D : Operating Resources
This section provides further information about major assets and liabilities held or administered by Finance, significant estimates and judgements made and the management of risk in relation to these items.
D3 : Non-financial assets
Policy and measurement
Non-financial assets (excluding assets held for sale) are not expected to be sold or realised within the next 12 months.
Finance's asset recognition threshold is $5,000; all purchases under this threshold are expensed in the year of acquisition, other than when they form part of a group of similar items which are significant in total in which case they are recognised on a group basis.
Finance has a number of asset classes. The recognition and measurement policy for each is included below:
| Asset class (includes work in progress) | Initial Recognition | Subsequent Recognition | Revaluation Frequency | Fair value measured at |
| Land | At cost. | Fair value. | Assessed annually by management to determine whether it is likely that the carrying amount is materially different from fair value. If likely, revaluations are conducted by independent valuers and revaluation adjustments are made on a class basis. | Market selling price. |
| Buildings | Market selling price, discounted cash flows or depreciated replacement cost. | |||
| Leasehold improvements | Depreciated replacement cost. | |||
| Infrastructure, plant and equipment | Market selling price or depreciated replacement cost. | |||
| Investment property | At cost, except where acquired at nominal cost, then fair value. | Fair value. | Annually. | Market selling price or discounted cash flows. |
| Intangibles (including internally developed and externally acquired software) | At cost. | Cost less accumulated amortisation and accumulated impairment losses. | N/A | N/A |
Revaluation adjustments - Property, infrastructure, plant and equipment
The ARR is an equity account held at asset class level. The ARR cannot be negative, therefore when the values of assets reduce due to revaluation, the amount in excess of the ARR for that class of asset is posted directly to the surplus/(deficit). Similarly, an increase can only be recognised in the reserve once the previous decreases recognised in the surplus/(deficit) have been reversed to surplus/(deficit).
Revaluation adjustments - investment property
Gains or losses arising from changes in the fair value are recognised in the surplus/(deficit) in the year in which they arise.
Obligations relating to non-financial assets
Obligations relating to the dismantling, removal, remediation, restoration (also referred to as ‘make good’) and other expenditure associated with Finance's non-financial assets are included in the asset measurement when the recognition requirements for a provision are met. Details of provisions are disclosed in Note D4.
Depreciation/amortisation
Depreciable assets are written down to their estimated residual values over their estimated useful lives to Finance using the straight line method of depreciation. Depreciation rates are based on the following useful lives:
| Asset class | 2017 & 2016 (no change) | |
| Buildings on freehold land | 3 to 100 years | This policy is reviewed at each reporting date. If a change is deemed necessary, these are made in the current and future reporting periods as appropriate. |
| Leasehold improvements | Lesser of useful life or lease term | |
| Intangibles | 3 to 7 years | |
| Infrastructure, plant and equipment | 1 to 45 years |
Assets held for sale
Assets held for sale includes properties that have been fully prepared for sale, are being actively marketed at fair value and are likely to settle within the next 12 months. Also included are properties that are currently under offer or contract (contract issued or exchanged but not yet settled) as at the end of the reporting period.
D3.1 Property, infrastructure, plant and equipment and intangibles
| Departmental | ||||||||
| Land | Buildings | Leasehold improvements | Investment property | Plant and equipment | Intangible assets | Total | ||
| $’000 | $’000 | $’000 | $’000 | $’000 | $’000 | $’000 | ||
| As at 1 July 2016 | ||||||||
| Gross book value | 413,298 | 637,686 | 29,159 | 626,437 | 40,574 | 123,160 | 1,870,314 | |
| Accumulated depreciation, amortisation and impairment | - | - | - | - | (11,901) | (51,341) | (63,242) | |
| Opening balance as at 1 July 2016 | 413,298 | 637,686 | 29,159 | 626,437 | 28,673 | 71,819 | 1,807,072 | |
| Additions | ||||||||
| Purchase or internally developed | - | 88,949 | 620 | 30,629 | 8,126 | 18,830 | 147,154 | |
| Transfers from agencies | - | - | 128 | - | 43 | 11,818 | 11,989 | |
| Items recognised in equity | ||||||||
