Financial Statements

Income Statement

	2007/08	2008/09	2008/09
	Annual Plan	LTCCP	Annual Plan	Variance
Funding Assistance	3,213,871	3,187,940	3,232,600	44,660
User Fees and Charges	1,727,121	1,721,696	2,152,282	430,586
Total Operating Income	4,940,992	4,909,635	5,384,882	475,246
Rates Income	8,120,950	8,525,367	8,577,009	51,642
Interest on Investments	70,200	70,000	85,000	15,000
Total Income	13,132,142	13,505,002	14,046,891	541,888
Gross Operating Expenditure	8,685,056	8,637,143	9,624,936	987,793
Sundry Expenditure	-	-	-	-
Depreciation	3,030,204	3,213,055	2,936,291	(276,764)
Total Expenditure	11,715,260	11,850,198	12,561,227	711,029
Operating Surplus (Loss)	1,416,881	1,654,804	1,485,663	(169,141)
Gross Operating Expenditure includes interest expense of	1,034,216	999,299	985,745	(13,554)

Statement of Changes in Equity

	2007/08	2008/09	2008/09
	Annual Plan	LTCCP	Annual Plan	Variance
Funding Assistance	3,213,871	3,187,940	3,232,600	44,660
User Fees and Charges	1,727,121	1,721,696	2,152,282	430,586
Total Operating Income	4,940,992	4,909,635	5,384,882	475,246
Rates Income	8,120,950	8,525,367	8,577,009	51,642
Interest on Investments	70,200	70,000	85,000	15,000
Total Income	13,132,142	13,505,002	14,046,891	541,888
Gross Operating Expenditure	8,685,056	8,637,143	9,624,936	987,793
Sundry Expenditure	-	-	-	-
Depreciation	3,030,204	3,213,055	2,936,291	(276,764)
Total Expenditure	11,715,260	11,850,198	12,561,227	711,029
Operating Surplus (Loss)	1,416,881	1,654,804	1,485,663	(169,141)
Gross Operating Expenditure includes interest expense of	1,034,216	999,299	985,745	(13,554)

Balance Sheet

	2007/08	2008/09	2008/09
	Annual Plan	LTCCP	Annual Plan	Variance
Public Equity
Accumulated Funds	137,308,718	138,083,729	150,846,421	12,762,692
Reserves and Special Funds	681,901	547,570	1,106,174	558,604
Revaluation Reserves	47,895,720	66,977,984	54,298,347	(12,679,637)
	185,886,339	205,609,283	206,250,943	641,659
Represented by:
Current Assets
Cash and cash equivalents	1,150,000	1,200,000	1,150,000	(50,000)
Trade and other receivables	1,750,000	1,750,000	1,750,000	-
Property Held for Resale	1,448,878	50,000	1,250,000	1,200,000
	4,348,878	3,000,000	4,150,000	1,150,000
Less Current Liabilities
Borrowings	1,290,152	1,231,182	4,500,000	3,268,818
Trade and other payables	1,700,000	1,700,000	1,700,000	-
Rates Paid in Advance	75,000	75,000	75,000	-
Employee Benefit Liabilities	162,710	260,214	162,710	(97,504)
	3,227,862	3,266,396	6,437,710	3,171,314
Working Capital	1,121,016	(266,396)	(2,287,710)	(2,021,314)
Non-Current Assets
Fixed Assets
Operational
- Plant and Machinery	403,322	492,856	402,868	(89,988)
- Furniture and Fittings	793,631	690,710	713,250	22,540
- Land and Buildings	13,499,944	17,875,079	16,847,763	(1,027,316)
	14,696,897	19,058,644	17,963,881	(1,094,764)
Restricted	11,256,749	11,739,183	13,224,399	1,485,216
Infrastructural	171,582,953	187,411,403	186,757,802	(653,601)
	197,537,599	218,209,230	217,946,082	(263,149)
Intangible Assets	-	-	23,604	23,604
Investments	712,087	710,970	161,044	(549,926)
	198,249,686	218,920,200	218,130,730	(789,471)
Non-Current Liabilities
Term Liabilities	13,484,364	13,044,521	9,592,078	(3,452,443)
NET ASSETS	185,886,339	205,609,283	206,250,942	(641,659)

Statement of Cashflows

Statement of Public Debt

The Public Debt Profile is based on the financial projections of the Otorohanga District Council for the 2008/09 financial year.
These statements are based on activity expenditure and revenue projections and the assumptions and policies provided in this
document, the Treasury Management Policy, Funding Policy, and Asset Management Plans.

