Australian Government: Grains Research and Development CororationGRDC Annual Report 2005-2006

HomeFinancial Statements › Notes to and forming part of the Financial Statements: Note 1. Summary of Significant Accounting Policies

Notes to and forming part of the Financial Statements

For the year ended 30 June 2006

In this section:

Note 1. Summary of Significant Accounting Policies

1.1 Basis of Preparation of the Financial Statements

The financial statements are required by clause 1(b) of Schedule 1 to the Commonwealth Authorities and Companies Act 1997 and are a general purpose financial report.

The financial statements have been prepared in accordance with:

This is the first financial report to be prepared under the Australian Equivalents to International Financial Reporting Standards (AEIFRS). The impacts of adopting AEIFRS are disclosed at Note 2.

The Income Statement, Balance Sheet and Statement of Changes in Equity have been prepared on an accrual basis and are in accordance with historical cost convention, except for certain assets, which, as noted, are at fair value. Except where stated, no allowance is made for the effect of changing prices on the results or the financial position.

The financial report is presented in Australian dollars and values are rounded to the nearest thousand dollars unless disclosure of the full amount is specifically required.

Unless alternative treatment is specifically required by an Accounting Standard, assets and liabilities are recognised in the Balance Sheet when and only when it is probable that future economic benefits will flow and the amounts of the assets and liabilities can be reliably measured. However, assets and liabilities arising under agreements equally proportionately unperformed are not recognised unless required by an Accounting Standard. Liabilities and assets that are unrecognised are reported in the Schedule of Commitments and the Schedule of Contingencies.

Unless alternative treatment is specifically required under an Accounting Standard, revenues and expenses are recognised in the Income Statement when and only when the flow or consumption or loss of economic benefits has occurred and can be reliably measured.

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1.2 Significant Accounting Judgements and Estimates

In the process of applying the accounting policies listed in this note, there have been no judgements that have significantly impacted on the amounts recorded in the financial statements.

No accounting assumptions or estimates have been identified that have a significant risk of causing a material adjustment to carrying amounts of assets and liabilities within the next accounting period.

1.3 Statement of Compliance

The financial report complies with the Australian Accounting Standards, which include Australian Equivalents to International Financial Reporting Standards (AEIFRS).

Australian Accounting Standards require the Corporation to disclose Australian Accounting Standards that have not been applied, for standards that have been issued but are not yet effective.

The AASB has issued amendments to existing standards, these amendments are denoted by year and then number, for example 2005-1 indicates amendment 1 issued in 2005.

The table below illustrates standards and amendments that will become effective for the Corporation in the future. The nature of the impending change within the table, has been out of necessity abbreviated and users should consult the full version available on the AASB's website to identify the full impact of the change. The expected impact on the financial report of adoption of these standards is based on the Corporation's initial assessment at this date, but may change. The Corporation intends to adopt all of the standards upon their application date.

Title Standard affected Application date* Nature of impending change Impact expected on financial report
2005-1 AASB139 1 Jan 2006 Amends hedging requirements for foreign currency risk of a highly probable intra-group transaction. No expected impact.
2005-4 AASB 139, AASB 132, AASB 1, AASB 1023 and AASB 1038 1 Jan 2006 Amends AASB 139, AASB 1023 and AASB 1038 to restrict the option to fair value through profit or loss and makes consequential amendments to AASB 1 and AASB 132. No expected impact.
2005-5 AASB 1 and AASB 139 1 Jan 2006 Amends AASB 1 to allow an entity to determine whether an arrangement is, or contains, a lease.Amends AASB 139 to scope out a contractual right to receive reimbursement (in accordance with AASB 137) in the form of cash. No expected impact.
2005-6 AASB 3 1 Jan 2006 Amends the scope to exclude business combinations involving entities or businesses under common control. No expected impact.
2005-9 AASB 4, AASB 1023, AASB 139 and AASB 132 1 Jan 2006 Amended standards in regards to financial guarantee contracts. No expected impact.
2005-10 AASB 132, AASB 101, AASB 114, AASB 117, AASB 133, AASB 139, AASB 1, AASB 4, AASB 1023 and AASB 1038 1 Jan 2007 Amended requirements subsequent to the issuing of AASB 7. No expected impact.
2006-1 AASB 121 31 Dec 2006 Changes in requirements for net investments in foreign subsidiaries depending on denominated currency. No expected impact.
AASB7 Financial Instruments: Disclosures 1 Jan 2007 Revise the disclosure requirements for financial instruments from AASB132 requirements. No expected impact.
* Application date is for annual reporting periods beginning on or after the date shown.

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1.4 Revenue

The revenues described in this Note are revenues relating to the core activities of the Corporation.

Revenues from Government

Revenue paid to the Corporation under Section 32 of the Primary Industries and Energy Research and Development Act 1989, representing 0.5% of the three-year moving average of gross value of production of grains, is for the purpose of funding research and development activities. Revenues from Government are recognised when they are entitled to be received by the Corporation.