| Revaluations | 21,280 | - | (12) | - | 611 | - | 21,879 | |
| Items recognised in NCOS | ||||||||
| Revaluations | - | 29,343 | - | 5,227 | - | - | 34,570 | |
| Depreciation/amortisation expense | - | (11,681) | (1,616) | - | (8,047) | (8,080) | (29,424) | |
| Transfers to assets held for sale | (3,090) | - | - | - | - | - | (3,090) | |
| Disposals | ||||||||
| Transfers to agencies/restructuring | - | (4,086) | - | - | - | - | (4,086) | |
| Write-offs | (2,332) | - | - | - | (78) | - | (2,410) | |
| Reclassification | (36,800) | (151,200) | (1,539) | 188,000 | 1,539 | - | - | |
| Other disposals | (4,715) | - | - | (2,590) | - | - | (7,305) | |
| Closing balance as at 30 June 2017 | 387,641 | 589,011 | 26,740 | 847,703 | 30,867 | 94,387 | 1,976,349 | |
| Total as at 30 June 2017 represented by | ||||||||
| Gross book value | ||||||||
| Fair value (gross) | 387,641 | 499,195 | 28,300 | 847,703 | 30,623 | - | 1,793,462 | |
| Internally developed software | - | - | - | - | - | 58,674 | 58,674 | |
| Purchased software | - | - | - | - | - | 13,048 | 13,048 | |
| Work in progress - at fair value | - | 89,816 | 36 | - | 244 | - | 90,096 | |
| Work in progress - at cost | - | - | - | - | - | 76,514 | 76,514 | |
| Accumulated depreciation, | ||||||||
| amortisation and impairment | - | - | (1,596) | - | - | (53,849) | (55,445) | |
| Total as at 30 June 2017 | 387,641 | 589,011 | 26,740 | 847,703 | 30,867 | 94,387 | 1,976,349 | |
Further information
Domestic property portfolio
Finance is responsible for the management of the Australian Government´s domestic non-defence property portfolio and the construction and delivery of domestic non-defence major capital works projects as directed by the government. The government’s non-defence domestic property portfolio currently has approximately 100 Commonwealth-owned properties across Australia. These include office buildings, law courts, special purpose facilities, heritage assets, vacant land and contaminated sites that have been classified as either investment properties, land, buildings, or assets held for sale.
Other assets
Other assets held by Finance include leasehold improvements, office equipment and information technology assets required to support the delivery of Finance outcomes and Finance lease assets in relation to the electronic work environment.
| Administered | |||||
|---|---|---|---|---|---|
| Leasehold improvements | Infrastructure | Plant and equipment | Intangible assets | Total | |
| $’000 | $’000 | $’000 | $’000 | $’000 | |
| As at 1 July 2016 | |||||
| Gross book value | 52,628 | 67,374 | 17,468 | 3,182 | 140,652 |
| Accumulated depreciation, amortisation and impairment | (34,168) | - | (9,213) | (1,665) | (45,046) |
| Opening balance as at 1 July 2016 | 18,460 | 67,374 | 8,255 | 1,517 | 95,606 |
| Additions | |||||
| By purchase | 5,756 | 1,352 | 1,405 | 57 | 8,570 |
| Items recognised in equity | |||||
| Revaluations | 8,672 | 3,341 | (1,880) | - | 10,133 |
| Items recognised in the surplus/(deficit) | |||||
| Depreciation/amortisation expense | (6,575) | (2,070) | (2,817) | (503) | (11,965) |
| Disposals | |||||
| Write-offs | (1,424) | - | (791) | - | (2,215) |
| Other disposals | - | - | (15) | - | (15) |
| Closing balance as at 30 June 2017 | 24,889 | 69,997 | 4,157 | 1,071 | 100,114 |
| Total as at 30 June 2017 represented by | |||||
| Gross Book Value | |||||
| Fair value (gross) | 25,011 | 69,997 | 2,271 | - | 97,279 |
| Internally developed software | - | - | - | 165 | 165 |
| Purchased software | - | - | - | 72 | 72 |
| Work in progress - at fair value | - | - | 1,886 | - | 1,886 |
| Work in progress - at cost | - | - | - | 3,002 | 3,002 |
| Accumulated depreciation, amortisation | |||||
| and impairment | (122) | - | - | (2,168) | (2,290) |
| Total as at 30 June 2017 | 24,889 | 69,997 | 4,157 | 1,071 | 100,114 |
Further information
Administered non-financial assets include the Intra Government Communication Network (ICON), leasehold improvements and IT assets for electoral and state offices, and other information technology assets to support Administered outcomes.
D3.2 Fair value information by non-financial asset class
Key judgements and estimates
Valuation of land, buildings and investment properties
Independent valuations are obtained annually as at 30 June for land, buildings and investment properties. These valuations include calculations of estimated market cash flows which are adjusted to take into account physical, economic and external factors relevant to the asset under consideration. In relation to investment properties, allowances have been factored in for average vacancy periods and costs of establishing a new tenant, as leases become due for renewal and properties become vacant.
