2 Summary of significant accounting policies
a) General statement
The PTA is a not-for-profit reporting entity that prepares general purpose financial statements in accordance with Australian Accounting Standards, the Framework, Statements of Accounting Concepts and other authoritative pronouncements of the AASB as applied by the Treasurer’s Instructions. Several of these are modified by the Treasurer’s Instructions to vary application, disclosure, format and wording.
The Financial Management Act and the Treasurer’s Instructions impose legislative provisions that govern the preparation of financial statements and take precedence over Australian Accounting Standards, the Framework, Statements of Accounting Concepts and other authoritative pronouncements of the AASB.
Where modification is required and has had a material or significant financial effect upon the reported results, details of that modification and the resulting financial effect are disclosed in the notes to the financial statements.
b) Basis of preparation
The financial statements have been prepared on the accrual basis of accounting using the historical cost convention, except for land, buildings, rollingstock, vessels, buses and infrastructure which have been measured at fair value.
The accounting policies adopted in the preparation of the financial statements have been consistently applied throughout all periods presented unless otherwise stated.
The financial statements are presented in Australian dollars and all values are rounded to the nearest thousand dollars ($’000).
Note 3 “Judgements made by management in applying accounting policies’ discloses judgements that have been made in the process of applying the PTA’s accounting policies resulting in the most significant effect on amounts recognised in the financial statements.
Note 4 “Key sources of estimation uncertainty’ discloses key assumptions made concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
c) Reporting entity
The PTA is the reporting entity and there are no other related or affiliated bodies.
d) Contributed equity
AASB Interpretation 1038 Contributions by Owners Made to Wholly-Owned Public Sector Entities requires transfers in the nature of equity contributions, other than as a result of a restructure of administrative arrangements, to be designated by the Government (the owner) as contributions by owners (at the time of, or prior to transfer) before such transfers can be recognised as equity contributions. Capital appropriations have been designated as contributions by owners by TI 955 Contributions by Owners made to Wholly-Owned Public Sector Entities and have been credited directly to Contributed Equity.
The transfers of net assets to/from other agencies, other than as a result of a restructure of administrative arrangements, are designated as contributions by owners where the transfers are non-discretionary and non-reciprocal. (See note 32 “Equity’).
e) Income
Revenue recognition
Revenue is recognised and measured at the fair value of consideration received or receivable. The following specific recognition criteria must also be met before revenue is recognised for the major business activities as follows:
Sale of goods
Revenue is recognised from the sale of goods and disposal of other assets when the significant risks and rewards of ownership control transfer to the purchaser and can be measured reliably.
Provision of services
Revenue is recognised by reference to the stage of completion of the transaction, except for the following:
- i) Cash fares collected by contractors delivering bus services to PTA are accounted for at the time the contract for services invoice is approved for payment.
- ii) MultiRider fares collected by contractors delivering bus services to PTA in WA’s regional areas are accounted for at the time the contract for services invoice is approved for payment. Unused MultiRider travel entitlements are not recognised as liabilities in the financial statements.
Interest
Revenue is recognised as the interest accrues.
Lease income
Lease income from operating leases is recognised as income on a straight-line basis over the term of the lease. (See note 13 “Operating lease revenue’ and note 31 “Deferred income - operating leases’).
Service appropriations
Service appropriations are recognised as revenues at fair value in the period in which the PTA gains control of the appropriated funds. The PTA gains control of appropriated funds at the time those funds are deposited to the bank account or credited to the “Amounts receivable for services’ (holding account) held at Treasury. (See note 18 “Income from State Government’).
Grants, donations, gifts and other non-reciprocal contributions
Revenue is recognised at fair value when the PTA obtains control over the assets comprising the contributions, usually when cash is received.
Other non-reciprocal contributions that are not contributions by owners are recognised at their fair value. Contributions of services are only recognised when a fair value can be reliably determined and the services would be purchased if not donated.
