Note 7A: Reconciliation of the Opening and Closing Balances of Land, Buildings, Leasehold Improvements and Property, Plant and Equipment

Reconciliation of the opening and closing balance of Land, Buildings, Leasehold Improvements and Property, Plant and Equipment for 2019:

* 45 Mitchell Street, 5/ 29 Katherine Terrace and 28 Scheelite Crescent properties are rented to Northern Land Council (NLC) from North Australia Aboriginal Corporation, within the consolidated Group. In the separate financial statements of the subsidiaries, these assets are classed as Investment Property and as a result are reclassified to Buildings at the consolidated group level. All rental income and outgoings on-charged are eliminated on consolidation.

Revaluations of non-financial assets

All revaluations are conducted in accordance with the revaluation policy stated in accounting policy below. On 30 June 2017, an independent valuer conducted the valuations of NLC’s assets. In 2018 an independent valuation of the property at 45 Mitchell Street, Darwin was conducted by Integrated Valuation Services resulting in a value of $9,800,000 (2017 NBV: $9,555,978). The lease for the building was renegotiated and signed in September 2019 reducing the annual rental amount by 21.5%. A director’s valuation was performed using the net income approach similar to the one performed by the independent valuer resulting in an impairment of the value of the property by $1,824,986. 32 Dripstone Street was valued by Integrated Valuation Services prior to 30 June 2018 at $5,000,000 (2017 valuation net book value: $3,403,125).

The directors of the Group determined the value of their properties at Katherine and Scheelite Cres Tennant Creek, using objective evidence from independent valuations performed in June 2016 and an internal capitalisation of net income approach. The directors have determined that there has been no significant change in value.

No indicators of impairment were found for Land, Buildings, Leasehold improvements and Property, Plant and Equipment at year end other than impairment of 45 Mitchell Street, Darwin property owned by North Australia Aboriginal Corporation (NAAC).

No Land, Buildings, Leasehold improvements and Property, Plant and Equipment are expected to be sold or disposed of within the next 12 months.

The contractual commitments for the purchase of the land, buildings, leasehold improvements and property, plant and equipment of the Group is $324,190 in 2019 (2018: $72,380), amounts are inclusive of GST.

Accounting Policy

Acquisition of Assets

Assets are recorded at cost on acquisition except as stated below. The cost of acquisition includes the fair value of assets transferred in exchange and liabilities undertaken. Financial assets are initially measured at their fair value plus transaction costs where appropriate.

Assets acquired at no cost, or for nominal consideration, are initially recognised as assets and income at their fair value at the date of acquisition, unless acquired as a consequence of restructuring of administrative arrangements. In the latter case, assets are initially recognised as contributions by owners at the amounts at which they were recognised in the transfer of Group’s accounts immediately prior to the restructuring.

Asset Recognition Threshold

Purchases of land, buildings, leasehold improvements and property, plant and equipment are recognised initially at cost in the statement of financial position, except for purchases below the capitalisation threshold, which are expensed in the year of acquisition (other than where they form part of a group of similar items which are significant in total). The capitalisation thresholds values are:

Revaluations

Fair values for each class of asset are determined as shown below:

Following initial recognition at cost, land, buildings, leasehold improvements and property plant and equipment are carried at fair value less subsequent accumulated depreciation and accumulated impairment losses. Valuations are conducted with sufficient frequency to ensure that the carrying amounts of assets do not differ materially from the assets’ fair values as at the reporting date. The regularity of independent valuations depends upon the volatility of movements in market values for the relevant assets.

Revaluation adjustments are made on a class basis. Any revaluation increment is credited to equity under the heading of asset revaluation reserve except to the extent that it reverses a previous revaluation decrement of the same asset class that was previously recognised in the surplus/deficit. Revaluation decrements for a class of assets are recognised directly in the surplus/ deficit except to the extent that they reverse a previous revaluation increment for that class.

