CONTENTS
NOTES TO AND FORMING PART OF THE
FINANCIAL STATEMENTS
2 Summary of Significant Accounting
Policies
2.1 Basis of Accounting
The financial report is a general purpose
financial report. The statements have been prepared in
accordance with:
• Treasurer’s Instructions and
Accounting Policy Statements promulgated under the provision of
the Public Finance and Audit Act 1987.
• Applicable Australian Accounting
Standards
• Other mandatory professional
reporting requirements in Australia
SAFC’s Statement of Financial
Performance and Statement of Financial Position have been
prepared on an accrual basis and are in accordance with
historical cost convention, except for certain assets that were
valued in accordance with the applicable valuation policy.
The accounting policies have been
consistently applied unless otherwise stated.
2.2 Comparative Figures
Where necessary, comparative figures are
adjusted to conform with changes in presentation and
classification in the current period. No material changes
in presentation are included in these financial statements.
2.3 Rounding
All amounts in the financial statements
have been rounded to the nearest thousand dollars
($’000).
2.4 Forestry Accounting
Due to the special nature of growing
timber, which includes a long production cycle combined with
physical change, historical cost accounting does not provide a
meaningful measure of the economic performance or asset value
of forestry activities. In order to provide more relevant,
reliable and understandable information, a market value based
method has been applied to growing timber.
The inventory value of growing timber
(note 2.12) is calculated for financial reporting purposes
only, as a measure of forest management performance over the
reporting period.
The main features of this method are:
• At the reporting date the inventory
of growing timber is valued at its net market value. For the
purpose of this financial statement net market value is defined
as the amount which could be expected to be received from the
disposal of the existing mix of forest products in an active
and liquid market after deducting the direct costs incurred in
realising the proceeds of such a disposal. This is in
accordance with the requirements of Accounting Standard
AASB1037 ‘Self-Generating and Regenerating Assets.’
All amounts are calculated in pre-tax dollars in accordance
with the Treasurer’s Instructions.
• The difference between the net
market value of the inventory of growing timber held at the
reporting date and the net market value at the previous
reporting date is recognised as revenue in the Statement of
Financial Performance, where it is described as “Net
change in value of growing timber”
• The market value of growing timber
realised during the period is reported under Sales Revenue.
• All non-capital forest expenditure
is recognised as plantation expenses in the year the
expenditure takes place.
Current policy provides that revenue
resulting from the net increment in the value of growing timber
is unrealised revenue and is therefore not available for
distribution. This amount is transferred from retained profits
to the growing timber revaluation reserve (Note 24) of the
Statement of Financial Position.
The volume of growing timber is estimated
using a model that simulates forest growth. Actual growth will
invariably differ to some extent from growth predicted by the
model resulting in periodic adjustments to net market value for
these growth variations. The model uses sample inventory data
as the base line from which to start growth simulations.
Inventory data are continuously being collected from sample
inventory plots with the complete forest estate being
covered in about five yearly intervals. The inventory master
database is updated about every three to five years and on
these occasions the model simulations are repeated. For South
Eastern forests the master database was last updated in 2001,
for Mt Lofty Ranges forests in 2002 and Northern forests in
1999.
The method used to determine the volume of
timber contained in the radiata plantations is ‘standing
volume’ (the volume of wood in the stem of trees which is
potentially useable) less an allowance for residues incurred under
current harvesting practice. This ensures that the net market
value is based upon realisable volumes.
2.5 Taxation
Income Tax (Payment in lieu of income tax)
SAFC is required to make taxation payments
in accordance with the National Taxation Equivalents Regime in
accordance with the Income Tax Assessment Act 1997. As SAFC
engages in trading activities in competition with private
sector enterprises, a payment in lieu of income tax, equivalent
to the tax applicable to public companies under Commonwealth
income tax law, is paid to the South Australian Government
Consolidated Account.
The liability method of tax-effect
accounting has been adopted, whereby the income tax expense
shown in the Statement of Financial Performance is based on the
operating profit before income tax expense, adjusted for any
permanent differences.
Timing differences which arise due to the
different accounting periods in which items of revenue and
expense are included in the determination of operating profit
before income tax expense and taxable income are brought to
account as either provision for deferred income tax, or an
asset described as future income tax benefit. These items are
recorded at the rate of income tax applicable to the period in
which the benefit will be received, or the liability will
become payable.
Future income tax benefits are not brought
to account unless realisation of the asset is assured beyond
reasonable doubt. Future income tax benefits in relation to tax
losses are not brought to account unless there is virtual
certainty of realisation of the benefit.
