2 Summary of significant accounting policies
a) General Statement
The financial statements constitute a general purpose financial report which has been prepared in accordance with the Australian Accounting Standards, the Framework, Statements of Accounting Concepts and other authoritative pronouncements of the Australian Accounting Standards Board 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 are legislative provisions governing the preparation of financial statements and take precedence over the Accounting Standards, the Framework, Statements of Accounting Concepts and other authoritative pronouncements of the Australian Accounting Standards Board.
Where modification is required and has 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, modified by the revaluation of land, buildings, rollingstock, vessels, buses, infrastructure, and derivatives 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).
The judgement that have been made in the process of applying the PTA’s accounting policies that have the most significant effect on the amounts recognised in the financial statements are disclosed in note 3 ‘Judgements made by management in applying accounting policies’.
The key assumptions made concerning the future, and other key sources of estimation uncertainty at the balance sheet date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are disclosed at note 4 ‘Key sources of estimation uncertainty’.
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, other than as a result of a restructure of administrative arrangements, in the nature of equity contributions 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 contributions (appropriations) have been designated as contributions by owners by Treasurer’s Instruction (TI) 955 ‘Contributions by Owners made to Wholly-Owned Public Sector Entities’ and have been credited directly to Contributed Equity.
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 34 ‘Equity’).
e) Income
Revenue recognition
Revenue is measured at the fair value of consideration received or receivable. 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.
Rendering of services
Revenue from services is recognised on delivery of the service to the client or 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 14 ‘Operating lease revenue’ and 33 ‘Deferred income - operating leases’).
Service Appropriations
Service Appropriations are recognised as revenues at nominal value in the period in which the PTA gains control of the appropriated funds, which is at the time those funds are deposited into PTA’s bank account or credited to the holding account held at Treasury. (See Note 19 ‘Income from State Government’).
Grants, donations, gifts and other non-reciprocal contributions
Revenue is recognised at fair value when 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.
Where contributions recognised as revenues during the reporting period were obtained on the condition that they be expended in a particular manner or used over a particular period, and those conditions were undischarged as at the balance sheet date, the nature of, and amounts pertaining to, those undischarged conditions are disclosed in the notes.
Infringements
Infringements are recorded on a cash basis.
Gains
Gains may be realised or unrealised and 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 Income Statement (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
After 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 cost model for plant and equipment and motor vehicles. Land, buildings, urban rail system and bus infrastructure are carried at fair value less accumulated depreciation on buildings and infrastructure and accumulated impairment losses. Plant and equipment and motor vehicles are stated at historical cost less accumulated depreciation and accumulated impairment losses. Freight network infrastructure is recognised at fair value based on the value of the unearned income on the prepaid operating lease of the asset less accumulated depreciation. Subsequent additions to the freight network infrastructure are recognised at cost less accumulated depreciation.
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.
Where market-based evidence is not available, 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, i.e. the depreciated replacement cost. Where the fair value of buildings is dependent on using the depreciated replacement cost, 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 Landgate (Valuation Services) and recognised with sufficient regularity to ensure that the carrying amount does not differ materially from the asset’s fair value at the balance sheet date.
Land and buildings which are commercially leased are independently valued at fair value based on the capitalised value of current leases. Independent valuations are provided 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 provided every 3 to 5 years.
Urban rail system infrastructure is revalued, at least once every five years, to its fair value based on depreciated replacement cost. 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 and infrastructure, any revaluation reserve relating to that asset is retained in the asset revaluation reserve.
Asset Revaluation Reserve
The asset revaluation reserve is used to record increments and decrements on the revaluation of non-current assets as described in note 25 ‘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.
Land is not depreciated. Depreciation on other assets is calculated on the straight-line method, using rates which are reviewed annually. Expected 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.
h) Intangible Assets
Capitalisation/Expensing of assets
Acquisitions of intangible assets costing $5,000 or more are capitalised and internally generated intangible assets costing $5,000 or more are capitalised. The cost of utilising the assets is expensed (amortised) over their useful life. Costs incurred below these thresholds are immediately expensed directly to the Income Statement.
All acquired and internally developed 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) on the straight-line basis using rates which are reviewed annually. 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 |
|
Web site costs |
3 to 5 years |
Software that is integral to the operation of related hardware
(i) Computer software
Software that is an integral part of the related hardware is treated as property, plant and equipment. Software that is not an integral part of the related hardware is treated as an intangible asset and is capitalised and amortised on a straight-line basis over the periods of the expected benefit, which varies from 3 to 5 years. Software costing less than $5,000 is expensed in the year of acquisition.
(ii) Web site costs
Costs in relation to web sites controlled by PTA are charged as expenses in the period in which 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 web site, and ongoing costs of maintenance during the operating phase are expensed. Costs incurred in building or enhancing a web site, 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 and intangible assets are tested for any indication of impairment at each balance sheet date. 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 each balance sheet date 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 each balance sheet date.
Refer to note 27 ‘Impairment of Assets’ for the outcome of impairment reviews and testing.
j) 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. Equal instalments of the lease payments are charged to the Income Statement over the lease term as this is representative of the pattern of benefits to be derived from the leased assets.
An arrangement comprising a series of lease transactions involving the legal form, but not the economic substance of a lease is accounted for as one linked transaction rather than as a lease. See note 25(vi).
k) 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. 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)).
l) Financial Instruments
In addition to cash and cash equivalents, the PTA has three categories of financial instruments:
" Loans and receivables (includes cash and cash equivalents, receivables);
" Financial liabilities measured at amortised cost; and
" Financial assets at fair value through profit and loss (foreign exchange forward contracts).
