External Sector - Information Supporting the Estimates of Appropriations for the Government of New Zealand for the Year Ending 30 June 2010

Strategic Evaluation and Advice (M34)#

Scope of Appropriation#

Expenses and Revenue#

Reasons for Change in Appropriation#

This appropriation is increasing in order to effectively manage and monitor the increasing size and number of development assistance programmes arising from increased ODA.

Output Performance Measures and Standards#

Conditions on Use of Appropriation#

Current and Past Policy Initiatives#

Part 5 - Details and Expected Results for Other Expenses#

Part 5.2 - Non-Departmental Other Expenses#

Intended Impacts, Outcomes and Objectives

Global Development Assistance (M34)

Scope of Appropriation and Expenses

Reasons for Change in Appropriation

This is a new multi-year appropriation taking the place of a multi-year appropriation that expired on 30 June 2009.

Expected Results

Conditions on Use of Appropriation

Current and Past Policy Initiatives

International Agency Funding (M34)#

Scope of Appropriation#

Expenses#

Reasons for Change in Appropriation#

This appropriation is decreasing as a result of decisions arising from the baseline review.

Expected Results#

Conditions on Use of Appropriation#

Current and Past Policy Initiatives#

New Zealand Voluntary Agency Grants (M34)#

Scope of Appropriation#

Expenses#

Expected Results#

Conditions on Use of Appropriation#

Current and Past Policy Initiatives#

Pacific Development Assistance (M34)#

Scope of Appropriation and Expenses#

Reasons for Change in Appropriation#

This is a new multi-year appropriation taking the place of a multi-year appropriation that expired on 30 June 2009.

Expected Results#

Conditions on Use of Appropriation#

Current and Past Policy Initiatives#

Reporting Mechanisms#

The above table indicates the mechanisms to be used for reporting actual performance for each non-departmental other expenses appropriation.

Performance Information for Appropriations Vote Veterans' Affairs - Defence Force#

MINISTER(S) RESPONSIBLE FOR APPROPRIATIONS: Minister of Veterans' Affairs (M75)

ADMINISTERING DEPARTMENT: New Zealand Defence Force

MINISTER RESPONSIBLE FOR NEW ZEALAND DEFENCE FORCE: Minister of Defence

Part 1 - Summary of the Vote#

Part 1.1 - Overview of the Vote

The Minister of Veterans Affairs is responsible for the appropriations in the Vote for the 2009/10 financial year covering the following:

• A total of over $2 million for the provision of policy advice, the provision of administrative services to relevant boards and committees, the coordination of commemorations and the administration of contracts for work carried out in Services Cemeteries.
• A total of over $5 million for the assessment and review of entitlements and benefits (War Disablement Pension, Surviving Spouse Pension and burial in Services Cemeteries), the provision and installation of ex-service memorials for eligible veterans and the provision of case management for veterans and their families.
• A total of under $1 million for the development and maintenance of Services Cemeteries.
• A total of under $4 million for the provision of services to veterans and their families.
• A total of over $171 million for benefits and medical treatment to veterans and their families.

Details of these appropriations are set out in Parts 2-6 below.

Part 1.2 - High-Level Objectives of the Vote#

Government Priorities and Outcomes - Links to Appropriations#

Part 1.3 - Trends in the Vote#

Summary of Financial Activity#

New Policy Initiatives#

Analysis of Significant Trends#

Total Vote: All Appropriations

Total Vote: All Appropriations

Source: New Zealand Defence Force

The appropriations in Vote Veterans' Affairs - Defence Force show the changes discussed briefly below.

The following changes are noted:

• The total increase in funding of over $2 million between 2005/06 and 2006/07 was primarily to cover the 2006 Year of the Veteran activities.
• The total increase in funding of over $3 million in 2006/07 and 2007/08 to implement the Memorandum of Understanding (MOU) signed by the Crown and the Ex-Vietnam Services Association and the Royal New Zealand Returned and Services' Association (RNZRSA) regarding the concerns of Vietnam Veterans. This was primarily made up from one-off costs: $1.680 million for provision of ex-gratia payments to Vietnam Veterans and/or members of their family with accepted conditions and one-off medical assessments; a grant of $120,000 to the Vietnam Veterans and their Families Endowment Trust to cover administration costs and payments to some veterans and their family members until the time the trust starts to generate its own income, and an additional grant of $180,000 to the Vietnam Veterans and their Families Endowment Trust to cover payments to some veterans and their family members until the time that the trust starts to generate its own income; costs associated with the 2006 Year of the Veteran activities; one-off funding to cover participation in commemorations and arrangements covered by the Memorandum of Understanding (MOU) signed by the Crown and the Ex-Vietnam Services Association and the Royal New Zealand Returned and Services' Association (RNZRSA) regarding the concerns of Vietnam Veterans.