Any accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the asset restated to the revalued amount. An independent valuer conducted the valuations and has provided a comprehensive review and valuation of all stated assets on 30 June 2017 for financial reporting purposes on Northern Land Council (NLC) ‘s assets. An independent valuation of the property at 45 Mitchell Street and 32 Dripstone street properties were conducted by Integrated Valuation Services in the financial year ended 30 June 2018 for North Australia Aboriginal Corporation (NAAC). A Directors’ valuation was performed for 45 Mitchell Street property only on 30 June 2019.

Depreciation

Depreciable buildings, leasehold improvements and property, plant and equipment assets are written-off to their estimated residual values over their estimated useful lives to the Group using, in all cases, the straight-line method of depreciation.

Depreciation rates (useful lives), residual values and methods are reviewed at each reporting date and necessary adjustments are recognised in the current, or current and future reporting periods, as appropriate.

Depreciation rates applying to each class of depreciable asset are based on the following useful lives:

Impairment

All assets were assessed for impairment at 30 June 2019. Where indications of impairment exist, the assets’ recoverable amount is estimated and an impairment adjustment made if the asset’s recoverable amount is less than its carrying amount.

The recoverable amount of an asset is the higher of its fair value less costs of disposal and its value in use. Value in use is the present value of the future cash flows expected to be derived from the asset. Where the future economic benefit of an asset is not primarily dependent on the asset’s ability to generate future cash flows, and the asset would be replaced if the Group were deprived of the asset, its value in use is taken to be its depreciated replacement cost.

Derecognition

An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal.

Changes in Accounting Judgements and Estimates

In 2018, the NLC performed a review of the estimated useful lives of its fixed assets. This review indicated that the actual lives of certain assets were shorter than the estimated useful lives used for depreciation purposes. As a result, effective 1 July 2017, the NLC changed its estimates of the useful lives of its fixed assets to better reflect the estimated periods during which these assets will remain in service. The estimated useful lives of the motor vehicles that previously averaged up to ten years were reduced to 5 years. Similarly office furniture & equipment that previously averaged up to 5 years were reduced to 3 years. The effect of this change in estimate increased the 2018 depreciation expense by $1,988,794. It is impracticable to determine the effect of this change for future periods. Total gross carrying value of assets which are fully depreciated but still in use is $2,552,150 (2018 : $1,635,360).

Note 7B: Other Non-Financial assets

Other non-financial assets to be recovered

All other non-financial assets are expected to be recovered in no more than 12 months.

No indicators of impairment were found for other non-financial assets.

Note 7C: Investment property

Investment property

Investment properties comprise residential properties leased to third parties outside the Group. These properties are owned by North Australia Aboriginal Corporation (NAAC).

The Directors of the Group have determined that there has been no significant change in value from the date of construction. The construction of these investment properties was completed in 2018.

Accounting Policy

Investment property, principally comprising land, buildings and fixed plant and equipment, is held for long-term rental yields and is not occupied by the Group.

Investment properties are measured initially at cost, including transaction costs. The carrying amount includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met, and excludes the costs of the day-to-day servicing of an investment property. Subsequent to initial recognition, investment properties are measured at fair value, which reflects market conditions at the reporting date. Gains or losses arising from changes in the fair values of investment properties are recognised in profit or loss in the year in which they arise. Investment properties are revalued every three years or earlier if required.

Investment properties are derecognised either when they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement of an investment property are recognised in profit or loss in the year of retirement or disposal.

Transfers are made to investment property when, and only when, there is a change in use, evidenced by ending of owner-occupation or commencement of an operating lease to another party. Transfers are made from investment property when, and only when, there is a change in use, evidenced by commencement of owner-occupation or commencement of development with a view to sale.

For a transfer from investment property to owner-occupied property or inventories, the deemed cost of the property for subsequent accounting is its fair value at the date of change in use. If the property occupied by the Group as an owner-occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated under Property, Plant and Equipment (note 7A) up to the date of change in use. When the Group completes the construction or development of a self-constructed investment property, any difference between the fair value of the property at that date and its previous carrying amount is recognised in profit or loss.