These have been disaggregated into the following classes:
Financial Assets
" Cash and cash equivalents
" Restricted cash and cash equivalents
" Receivables
" Amounts receivable for services
" Derivatives
Financial Liabilities
" Payables
" Other current liabilities
" Derivatives
" Western Australian Treasury Corporation 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 Income Statement or the Balance Sheet. When the FEC are utilised, the differences between the prevailing spot rate and the original or revised FEC rate are recognised through the Income Statement.
At balance sheet date the fair value change in the remaining FEC balance is recognised in the Income Statement creating a derivative asset or liability. This is calculated by comparing the original FEC rate and the current forward rate.
m) Cash and Cash Equivalents
For the purpose of the Cash Flow Statement, cash and cash equivalents (and restricted cash and cash equivalents) assets comprise of cash on hand.
n) Accrued Salaries
Accrued salaries (refer to note 28 ‘Payables’) represent the amount due to staff but unpaid at the end of the financial year, as the pay date for the last pay period for that financial year does not coincide with 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 net fair value.
o) Amounts Receivable for Services (Holding Account)
The PTA receives funding on an accrual basis that recognises the full annual cash and non cash cost of services. The appropriations are paid partly in cash and partly as an asset (Holding Account receivable) that is accessible on the emergence of the cash funding requirement to cover items such as leave entitlements and asset replacement. (See also note 19 ‘Income from State Government’ and note 23 ‘Amounts receivable for services’).
p) Inventories
Inventories are measured at the lower of cost and 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 valued at cost unless they are no longer required, in which case they are valued at net realisable value. (See note 21 ‘Inventories’).
q) Receivables
Receivables are recognised and carried at original invoice amount less an allowance for any uncollectible amounts (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 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(l) ‘Financial Instruments’ and note 22 ‘Receivables’).
r) Payables
Payables are recognised at the amounts payable when 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 they are generally settled within 30 days. (See note 2(l) ‘Financial Instruments’ and note 28 ‘Payables’).
s) Borrowings
All loans payable are initially recorded at cost, being the fair value of the net proceeds received. Subsequent measurement is at amortised cost using the effective interest rate method. (See note 2(l) ‘Financial Instruments’ and note 29 ‘Borrowings’).
t) 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 each balance sheet date. (See note 30 ‘Provisions’).
(i) Provisions - Employee Benefits
Annual Leave and Long Service Leave
The liability for annual and long service leave expected to be settled within 12 months after balance sheet date is recognised and measured at the undiscounted amounts expected to be paid when the liabilities are settled. Annual and long service leave expected to be settled more than 12 months after the balance sheet date is measured at the present value of amounts expected to be paid when the liabilities are settled. Leave liabilities are in respect of services provided by employees up to the balance sheet date.
The expected future payments are discounted using valuation factors based on employees’ age at the balance sheet date. These factors were provided as a result of an actuarial assessment of PTA’s long service leave provision and would be used to discount future expected payments between valuations.
All annual leave and unconditional long service leave provisions are classified as current liabilities as the PTA does not have an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.
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 Income Statement 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 twelve 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 non-current provision until the fifth year.
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 four 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) in accordance with legislative requirements administers public sector superannuation arrangements in Western Australia.
Employees may contribute to the Pension Scheme, a defined benefit pension scheme now closed to new members, or the Gold State Superannuation (GSS) Scheme, a defined benefit lump sum scheme now also closed to new members.
The PTA has no liabilities under the Pension or the GSS Schemes. The liabilities for the unfunded Pension Scheme and the unfunded GSS Scheme transfer benefits due to members who transferred from the Pension Scheme, are assumed by the Treasurer. All other GSS Scheme obligations are funded by concurrent contributions made by the PTA to the GESB. The concurrently funded part of the GSS Scheme is a defined contribution scheme as these contributions extinguish all liabilities in respect of the concurrently funded GSS Scheme obligations.
Employees commencing employment prior to 16 April 2007 who were not members of either the Pension or the GSS Schemes 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). Both of these schemes are accumulation schemes. The PTA makes concurrent contributions to GESB on behalf of employees in compliance with the Commonwealth Government’s Superannuation Guarantee (Administration) Act 1992. These contributions extinguish the liability for superannuation charges in respect of the WSS and GESBS schemes. See also note 2(u) ‘Superannuation expense’.
(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 notes 6 ‘Employee benefit expense’, 11 ‘Other expenses’ and 30 ‘Provisions’).
Public Liability
Provision is made for all outstanding public liability claims before 1 July 2007 worth less than $1 million. The amount of the provision is the estimated outstanding value of the claims as at the balance sheet date.
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 as at the balance sheet date.
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.
u) Superannuation Expense
Defined contribution plans - Employer contributions paid to the GSS (concurrent contributions), the West State Superannuation Scheme (WSS), and the GESB Super Scheme (GESBS) are included in calculating the superannuation expense in the Income Statement.
The superannuation expense does not include payment of pensions to retirees, as this does not constitute part of the cost of services provided in the current year.
The GSS Scheme is a defined benefit scheme for the purposes of employees and whole-of-government reporting. However, apart from the transfer benefit, it is a defined contribution plan for agency purposes because the concurrent contributions (defined contributions) made by the PTA to GESB extinguishes the PTA’s obligations to the related superannuation liability.
v) 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 revenues and as assets or expenses as appropriate, at fair value.
w) Comparative Figures
Comparative figures are, where appropriate, reclassified to be comparable with the figures presented in the current financial year.
x) 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 balance sheet date. Exchange gains and losses are brought to account in determining the result for the year.