Industry Contributions

Revenue paid to the Corporation under Section 30 of the Primary Industries and Energy Research and Development Act 1989, where a research levy is attached to grain producers' output, is for the purpose of providing funds for research and development. Industry Contributions are recognised when they are entitled to be received by the Corporation.

Interest Revenue

Interest revenue is recognised using the effective interest method as set out in AASB 139.

Project Refunds

Project Refunds are recognised upon receipt of the refund when it relates to prior year's expenditure and when the funds accrued are not required for the completion of the project.

Royalties

Royalties are recognised when the royalty is entitled to be received by the Corporation.

1.5 Acquisition of Assets

Assets are recorded at cost on acquisition except as stated below. The cost of acquisition includes the fair value of assets transferred in exchange and liabilities undertaken. Financial assets are initially measured at their fair value plus transaction costs where appropriate.

Assets acquired at no cost, or for nominal consideration, are initially recognised as assets and revenues at their fair value at the date of acquisition.

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1.6 Property (Land and Buildings and Infrastructure), Plant and Equipment
Asset Recognition Threshold

Purchases of property, plant and equipment are recognised initially at cost in the Balance Sheet, except for purchases costing less than $2,000, which are expensed in the year of acquisition (other than where they form part of a group of similar items which are significant in total).

The initial cost of an asset includes an estimate of the cost of dismantling and removing the item and restoring the site on which it is located.

Revaluations
Basis

Land, buildings, infrastructure, plant and equipment are carried at fair value, being revalued with sufficient frequency such that the carrying amount of each asset is not materially different, as at reporting date, from its fair value. Valuations undertaken in any year are as at 30 June.

Fair values for each class of asset are determined as shown below:

Fair values for each class of asset
Asset Class Fair Value Measured at:
Land Market selling price
Building Market selling price
Plant & equipment Market selling price

Following initial recognition at cost, valuations are conducted with sufficient frequency to ensure that the carrying amounts of assets do not materially differ with the assets' fair values as at the reporting date. The regularity of independent valuations depends upon the volatility of movements in market values for the relevant assets.

Revaluation adjustments are made on a class basis. Any revaluation increment is credited to equity under the heading of asset revaluation reserve except to the extent that it reverses a previous revaluation decrement of the same asset class that was previously recognised through profit and loss. Revaluation decrements for a class of assets are recognised directly through profit and loss except to the extent that they reverse a previous revaluation increment for that class.

Any accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the asset restated to the revalued amount.

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Depreciation

Depreciable property, plant and equipment assets are written-off to their estimated residual values over their estimated useful lives using, in all cases, the straight-line method of depreciation.

Depreciation (useful lives), residual values and methods are reviewed at each reporting date and necessary adjustments are recognised in the current, or current and future reporting periods, as appropriate.

Depreciation rates applying to each class of depreciable asset are based on the following useful lives:

Depreciable assets: Useful lives
  2006 2005
Buildings on leasehold land 25 years 25 years
Other Infrastructure, plant & equipment 3 to 5 years 3 to 5 years

The aggregate amount of depreciation/amortisation allocated for each class of assets during the year is disclosed in note 6D.

Assets Purchased with Research Payments

Assets purchased with research payments may revert to the Corporation at the end of the research project period and will be accounted for appropriately at that date. During the financial year no research assets reverted to the Corporation.

Impairment

All assets were assessed for impairment at 30 June 2006. Where indications of impairment exist, the asset's recoverable amount is estimated and an impairment adjustment made if the asset's recoverable amount is less than its carrying amount.

The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use. Value in use is the present value of the future cash flows expected to be derived from the asset. Where the future economic benefit of an asset is not primarily dependent on the asset's ability to generate future cash flows, and the asset would be replaced if the Corporation were deprived of the asset, its value in use is taken to be its depreciated replacement cost.

No indicators of impairment were found for assets at fair value.

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1.7 Intangibles

The Corporation's intangibles comprise software for the new information management system and other software. These assets are carried at cost.

Intangible assets are amortised on a straight-line basis over their anticipated useful lives as follows:

Intangible assets: Anticipated useful lives
  2006 2005
Information management system 2.5 years 2.5 years
Other intangibles 2.5 years 2.5 years

All software assets were assessed for indications of impairment as at 30 June 2006.

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1.8 Employee Benefits

As required by the Finance Minister's Orders, the Corporation has early adopted AASB 119 Employee Benefits as issued in December 2004.

Benefits

Liabilities for services rendered by employees are recognised at the reporting date to the extent that they have not been settled.

Liabilities for 'short-term employee benefits' (as defined in AASB 119) and termination benefits due within twelve months are measured at their nominal amounts.

The nominal amount is calculated with regard to the rates expected to be paid on settlement of the liability.

All other employee benefit liabilities are measured as the present value of the estimated future cash outflows to be made in respect of services provided by employees up to the reporting date.