Royalties for Regions funds are recognised as revenue at fair value in the period in which the PTA obtains control over the funds. The PTA obtains control of the funds at the time the funds are deposited into the PTA’s bank account.
Infringements
Infringements are recorded on a cash basis.
Gains
Realised and unrealised gains are usually recognised on a net basis. These include gains arising on the disposal of non-current assets and some revaluations of non-current assets.
f) Borrowing costs
All borrowing costs are recognised as expenses in the period in which they are incurred. (See note 3 “Judgement made by management in applying accounting policies’).
g) Infrastructure, property, plant and equipment and vehicles
Capitalisation/Expensing of assets
Items of infrastructure, property, plant and equipment and vehicles costing $5,000 or more are recognised as assets and the cost of utilising assets is expensed (depreciated) over their useful lives. Items of infrastructure, property, plant and equipment and vehicles costing less than $5,000 are immediately expensed direct to the Statement of Comprehensive Income (other than where they form part of a group of similar items which are significant in total).
Initial recognition and measurement
All items of infrastructure, property, plant and equipment and vehicles are initially recognised at cost.
For items of infrastructure, property, plant and equipment and vehicles acquired at no cost or for nominal cost, the cost is their fair value at the date of acquisition.
Subsequent measurement
Subsequent to initial recognition as an asset, the revaluation model is used for the measurement of land, buildings, urban rail system and bus infrastructure, rollingstock, vessels and buses and the historical cost for plant and equipment and motor vehicles. Land is carried at fair value and accumulated impairment losses. Buildings, urban rail system, freight network infrastructure and bus infrastructure are carried at fair value less accumulated depreciation and accumulated impairment losses. Plant and equipment and motor vehicles are stated at historical cost less accumulated depreciation and accumulated impairment losses.
Where market-based evidence is available, the fair value of land and buildings is determined on the basis of current market buying values determined by reference to recent market transactions. When buildings are revalued by reference to recent market transactions, the accumulated depreciation is eliminated against the gross carrying amount of the asset and the net amount restated to the revalued amount.
In absence of market-based evidence, the fair value of land and buildings is determined on the basis of existing use. This normally applies where buildings are specialised or where land use is restricted. Fair value for existing use assets is determined by reference to the cost of replacing the remaining future economic benefits embodied in the asset, IE the depreciated replacement cost. Where the fair value of buildings is determined on the depreciated replacement cost basis, the gross carrying amount and the accumulated depreciation are restated proportionately.
The revaluation of land controlled by the PTA including metropolitan and regional corridor land, not subject to commercial lease, is provided independently on an annual basis by the Western Australian Land Information Authority (Valuation Services) and recognised annually to ensure that the carrying amount does not differ materially from the asset’s fair value at the end of reporting period.
Land and buildings which are commercially leased are independently valued at fair value based on the capitalised value of current leases. Independent valuations are obtained annually.
Buildings, bus infrastructure, rollingstock, vessels and buses have been revalued at fair value using depreciated replacement cost by independent valuers, engineering and management professionals. Valuations are obtained every 3 to 5 years.
Urban rail system infrastructure and freight network infrastructure are revalued, at least once every five years, to its fair value based on depreciated replacement cost, as the assets are specialised and a market value does not exist.
When infrastructure is revalued, the accumulated depreciation is restated proportionately with the change in the gross carrying amount of the asset so that the carrying amount of the asset after revaluation equals its revalued amount.
Construction in progress is recognised at cost.
The most significant assumptions in estimating fair value are made in assessing whether to apply the existing use basis to assets and in determining estimated useful life. Professional judgement by the valuer is required where the evidence does not provide a clear distinction between market type assets and existing use assets.
Derecognition
Upon disposal or derecognition of an item of property, plant and equipment, infrastructure and vehicles, any revaluation surplus relating to that asset is retained in the asset revaluation surplus.
