corporation (PNFC) sector comprises bodies mainly engaged in the production of goods and services (of a non-financial nature) for sale in the market place at prices that aim to recover most of the costs involved (e.g. water and port authorities). In general, PNFC’s are legally distinguishable from governments which own them. Quasi corporation An unincorporated enterprise that functions as if it were a corporation, has the same relationship with its owner as a corporation, and keeps a separate set of accounts. Receivables Includes amounts owing from Government through appropriation receivable, short and long-term trade credit and accounts receivable, accrued investment income, grants, taxes and interest receivable. Sales of goods and services Refers to income from the direct provision of goods and services and includes fees and charges for services rendered, sales of goods and services, fees from regulatory services, work done as an agent for private enterprises. It also includes rental income under operating leases and on produced assets such as buildings and entertainment, but excludes rent income from the use of non produced assets such as land. User charges includes sale of goods and services income. Supplies and services Supplies and services generally represent cost of goods sold and the day to day running costs, including maintenance costs, incurred in the normal operations of the department. Transactions Transactions are those economic flows that are considered to arise as a result of policy decisions, usually an interaction between two entities by mutual agreement. They also include flows within an entity such as depreciation where the owner is simultaneously acting as the owner of the depreciating asset and as the consumer of the service provided by the asset. Taxation is regarded as mutually agreed interactions between the Government and taxpayers. Transactions can be in kind (e.g. assets provided/given free of charge or for nominal consideration) or where the final consideration is cash. In simple terms, transactions arise from the policy decisions of the Government. Style conventions Figures in the tables and in the text have been rounded. Discrepancies in tables between totals and sums of components reflect rounding. Percentage variations in all tables are based on the underlying unrounded amounts. The notation used in the tables is as follows: – Zero, or rounded to Zero (xxx) negative numbers 20xx year period The financial statements and notes are presented based on the illustration for a Government department in the 2013-14 Model Report for Victorian Government Departments. The presentation of other disclosures is generally consistent with other disclosures made in earlier publications of the department’s annual reports. Department of State Development, Business and Innovation Annual Report 2013-14 122 Accountable Officer’s and Chief Finance Officer’s Declaration We certify that the attached financial report for the Department of State Development, Business and Innovation has been prepared in accordance with Standing Direction 4.2 of the Financial Management Act 1994, applicable Financial Reporting Directions, Australian Accounting Standards and other mandatory professional reporting requirements. We further state that, in our opinion, the information set out in the Comprehensive Operating Statement, Balance Sheet, Statement of Changes in Equity, Cash Flow Statement and Notes forming part of the financial report, presents fairly the financial transactions during the year ended 30 June 2014 and financial position of the department as at 30 June 2014. We are not aware of any circumstance which would render any particulars included in the financial statements to be misleading or inaccurate. We authorise the attached financial report for issue on the 4 September 2014. Howard Ronaldson Secretary Department of State Development, Business and Innovation Melbourne 4 September 2014 Jim Strilakos Chief Finance Officer Department of State Development, Business and Innovation Melbourne 4 September 2014 Department of State Development, Business and Innovation Annual Report 2013-14 123 Auditor-General’s report Victorian Auditor-General’s Office Level 24, 35 Collins Street Melbourne VIC 3000 Telephone 61 3 8601 7000 Facsimile 6138601 7010 Email comments@audit.vic.gov.au Website www.audit.vic.gov.au INDEPENDENT AUDITOR’S REPORT To the Secretary, Department of State Development, Business and Innovation The Financial Report The accompanying financial report for the year ended 30 June 2014 of the Department of State Development, Business and Innovation which comprises the comprehensive operating statement, balance sheet, statement of changes in equity, cash flow statement, notes comprising a summary of significant accounting policies and other explanatory information, and the accountable officer’s and chief finance officer’s declaration has been audited. The Secretary’s Responsibility for the Financial Report The Secretary of the Department of State Development, Business and Innovation is responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards, and the financial reporting requirements of the Financial Management Act 1994, and for such internal control as the Secretary determines is necessary to enable the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error. Auditor’s Responsibility As required by the Audit Act 1994, my responsibility is to express an opinion on the financial report based on the audit, which has been conducted in accordance with Australian Auditing Standards. Those standards require compliance with relevant ethical requirements relating to audit engagements and that the audit be planned and performed to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The audit procedures selected depend on judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, consideration is given to the internal control relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made by the· Secretary, as well as evaluating the overall presentation of the financial report. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion. Department of State Development, Business and Innovation Annual Report 2013-14 124 Independence The Auditor-General’s independence is established by the Constitution Act 1975. The AuditorGeneral is not subject to direction by any person about the way in which his powers and responsibilities are to be exercised. In conducting the audit, the Auditor-General, his staff and delegates complied with all applicable independence requirements of the Australian accounting profession. Opinion In my opinion, the financial report presents fairly, in all material respects, the financial position of the Department of State Development, Business and Innovation as at 30 June 2014 and of its financial performance and its cash flows for the year then ended in accordance with applicable Australian Accounting Standards, and the financial reporting requirements of the Financial Management Act 1994. Matters Relating to the Electronic Publication of the Audited Financial Report This auditor’s report relates to the financial report of the Department of State Development, Business and Innovation for the year ended 30 June 2014 included both in the Department of State Development, Business and Innovation’s annual report and on the website. The Secretary is responsible for the integrity of the Department of State Development, Business and Innovation’s website. I have not been engaged to report on the integrity of the Department of State Development, Business and Innovation’s website. The auditor’s report refers only to the subject matter described above. It does not provide an opinion on any other information which may have been hyperlinked to/from these statements. If users of the financial report are concerned with the inherent risks arising from publication on a website, they are advised to refer to the hard copy of the audited financial report to confirm the information contained in the website version of the financial report. MELBOURNE 19 September 2014 Department of State Development, Business and Innovation Annual Report 2013-14 Dr Peter Frost Acting Auditor-General 125
