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Note 1 Overview

1.1 Objectives of the Army and Air Force Canteen Service The Army and Air Force Canteen Service is an Australian Government controlled entity. It is a not-for-profit entity. The objective and structure of the Army and Air Force Canteen Service is to provide goods and services to or for the entertainment and recreation of designated members of the ‘Defence family’.

The continued existence of the Army and Air Force Canteen Service in its present form and with its present program is dependent upon the Chiefs of Army and Air Force requiring the provision of canteen services on specified bases and providing space to operate the canteens free of charge.

1.2 Basis of Preparation of the Financial Statements The financial statements are general purpose financial statements and are required by section 42 of the Public Governance, Performance and Accountability Act 2013.

The financial statements have been prepared in accordance with:

a) Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 (FRR) for reporting periods ending on or after 1 July 2015; and

b) Australian Accounting Standards and Interpretations and Reduced Disclosure Requirements issued by the Australian Accounting Standards Board (AASB) that apply for the reporting period.

The financial statements have been prepared on an accrual basis and in accordance with the historical cost convention, except for certain assets and liabilities at fair value. Except where stated, no allowance is made for the effect of changing prices on the results or the financial position.

1.3 Significant Accounting Judgements and Estimates The most significant estimates and assumptions made in the preparation of the financial statements related to the fair value and depreciation of property, plant and equipment. The valuation of property, plant and equipment necessarily involves estimation uncertainty with the potential to materially impact on the carrying amount of such assets in the next reporting period.

Other issues including, depreciation and amortisation, impairment, long service leave and calculation of licensed facilities on base have estimates in their calculations. Please refer to their individual note disclosures.

1.4 Taxation The Army and Air Force Canteen Service is exempt from all forms of taxation except Fringe Benefits Tax (FBT), Wine Equalisation Tax (WET) and the Goods and Services Tax (GST). Revenues, expenses, liabilities and assets are recognised net of GST except:

a) Where the amount of GST incurred is not recoverable from the Australian Taxation office; and

b) For receivables and payables. 1.5 New Australian Accounting Standards No accounting standard has been adopted earlier than the application date as stated in the standard. None of the new standards, revised standards, interpretations and amendments to standards that were issued prior to the signing of the Statement by Directors, Acting CEO and FinancialController and were applicable to the current reporting period had a material effect on the financial statements.

Application of AASB 15 Revenue from Contracts with Customers / AASB 1058 Income of Not-For-Profit Entities

The Entity adopted AASB 15 and AASB 1058 using the modified retrospective approach, under which the cumulative effect of initial application is recognised in retained earnings at 1 July 2019. Accordingly, the comparative information presented for 2019 is not restated, that is,
it is presented as previously reported under the various applicable AASBs and related
interpretations.

Under the new income recognition model, the Entity shall first determine whether an enforceable agreement exists and whether the promises to transfer goods or services to the customer are ‘sufficiently specific’. If an enforceable agreement exists and the promises are ‘sufficiently
specific’ (to a transaction or part of a transaction), the Entity applies the general AASB 15
principles to determine the appropriate revenue recognition. If these criteria are not met,
the Entity shall consider whether AASB 1058 applies.

In relation to AASB 15, the Entity elected to apply the new standard to all new and uncompleted contracts from the date of initial application. The Entity is required to aggregate the effect of all of the contract modifications that occur before the date of initial application.

In terms of AASB 1058, the Entity is required to recognise volunteer services at fair value if those services would have been purchased if not provided voluntarily, and the fair value of those
services can be measured reliably.

The application of AASB 15 / AASB105 has had a nil effect on AAFCANS.

Application of AASB 16 Leases

The Entity adopted AASB 16 using the modified retrospective approach, under which the cumulative effect of initial application is recognised in retained earnings at 1 July 2019. Accordingly, the comparative information presented for 2019 is not restated, that is, it is presented as previously reported under AASB 117 and related interpretations.

The Entity elected to apply the practical expedient to not reassess whether a contract is, or contains a lease at the date of initial application. Contracts entered into before the transition date that were not identified as leases under AASB 117 were not reassessed. The definition of a lease under AASB 16 was applied only to contracts entered into or changed on or after 1 July 2019.

AASB 16 provides for certain optional practical expedients, including those related to the initial adoption of the standard. The Entity applied the following practical expedients when applying AASB 16 to leases previously classified as operating leases under AASB 117:

- Apply a single discount rate to a portfolio of leases with reasonably similar characteristics

- Exclude initial direct costs from the measurement of right-of-use assets at the date of initial application for leases where the right-of-use asset was determined as if AASB 16 had been applied since the commencement date;

- Reliance on previous assessments on whether leases are onerous as opposed to preparing an impairment review under AASB 136 Impairment of assets as at the date of initial application; and

- Applied the exemption not to recognise right-of-use assets and liabilities for leases with less than 12 months of lease term remaining as of the date of initial application.

As a lessee, the Entity previously classified leases as operating or finance leases based on its assessment of whether the lease transferred substantially all of the risks and rewards of ownership. Under AASB 16, the Entity recognises right-of-use assets and lease liabilities for most leases. However, the Entity has elected not to recognise right-of-use assets and lease liabilities for some leases of low value assets based on the value of the underlying asset when new or for short-term leases with a lease term of 12 months or less.

On adoption of AASB 16, the Entity recognised right-of-use assets and lease liabilities in relation to leases of office space, heavy equipment and automobiles, which had previously been classified as operating leases. The lease liabilities were measured at the present value of the remaining lease payments, discounted using the Entity’s incremental borrowing rate as at 1 July 2019. The Entity’s incremental borrowing rate is the rate at which a similar borrowing could be obtained from an independent creditor under comparable terms and conditions. The weighted-average rate applied was 6.5%.

The right-of-use assets were measured as follows:

a) Office space: measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments.

b) All other leases: the carrying value that would have resulted from AASB 16 being applied from the commencement date of the leases, subject to the practical expedients noted above. Impact on transition On transition to AASB 16, the Entity recognised additional right-of-use assets and additional lease liabilities, recognising the difference in retained earnings. The impact on transition is summarised below:

$

1-Jul-19

Right-of-use assets - property, plant and equipment

70,060

Lease liabilities

(75,976)

Retained earnings

5,916

The following table reconciles the Departmental minimum lease commitments disclosed in the entity’s 30 June 2019 annual financial statements to the amount of lease liabilities recognised on 1 July 2019:

Minimum operating lease commitment at 30 June 2019

212,135

Less: Short Term leases not recognised

(12,805)

Less : Low Value leases not recognised

Plus : effect of extension options reasonable certain to be exercised

Undiscounted lease payments

199,330

Less : effect of discounting using the incremental borrowing rate as at

the date of initial application

(5,916)

Lease liabilities recognised at 1 July 2019

193,414