Land Transport New Zealand Annual report

Statement of accounting policies

Reporting entity

Land Transport NZ is a Crown entity established in December 2004 as the result of a reorganisation 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.

Going concern

Following the Next Steps review of the land transport sector, the Government announced that Land Transport NZ and Transit will be merged into a single statutory Crown entity. The intention is that the new Crown entity will come into effect on 1 July 2008. Legislative changes will be needed to give effect to the merger. As the proposed legislative process is not yet in place we have continued to prepare these accounts on a going concern basis

Statutory base

Land Transport NZ’s financial statements are prepared in accordance with the requirements of section 151 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 and appearing in the 2006/07 Statement of intent.

The budget figures were 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

Revenue is measured at fair value of consideration received. 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, as per section 10 (6) of the

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. A provision is made when there is objective evidence that the debt will not be collected.

Inventories

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

Property, plant and equipment

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 $2000.

Depreciation of property, plant and equipment

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	3–10 years	Range
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.

For the period to 30 June 2007 corporate indirect and overheads account for 5 percent (prior year 5 percent) of Land Transport NZ costs.

Business unit’s direct costs and overhead 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 unit’s 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 2007 direct business unit costs account for 95 percent (prior year 95 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.

< previous | next >

Page created: 14 November 2007