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Note 7. Non-Financial Assets

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

Land

$’000

Buidlings

$’000

Leasehold Improvements

$’000

Property, plant and equipment

$’000

Total

$’000

Balance as at 1 July 2019

Restated gross book value*

4,745

13,781

5,484

8,441

32,451

Restated accumulated depreciation, amortisation and impairment*

-

(391)

(1,452)

(4,125)

(5,968)

Total as at 1 July 2019*

4,745

13,390

4,032

4,316

26,483

Recognition of right of use assets of application of AASB16

-

881

-

226

1,107

Adjusted total as at 1 July 2019

4,745

14,271

4,032

4,542

27,590

Additions by purchase

96

524

256

2,489

3,365

Addition by right-of-use assets

-

65

-

21

86

Transfers

-

28

-

(36)

(8)

Revaluations recognised in other comprehensive income

(1,211)

83

(377)

700

(805)

Depreciation and amortisation

-

(228)

(1,572)

(1,314)

(3,114)

Depreciation on right-of-use assets

-

(221)

-

(124)

(345)

Disposals

(1,800)

-

-

(163)

(1,963)

Total as at 30 June 2020

1,830

14,522

2,339

6,115

24,806

Total as at 30 June 2020 represented by

Gross book value

1,830

15,409

5,510

11,678

34,427

Accumulated depreciation, amortisation and impairment

-

(887)

(3,171)

(5,563)

(9,621)

Total as at 30 June 2020

1,830

14,522

2,339

6,115

24,806

Carrying amount of right-of-use assets

-

725

-

123

848

*The comparatives information has been restated as a result of correction of error in classification of leasehold improvements (see note 1.7).

** 45 Mitchell Street, 5/29 Katherine Terrace and 28 Scheelite Crescent properties are rented to Northern Land Council 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 classified to Buildings at the consolidated group level. All rental income and outgoings on-charged are eliminated on consolidation.

Revaluations of non-financial assets

All land, building, leasehold improvement and property, plant and equipment of the Group were subject to revaluation as per Group accounting policy and were independently revalued by Herron Todd White on 30 June 2020. A consolidated revaluation decrement of $804,787 was charged to asset revaluation reserve, reflected in the consolidated statement of changes in equity.

The property at 45 Mitchell Street was revalued by Herron Todd White, using market approach, at $7,200,000 (2018 valuation: $9,800,000). The lease for the building at 45 Mitchell Street Darwin NT was renegotiated and signed in September 2019 reducing the annual rental amount by 21.5%. In 2019, 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.

On 30 June 2020 the property at 32 Dripstone Street, Darwin NT was also valued by Herron Todd White at $4,800,000 (2018 valuation: $5,000,000).

On 30 June 2020 the properties at Bradshaw Cres and Katherine Tce, Katherine and Scheelite Cres Tennant Creek NT, were also independently valued by Herron Todd White, using the market approach. This resulted in a combined valuation of $2,830,000. In 2019 the directors used objective evidence from independent valuations performed in June 2016 and an internal capitalisation of net income approach which resulted in a combined valuation of $2,052,000.

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 NT property owned by 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 $189,833 in 2020 (2019: $324,190), 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:

Land

$1

Buildings

$2,000 - $25,000

Leasehold improvements

$2,000 - $10,000

Furniture and equipment

$2,000 - $10,000

Information technology (hardware)

$2,000 - $10,000

Information technology (software)

$2,000 - $10,000

Motor vehicles

$2,000 - $10,000

Revaluations

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

Asset Class Fair Value Measurement

Asset Class

Fair Value Measurement

Land

Market selling price

Buildings excluding leasehold improvements

Market selling price

Leasehold improvements

Depreciated replacement cost

Property, plant and equipment

Market selling price

Following initial recognition at cost, land, buildings, leasehold improvements and property plant and equipment (excluding ROU assets) 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 2020 for financial reporting purposes on NLC's assets. An independent valuation of the property at 45 Mitchell Street, Darwin NT and 32 Dripstone Street, Darwin NT properties were conducted by Herron Todd White in the financial year ended 30 June 2020 for NAAC.

Leased Right-of-use (ROU) Assets

Leased ROU assets are capitalised at the commencement date of the lease and comprise of the initial lease liability amount, initial direct costs incurred when entering into the lease less any lease incentives received. These assets are accounted for by Commonwealth lessees as separate asset classes to corresponding assets owned outright, but included in the same column as where the corresponding underlying assets would be presented if they were owned.

On initial adoption of AASB 16 the Group has adjusted the ROU assets at the date of initial application by the amount of any provision for onerous leases recognised immediately before the date of initial application. Following initial application, an impairment review is undertaken for any right-of-use lease asset that shows indicators of impairment and an impairment loss is recognised against any right-of-use lease asset that is impaired. Lease ROU assets continue to be measured at cost after initial recognition in the financial statements.

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:

2020

2019

Buildings on freehold land

40 years

40 years

Leasehold improvements

Lease term

Lease term

Office furniture and equipment

3-5 years

3-5 years

Motor vehicles

5-8 years

5-8 years

Plant and equipment

2-10 years

2-10 years

The depreciation rates for ROU assets are based on the commencement date to the earlier of the end of the useful life of the ROU asset or the end of the lease term.

Impairment

All assets were assessed for impairment at 30 June 2020. Where indications of impairment exist, the assets’ recoverable amount is estimated, and an impairment adjustment is 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.

2020

$'000

2019

$'000

Note 7B: Other Non-Financial Assets

Deposits

16

15

Other

109

28

Prepayments

368

435

Total other non-financial assets

493

478

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.

2020

$'000

2019

$'000

Note 7C: Investment property

Beginning of the year

1,749

1,749

Increase / (decrease) in fair value during the year

(189)

-

Closing balance

1,560

1,749

Investment properties comprise residential properties leased to third parties outside the Group. These properties are owned by NAAC.

In 2020 an independent valuation of the properties at Bradshaw Cres, Katherine NT was performed by Herron Todd White, using the market approach. This resulted in a decrease in valuation of these properties, the revaluation decrease is recognised in the profit or loss.

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.