Valuation of leasehold improvements, plant and equipment
The estimated cost to replace the asset has been calculated and then adjusted to take into account obsolescence and physical deterioration (accumulated depreciation). The obsolescence has been determined based on professional judgement regarding physical, economic and external factors relevant to the asset under consideration. Leasehold improvements for One Canberra Avenue were valued on acquisition in 2016. An independent valuation in relation to all other leasehold improvements and plant and equipment was undertaken as at 30 June 2017.
Valuation of infrastructure
Finance manages a secure fibre network within the Australian Capital Territory known as the ICON. Replacement cost has been established based on contemporary technology and construction approaches. Significant judgement concerning the nature of the physical environment has been made to establish the adopted replacement cost. An independent valuation was undertaken as at 30 June 2017.
Highest and best use
Within the property portfolio, there are a small number of properties where the highest and best use differs from the current use, being:
- 7 vacant blocks which have a highest and best use of 'office buildings';
- 1 vacant block which has a highest and best use of 'rural residential';
- 1 property with an unusable building which has a highest and best use of 'community use'; and
- 1 property with an unusable building which has a highest and best use of ‘conservation’.
While the fair values for these properties has been measured in the financial statements using the highest and best use for each, they are not being utilised at their highest and best use as Finance is not in the business of development.
The following tables set out (by asset class) the valuation technique, inputs used, and the level of the fair value hierarchy per AASB 13 Fair Value Measurement.
Finance only holds non-financial assets that fall into the following two categories (or levels) of the fair value hierarchy:
- Level 2: observable inputs (other than quoted prices in active markets) are used to calculate the fair value of the asset; and
- Level 3: inputs used to calculate the fair value are not observable.
| Departmental | |||||||
| Technique / inputs used / level | Land | Buildings | Leasehold improvements | Investment property | Plant and equipment | Assets held for sale | Total |
| $’000 | $’000 | $’000 | $’000 | $’000 | $’000 | $’000 | |
| Market Approach / AMT / 2 | 174,997 | 6,105 | - | 63,590 | 13,490 | 4,317 | 262,499 |
| Cost Approach / RCN; CEB / 3 | - | - | 26,740 | - | 17,377 | - | 44,117 |
| Cost Approach / RCN / 2 | - | 284,706 | - | - | - | - | 284,706 |
| Income Approach / AMT / 2 | 212,644 | 298,200 | - | 784,113 | - | - | 1,294,957 |
| Total assets at fair value 30 June 2017 | 387,641 | 589,011 | 26,740 | 847,703 | 30,867 | 4,317 | 1,886,279 |
| Market Approach / AMT / 2 | 183,144 | 6,257 | - | 63,737 | 13,069 | 12,137 | 278,344 |
| Cost Approach / RCN; CEB / 3 | - | - | 29,159 | - | 15,604 | - | 44,763 |
| Cost Approach / RCN / 2 | - | 220,429 | - | - | - | - | 220,429 |
| Income Approach / AMT / 2 | 230,154 | 411,000 | - | 562,700 | - | - | 1,203,854 |
| Total assets at fair value 30 June 2016 | 413,298 | 637,686 | 29,159 | 626,437 | 28,673 | 12,137 | 1,747,390 |
| Administered | ||||
| Technique / inputs used / level | Leasehold improvements | Infrastructure | Plant and equipment | Total |
| $’000 | $’000 | $’000 | $’000 | |
| Cost Approach / RCN;CEB / 3 | 24,889 | 69,997 | - | 94,886 |
| Market Approach / AMT / 2 | - | - | 2,575 | 2,575 |
| Cost Approach / AMT;CEB / 3 | - | - | 1,582 | 1,582 |
| Total assets at fair value 30 June 2017 | 24,889 | 69,997 | 4,157 | 99,043 |
| Cost Approach / RCN;CEB / 3 | 18,460 | 67,374 | - | 85,834 |
| Market Approach / AMT / 2 | - | - | 6,598 | 6,598 |
| Cost Approach / AMT;CEB / 3 | - | - | 1,657 | 1,657 |
| Total assets at fair value 30 June 2016 | 18,460 | 67,374 | 8,255 | 94,089 |
Inputs used
Replacement Cost of New Assets (RCN): the amount a market participant would pay to acquire or construct a new substitute asset of comparable utility.
Consumed Economic Benefits (CEB): obsolescence of assets, physical deterioration, functional or technical obsolescence and conditions of the economic environment specific to the asset.
Adjusted Market Transactions (AMT): market transactions of comparable assets, adjusted to reflect differences in price sensitive characteristics.
Recurring level 3 fair value measurements reconciliation
The recurring level 3 fair value measurements reconciliation is not materially different to the property, infrastructure, plant and equipment and intangibles movement table for both Departmental and Administered, refer to Note D3.1.