Asset revaluation surplus
The asset revaluation surplus is used to record increments and decrements on the revaluation of non-current assets as described in note 23 “Infrastructure, property, plant, equipment and vehicles’.
Depreciation
All non-current assets having a limited useful life are systematically depreciated over their estimated useful lives in a manner which reflects the consumption of their future economic benefits.
Depreciation is calculated using the straight-line method, using rates which are reviewed annually. Estimated useful lives for each class of depreciable asset are:
|
Class of Asset |
Useful Life |
|---|---|
| Buildings | 30 to 50 years |
| Rollingstock | 30 years |
| Infrastructure | 15 to 75 years |
| Plant and equipment | 10 to 15 years |
| Buses | 7 to 18 years |
| Motor vehicles | 5 to 10 years |
| Vessels | 10 years |
| Office equipment | 3 to 5 years |
Assets under construction are not depreciated until they are available for use.
Land is not depreciated.
h) Intangible assets
Capitalisation/Expensing of assets
Acquisitions of intangible assets costing $5,000 or more and internally generated intangible assets costing $5,000 or more are capitalised. The cost of utilising the assets is expensed (amortised) over their useful lives. Costs incurred below these thresholds are immediately expensed directly to the Statement of Comprehensive Income.
Intangible assets are initially recognised at cost. For assets acquired at no cost or for nominal cost, the cost is their fair value at the date of acquisition.
The cost model is applied for subsequent measurement requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses.
Amortisation for intangible assets with finite useful lives is calculated for the period of the expected benefit (estimated useful life which is reviewed annually) on the straight-line basis. All intangible assets controlled by the PTA have a finite useful life and zero residual value.
The expected useful lives for each class of intangible asset are:
| Class of Intangible asset | Useful Life |
|---|---|
| Software* | 3 to 5 years |
| Website costs | 3 to 5 years |
* Software that is not integral to the operation of any related hardware.
- i) Computer software Software that is an integral part of the related hardware is recognised as property, plant and equipment. Software that is not an integral part of the related hardware is recognised as an intangible asset. Software costing less than $5,000 is expensed in the year of acquisition.
- ii) Website costs Website costs are charged as expenses when they are incurred unless they relate to the acquisition or development of an asset when they may be capitalised or amortised. Generally, costs in relation to feasibility studies during the planning phase of a website, and ongoing costs of maintenance during the operating phase are expensed. Costs incurred in building or enhancing a website, to the extent that they represent probable future economic benefits that can be reliably measured, are capitalised.
i) Impairment of assets
Property, plant and equipment, infrastructure, vehicles and intangible assets are tested for any indication of impairment at the end of each reporting period. Where there is an indication of impairment, the recoverable amount is estimated. Where the recoverable amount is less than the carrying amount, the asset is considered impaired and is written down to the recoverable amount and an impairment loss is recognised. As the PTA is a not-for-profit entity, unless an asset has been identified as a surplus asset, the recoverable amount is the higher of an asset’s fair value less costs to sell and depreciated replacement cost.
The risk of impairment is generally limited to circumstances where an asset’s depreciation is materially understated, where the replacement cost is falling or where there is a significant change in useful life. Each relevant class of assets is reviewed annually to verify that the accumulated depreciation/amortisation reflects the level of consumption or expiration of asset’s future economic benefits and to evaluate any impairment risk from falling replacement costs.
Intangible assets with an indefinite useful life and intangible assets not yet available for use are tested for impairment at the end of each reporting period irrespective of whether there is any indication of impairment.
The recoverable amount of assets identified as surplus assets is the higher of fair value less costs to sell and the present value of future cash flows expected to be derived from the asset. Surplus assets carried at fair value have no risk of material impairment where fair value is determined by reference to market-based evidence. Where fair value is determined by reference to the depreciated replacement cost, surplus assets are at risk of impairment and the recoverable amount is measured. Surplus assets at cost are tested for indications of impairments at the end of each reporting period.
