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Reporting of Administered Activities
Administered revenues, expenses, assets, liabilities and cash flows are disclosed in the administered schedules and related notes.
Except where otherwise stated below, administered items are accounted for on the same basis and using the same policies as for departmental items, including the application of Australian Accounting Standards.
Administered Cash Transfers to and from the Official Public Account
Revenue collected by the Department for use by the Government rather than the Department is administered revenue. Collections are transferred to the Official Public Account (OPA) maintained by the Department of Finance and Deregulation. Conversely, cash is drawn from the OPA to make payments under Parliamentary appropriation on behalf of Government. These transfers to and from the OPA are adjustments to the administered cash held by the Department on behalf of the Government and reported as such in the schedule of administered cash flows and in the administered reconciliation schedule.
Revenue
All administered revenues are revenues relating to ordinary activities performed by the Department on behalf of the Australian Government. As such, administered appropriations are not revenues of the Department that oversees distribution or expenditure of the funds as directed.
Revenue is primarily generated from Carbon Charges, excise duties and licence fees prescribed by the Ozone Protection and Synthetic Greenhouse Gas Management Act 1989 and associated legislation. The levies imposed on importers, manufacturers and exporters of synthetic greenhouse gases (SGG), SGG equipment or ozone depleting substance (ODS) equipment are determined by the type and quantity of those gases imported, manufactured or exported. Quarterly reports are required to be submitted before the 15th day after the end of the quarter. Revenue in respect of these items is recognised on submission of the licence application or submission of the licencee report, when the quantity of the synthetic greenhouse gases imported, or manufactured is able to be reliably measured. (Refer to Notes 19A, 19B and 19D).
Revenue also includes contributions from State and Territory governments in connection with the performance of the Water Efficiency Labelling and Standards (WELS) Regulator. The Regulator administers the WELS scheme and enforces the WELS standard that sets out the criteria for rating the water efficiency and performance of each WELS product type.
Receivables for goods and services, which have 30 day terms, are recognised at the nominal amounts due less any impairment allowance account. Collectability of debts is reviewed at end of the reporting period. Allowances are made when collectability of the debt is no longer probable.
Loans and Receivables
Where loans and receivables are not subject to concessional treatment, they are carried at amortised cost using the effective interest method. Gains and losses due to impairment, derecognition and amortisation are recognised through profit or loss.
Administered Investments
Administered investments in subsidiaries, joint ventures and associates are not consolidated because their consolidation is relevant only at the Whole of Government level.
Administered investments other than those held for sale are classified as available-for-sale and are measured at their fair value as at 30 June 2013. Fair value has been taken to be the Australian Government's proportional interest in the net assets of the entities as at end of reporting period. These entities include the Director of National Parks and the Sydney Harbour Federation Trust. The Director of National Parks is reliant on funding from the Government to establish and manage protected areas. The custodial obligations of the Sydney Harbour Federation Trust are consistent with those of a not-for profit entity, and whilst the Sydney Harbour Federation Trust generates non-government cash inflows the net assets valuation technique has been applied as it results in a more consistent, relevant and reliable measure of value. In accordance with Division 87 of the FMOs, the net assets valuation technique has been used to determine the fair value of the Australian Government's proportional interest in these entities as at 30 June 2013 (Refer to Note 20D).
Jointly Controlled Assets
The Australian Government is a venturer in jointly controlled assets held in the River Murray Operations (RMO) and Living Murray Initiative (LMI) joint ventures. The Australian Government has control over its share of future economic benefits through its 20% share of the jointly controlled assets (Refer to Note 21E). In respect of its interest in these jointly controlled assets, the Australian Government recognises in its financial statements its share of the jointly controlled assets, classified according to the nature of the assets, its share of any liabilities incurred in respect of the joint venture and any income from the sale or use of its share of the output of the joint venture, together with its share of any expenses incurred by the joint venture.
Clauses 3.2 and 3.3 of the “Asset Agreement for RMO Assets” state that the RMO assets are controlled jointly by the asset controlling governments for the purposes of the Murray-Darling Basin (MDB) Agreement. The asset controlling governments agree that through the MDB Agreement, they have established an unincorporated joint venture exercising joint control of assets by mutual agreement. Clauses 6.3 and 6.4 of the “Further Agreement on Addressing Water Overallocation and Achieving Environmental Objectives in the Murray-Darling Basin – Control and Management of Living Murray Assets” state that the Living Murray assets are controlled jointly by the Living Murray governments for the purposes of the Living Murray Initiative. The Living Murray governments agree that through the Living Murray Initiative, they have established an unincorporated joint venture exercising joint control of the Living Murray assets by mutual agreement.
Grants and Subsidies
The Department administers a number of grant and subsidy schemes on behalf of the Government.
Grant and subsidy liabilities are recognised to the extent that (i) the services required to be performed by the grantee have been performed or (ii) the grant eligibility criteria have been satisfied, but payments due have not been made. A commitment is recorded when the Government enters into an agreement to make these grants but services have not been performed or criteria satisfied.