Comparison with 2008/09 and 2009/10

Departmental Output Expenses

Funding has increased in the 2009/10 year as compared to 2008/09. This is primarily due to the reorganisation of Veterans' Affairs New Zealand, with increased funding reflecting the increased size and scope of Veterans' Affairs as a result of this change. The funding increases include:

• An increase of $3 million in 2008/09 for the for the assessment and review of entitlements and benefits. This is primarily due to the reorganisation of Veterans' Affairs New Zealand, with the New Zealand Defence Force assuming responsibility for the payment of veterans' entitlements.

Non-Departmental Output Expenses

Funding has increased in the 2009/10 year as compared to 2008/09. This is primarily due to the increased need and demand for services from the veteran community. The funding increase includes:

• An increase of $300,000 for the provision of support for Veterans and their Families.

Benefits and Other Unrequited Expenses

This increase to appropriations is primarily due to the reorganisation of Veterans' Affairs New Zealand, with the New Zealand Defence Force assuming responsibility for the payment of veterans' entitlements in 2008/09. These appropriations will increase by $4.558 million in 2009/10 to a total of over $171 million for benefits and medical treatment to veterans and their families.

Non-Departmental Other Expenses

Funding has increased in the 2009/10 year as compared to 2008/09. This is primarily due to the Government policy decision to provide Vietnam veterans with an annual comprehensive medical assessment. The total funding increase is for $1.200 million.

Outyears: 2010/11 - 2012/13

There are no significant forecast changes for the outyears 2010/11 - 2012/13.

Part 2 - Details and Expected Performance for Output Expenses#

Part 2.1 - Departmental Output Expenses#

Intended Impacts, Outcomes and Objectives

Policy and Administration (M75)

Scope of Appropriation

Expenses and Revenue

Reasons for Change in Appropriation

This appropriation will increase by $131,000 for 2009/10. The increase mainly relates to the implementation of the Government's policy to provide Vietnam Veterans with an annual comprehensive medical assessment.

Output Performance Measures and Standards

Conditions on Use of Appropriation

Current and Past Policy Initiatives

Services and Payments to Veterans (M75)#

Scope of Appropriation#

Expenses and Revenue#

Reasons for Change in Appropriation#

This appropriation will increase by $464,000 for 2009/10. This increase is due to the relocation of the administration of the War Disablement Pension from the Ministry of Social Development to the New Zealand Defence Force.

Output Performance Measures and Standards#

Conditions on Use of Appropriation#

Current and Past Policy Initiatives#

Part 2.2 - Non-Departmental Output Expenses#

Intended Impacts, Outcomes and Objectives#

Development and Maintenance of Services Cemeteries (M75)#

Scope of Appropriation

Expenses

Output Performance Measures and Standards

Conditions on Use of Appropriation

Current and Past Policy Initiatives

Support for Veterans and Their Families (M75)#

Scope of Appropriation#

Expenses#

Reasons for Change in Appropriation#

This appropriation will increase by $300,000 for 2009/10. This increase mainly reflects the additional support that will be provided to the Veterans' Homes in 2009/10.

Output Performance Measures and Standards#

Conditions on Use of Appropriation#

Current and Past Policy Initiatives#

Part 3 - Details for Benefits and Other Unrequited Expenses#

Part 3.2 - Non-Departmental Benefits and Other Unrequited Expenses#

Intended Impacts, Outcomes and Objectives

Interest Concessions Land and Buildings (M75)

Scope of Appropriation

Expenses

Reasons for Change in Appropriation

This appropriation will decrease by $36,000 due to the lower current market rates forecast for 2009/10, and due to a decrease in the value of the outstanding loans.