Refer to note 26 “Impairment of assets’ for the outcome of impairment reviews and testing.
j) Non-current assets (or disposal groups) classified as held for sale
Non-current assets (or disposal groups) held for sale are recognised at the lower of carrying amount or fair value less costs to sell, and are disclosed separately from other assets in the Statement of Financial Position. Assets classified as held for sale are not depreciated or amortised.
k) Leases
The PTA has entered into a number of operating lease arrangements where the lessor effectively retains the entire risks and benefits incident to ownership of the items held under the operating leases. Operating leases are expensed on a straight line basis over the term of the lease as this represents the pattern of benefits derived from the leased properties.
l) Prepaid lease revenue
The sale of the Westrail Freight Business on 17 December 2000 included an operating lease of the freight network infrastructure for 49 years between the Western Australian Government Railways Commission (WAGR) - now Public Transport Authority of Western Australia (PTA) and Westnet Rail Pty Ltd - now Brookfield Rail Pty Ltd. The lease rentals were fully prepaid on 17 December 2000, and credited to deferred operating lease revenue. 133 grain receival sites were leased for a 99 year period in two tranches in 2003 and 2004. The rental for sites was prepaid and credited to deferred income operating lease. (See note 2(e)).
m) Financial instruments
In addition to cash and cash equivalents, the PTA has two categories of financial instruments:
- Loans and receivables
- Financial liabilities measured at amortised cost.
Financial instruments have been disaggregated into the following classes:
- Financial Assets
- Cash and cash equivalents
- Restricted cash and cash equivalents
- Receivables
- Amounts receivable for services
- Financial Liabilities
- Payables
- Other current liabilities
- Western Australian Treasury Corporation (WATC) loans
- Commonwealth loans
Initial recognition and measurement of financial instruments is at fair value which normally equates to the transaction cost or the face value. Subsequent measurement is at amortised cost using the effective interest method.
The fair value of short-term receivables and payables is the transaction cost or the face value because there is no interest rate applicable and subsequent measurement is not required as the effect of discounting is not material.
When a foreign exchange contract (FEC) is entered into, no amount is recognised through the Statement of Comprehensive Income or the Statement of Financial Position. When the FEC are utilised, the differences between the prevailing spot rate and the original or revised FEC rate are recognised through the Statement of Comprehensive Income.
At the end of reporting period the fair value change in the remaining FEC balance is recognised in the Statement of Comprehensive Income creating a derivative asset or liability. This is calculated by comparing the original FEC rate and the current forward rate.
n) Cash and cash equivalents
For the purpose of the Statement of Cash Flows, cash and cash equivalents (and restricted cash and cash equivalents) assets comprise of cash on hand.
o) Accrued salaries
Accrued salaries (refer to note 27 “Payables’) represent the amount due to staff but unpaid at the end of the financial year. Accrued salaries are settled within a fortnight of the financial year end. The PTA considers the carrying amount of accrued salaries to be equivalent to its fair value.
p) Amounts receivable for services (Holding account)
The PTA receives income from the State Government partly in cash and partly as an asset (holding account receivable). The accrued amount appropriated is accessible on the emergence of the cash funding requirement to cover leave entitlements and asset replacement.
q) Inventories
Inventories are measured at the lower of cost or net realisable value. Costs are assigned by the method most appropriate to each particular class of inventory. Inventory recorded using the inventory control system is valued at the weighted average cost and the remainder is valued on a first in first out basis.
Inventories not held for resale are measured at cost unless they are no longer required, in which case they are measured at net realisable value. (See note 20 “Inventories’).
r) Receivables
Receivables are recognised at original invoice amount less an allowance for any uncollectible amounts (IE impairment).