Payments to CAC Act Bodies
Payments to CAC Act bodies from amounts appropriated for that purpose are classified as administered expenses, equity injections or loans of the relevant portfolio department. The appropriation to the Department is disclosed in Table A of the appropriations note (Note 28).
National Halon Bank
In accordance with the Government’s National Halon Management Strategy, the Government operates the National Halon Bank. Halons are fire-fighting agents whose ozone depleting potential is ten times greater than that of chlorofluorocarbons. Under State and Territory legislation, the continued use of halon in non-essential equipment has been banned.
The National Halon Bank stores decommissioned halon for destruction or reclamation, and to meet Australia’s essential use needs until the year 2030 or until an alternative is found for all current uses.
There are four categories of Halon holdings:
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Strategic reserve;
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Clean halon; and
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Other halon still in cylinders; and
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Waste halon (for destruction)
The halon stored in the National Halon Bank is a resource controlled by the Government and from which economic benefits are expected to flow to the Government. The current holdings of halon are recognised as inventory.
Water Entitlements
The Department acquires water entitlements to achieve the Government’s environmental policy objectives. Commonwealth water entitlements are held for non commercial, long term environmental purposes, beyond the shorter term weather and accounting cycles, the benefits of which are not being captured for accounting purposes. As its water entitlement holdings continue to increase so does the strategic importance of demonstrating a robust valuation assessment.
Under the Federal Financial Relations (FFR) Framework, National Partnership payments are processed centrally by the Commonwealth Treasury and paid directly to each state treasury. State treasuries are responsible for distributing the funding within their jurisdiction. In the Commonwealth, the Treasurer is accountable for the appropriations, estimates and payments under the framework. For National Partnership agreements, the primary responsibility for policy is with the relevant portfolio minister. DSEWPaC receives water entitlements ‘free of charge’ in accordance with the terms and conditions of payments made by the Treasury under the National Partnership on Water for the Future (Refer to Note 19H).
Under the Sustainable Rural Water Use and Infrastructure Program (SRWUIP), there are a number of projects which improve the efficiency of irrigation infrastructure and generate savings in the use of water. As part of the SRWUIP funding arrangement, the Australian Government will take a share of that water saving in the form of a water entitlement for use in delivering the Government’s environmental watering objectives (Refer to Table B of Note 21C). Water acquired as a result of water savings arising from projects funded to improve the efficiency of water use are accounted for in accordance with the relevant Australian Accounting Standards.
The Department’s holdings of water entitlements are classified as indefinite life intangible assets and are therefore subject to annual impairment testing in accordance with AASB 138 Intangible Assets (AASB 138), AASB 136 Impairment of Assets (AASB 136) and the 2012-13 Finance Minister’s Orders (FMOs). Water entitlements are classified as indefinite life intangible assets as there is no foreseeable limit to the period over which the assets are expected to generate future economic benefits.
Under AASB 136, the impairment test is carried out by comparing the carrying amount (per the Department’s asset register) to the recoverable amount of the water entitlements. The recoverable amount of the water entitlements is the higher of fair value less costs to sell and value in use. The recoverable amount calculation is performed at the lowest practical level, taking into account the quality and availability of data.
The Department’s valuation methodology calculates the fair value of the water entitlements based on the best information available to reflect the amount that an entity could obtain from the disposal of the water entitlements in an arm’s length transaction between knowledgeable, willing parties. This approach is consistent with AASB 136. The Department has developed a model to assess whether there has been a significant decrease in price or whether there has been a prolonged decline in the value of the entitlement, using the median price of water entitlements extracted from State water registries. If either of these conditions is met an impairment loss is recorded. Having reviewed water entitlement price movements, the Department has determined that a decline in excess of 10 percent or a 9 months prolonged decline in the value of the entitlement is an appropriate benchmark for this market.
In addition to generating a fair value consistent with AASB 136 as outlined above, the methodology calculates value in use or depreciated replacement cost for the water entitlements. In other words, the methodology satisfies the requirements of each of the recoverable amount calculation methods given by AASB 136.
Based on the results of the 2012-13 impairment testing, an additional impairment of $330.576m was identified on water entitlements. A further impairment of $13.389m was identified on water entitlements held in the Living Murray Initiative joint venture. Refer to Note 18E Write-Down and Impairment of Assets and Note 21C Intangibles for more details.
Constitutional and Other Legal Requirements
The Australian Government continues to have regard to developments in case law, including the High Court’s most recent decision on Commonwealth expenditure in Williams v Commonwealth (2012) 288 ALR 410, as they contribute to the larger body of law relevant to the development of Commonwealth programs. In accordance with its general practice, the Government will continue to monitor and assess risk and decide on any appropriate actions to respond to risks of expenditure not being consistent with constitutional or other legal requirements.
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