Land Transport New Zealand Annual Report

for the year ending 30 June 2006

Statement of accounting policies

Reporting entity

Land Transport NZ is a Crown Entity established in December 2004 as the result of a re-organisation of the government transport sector, which saw the majority of the activities of the Land Transport Safety Authority and Transfund New Zealand combine to form Land Transport NZ. Land Transport NZ is integrally involved in developing and delivering an affordable, integrated, safe, responsive and sustainable land transport system in line with the New Zealand Transport Strategy vision.

Statutory base

Land Transport NZ's financial statements are prepared in accordance with the requirements of sections 41I and 44 of the Public Finance Act 1989 and section 152 of the Crown Entities Act 2004.

Measurement basis

The financial statements have been prepared on an historical cost basis.

Accounting policies

The following specific accounting policies, which materially affect the measurement of financial performance and financial position, have been applied.

Budget figures
The budget figures contained in the financial statements are those approved by the Land Transport NZ Board.

The budget figures have been prepared in accordance with generally accepted accounting practice and are consistent with the accounting policies adopted by the Board for the preparation of the financial statements.

Revenue
Land Transport NZ derives revenue from:

• fees and charges from regulatory activities
• the sale of goods and services
• contracts for delivery of motor vehicle registration activities, revenue management and rules development
• Crown revenue split into two components; Crown Revenue, and Crown Revenue from the National Land Transport Fund
• income from investments.

Such revenue is recognised when earned and is reported in the financial period to which it relates.

Expenditure
Operating expenses are recognised in the period to which they relate.

Road controlling authorities and regional council claims are recognised as expenditure in the period when the activity has been performed and up to the amount approved by the Board for that activity. Revenue received by Transit New Zealand, as per section 10 (6) of the Land Transport Management Act 2003, is treated as a reduction to expenditure funding.

Financial instruments
Land Transport NZ is party to financial instruments as part of its everyday operations. These financial instruments include cash and bank balances, investments, accounts receivable and accounts payable. Investments are stated at the lower of cost or net realisable value. All revenue and expenditure relating to financial instruments is recognised in the Statement of financial performance.

Accounts receivable
Accounts receivable are stated at their estimated realisable value after providing for doubtful and non-collectable debts.

Inventories
Inventories are stated at the lower of cost or estimated net realisable value.

Fixed asset valuation
Fixed asset purchases are recorded at cost and depreciated on a straight-line basis over their estimated useful lives. The minimum cost value for a purchase to be classified as a fixed asset is $2,000.

Depreciation of fixed assets
Depreciation is calculated on a straight-line basis at rates that will write off the cost of the assets over their estimated useful lives. The useful lives and associated depreciation rates used in these statements are as follows:

Asset class	Useful lives	Depreciation rate
Leasehold improvements	Estimated life of the lease
Plant and equipment	5 years	20%
Furniture and fittings	10 years	10%
Motor vehicles	4 years	25%
Office equipment	5 years	20%
Computer hardware	3 years	33%
Computer software	Various
Driver Licence Register system	10 years	10%

Cost of service statements

The Statement of Service Performance reports the net cost of services for the outputs of Land Transport NZ and is represented by the costs of providing the output less all the revenue that can be allocated to these outputs.

Output costing

Basis of assigning indirect and corporate costs to business units who produce outputs
Corporate indirect costs and corporate overhead are assigned to business units based on a number of cost drivers. The cost drivers include floor space occupied by the business unit and volume of effort associated with the business unit's activity.

For the period to 30 June 2006 corporate indirect and overheads account for 5 percent (prior year 3 percent) of Land Transport NZ costs.

Business units' direct costs and overheads assignment to outputs
Business units are defined as work areas that produce outputs. Where possible, costs incurred by a business unit are direct coded to outputs. Business units' direct or indirect costs, including salaries and their share of indirect and corporate overhead, are assigned to outputs based on the proportion of direct staff time spent on each output.

For the period to 30 June 2006, direct business unit costs account for 95 percent (prior year 97 percent) of Land Transport NZ costs.

Taxation

Income tax
Crown Entities are exempt from income tax under provisions of the Income Tax Act 2004 and therefore no charge for income tax has been provided for.

Goods and services tax (GST)
The financial statements are prepared on a GST exclusive basis, with the exception of accounts receivable and accounts payable which are stated with GST included. Where GST is irrecoverable as an input tax, it is recognised as part of the related asset or expense.

Employee entitlements

Provision is made in respect of Land Transport NZ's liability for annual leave, long service leave and retirement leave. Annual leave and other entitlements expected to settle within 12 months of reporting date are measured at nominal values on an actual entitlement basis at current rates of pay.

Entitlements that are payable beyond 12 months such as long service leave and retirement leave, have been calculated on an actuarial basis based on the present value of expected future entitlements.

Statement of cash flows

Cash means cash balances on hand, held in bank accounts, demand deposits and other liquid investments in which Land Transport NZ invests as part of its day-to-day cash management. All demand deposits are held with trading banks registered in New Zealand.

Operating activities include cash received from all income sources of Land Transport NZ and cash payments made for the supply of goods and services.

Investing activities are those activities relating to the acquisition and disposal of non-current assets.

Financing activities comprise the change in the capital structure of Land Transport NZ.

Operating leases

Land Transport NZ leases office premises, office equipment and motor vehicles. As all the risks of ownership are retained by the lessor, these leases are classified as operating leases. Operating lease costs are charged as expenses in the period in which they are incurred.

Commitments

Future expenses and liabilities to be incurred on contracts that have been entered into at balance date are disclosed as commitments to the extent that there are equally unperformed obligations.

Commitments relating to employment contracts are not disclosed.

Contingent liabilities

Contingent liabilities are disclosed at the time at which the contingency is evident.

Public equity

This is the Crown's net investment in the Crown Entity, retained surpluses and the balance of all memorandum accounts.

Changes in accounting policies

There have been no changes in accounting policies, including cost allocation accounting policies, since the date of the last audited financial statements. All policies have been applied on a basis consistent with the previous year.

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Page created: 13 February 2007