	2007/08	2008/09	2008/09
	Annual Plan	LTCCP	Annual Plan	Variance
EXTERNAL LOAN BALANCE
Opening Loan Balance	14,096,905	15,061,887	13,345,640	(1,716,247)
Net Loans Required	694,733	(778,321)	753,789	1,532,110
Loans Repaid	17,121	7,862	7,352	(510)
CLOSING LOAN BALANCE	14,774,516	14,275,704	14,092,077	(183,627)

Statement of Accounting Policies

Reporting Entity

Otorohanga District Council (ODC) is a territorial local authority governed by the Local Government Act 2002.

The primary objective of ODC is to provide goods and services for the community or social benefit rather than making a financial return. Accordingly, ODC has designated itself as a public benefit entity for the purposes of New Zealand equivalents to International Financial Reporting Standards (NZ IFRS).

Statement of Compliance

These prospective financial statements have been prepared in accordance with NZ GAAP. They comply with NZ IFRS, and other applicable Financial Reporting Standards, as appropriate for public benefit entities.

Basis of Preparation

The prospective financial statements of ODC have been prepared in accordance with the requirements of the Local Government Act 2002 which includes the requirement to comply with New Zealand generally accepted accounting practice (NZ GAAP).

The prospective financial statements have been prepared on a historical cost basis, apart from the revaluation of land and buildings, certain infrastructural assets and financial instruments, which are stated at their fair value.

The prospective financial statements are presented in New Zealand dollars and all values are rounded to the nearest dollar. The functional and reporting currency of ODC is New Zealand dollars.

Revenue

Revenue is measured at the fair value of consideration received or receivable.

Rates revenue

Rates are set annually by a resolution from Council and relate to a financial year. All ratepayers are invoiced within the financial year to which the rates have been set. Rates revenue is recognised when payable.

Other revenue

Water billing revenue is recognised on an accrual basis. Unbilled usage, as a result of unread meters at year end, is accrued on an average usage basis.

ODC receives government grants from Land Transport New Zealand, which subsidises part of ODC’s costs in maintaining the local roading infrastructure. The subsidies are recognised as revenue upon entitlement as conditions pertaining to eligible expenditure have been fulfilled.

Revenue from the rendering of services is recognised by reference to the stage of completion of the transaction at balance date, based on the actual service provided as a percentage of the total services to be provided.

Where a physical asset is acquired for nil or nominal consideration the fair value of the asset received is recognised as revenue. Assets vested in ODC are recognised as revenue when control over the asset is obtained.

Interest income is recognised using the effective interest method.

Dividends are recognised on an accrual basis net of imputation credits.

Borrowing costs

Borrowing costs are recognised as an expense in the period in which they are incurred.

Grant expenditure

Non-discretionary grants are those grants that are awarded if the grant application meets the specified criteria and are recognised as expenditure when an application that meets the specified criteria for the grant has been received.

Discretionary grants are those grants where ODC has no obligation to award on receipt of the grant application and are recognised as expenditure when a successful applicant has been notified of the ODC’s decision.

Operating Leases

An operating lease is a lease that does not transfer substantially all the risks and rewards incidental to ownership of an asset. Lease payments under an operating lease are recognised as an expense on a straight-line basis over the lease term.

Cash and cash equivalents

Cash and cash equivalents includes cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts.

Bank overdrafts are shown within borrowing in current liabilities in the Balance Sheet.

Financial Assets

ODC classifies its financial assets into the following four categories: financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables and available for sale financial assets. ODC currently only has loans and receivables 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 and re-evaluates this designation at every reporting date.

Financial assets and liabilities are initially measured at fair value plus transaction costs unless they are carried at fair value through profit or loss in which case the transaction costs are recognised in the Income Statement.

Purchases and sales of investments are recognised on trade-date, the date on which ODC commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the ODC has transferred substantially all the risks and rewards of ownership.

The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. The quoted market price used is the current bid price.

Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured shall be measured at cost.

The categories of financial assets held by ODC are:

·         Loans and receivables

These are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.

