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4. Managing Uncertainties

This section analyses how the Corporation manages financial risks within its operating environment.

4.1 Financial Instruments

4.1A Categories of financial instruments

2019

2018

Notes

$'000

$'000

Financial assets under AASB 139*

Held-to-maturity investments

Term deposits

2.1C

-

10,003

Total held-to-maturity investments

-

10,003

Loans and receivables

Cash on hand or on deposit

2.1A

-

7,340

Trade and other receivables

2.1B

-

30,226

Total loans and receivables

-

37,566

Financial assets under AASB 9*

Financial assets at amortised cost

Term deposits

2.1C

20,035

-

Cash on hand or on deposit

2.1A

5,623

-

Trade and other receivables

2.1B

21,590

-

Total financial assets at amortised cost

47,248

-

Total financial assets

47,248

47,569

Financial liabilities

Financial liabilities measured at amortised cost

Suppliers and trade creditors

13,520

17,314

Payable to Government

2.3A

3,151

3,151

Other payables (salaries)

2.3A

5,565

5,460

Total financial liabilities measured at amortised cost

22,236

25,925

Total financial liabilities

22,236

25,925

* Reclassification on the adoption of AASB 9 as at 1 July 2018. Further information is provided in the table below.

Classification of financial assets on the date of initial application of AASB 9:

Financial assets class

AASB 139 original classification

AASB 9 new classification

AASB 139 carrying amount at

1 July 2018

AASB 9 carrying amount at

1 July 2018

Notes

$'000

$'000

Cash on hand or on deposit

2.1A

Loans and receivables

Amortised Cost

7,340

7,340

Trade and other receivables

2.1B

Loans and receivables

Amortised Cost

30,226

30,226

Term deposits

2.1C

Held-to-maturity

Amortised Cost

10,003

10,003

Total financial assets

47,569

47,569

On 1 July 2018 initial application of AASB 9, there was no change to the measurement of the Corporation’s financial assets carrying values.

The Corporation's investments are held to maturity, and are not held for sale. No change in fair value has been recognised in the Statement of Comprehensive Income. No financial asset was pledged, nor held as collateral, in 2019 (2018: Nil).

The Corporation has established financial risk management policies to identify and analyse the risks faced by the Corporation in maximising its return on investments.

Accounting Policy

Financial assets

With the implementation of AASB 9 Financial Instruments for the first time in 2019, the entity classifies its financial assets in the following categories:

a) financial assets at fair value through profit or loss; and

b) financial assets measured at amortised cost.

The classification depends on both the entity's business model for managing the financial assets and contractual cash flow characteristics at the time of initial recognition. Financial assets are recognised when the entity becomes a party to the contract and, as a consequence, has a legal right to receive and derecognised when the contractual rights to the cash flows from the financial asset expire or are transferred upon trade date.

Financial assets at amortised cost

Financial assets included in this category need to meet two criteria:

1) the financial asset is held in order to collect the contractual cash flows; and

2) the cash flows are solely payments of principal and interest (SPPI) on the principal outstanding amount.

Amortised cost is determined using the effective interest method.

Effective interest method

Income is recognised on an effective interest rate basis except for financial assets that are recognised at fair value through profit or loss.

Financial assets at fair value through profit or loss (FVTPL)

Financial assets are classified as financial assets at fair value through profit or loss where the financial assets either does not meet the criteria of financial assets held at amortised cost or at fair value through Other Comprehensive Income or may be designated.

Financial assets FVTPL are stated at fair value, with any resultant gain or loss. The net gain or loss recognised in the profit or loss incorporates any interest earned on the financial asset.

Impairment of financial assets

Financial assets are assessed for impairment at the end of each reporting period based on Expected Credit Losses, using the general approach which measures the loss allowance based on an amount equal to lifetime expected credit losses where risk has significantly increased, or an amount equal to 12-month expected credit losses if risk has not increased.

A simplified approach for trade, contract and lease receivables is used. This approach always measures the loss allowance as the amount equal to the lifetime expected credit losses.

A write-off constitutes a derecognition event where the write-off directly reduces the gross carrying amount of the financial asset.

Financial liabilities

Financial liabilities are classified as either financial liabilities ‘at fair value through profit or loss’ or other financial liabilities. Financial liabilities are recognised and derecognised upon ‘trade date’.

Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss are initially measured at fair value. Subsequent fair value adjustments are recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability.

Financial liabilities at amortised cost

Financial liabilities are initially measured at fair value, net of transaction costs. These liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective interest basis.

Supplier and other payables are recognised at amortised cost. Liabilities are recognised to the extent that the goods or services have been received (and irrespective of having been invoiced).

4.1B Net gains or losses on financial assets

2019

2018

$'000

$'000

Financial assets*

Interest revenue

3,277

2,672

Gains and losses on trade and other receivables

94

794

Exchange gains

1

6

Net gains on financial assets

3,372

3,472

* Measured at amortised cost (2018: loans and receivables).

Accounting Policy

There were no other gains or losses arising from financial assets other than interest revenue and exchange rate gains or losses.

4.2 Fair Value Measurement

The following tables provide an analysis of assets and liabilities that are measured at fair value. The remaining assets and liabilities disclosed in the Statement of Financial Position do not apply the fair value hierarchy.

Accounting Policy

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 is dependent upon the volatility of movements in market values for the relevant assets.

4.2A Fair value measurement

The Corporation deems transfers between levels of the fair value hierarchy to have occurred at the end of the reporting period in line with AASB 13 Fair Value Measurement.

Fair value measurements
at the end of reporting period (i)

2019

2018

Notes

$'000

$'000

Non-financial assets

(iii)

Land (Craigieburn)

(ii)

8,650

8,225

Land (Artarmon)

36,900

34,500

Buildings on freehold land

40,300

38,500

Leasehold improvements

5,884

161

Other plant and equipment

21,061

23,446

Total fair value measurements of non-financial assets in the Statement of Financial Position

112,795

104,832

Notes:

(i) The Corporation did not measure any non-financial assets at fair value on a non-recurring basis as at 30 June 2019.

(ii) Fair value measurements - highest and best use differs from current use for non-financial assets. The existing use of the Corporation’s land holding in Craigieburn as a transmission site is not considered to be equivalent to its highest and best use. However its fair value measurement has been assessed at the asset’s highest and best use for residential purposes in accordance with the requirements of AASB 113 Fair Value Measurement.

(iii) Recurring and non-recurring fair value measurements - valuation processes. The Corporation tests the procedures of the valuation model as an internal management review at least once every 12 months (with a formal revaluation undertaken at least once every three years). If a particular asset class experiences significant and volatile changes in fair value (i.e. where indicators suggest that the value of the class has changed materially since the previous reporting period), that class is subject to specific valuation in the reporting period, where practicable, regardless of the timing of the last specific valuation.

Significant inputs utilised by the Corporation are derived and evaluated as follows:

Land and Buildings

Land – Price per square metre/per hectare

The Artarmon and Craigieburn land assets have been measured using the market approach by reference to similar transactions within the surrounding locality. The adopted price per square metre has been determined based on professional judgement regarding the comparability of transactions to the subject asset. The existing use of the property at Artarmon is currently considered to be its highest and best use.

The land asset at Craigieburn is not currently used at its highest and best use. The Corporation valued the land at its highest and best use (i.e. a residential subdivision) as at 30 June 2019. The asset is subject to an encumbrance (lease) until 2028, which is a restriction that would pass to a market participant. The fair value measurement has therefore considered this restriction in the valuation.

Buildings – Market Rental and Capitalisation Rate

The income capitalisation approach has been adopted to determine the fair value of the buildings asset class. Under the income capitalisation approach the net market rental is capitalised at an appropriate yield as determined from comparable sales transactions. The analysis and selection of an appropriate market rental and yield from evidence with varying degrees of comparability to the subject property is determined based on professional judgement.

Property, Plant and Equipment – Consumed economic benefit/Obsolescence of asset

Assets that do not transact with enough frequency or transparency to develop objective opinions of value from observable market evidence have been measured utilising the depreciated replacement cost (DRC) approach. Under the DRC approach the estimated cost to replace the asset is calculated and then adjusted to take into account its consumed economic benefit/asset obsolescence (accumulated depreciation). Consumed economic benefit/asset obsolescence has been determined based on professional judgement regarding physical, economic and external obsolescence factors relevant to the asset under consideration.

The weighted average is determined by assessing the fair value measurement as a proportion of the total fair value for the class against the total useful life of each asset.