The amount of benefits brought to account
or which may be realised in the future is based on the
assumption that no adverse change will occur in income taxation
legislation and the anticipation that the economic entity will
derive sufficient future assessable income to enable the
benefit to be realised and comply with the conditions of
deductibility imposed by the law.
Goods and Services Tax (GST)
In accordance with the requirements of UIG
Abstract 31 “Accounting for the Goods and Services Tax
(GST)”, revenue, expenses and assets are recognised net
of the amount of GST except that: –
• The amount of GST incurred by SAFC
as a purchaser that is not recoverable from the Australian
Taxation Office is recognised as part of the cost of
acquisition of an asset or as part of an item of expense; and
• Receivables and payables are stated
with the amount of GST included.
The net GST receivable/payable to the
Australian Taxation Office has been recognised as a
receivable/payable in the Statement of Financial Position.
Other
SAFC is liable for payroll tax, fringe
benefits tax, emergency services levy, land tax equivalents and
local government rates.
2.6 Revenue AND Expenses
Revenue and expenses are recognised in the
Statement of Financial Performance when and only when the flow
or consumption or loss of economic benefits has occurred and
can be reliably measured.
Sales revenue is derived from the
provision of goods and services to customers. This revenue is
driven by customer demand.
Grants and funding for CSOs received from
SA government are recognised as revenues when SAFC obtains control
over the assets. Control over the revenues is normally obtained
upon receipt and they are accounted for in accordance with
Treasurer’s Instruction 3 Appropriation.
Revenue from disposal of non-current
assets is recognised when control of the asset passes to the
buyer.
2.7 Current and Non-Current
Classifications
In the Statement of Financial Position,
assets and liabilities expected to be realised as cash within
twelve months are classified as current. Assets and liabilities
expected to be realised as cash in a period greater than twelve
months are classified as non-current.
2.8 Cash
For the purposes of the Statement of Cash
Flows, cash includes cash at bank and deposits at call that are
readily converted to cash and are used in the cash management
function on a day-to-day basis. Cash is measured at nominal
value.
2.9 Receivables
Trade receivables arise in the normal
course of selling goods and services to other agencies and to
the public. Trade receivables are payable within 30 days after
the issue of an invoice or the goods/services have been
provided under contractual arrangements.
If payment has not been received within
the terms and conditions of the contractual arrangement, SAFC
is able to charge interest at commercial rates as specified
until the whole amount of the debt has been paid.
SAFC determines the provision for doubtful
debts based on a review of balances within trade receivables
that are unlikely to be collected.
2.10 Property, Plant and Equipment
Cost and valuation
The majority of property, plant and
equipment are measured at fair value in accordance with AASB1041
Revaluation of Non-Current assets. Fair value represents the
value that is able to be achieved in an active and liquid
market. Where an active and liquid market does not exist then
the asset will be brought to account at its written down
current cost.
The gain or loss on disposal of all fixed
assets, including revalued assets, is determined as the
difference between the fair value of the asset at the time of
disposal and the proceeds of disposal, and is included in the
results in the year of disposal.
SAFC capitalises all non-current physical
assets with a value of $2000 or greater.
SAFC undertakes an annual revaluation of
land to fair value at the end of June. The basis of the
revaluation is the current market value of the unimproved land.
In accordance with this policy, land was revalued in 2004 using
valuation provided by the Valuer General. Where a valuation has
not been provided by the Valuer General the land is valued at
cost.
The revaluations of freehold land have not
taken account of the potential capital gains tax on assets
acquired after the introduction of capital gains tax.
Buildings, plant and equipment have
continued to be brought to account at written down cost. The
Corporation will progressively revalue each asset class and
plans to complete the revaluation during the next two financial
reporting periods in accordance with transitional provisions of
the accounting standard.
Depreciation
Depreciation is provided on a
straight-line basis on all property, plant and equipment other
than freehold land and there has been no change in major
depreciation periods.
Major depreciation periods are:
Freehold buildings 25
years
Leasehold improvements
Lease term
Plant and equipment 3
– 10 years
Computer software 3
– 10 years
Log storage sites 25
years
2.11 Leases
In respect of operating leases, the lessor
effectively retains substantially the entire risks and benefits
incidental to ownership of the lease items. Operating lease
payments are charged to the Statement of Financial Performance
on a basis, which is representative of the pattern of benefits
derived from the leased assets.
2.12 Inventories
Harvested Log Stocks
Harvest log stocks at 30 June represent
timber harvested for sale and are valued at net market value in
accordance with AASB 1037 Self-Generating and Regenerating
Assets. Harvested log stocks are disclosed as a current asset.