Medical Treatment (M75)#

Scope of Appropriation#

Expenses#

Reasons for Change in Appropriation#

The 2008/09 budget includes an increase of $898,000 to reduce the likelihood of an overspend. This increase is not included in 2009/10, accounting for the decrease in expenditure between 2008/09 and 2009/10.

War Disablement Pensions (M75)#

Scope of Appropriation#

Expenses#

Conditions on Use of Appropriation#

This increase is owing to indexation of payment rates and the increase in average disability levels more than offsetting the fall in the number of recipients.

Part 5 - Details and Expected Results for Other Expenses#

Part 5.2 - Non-Departmental Other Expenses#

Debt Write-down for Benefits and Other Unrequited Expenses (BOUE) (M75)

Scope of Appropriation

Expenses

Ex-Gratia Payments and Comprehensive Medical Assessments for Vietnam Veterans (M75)#

Scope of Appropriation#

Expenses#

Reasons for Change in Appropriation#

This appropriation will increase by $1.200 million for 2009/10. The increase mainly relates to the Government policy decision to provide Vietnam Veterans with an annual comprehensive medical assessment.

Expected Results#

Conditions on Use of Appropriation#

Current and Past Policy Initiatives#

Statements of Forecast Service Performance#

The Statements of Forecast Service Performance of departments included in the External Sector comprise the service performance information for all departmental output expense appropriations that are proposed to be used by those departments. In this context, service performance information comprises the scope, expenses and revenue, and output performance measures and standards for each class of outputs within those departmental appropriations, as set out in Part 2.1 of the Performance Information for appropriations in each Vote.

The following table identifies the classes of outputs incorporated in the Statement of Forecast Service Performance for each department in the External Sector.

Forecast Financial Statements of Departments#

Statement of Common Accounting Policies#

These accounting policies have been applied in the forecast financial statements of all departments and Offices of Parliament except as outlined in the statement of entity-specific accounting policies for individual departments or Offices of Parliament.

These forecast financial statements are prepared in accordance with section 41(1)(a)-(f) of the Public Finance Act 1989. The purpose of the forecast financial statements is to facilitate Parliament's consideration of appropriations for, and planned performance of departments and offices of Parliament. Use of this information for other purposes may not be appropriate. It is not intended that these forecast financial statements be updated subsequent to publication.

Statement of Compliance

These forecast financial statements for the year ended 30 June 2009 comply with FRS-42 Prospective Financial Statements.

Specific Accounting Policies#

The accounting policies set out below have been applied consistently to all periods presented in these statements. These statements have been prepared on a going-concern basis. The measurement base applied is historical cost modified by the revaluation of certain assets and liabilities as identified in this statement of accounting policies.

The accrual basis of accounting has been used unless otherwise stated. These financial statements are presented in New Zealand dollars, which is the entity's functional currency. All financial information presented has been rounded to the nearest thousand.

Judgements and Estimations#

The preparation of forecast financial statements in conformity with FRS-42 requires judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates and these variations may be material.

Revenue#

Revenue is derived through the provision of outputs to the Crown and from services to third parties. Revenue is recognised in the forecast statement of financial performance when earned.

Leases#

Operating Leases

Where substantially all of the risks and rewards of ownership are retained by the lessor, leases are classified as operating leases.

Lease payments under operating leases are recognised as an expense on a straight-line basis over the lease term.

Finance Leases

Leases which effectively transfer to the department substantially all the risks and rewards incidental to ownership of the leased items are classified as finance leases. These are capitalised at the lower of the fair value of the asset or the present value of the minimum lease payments. The leased assets and the corresponding lease liabilities are recognised in the statement of financial position. The leased assets are depreciated over the period the department is expected to benefit from their use. The interest expense component of finance lease payments is recognised in the statement of financial performance.

Borrowing Costs#

Borrowing costs are recognised as an expense when incurred.

Property, Plant and Equipment#

Property, plant and equipment, other than land and buildings, is stated at cost less accumulated depreciation and impairment losses. Land and buildings are stated at fair value as determined by an independent registered valuer. Fair value is determined using market-based evidence. Land and buildings are revalued with sufficient regularity to ensure that carrying value is not materially different from fair value at the end of the reporting period. Additions between revaluations are recorded at cost. Any capitalisation thresholds applied are set out in the statement of entity-specific accounting policies.

