Australian Government: Grains Research and Development CororationGRDC Annual Report 2006-2007

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Notes to and forming part of the financial statements

For the year ended 30 June 2007

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:

The financial report has been prepared on an accrual basis and is in accordance with historical cost convention, except for certain assets 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 otherwise specified.

Unless alternative treatment is specifically required by an Accounting Standard or the Finance Minister’s Orders, assets and liabilities are recognised in the Balance Sheet when and only when it is probable that future economic benefits will flow to the Corporation and the amounts of the assets or 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 unrealised are reported in the Schedule of Commitments and the Schedule of Contingencies.

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

1.2 Significant Accounting Judgements and Estimates

The Corporation has made the following material estimates in relation to the carrying amounts of shares in unlisted companies:

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1.3 Statement of Compliance

Australian Accounting Standards require a statement of compliance with International Financial Reporting Standards (IFRSs) to be made where the financial report complies with these standards. Some Australian equivalents to IFRSs and other Australian Accounting Standards contain requirements specific to not-for-profit entities that are inconsistent with IFRS requirements. The Corporation is a not-for-profit entity and has applied these requirements, so while this financial report complies with Australian Accounting Standards including Australian Equivalents to International Financial Reporting Standards (AEIFRSs) it cannot make this statement.

Adoption of New Australian Accounting Standard Requirements

No Accounting Standard has been adopted earlier than the effective date in the current period.

The following amendments, revised standards or interpretations have become effective but have had no financial impact or do not apply to the operations of the Corporation.

Amendments:
Interpretations:
Future Australian Accounting Standard Requirements

The following new standards, amendments to standards or interpretations have been issued by the Australian Accounting Standards Board but are effective for future reporting periods. It is estimated that the adoption of these pronouncements when effective will have no material financial impact on future reporting periods.

Financial Instrument Disclosure

AASB 7 Financial Instruments: Disclosures is effective for reporting periods beginning on or after 1 January 2007 (the 2007-08 financial year) and amends the disclosure requirements for financial instruments. In general AASB 7 requires greater disclosure than presently applicable. Associated with the introduction of AASB 7 a number of accounting standards were amended to reference the new standard or remove the present disclosure requirements through 2005-10 Amendments to Australian Accounting Standards [AASB 1, AASB 4, AASB 101, AASB 114, AASB 117, AASB 132, AASB 133, AASB 139, AASB 1023 and AASB 1038]. These changes have no financial impact but will affect the disclosure presented in future financial reports.

Other

The following standards, amendments to standards and interpretations have been issued but are not applicable to the operations of the Corporation.

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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 Financial Instruments: Recognition and Measurement.

Project Refunds

Project Refunds are recognised upon receipt of the refund when it relates to prior years 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 (with the exception of investments in associates and investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured) 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.

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

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

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Following initial recognition at cost, property, plant and equipment are carried at fair value less accumulated depreciation and accumulated impairment losses. 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 surplus and deficit. Revaluation decrements for a class of assets are recognised directly through surplus and deficit 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.

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 rates (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
  2007 2006
Buildings on leasehold land 25 years 25 years
Other Infrastructure, plant & equipment 3 to 5 years 3 to 5 years

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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 2007. Where indicators 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.

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
  2007 2006
Information management system 2.5 years 2.5 years
Other intangibles 2.5 years 2.5 years

All software assets were assessed for indicators of impairment as at 30 June 2007.

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1.8 Employee 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.

The liability for long service leave has been determined by using the Australian Government shorthand method. In applying this method, the accrued long service leave for each employee as at reporting date is probability weighted, based on the Australian Government probability profile. The amount obtained for each employee is then discounted using the ten year Treasury Bond rate. The total estimated liability for the Corporation is the sum of the liabilities for each employee.

Separation and Redundancy

Provision is made for separation and redundancy benefit payments. The Corporation recognises a provision for termination when it has developed a detailed formal plan for the terminations and has informed those employees affected that it will carry out the terminations.

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.

The CSS and PSS are defined benefit schemes for the Australian Government.

The liability for defined benefits is recognised in the financial statements of the Australian Government and is settled by the Australian Government in due course.

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 Corporation contributes a minimum of 9% of superannuable salaries. Employer contributions amounting to $1,022,502 (2006: $689,262) 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 straight-line 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, and after initial recognition, measured at their fair values, with the exception of:

a) investments in associates; and

b) investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured.

Investments in associates are accounted for under the equity method of accounting, and are initially recognised at cost. The Corporation’s share of its associates’ post-acquisition profits or losses is recognised in the Income Statement and its share of post-acquisition movements in reserves is recognised in reserves.

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

respectively.

The above companies conduct research and development activities relating to seed technology, new wheat varieties and high amylose wheat. 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 in share value 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 successfully marketed product or service.

1.13 Derecognition of Financial Assets and Liabilities

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, cancelled or expires.

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1.14 Impairment of Financial Assets

Financial assets are assessed for impairment at each balance date.

Available for Sale Financial Assets

If there is objective evidence that an impairment loss on an available for sale financial asset has incurred, the amount of the difference between its cost (less principal repayments and amortisation), and its current fair value, less any impairment loss previously recognised in expenses, is transferred from equity to the Income Statement.

Investments in Associates

If there is objective evidence that an impairment loss has been incurred on an investment in an associate, the amount of the impairment loss is the difference between the carrying amount of the investment and its recoverable amount (being the Corporation’s share of the present value of the estimated future cash flows expected to be generated by the associate, including the cash flows from the operations of the associate and the proceeds on the ultimate disposal of the investment).

1.15 Supplier and other payables

Supplier payments 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).

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 reported 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. Contingent assets are reported when settlement is probable, and contingent liabilities are recognised when settlement is greater than remote.

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