Growing Timber
Growing timber of a marketable size is
valued at its net market value and disclosed as a non-current
asset. SAFC has determined the net market value by sampling
market conditions over the twelve months preceding balance
date and has calculated the weighted average return for each
diameter class, after deducting direct costs incurred in
realising those returns. This policy is in accordance with the
requirements of AASB 1037 Self-Generating and Regenerating
Assets.
Growing timber below a marketable size is
valued by a reasonable proxy by annually compounding the current
replacement cost, from the date of preparation of the site for
planting, at the minimum desired rate of return of 6% per annum
in absence of verifiable market prices; this is considered to
be a reasonable approximation, particularly as young timber
accounts for approximately 5.5 percent of the total value.
SAFC has revised the method of estimating
prices for standing timber to more closely reflect the standing
timber product mix for sawlog, recovery log and pulpwood. The
change resulted in a reduction to the value of growing timber
of $19.844 million. The impact on the financial statements was
to reduce the net change in value of growing timber recorded in
the Statement of Financial Performance and Growing Timber
recorded in the Statement of Financial Position by $19.844
million. The change has a resultant impact of decreasing the
Profit from ordinary activities and Equity by $19.844 million.
2.13 Payables
Payables include creditors, accrued
expenses and employment on-costs.
Creditors represent the amounts owing for
goods and services received prior but remain unpaid at the end
of the reporting period. Creditors include all unpaid invoices
received relating to the normal operations of SAFC.
Accrued expenses represent goods and
services provided by other parties during the period that are
unpaid at the end of the reporting period and where an invoice
has not been received.
All amounts are measured at their nominal
amount and are normally settled within 30 days in accordance
with TI 8 Expenditure for Supply Operations and Other Goods and
Services or contractual obligations.
Employment on-costs include superannuation
contributions and payroll tax with respect to outstanding
liabilities for salaries and wages, long service leave and
annual leave.
SAFC makes contributions to several
superannuation schemes. These contributions are treated as an
expense when they occur. There is no liability for payments to
beneficiaries as the schemes have assumed these. The only
liability outstanding at the end of the reporting period relate
to any contributions due but not yet paid.
2.14 Employee Benefits
These benefits accrue for employees as a
result of services provided up to the reporting date that
remain unpaid. 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 is estimated to be less than the
annual entitlement of sick leave.
Liability for salary and wages are
measured as the amount unpaid at the reporting date at
remuneration rates current at reporting date. The liability for
annual leave reflects the value of total annual leave
entitlements of all employees as at 30 June 2004 and is
measured at the nominal amount.
The liability for long service leave is
recognised and measured at the actuarial assessment by the
Department of Treasury and Finance based on a significant
sample of employees throughout the South Australian public
sector. This calculation is consistent with SAFC experience of
employee retention and leave taken.
During the year ended 30 June 2004 SAFC
paid $1.175 million (2003 $1.110 million) to the Department of
Treasury and Finance towards the accruing Government liability
for superannuation in respect of its employees. The
contributions were made to:
The State Pension Scheme
The State Lump Sum Scheme
Triple S Scheme
2.15 Provisions
SAFC as a self-insurer is responsible to
fund its workers compensation obligations. The workers
compensation liability was based on an actuarial
assessment provided by the Department of Administrative and
Information Services and provides for the estimated unsettled
workers compensation claims.
2.16 Equity contributed by the SA
Government
Contributions made by the SA Government
through its role as owner of SAFC, which increase the net
assets of the entity, are treated as contributions of equity.
2.17 Insurance
SAFC has arranged, through SA Government
Captive Insurance Corporation (SAICORP) to insure all major risk
of the corporation. The excess payable under this arrangement
varies depending on each class of insurance held.
2.18 Foreign Currency Translation
Foreign currency transactions are
initially translated into Australian currency at the spot rate
of exchange at the date of the transaction.
Forward foreign currency exchange
contracts are translated at the exchange rate applying when
entering the contract, on 30 June 2004 or at settlement date.
Where the hedge is considered effective in hedging the foreign
currency denominated price of goods or services, forward
contract premiums and gains or losses resulting from
translation will be deferred and included in the hedged cost of
the foreign goods or services purchased. Other premiums and
gains or losses resulting from translation will be recognised
in the Statement of Financial Performance.
SAFC entered into specific foreign hedging
transactions with the South Australian Financing Authority
during June 2003. The hedge was settled on 30 June 2004 (Note
30).
CORPORATE PROFILE
SOCIAL
ENVIRONMENTAL
ECONOMIC
FINANCIAL STATEMENT