After initial recognition they are measured at amortised cost using the effective interest method. The effective interest rate method is a method of calculating the amortised cost of a financial asset 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 a financial asset or where appropriate, a shorter period.

Gains and losses when the asset is impaired or derecognised are recognised in the Income Statement. Loans and receivables are classified as “trade and other receivables” in the Balance Sheet. Rural Housing Loans are classified as “other financial assets” in the Balance Sheet.

A provision for impairment of receivables is established when there is objective evidence that ODC will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the assets carrying amount and the present value of estimated future cash flows, discounted using the effective interest method.

·         Available for sale financial assets

Available for sale financial assets are those that are designated as fair value through equity and do not fall into any other financial instrument category.

This category encompasses:

-         Investments that ODC intends to hold long-term but which may be realised before maturity; and

-         Shareholdings that ODC holds for strategic purposes.

After initial recognition the shareholdings in listed companies are measured at their fair value.

Gains and losses are recognised directly in equity except for impairment losses, which are recognised in the Income Statement. In the event of impairment, any cumulative losses previously recognised in equity will be removed from equity and recognised in Income Statement even though the asset has not been derecognised.

On derecognition the cumulative gain or loss previously recognised in equity is recognised in the Income Statement.

Impairment of financial assets

At each balance sheet date ODC assesses whether there is any objective evidence that a financial asset or group of financial assets is impaired. Any impairment losses are recognised in the Income Statement.

Development Property Held For Sale

Development Property Held for Sale is measured at the lower of their carrying amount and fair value less costs to sell.

Any impairment losses for write-downs of Development Property Held For Sale are recognised in the Income Statement.

Any increases in fair value (less costs to sell) are recognised up to the level of any impairment losses that have been previously recognised.

Property, plant and equipment

Property, plant and equipment consist of:

Operational assets – These include land, buildings, landfill post closure, library books, plant and equipment, and motor vehicles.

Restricted assets – Restricted assets are parks and reserves owned by ODC which provide a benefit or service to the community and cannot be disposed of because of legal or other restrictions.

Infrastructure assets – Infrastructure assets are the fixed utility systems owned by ODC. Each asset class includes all items that are required for the network to function, for example, sewer reticulation includes reticulation piping and sewer pump stations.

Property, plant and equipment is shown at cost or valuation, less accumulated depreciation and impairment losses.

Additions

The cost of an item or property, plant and equipment is recognised as an asset if, and only if, it is probable that future economic benefits or service potential associated with the item will flow to ODC and the cost of the item can be measured reliably.

In most instances, an item of property, plant and equipment is recognised at cost. Where an asset is acquired at no cost, or for a nominal cost, it is recognised at fair value as at the date of acquisition.

Disposals

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount of the asset. Gains and losses on disposals are included in the Income Statement. When revalued assets are sold, the amounts included in asset revaluation reserves in respect of those assets are transferred to retained earnings.

Subsequent costs

Costs incurred subsequent to initial acquisition are capitalised only when it is probable that future economic benefits or service potential associated with the item will flow to ODC and the cost of the item can be measured reliably.

Depreciation

Depreciation is provided on a straight-line basis or diminishing value basis on all property, plant and equipment other than land, at rates that will write off the cost (or valuation) of the assets to their estimated residual values over their useful lives. The useful lives and associated depreciation rates of major classes of assets have been estimated as follows:

	Useful Life (Years)	Depreciation Rate
Buildings – Concrete Buildings – Wooden Improvements Vehicles Computers Office Equipment Furniture/ Fixtures Library Books Plant and Machinery Water Treatment Piping Equipment Other Water Reticulation Piping Equipment Other Wastewater Piping Equipment Other Stormwater Piping Equipment Other   Roading Pavement (Basecourse) -          Sealed -          Unsealed Seal Culverts Bridges Kerb & Channel/ Catchpits Footpaths Streetlights Signposting Delineators/ RPMs	100 40 20 6.6 3-4 4-10 10 6.6 2.5-3   36-80 2-50 20   5-80 5-30 25   14-80 3-60 19-37   13-80 8-60 25       1-60 1-6 1-15 10-80 12-94   45 20-55 5-46 5-20 3-7	1% 2.5% 5% 15% 25-33.33% 10-25% DV 10% DV 15% DV 33.33 – 40%   1.25-2.7% 2-50% 5%   1.25-20% 3.33-20% 4%   1.25-7.14% 1.66-33% 2.7-5.26%   1.25-7.7% 1.66-12.5% 4%       1.66-100% 16.5-100% 6.7-100% 1.25-10% 1-8.5%   2.2% 1.8-5% 2-20% 5-20% 14.3 -33.3%

The residual value and useful life of an asset is reviewed, and adjusted if applicable, at each financial year-end.