Depreciation#

Depreciation is provided on a straight-line basis so as to allocate the cost [or valuation] of an item of property, plant and equipment, less any estimated residual value, over its estimated useful life.

The estimated useful lives are set out in the statement of entity-specific accounting policies.

Leasehold improvements are capitalised and the cost is amortised over the unexpired period of the lease or the estimated useful life of the improvements, whichever is shorter.

Items under construction are not depreciated. The total cost of a capital project is transferred to the appropriate asset class on its completion and then depreciated.

Intangible Assets#

Intangible assets with finite useful lives (such as computer software) are recorded at cost less accumulated amortisation and impairment losses.

Any capitalisation thresholds applied are set out in the statement of entity-specific accounting policies.

Amortisation is charged to the statement of financial performance on a straight-line basis over the estimated useful life of the asset.

The estimated useful lives are set out in the statement of entity-specific accounting policies.

Intangible assets with indefinite useful lives are not amortised, but are tested at least annually for impairment.

Where there is an active market for an intangible asset, the asset is recorded at a revalued amount, being fair value less any subsequent accumulated amortisation and accumulated impairment losses.

Cash and Cash Equivalents#

Cash includes cash on hand and funds on deposit with banks with a maturity of 3 months or less from date of acquisition.

Debtors and Other Receivables#

Debtors and other receivables are initially measured at fair value and subsequently measured at amortised cost using the effective interest rate, less impairment charges. Allowances for estimated irrecoverable amounts are recognised when there is objective evidence that the asset is impaired.

Inventories#

Inventories held for sale or use in the production of goods and services on a commercial basis are recorded at the lower of cost and net realisable value. The cost of purchased inventory is determined using the weighted average cost method.

Inventories held for distribution for public benefit purposes are recorded at cost (calculated using the weighted average cost method) adjusted when applicable for any loss of service potential. Where inventories are acquired at no cost, or for nominal consideration, the cost is the current replacement cost at the date of acquisition.

Employee Entitlements#

Pension Liabilities

Obligations for contributions to defined contribution retirement plans are recognised in the statement of financial performance as they fall due.

Other Employee Entitlements

Employee entitlements to salaries and wages, annual leave, sick leave, long service leave, retiring leave and other similar benefits are recognised in the statement of financial performance when they accrue to employees. Employee entitlements to be settled within 12 months are reported at the amount expected to be paid. Long-term employee entitlements are reported at the present value of the estimated future cash outflows.

Termination Benefits

Termination benefits are recognised in the statement of financial performance only when there is a demonstrable commitment to either terminate employment prior to normal retirement date or to provide such benefits as a result of an offer to encourage voluntary redundancy. Termination benefits to be settled within 12 months are reported at the amount expected to be paid. Other termination benefits are reported at the present value of the estimated future cash outflows.

Onerous Contracts#

Where the benefits to be derived from a contract are lower than the unavoidable costs of meeting the obligation under the contract, a provision is recognised. The provision is stated at the present value of the future net cash outflows expected to be incurred in respect of the contract.

Foreign Currency#

Foreign currency transactions are reported at the New Zealand dollar exchange rate at the date of the transaction.

Statement of Cash Flows#

The following are definitions of the terms used in the statement of cash flows:

• cash and cash equivalents include cash on hand, cash in transit, bank accounts and deposits with a maturity of no more than three months from date of acquisition
• investing activities are those activities relating to the acquisition and disposal of non-current assets
• financing activities comprise capital injections by, or repayment of capital to, the Crown, and
• operating activities include all transactions and other events that are not investing or financing activities.

Taxation#

Departments and Offices of Parliament are exempt from income tax as public authorities. Accordingly no charge for income tax has been provided for.

Goods and Services Tax#

These forecast financial statements are GST exclusive, except for receivables and payables in the statement of financial position, 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 amount of GST owing to or from the Inland Revenue Department at balance date is included as part of receivables or payables (as appropriate) in the statement of financial position.

Commitments#

Future expenses and liabilities to be incurred on contracts that have been entered into at balance date are disclosed as commitments to the extent that there are equally unperformed obligations.

