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1996/97 STATE TRANSIT ANNUAL REPORT
Financial Statements



Notes To and Forming Part of the Financial Statements

For the year ended 30 June 1997

1. ACCOUNTING POLICIES

The following summary outlines the significant accounting policies adopted by the Authority in the preparation of the financial statements.

(a) Basis of Accounting

The financial statements are a general purpose financial report which have been prepared in accordance with the Public Finance and Audit Act 1983, Public Finance and Audit (General) Regulation 1995, Australian Accounting Standards and other mandatory professional reporting requirements (Urgent Issues Group Consensus Views) and applicable Treasurer's Directions and Treasury Circulars.

The financial statements have been prepared on an accrual accounting basis using historical costs except for certain non-current assets which, as noted, are recorded at valuation.

The financial statements have been prepared on a going concern basis which assumes that State Transit is expected to be able to pay its debts as and when they fall due and continue in operation without any intention or necessity to liquidate or otherwise wind up its operations.

At 30 June 1997, State Transit's financial position disclosed total assets of $379.2M compared with total liabilities of $217.1M, giving net assets of $162.1M. Included in these totals are current assets of $35.6M compared with current liabilities of $92.4M. While it is not unusual for State Transit's current liabilities to exceed current assets given the relatively small amounts of receivables and inventories, the difference this year is more pronounced due to a lease liability maturing in 1997/98.

State Transit has a positive cash flow from operations and this is expected to continue in the year ending 30 June 1998. These cash flows, together with the planned divestment of certain non-core assets, the proposed refinancing of lease liabilities due in 1997/98 and the establishment of new and additional financing arrangements, will be sufficient to meet State Transit's obligations in the year ending 30 June 1998 and to fund its capital expenditure and other programs.

The accounting policies adopted are consistent with those of the previous year unless otherwise specified.

(b) Property, Plant and Equipment

Property, plant and equipment have been accounted for on the basis of the following policies.

(i) Basis of valuation

In accordance with NSW Treasury requirements, property, plant and equipment are stated at current cost in accordance with a policy of regular revaluation under which all property, plant and equipment is revalued at least once every five years.

In applying the current cost basis of valuation, all property, plant and equipment, except freehold land and works in progress, are valued at written down replacement cost. Written down replacement cost is determined based on the ratio of remaining useful life to total useful life, except in the case of buses where the ratio of remaining service potential to total service potential has been applied.

Freehold commercial land is valued at market selling value and freehold operating land is valued at market value for the existing use. These land values, and the written down replacement values of buildings and wharves, are determined by independent valuation. Works in progress are stated at cost.

Where the current cost valuation of an asset exceeds recoverable amount, the asset is stated at recoverable amount. Recoverable amount is determined on the basis of the net present value of the cash flows expected to be generated from the continued use and eventual disposal of the asset.

(ii) Leased assets

A distinction is made between finance leases, which effectively transfer to the Authority substantially all of the risks and benefits incidental to ownership of the leased assets, and operating leases under which the lessor effectively retains all such risks and benefits.

Where property, plant and equipment is acquired by means of a finance lease, the asset is capitalised at the present value of the minimum lease payments and disclosed as leased property, plant and equipment. The capitalised lease asset is amortised on a straight line basis over the term of the lease or, where at the inception of the lease there is reasonable assurance that the Authority will obtain ownership of the asset, its estimated useful life. A corresponding liability is also established and each lease payment is allocated between the principal component and the interest expense.

Operating lease payments are charged as expenses in the period in which they are incurred.

(iii) Depreciation

The depreciable amounts of all property, plant and equipment including buildings and capitalised lease assets, but excluding freehold land and works in progress, are depreciated over their estimated useful lives commencing from the time an asset is held ready for use. Depreciation is calculated on a straight line basis, except in the case of buses which are depreciated in line with the pattern of expiry of their service potential, which is determined based on the number of kilometres travelled over the useful life of twenty years.

During the prior year, the Authority changed its accounting policy in relation to the valuation of property, plant and equipment in order to comply with NSW Treasury requirements. In accordance with these requirements, all property, plant and equipment, except wharf improvements and works in progress, were revalued at 30 June 1996 to current cost, (subject to the revalued amount not exceeding the recoverable amount). As a result of this revaluation, the carrying value of property, plant and equipment at 30 June 1996 increased by $40.577 M.

As the revaluation was conducted at 30 June 1996, there was no effect on depreciation expense for the year ending on that date. However, during the current year, depreciation expense increased by $7.6M as a result of the revaluation.

(iv) Capitalisation policy

At acquisition, property, plant and equipment are recorded at the cost of acquisition. Cost is determined as the fair value of the assets given up at the date of acquisition plus costs incidental to the acquisition. All property, plant and equipment costing $1,000 or more individually and having a minimum expected working life of three years are capitalised.

(v) Works in progress

Project costs relating to acquisition of property, plant and equipment which have not been completed are held as capital works in progress. Works in progress are not depreciated until the assets are brought into service.

(vi) Major periodic maintenance

Routine maintenance is treated as an expense and is charged to the Income and Expenditure Statement when incurred.

In respect of buses, vessels and wharves, provision is made for other non-routine maintenance which is cyclical in nature. This provision for major periodic maintenance is shown in the financial statements as a deduction from the carrying value of the asset, in addition to the provision for depreciation. This ensures that the value of the asset reported in the financial statements reflects its remaining service potential.

(vii) Spares for plant and equipment

Major spares originally purchased specifically with particular items of equipment are included in the cost of the equipment and depreciated accordingly.


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