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Annual Financial Statements for year ended 30 June 2012
37
1. Significant Accounting Policies
The principal accounting policies adopted in the
preparation of the financial report are set out below.
These policies have been consistently applied to all the
years presented, unless otherwise stated.
1.1 Basis of Preparation
Compliance with Australian Accounting Standards
This general purpose financial report has been prepared
in accordance with Australian Accounting Standards as
they apply to not-for-profit entities, other authoritative
pronouncements of the Australian Accounting Standards
Board, Interpretations and the
Local Government Act
1999
and
Local Government (Financial Management)
Regulations 2011
.
The financial report was authorised for issue by
certificate under regulation 14 of the
Local Government
(Financial Management) Regulation 2011
, dated 13
November 2012.
1.2 Historical Cost Convention
Except where stated below, these financial statements
have been prepared in accordance with the historical
cost convention.
1.3 Critical Accounting Estimates
The preparation of financial statements in conformity
with Australian Accounting Standards requires the use
of certain critical accounting estimates, and requires
management to exercise its judgement in applying
Council’s accounting policies. The areas involving a
higher degree of judgement or complexity, or areas
where assumptions and estimates are significant to the
financial statements are specifically referred to in the
relevant sections of this Note.
1.4 Financial Assets
Investments are recognised and derecognised on trade date
where the purchase or sale of an investment is under a
contract whose terms require delivery of the investment
within the timeframe established by the market concerned,
and are initially measured at fair value, net of transaction
costs except for those financial assets classified as fair
value through profit or loss which are initially measured at
fair value.
Financial assets are classified into the following specified
categories: financial assets as ‘at fair value through profit
or loss’, ‘held-to-maturity investments’, ‘available-for-sale
financial assets’, and ‘loans and receivables’.
Effective interest method
The effective interest method is where the amortised cost
of a financial asset and of allocating interest income, is
calculated over the relevant period. The effective interest
rate is the rate that exactly discounts estimated future cash
receipts through the expected life of the financial asset.
Held-to-maturity investments
Bills of exchange and debentures with fixed or
determinable payments and fixed maturity dates that
Council has the positive intent and ability to hold to
maturity are classified as held-to-maturity investments.
Held-to-maturity investments are recorded at amortised
cost using the effective interest rate less impairment,
with revenue recognised on an effective yield basis.
Loans and receivables
Trade receivables, loans and other receivables that have
fixed or determinable payments that are not quoted in
an active market are classified as ‘loans and
receivables’. Loans and receivables are measured at
amortised cost using the effective interest rate method
less impairment. Interest is recognised by applying the
effective interest rate.
Impairment of financial assets
Financial assets, other than those at fair value through
profit and loss, are assessed for indicators of
impairment at each reporting period. Financial assets
are impaired where there is objective evidence that as a
result of one or more events since recognition, the
estimated future cash flows of the investment have
decreased. In the case of financial assets held at
amortised cost, the amount of impairment is the
difference between the carrying value and the present
value of estimated future cash flows discounted at the
original effective interest rate.
The carrying amount of the financial asset is reduced by
the impairment loss directly for all financial assets with
the exception of trade receivables through the use of
doubtful debt provision account. When a trade
receivable is considered uncollectable, it is written off
against the doubtful debt provision. Subsequent
recoveries of written off amounts are credited to the
doubtful debt provision. Any changes in the carrying
amount of the doubtful debt provision are recognised
through the statement of comprehensive income.
1.5 Financial Liabilities
Financial liabilities are classified either ‘at fair value
through profit and loss’, or as ‘other financial liabilities’.
Financial liabilities at fair value through profit
and loss
Financial liabilities at fair value are stated at fair value
with any resultant gain or loss recognised through profit
and loss. The net gain or loss incorporates any interest
paid on the financial liability. Fair value is determined
in the manner described in AASB 7 paragraph 10.
Other financial liabilities
Other financial liabilities, including borrowings, are
initially measured at fair value, net of transaction costs.
Other financial liabilities are subsequently measured at
amortised cost using the effective interest rate method,
with the interest expense recognised in the statement of
comprehensive income on an effective yield basis.
The effective interest rate method calculates the
amortised cost of a financial liability and of allocating
interest expense over the relevant period. The effective
interest rate exactly discounts estimated future
cash payments through the expected life of the
financial liability.
2 The Local Government Reporting Entity
The City of Port Adelaide Enfield is incorporated under
the SA Local Government Act 1999 and has its
principal place of business at 163 St Vincent Street,
Port Adelaide. These financial statements include all
material funds through which Council controls
resources to carry on its functions. In the process of
reporting on the Council as a single unit, all
transactions and balances between activity areas
and controlled entities have been eliminated.