Contingent Liabilities and Contingent Assets#

Contingent liabilities are disclosed if the possibility that they will crystallise is not remote. Contingent assets are disclosed if it is probable that the benefits will be realised.

Changes in Accounting Policies#

Any changes in accounting policies since the date of the last audited financial statements prepared under New Zealand generally accepted accounting practice are described in the statement of entity-specific accounting policies. The last audited financial statements (30 June 2008) were prepared in accordance with NZ IFRS (New Zealand Equivalents to International Financial Reporting Standards) as appropriate for public benefit entities.

Forecast Financial Statements New Zealand Customs Service#

Statement of Forecast Comprehensive Income for the year ending 30 June 2010#

Statement of Forecast Changes in Taxpayers' Funds for the year ending 30 June 2010#

Forecast Statement of Financial Position as at 30 June 2010#

Statement of Forecast Cash Flows for the year ending 30 June 2010#

Statement of Significant Assumptions#

These forecast financial statements have been compiled on the basis of existing government policies and Ministerial expectations at the time the statements were finalised.

The main assumptions are as follows:

• The department's activities will remain substantially the same as for the previous year.
• Personnel costs are based on up to 1260 full-time equivalents.
• Operating costs are based on historical experience. The general historical pattern is expected to continue.
• Estimated year end information for 2008/09 is used as the opening position for the 2009/10 forecasts.

These assumptions are adopted as at 20th April 2009.

Statement of Entity-Specific Accounting Policies#

The New Zealand Customs Service (Customs) has applied the accounting policies set out in Statement of Common Accounting Policies in this document, except as stated below.

Reporting Entity

Customs is a government department as defined by section 2 of the Public Finance Act 1989. For the purposes of financial reporting, Customs is a public benefit entity.

Customs mitigates risks to the New Zealand economy and society posed by international movement of people, goods and craft, facilitation of legitimate trade and travel, and collection of revenue to support government's social economy and fiscal objectives. In addition, Customs reports on Crown activities and trust monies which it administers.

Authorisation Statement

These forecast financial statements were authorised for issue by Customs on 20th April 2009. Customs is responsible for the forecast financial statements presented, including the appropriateness of the assumptions underlying the forecast financial statements and all other required disclosure.

Specific Accounting Policies

Capitalisation

The capitalisation thresholds are set out below:

• Intangible assets (computer software) $1,000.
• All other property plant and equipment $500.

Depreciation

The estimated useful lives of property, plant and equipment are set out below:

• Launch and watercraft - 10 years.
• Computer equipment/hardware - 4 years.
• Motor vehicles - 5 years.
• Furniture and office equipment - 5 years.
• Plant and equipment - 5-10 years.
• Intangible assets (computer software) - 5-10 years.

The cost of leasehold improvements is capitalised and amortised over the unexpired period of the lease or over the estimated remaining useful lives of the improvements, whichever is shorter.

Cost allocation

Customs has determined the costs of outputs using a cost allocation system, which is outlined below.

Cost Allocation Policy 

Direct costs are charged directly to significant activities. Indirect costs are charged to significant activities based on cost drivers and related activity/usage information.

Criteria for Direct and Indirect Costs 

"Direct Costs" are those costs directly attributed to an output. "Indirect Costs" are those costs that cannot be identified in an economically feasible manner with a specific output.

Direct Costs Assigned to Outputs 

Direct costs are charged directly to outputs, where appropriate. This includes depreciation and occupancy costs.

Basis for Assigning Indirect and Corporate Costs to Outputs

Indirect costs are assigned to outputs based on a proportion of direct staff costs usage for each output.

Notes to the Financial Statements#

Note 1 - Other Revenue

Note 2 - Operating Expenses#

Note 3 - Debtors and Other Receivables#

Note 4 - Property, Plant and Equipment#

Note 5 - Intangible assets#

Note 6 - Provision#

Note 7 - Employee Entitlements#

Note 8 - Reconciliation of Net Surplus to Net Cash Flows from Operating Activities for the year ending 30 June 2010#

Forecast Financial Statements Ministry of Defence#

Statement of Forecast Comprehensive Income for the year ending 30 June 2010#

Statement of Forecast Changes in Taxpayers' Funds for the year ending 30 June 2010#

Forecast Statement of Financial Position as at 30 June 2010#

Statement of Forecast Cash Flows for the year ending 30 June 2010#

Statement of Significant Assumptions#

These forecast financial statements have been compiled on the basis of existing government policies and Ministerial expectations at the time the statements were finalised.