Leave

The liability for employee benefits includes provision for annual leave and long service leave. No provision has been made for sick leave as all sick leave is non-vesting and the average sick leave taken in future years by employees of the Corporation is estimated to be less than the annual entitlement for sick leave.

The leave liabilities are calculated on the basis of employees' remuneration, including the Corporation's employer superannuation contribution rates to the extent that the leave is likely to be taken during service rather than paid out on termination.

Superannuation

Corporation staff contribute to the Commonwealth Superannuation Scheme (CSS), Public Sector Superannuation Scheme (PSS), Australian Government Employees Superannuation Trust (AGEST) or an approved superannuation scheme of their choice. For CSS and PSS members, the Corporation makes contributions based on the rate determined by the Government Actuary, and for AGEST and other approved superannuation schemes, the employer contributes a minimum of 9% of superannuable salaries. Employer contributions amounting to $689,262 (2005: $567,267) in relation to these schemes has been expensed in the financial statements.

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1.9 Leases

A distinction is made between finance leases and operating leases. Finance leases effectively transfer from the lessor to the lessee substantially all risks and rewards incidental to ownership of leased non-current assets. An operating lease is a lease that is not a finance lease. In operating leases, the lessor effectively retains substantially all such risks and benefits.

The Corporation has no finance leases. Operating lease payments are expensed on a basis which is representative of the pattern of benefits derived from the leased assets.

1.10 Cash

Cash means notes and coins held and any deposits held at call with a bank or financial institution. Cash is recognised at its nominal amount.

1.11 Financial Risk Management

The Corporation's activities expose it to normal commercial financial risk. As a result of the nature of the Corporation's business and internal and Australian Government policies, dealing with the management of financial risk, the Corporation's exposure to market, credit, liquidity and cash flow and fair value interest rate risk is considered to be low.

1.12 Investments

Investments are initially measured at their fair value.

After initial recognition, financial assets are to be measured at their fair values except for investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured, which shall be measured at cost.

The Corporation has acquired shares in the following start-up companies:

The above companies conduct research and development activities relating to seed technology, new wheat varieties and soil inoculants. The success and ability to generate future economic benefits are subject to uncertainty and the Corporation believes that this will impair the carrying values of the investments. The Corporation has established a Provision for diminution of shares to record a reduction in the value of these investments based on the Corporation's estimate of the trading performance of each company. A review of the trading performance will be done annually and the provision adjusted accordingly. The provision will remain effective until such time as the Corporation believes that the investment would generate sufficient future economic benefits from a successful marketed product or service.

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1.13 Derecognition of Financial Assets and Liabilities

As prescribed in the Finance Minister's Orders, the Corporation has applied the option available under AASB 1 of adopting AASB 132 and 139 from 1 July 2005 rather than 1 July 2004.

Financial assets are derecognised when the contractual rights to the cash flows from the financial assets expire or the asset is transferred to another entity. In the case of a transfer to another entity, it is necessary that the risks and rewards of ownership are also transferred.

Financial liabilities are derecognised when the obligation under the contract is discharged or cancelled or expires.

For the comparative year, financial assets were derecognised when the contractual right to receive cash no longer existed. Financial liabilities were derecognised when the contractual obligation to pay cash no longer existed.

1.14 Impairment of Financial Assets

As described in the Finance Minister's Orders, the Corporation has applied the option available under AASB 1 of adopting AASB 132 and 139 from 1 July 2005 rather than 1 July 2004.

Financial assets are assessed for impairment at each balance date.

Other financial assets carried at cost which were not held to generate net cash inflows, were assessed for indicators of impairment. Where such indicators were found to exist, the recoverable amount of the assets was estimated and compared to the assets carrying amount and, if less, reduced to the carrying amount. The reduction was shown as an impairment loss.

1.15 Trade Creditors

Trade creditors and accruals are recognised at their nominal amounts, being the amounts at which the liabilities will be settled. Liabilities are recognised to the extent that the goods and services have been received (and irrespective of having been invoiced).

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1.16 Research and Development

The Corporation recognises Research and Development liabilities as follows.

1.17 Taxation

The Corporation is subject to taxation (other than income tax) under the laws of the Commonwealth under section 46(1) of the PIERD Act 1989.

Revenues, expenses and assets are recognised net of GST:

1.18 Contingent Liabilities and Contingent Assets

Contingent Liabilities and Assets are not recognised in the Balance Sheet but are discussed in the relevant schedules and notes. They may arise from uncertainty as to the existence of a liability or asset, or represent an existing liability or asset in respect of which settlement is not probable or the amount cannot be reliably measured. Remote contingencies are part of this disclosure. Where settlement becomes probable, a liability or asset is recognised. A liability or asset is recognised when its existence is confirmed by a future event, settlement becomes probable (virtually certain for assets) or reliable measurement becomes possible.

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