Revaluation

Those asset classes that are revalued are valued on a three yearly valuation cycle on the basis described below. All other asset classes are carried at depreciated historical cost. The carrying values of revalued items are reviewed at each balance date to ensure that those values are not materially different to fair value.

Operational land and buildings

At fair value as determined from market-based evidence by an independent valuer. The most recent valuation was performed by Quotable Value (Registered Valuers) and the valuation effective as at 1 July 2005.

Restricted land and buildings

At fair value as determined from market-based evidence by an independent valuer. The most recent valuation was performed by Quotable Value (Registered Valuers), and the valuation effective as at 1 July 2005.

Infrastructural asset classes: roads, water reticulation, sewerage reticulation and stormwater systems:

At fair value determined on a depreciated replacement cost basis by sufficiently experienced in-house engineering staff. The valuation was independently reviewed and confirmed to have met the appropriate valuation and financial reporting standards, and deemed suitable for inclusion in the financial statements by Maunsell (Registered Valuers). The most recent valuation is effective as at 1 July 2005.

At balance date ODC assesses the carrying values of its infrastructural assets to ensure that they do not differ materially from the assets’ fair values. If there is a material difference, then the off-cycle asset classes are revalued.

Land under roads

Land under roads, was valued based on land value of land within the ward the road is in. This valuation was performed by sufficiently experienced in-house engineering staff, based on information obtained from Quotable Value (Registered Valuers), and the average for each ward is used as the basis of the valuation of land under roads. The most recent valuation is effective as at 1 July 2005.

Accounting for revaluations

ODC accounts for revaluations of property, plant and equipment on a class of asset basis.

The results of revaluing are credited or debited to an asset revaluation reserve for that class of asset. Where this results in a debit balance in the asset revaluation reserve, this amount is rather expensed in the Income Statement. Any subsequent increase on revaluation that off-sets a previous decrease in value recognised in the Income Statement will be recognised first in the Income Statement up to the amount previously expensed, and then credited to the revaluation reserve for that class of asset.

Intangible assets

Software acquisition

Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. Costs associated with maintaining computer software are recognised as an expense when incurred.

Amortisation

The carrying value of an intangible asset with a finite life is amortised on a straight-line basis over its useful life. Amortisation begins when the asset is available for use and ceases at the date that the asset is derecognised. The amortisation charge for each period is recognised in Income Statement.

The useful lives and associated amortisation rates of major classes of intangible assets have been estimated as follow:

Computer software                       3 years                           33.3%

Impairment of non-financial assets

Non-financial assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that have a finite useful life are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the assets carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an assets fair value less costs to sell and value in use.

Value in use is depreciated replacement cost for an asset where the future economic benefits or service potential of the asset are not primarily dependent on the assets ability to generate net cash inflows and where the entity would, if deprived of the asset, replace its remaining future economic benefits or service potential.

The value in use for cash-generating assets is the present value of expected future cash flows.

If an assets carrying amount exceeds its recoverable amount the asset is impaired and the carrying amount is written down to the recoverable amount. For revalued assets the impairment loss is recognised against the revaluation reserve for that class of asset. Where that results in a debit balance in the revaluation reserve, the balance is recognised in the Income Statement.

For assets not carried at a revalued amount, the total impairment loss is recognised in the Income Statement.

The reversal of an impairment loss on a revalued asset is credited to the revaluation reserve. However, to the extent that an impairment loss for that class of asset was previously recognised in Income Statement, a reversal of the impairment loss is also recognised in the Income Statement.

For assets not carried at a revalued amount the reversal of an impairment loss is recognised in the Income Statement.

Employee benefits

Short-term benefits

Employee benefits that ODC expects to be settled within 12 months of balance date are measured at nominal values based on accrued entitlements at the rates expected to apply at the time of settlement.