The main assumptions are as follows:

• The department's activities will remain substantially the same as for the previous year.
• Personnel costs are based on 70 staff positions.
• Operating costs are based on historical experience. The general historical pattern is expected to continue.
• Estimated year end information for 2008/09 is used as the opening position for the 2009/10 forecasts.

These assumptions are adopted as at 3 April 2009.

Factors that could lead to material differences between the forecast financial statements and the 2009/10 actual financial statements include:

• Changes to the baseline budget through new initiatives, or technical adjustments.

Statement of Entity-Specific Accounting Policies#

The Ministry of Defence has applied the accounting policies set out in Statement of Accounting Policies Standard included in this document, except as stated below.

Reporting Entity

These are the prospective financial statements of Ministry of Defence, prepared in accordance with section 38 of the Public Finance Act 1989.

Ministry of Defence is a Government Department as defined by section 2 of the Public Finance Act 1989. For the purposes of financial reporting Ministry of Defence is a public benefit entity.

Authorisation Statement

These forecast financial statements were authorised for issue by the Secretary of Defence on 3 April 2009. The Ministry of Defence is responsible for the forecast financial statements presented, including the appropriateness of the assumptions underlying the forecast financial statements presented and all other required disclosures.

Specific Accounting Policies

Property, Plant and Equipment

The capitalisation threshold for property, plant and equipment is $5,000.

Depreciation

The estimated useful lives of property, plant and equipment are set out below:

• Leasehold improvements - 18 years.
• IT equipment / hardware - 3-5 years.
• Furniture and office equipment - 7 years.

Intangible Assets

The capitalisation threshold for intangible assets is $5,000.

The estimated useful life of intangible assets is 3 years.

Cost Allocation

The Ministry derives the cost of outputs using a cost allocation system that is outlined below:

Criteria for direct and indirect costs

"Direct costs" are those costs directly attributable to an output. "Indirect costs:" are those costs that cannot be identified in an economically feasible manner with a specific output.

Direct costs assigned to outputs

Direct costs are assigned to outputs by charging payments to specific job numbers. Selection of "general cost" job numbers within an output class will treat the expense as a direct cost to the output even though a specific job within the output class has not been identified.

Basis for assigning indirect and corporate costs to outputs

Indirect costs are assigned to outputs by charging payments to a corporate job number. The accounting system is programmed to allocate job costs to three output classes on a predetermined percentage for each expense item. The percentage number is an assessment of services to be provided to each output class in the ensuing year.

Notes to the Financial Statements#

Note 1 - Other Revenue - Department

Note 2 - Operating Expenses#

Note 3 - Debtors and Other Receivables#

Note 4 - Plant, Property and Equipment#

Note 5 - Intangible Assets#

Note 6 - Current Liabilities#

Note 7 - Employee Entitlements#

Note 8 - Reconciliation of Departmental Expenses and Appropriations#

Note 9 - Reconciliation of Net Surplus to Net Cash Flows from Operating Activities for the year ending 30 June 2009#

Forecast Financial Statements New Zealand Defence Force#

Statement of Forecast Comprehensive Income for the year ending 30 June 2010#

Statement of Forecast Changes in Taxpayers' Funds for the year ending 30 June 2010#

Forecast Statement of Financial Position as at 30 June 2010#

Statement of Forecast Cash Flows for the year ending 30 June 2010#

Statement of Significant Assumptions#

These statements have been compiled on the basis of government policies and the New Zealand Defence Force (NZDF) Output Plan agreements with the Minister for Defence at the time the statements were finalised.

The 2008/09 budgeted figures are based on management's judgments, estimates and assumptions of the final 2008/09 outcome and are used as the opening position for 2009/10 forecasts.