The collectability of receivables is reviewed on an ongoing basis and any receivables identified as uncollectible are written off against the allowance account. The allowance for uncollectible amounts (doubtful debts) is raised when there is objective evidence that the PTA will not be able to collect the debts. The carrying amount is equivalent to fair value as they are generally settled within 30 days. (See note 2(m) “Financial instruments’ and note 21 “Receivables’).
s) Payables
Payables are recognised when the PTA becomes obliged to make future payments as a result of a purchase of assets or services. The carrying amount is equivalent to fair value, as settlement is generally 30 days. (See note 2(m) “Financial instruments’ and note 27 “Payables’).
t) Borrowings
All loans payable are initially recognised at fair value, being the net proceeds received. Subsequent measurement is at amortised cost using the effective interest rate method. (See note 2(m) “Financial instruments’ and note 28 “Borrowings’).
u) Provisions
Provisions are liabilities of uncertain timing or amount and are recognised where there is a present legal or constructive obligation as a result of a past event and when the outflow of resources embodying economic benefits is probable and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at the end of reporting period. (See note 29 “Provisions’).
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(i) Provisions - employee benefits
All annual leave and long service leave provisions are in respect of employees’ services up to the end of the reporting period.
Annual leave
The liability for annual leave that is expected to be settled within 12 months after the end of the reporting period is recognised and measured at the undiscounted amounts expected to be paid when the liability is settled.
Annual leave that is not expected to be settled within 12 months after the end of the reporting period is recognised and measured at the present value of amounts expected to be paid when the liabilities are settled using the remuneration rate expected to apply at the time of settlement.
When assessing expected future payments consideration is given to expected future wage and salary levels including non-salary components such as employer superannuation contributions, as well as the experience of employee departures and periods of service. The expected future payments are discounted using market yields at the end of the reporting period on national government bonds with terms to maturity that match, as closely as possible, the estimated future cash outflows.
The provision for annual leave is classified as a current liability as the PTA does not have an unconditional right to the defer settlement of the liability for at least 12 months after the reporting period.
Long service leave
A liability for long service leave is recognised after an employee has completed seven years of service except for wages employees first ten years of service and subsequently seven years of service, based on remuneration rates current as at the end of the reporting period.
An actuarial assessment of long service leave undertaken by Price Waterhouse Actuaries at 30 June 2011 determined that the liability measured using the short-hand measurement technique above was not materially different from the liability determined using the present value of expected future payments. This calculation is consistent with the PTA’s experience of employee retention and leave taken.
Unconditional long service leave provisions are classified as current liabilities as the PTA does not have an unconditional right to defer the settlement of the liability for at least 12 months after the end of the reporting period. Pre-conditional and conditional long service leave provisions are classified as non-current liabilities because the PTA has an unconditional right to defer the settlement of the liability until the employee has completed the requisite years of service.
Sick leave
Liabilities for sick leave are recognised when it is probable that sick leave paid in the future will be greater than the entitlement that will accrue in the future.
Past history indicates that on average, sick leave taken each reporting period is less than the entitlement accrued. This is expected to continue in future periods. Accordingly, it is unlikely that existing accumulated entitlements will be used by employees and no liability for unused sick leave entitlements is recognised. As sick leave is non-vesting, an expense is recognised in the Statement of Comprehensive Income for this leave as it is taken.
Deferred leave
The provision for deferred leave relates to Public Service employees who have entered into an agreement to self-fund an additional 12 months leave in the fifth year of the agreement. The provision recognises the value of salary set aside for employees to be used in the fifth year. This liability is measured on the same basis as annual leave. Deferred leave is reported as a current provision as employees can leave the scheme at their discretion at any time.
Purchased leave
The provision for purchased leave relates to Public Service employees who have entered into an agreement to self-fund up to an additional eight weeks leave per calendar year. The provision recognises the value of salary set aside for employees and is measured at the nominal amounts expected to be paid when the liabilities are settled. This liability is measured on the same basis as annual leave.
Superannuation
The Government Employees Superannuation Board (GESB) and other funds administer public sector superannuation arrangements in Western Australia in accordance with legislative requirements. Eligibility criteria for membership in particular schemes for public sector employees varies according to commencement and implementation dates.