These include salaries and wages accrued up to balance date, annual leave earned to, but not yet taken at balance date, retiring and long service leave entitlements expected to be settled within 12 months, and sick leave.

ODC recognises a liability for sick leave to the extent that absences in the coming year are expected to be greater than the sick leave entitlements earned in the coming year. The amount is calculated based on the unused sick leave entitlement that can be carried forward at balance date, to the extent that ODC anticipates it will be used by staff to cover those future absences.

Long-term benefits

­Long service leave and retirement leave

Entitlements that are payable beyond 12 months, such as long service leave, have been calculated on an actuarial basis. The calculations are based on:

-         Likely future entitlements accruing to staff, based on years of service, years to entitlement, the likelihood that staff will reach the point of entitlement and contractual entitlements information; and

-         The present value of the estimated future cash flows. A discount rate of 7.25%, and an inflation factor of 2.5% were used. The discount rate is based on the weighted average of Government interest rates for stock with terms to maturity similar to those of the relevant liabilities. The inflation factor is based on the expected long-term increase in remuneration for employees.

Retirement leave is recorded at the entitlement of staff, as this represents the amount that can be claimed at any time by entitled staff.

Superannuation schemes

Defined contribution schemes

Obligations for contributions to defined contribution superannuation schemes are recognised as an expense in the Income Statement as incurred.

Provisions

ODC recognise a provision for future expenditure of uncertain amount or timing when there is a present obligation (either legal or constructive) as a result of a past event, it is probable that expenditures will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are not recognised for future operating losses.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised as an interest expense.

Borrowings

Borrowings are initially recognised at their fair value. After initial recognition, all borrowings are measured at amortised cost using the effective interest method net of transaction costs.

Equity

Equity is the community’s interest in ODC and is measured as the difference between total assets and total liabilities. Equity is disaggregated and classified into a number of reserves.

The components of equity are:

-         Retained earnings

-         Restricted reserves

-         Asset revaluation reserves

Restricted and Council created reserves

Restricted reserves are a component of equity generally representing a particular use to which various parts of equity have been assigned. Reserves may be legally restricted or created by ODC.

Restricted reserves are those subject to specific conditions accepted as binding by ODC and which may not be revised by ODC without reference to the Courts or a third party. Transfers from these reserves may be made only for certain specified purposes or when certain specified conditions are met.

Also included in restricted reserves are reserves restricted by Council decision. The Council may alter them without references to any third party of the Courts. Transfers to and from these reserves are at the discretion of the Council.

The asset revaluation reserve arises on the revaluation of land, buildings and infrastructural assets. Where a revalued land, building or infrastructural asset is sold that portion of the asset revaluation reserve which relates to that asset, and is effectively realised, is transferred directly to retained profits.

Landfill post-closure costs

ODC, as operator of the Otorohanga and Kawhia closed landfills, has a legal obligation under the resource consents to provide ongoing maintenance and monitoring services at the landfill. A provision for post-closure costs is recognised as a liability.

The provision is measured based on the present value of future cash flows expected to be incurred, taking into account future events including new legal requirements and known improvements in technology.

The discount rate used is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to ODC.

Goods and Services Tax (GST)

All items in the financial statements are stated exclusive of GST, except for receivables and payables, which are stated on a GST inclusive basis. Where GST is not recoverable as input tax then it is recognised as part of the related asset or expense.

The net GST paid to, or received for the IRD, including the GST relating to investing and financing activities, is classified as an operating cash flow in the statement of cash flows.

Commitment and contingencies are disclosed exclusive of GST.

Cost Allocation

ODC has derived the cost of service for each significant activity of ODC using the cost allocation system outlined below.

Direct costs are those costs directly attributable to a significant activity. Indirect costs are those costs, which cannot be identified in an economically feasible manner, with a specific significant activity.

Direct costs are charged directly to significant activities. Indirect costs are charged to significant activities using appropriate cost drivers such as actual usage, staff numbers and floor area.

Trade and other payables

Trade and other accounts payable are recognised when ODC becomes obliged to make future payments resulting from the purchase of goods and services. Subsequent to initial recognition, trade payables and other accounts payable are recorded at amortised cost.

Financial Instruments issued by the Council

Debt and Equity instruments

Debt and equity instruments are classified as either liabilities or as equity in accordance with the substance of the contractual arrangement.

I