Key assumptions underlying this forecast are:

• There will be no significant change in government policies or the New Zealand Defence Force's Output Plan agreement with the Minister of Defence.
• Ministry of Defence payments reflect the forecast payments for acquisition projects which have been approved by Cabinet. Should additional projects be approved during the year, there may be some payments for these projects during the year.
• There will be no major changes in exchange rates.
• The capital charge rate for the year ending 30 June 2010 is assumed to be 7.5% per annum.

Statement of Entity-Specific Accounting Policies#

The New Zealand Defence Force has applied the accounting policies set out in Statement of Accounting Policies Standard included in this document, except as stated below.

Reporting Entity

These are the prospective financial statements of New Zealand Defence Force, prepared in accordance with section 38 of the Public Finance Act 1989.

New Zealand Defence Force is a Government Department as defined by section 2 of the Public Finance Act 1989. For the purposes of financial reporting New Zealand Defence Force is a public benefit entity. In addition the financial statements include information on the activities that NZDF administers on behalf of Vote Veterans' Affairs Defence Force.

In these financial statements the New Zealand Defence Force is also referred to as the NZDF, and Veterans' Affairs New Zealand is also referred to as VANZ.

Authorisation Statement

These forecast financial statements were authorised for issue by the Chief of Defence Force on 22 April 2009. The Chief of Defence Force as the Chief Executive of the New Zealand Defence Force is responsible for the forecast financial statements presented, including the appropriateness of the assumptions underlying the forecast financial statements and all other required disclosure.

Specific Accounting Policies

Property, Plant and Equipment

Capitalisation thresholds applied are set out below.

• IT Equipment / Hardware $5,000
• All other property, plant and equipment $5,000

Depreciation

The estimated useful lives of property, plant and equipment are set out below.

• Buildings 5 - 100 years
• Leasehold improvements 2 - 20 years
• IT Equipment / Hardware 2 - 5 years
• Motor vehicles 10 - 15 years
• Furniture and office equipment 5 - 20 years
• Specialist Military Equipment 5 - 55 years
• Other Plant and Equipment 5 - 50 years

Revaluation

Land, Buildings and Specialist Military Equipment asset classes are subject to revaluation. Valuations use a market-based approach where possible. Where reliable market evidence is unavailable optimised depreciated replacement cost (ODRC) is used to calculate fair value. Valuations are determined or reviewed by an independent registered valuer.

Specialist Military Equipment with a net carrying value of $2 million or more, or groups of like assets with a total carrying value of $4 million or more are subject to revaluation. All other specialist military equipment is recorded at historical cost.

Intangible Assets

Capitalisation thresholds applied are:

• Purchased software $5,000
• Internally developed software $5,000

The estimated useful lives of intangible assets are set out below:

• Purchased software 3 - 20 years
• Internally developed software 3 - 20 years

Inventories

Inventories are held for distribution or consumption in the provision of services and are comprised of munitions, technical spares and consumable items.

Inventory intended to be kept for more than one year has been classified as non-current inventory.

Inventories are recorded at weighted average cost and the cost of inventory reflects any obsolescence or other impairment.

Cost Allocation

The NZDF has determined the cost of outputs using a cost allocation system outlined below.

• Direct costs of a force element (for example, a squadron, a frigate, a battalion) are attributed directly to an appropriate output.
• Support unit costs are charged to outputs using drivers that reflect the use of that activity to produce outputs.
• Overhead costs are charged to outputs using the percentage of that outputs gross operating budget (exclusive of capital charge) to the total gross budget (exclusive of capital charge) for all outputs.

The allocation rules are reviewed if there is significant organisational change to alter the continued appropriateness of the rules.

Notes to the Financial Statements#

Note 1 - Foreign Exchange Gains

The Forecast Financial Statements include Unrealised Foreign Exchange Gains of $30.693 million as at 28 February 2009 (28 February 2008 $14.451 million). It is Government policy not to budget for remeasurements in asset values.

Note 2 - Operating Expenses#

Note 3 - Reconciliation of Departmental Expenses and Appropriations#

This note reconciles the expenses reported in the forecast Statement of Comprehensive Income with the corresponding departmental appropriations appearing in the Estimates of Appropriations.

Note 4 - Capital Transfer#

Note 5 - Debtors and Other Receivables#

Note 6 - Inventory#

Note 7 - Property, Plant and Equipment (PPE)#