Eligible employees contribute to the Pension Scheme, a defined benefit pension scheme closed to new members since 1987, or the Gold State Superannuation Scheme (GSS), a defined benefit lump sum scheme closed to new members since 1995.
The GSS is a defined benefit scheme for the purposes of employees and whole-of-government reporting. However, it is a defined contribution plan for agency purposes because the concurrent contributions (defined contributions) made by the PTA to GESB extinguishes the agency’s obligations to the related superannuation liability.
The PTA has no liabilities under the Pension Scheme or the GSS. The liabilities for the unfunded Pension Scheme and the unfunded GSS transfer benefits attributable to members who transferred from the Pension Scheme, are assumed by the Treasurer. All other GSS obligations are funded by concurrent contributions made by the PTA to the GESB.
Employees commencing employment prior to 16 April 2007 who were not members of either the Pension Scheme or the GSS became non-contributory members of the West State Superannuation Scheme (WSS). Employees commencing employment on or after 16 April 2007 became members of the GESB Super Scheme (GESBS). From 30 March 2012, existing members of the WSS or GESBS and new employees became able to choose their preferred superannuation fund. The PTA makes concurrent contributions to GESB or other funds on behalf of employees in compliance with the Commonwealth Government’s Superannuation Guarantee (Administration) Act 1992. Contributions to these accumulation schemes extinguish the PTA’s liability for superannuation charges in respect of employees who are not members of the Pension Scheme or GSS. See also note 2(v) “Superannuation expense’.
The GESB makes all benefit payments in respect of the Pension Scheme and GSS, and is recouped from the Treasurer for the employer’s share.
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(ii) Provisions - other
Employment on-costs
Employment on-costs, including payroll tax and workers’ compensation insurance, are not employee benefits and are recognised separately as liabilities and expenses when the employment to which they relate has occurred. Employment on-costs are included as part of “Other expenses’ and are not included as part of the PTA’s “Employee benefits expense’. The related liability is included in “Employment on-costs provision’. (See note 6 “Employee benefits expense’, note 11 “Other expenses’ and note 29 “Provisions’).
Public liability
Provision is made for all outstanding public liability claims before 1 July 2005 worth less than $1 million. The amount of the provision is the estimated outstanding value of the claims at the end of the reporting period.
Workers’ compensation
Provision is made for all outstanding claims from periods before 1 July 1997 and any previous years fund contribution assessments based on claims experience. The amount of the provision is the estimated outstanding value of claims plus any actuarial assessments of the previous years adjusted fund contribution at the end of the reporting period.
Contaminated sites
Provision is recognised for the sites that are classified as contaminated - remediation required or possibly contaminated - investigation required, and where the PTA has a liability in respect of investigation or remediation expenses. Estimates are based on the present value of expected future cash outflows.
v) Superannuation expense
The superannuation expense in the Statement of Comprehensive Income comprises employer contributions paid to the GSS (concurrent contributions), the West State Superannuation Scheme (WSS), and the GESB Super Scheme (GESBS), or other superannuation fund.
w) Resources received free of charge or for nominal cost
Resources received free of charge or for nominal cost that can be reliably measured are recognised as income at fair value. Where the resource received represents a service that the PTA would otherwise pay for, a corresponding expense is recognised. Receipts of assets are recognised in the Statement of Financial Position.
Assets or services received from another State Government agency are separately disclosed under Income from State Government in the Statement of Comprehensive Income.
x) Comparative figures
Comparative figures are, where appropriate, reclassified to be comparable with the figures presented in the current financial year.
y) Foreign currency translation
Transactions denominated in a foreign currency are translated at the rates in existence at the dates of the transactions. Foreign currency receivables and payables are translated at exchange rates current at the end of the reporting period. Exchange gains and losses are brought to account in determining the result for the year.