20. Fair value measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The highest and best use takes into account the use of the asset that is physically possible, legally permissible and financially feasible.

When measuring fair value, the valuation techniques used maximise the use of relevant observable inputs and minimise the use of unobservable inputs. Unobservable inputs are used to the extent that sufficient relevant and reliable observable inputs are not available for similar assets/liabilities.

Observable inputs are publicly available data that are relevant to the characteristics of the assets/liabilities being valued. Observable inputs used by the department include, but are not limited to, published sales data for land and general office buildings.

Unobservable inputs are data, assumptions and judgments that are not available publicly, but are relevant to the characteristics of the assets/liabilities being valued. Such inputs include internal department adjustments to observable data to take account of particular and potentially unique characteristics/ functionality of assets/liabilities and assessments of physical condition and remaining useful life.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the following fair value hierarchy based on the inputs used:

  • Level 1 – inputs are quoted prices in active markets for identical assets or liabilities
  • Level 2 – inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly
  • Level 3 – inputs are unobservable.

The fair value of financial instruments is determined on the following basis:

  • the fair value of cash, deposits, advances, receivables and payables approximates their carrying amount, which is also their amortised cost
  • the fair value of derivative financial instruments are derived using current market yields and exchange rates appropriate to the instrument
  • the fair value of other monetary financial assets and liabilities is based on discounting to present value the expected future cash flows by applying current market interest rates for assets and liabilities with similar risk profiles.

a) Fair value hierarchy

The department does not recognise any financial assets or liabilities at fair value as these are recognised at amortised cost. The carrying amounts of these financial assets and liabilities approximate their fair value.

The table below presents non-financial assets recognised at fair value in the balance sheet categorised by levels of inputs used to compute fair value.

Level 1Level 2Level 3Total fair value
2018-19
$000
2017-18
$000
2018-19
$000
2017-18
$000
2018-19
$000
2017-18
$000
2018-19
$000
2017-18
$000
Asset classes         
Land (Note 13) 0 0 3,760 3,760 18,001 18,001 21,761 21,761
Buildings (Note 13) 0 0 2,044 2,147 51,221 53,097 53,265 55,244
Infrastructure (Note 13) 0 0 0 0 3,147 3,303 3,147 3,303
Plant and equipment (Note 13) 0 0 0 0 3,464 2,625 3,464 2,625
Computer hardware (Note 13) 0 0 0 0 103 81 103 81
Transport equipment (Note 13) 0 0 0 0 863 837 863 837
Total assets 0 0 5,804 5,907 76,799 77,944 82,603 83,851

There were no transfers between Level 1 and Levels 2 or 3 during 2018-19.

b) Valuation techniques and inputs

Valuation techniques used to measure fair value in 2018-19 are:

Level 2 techniquesLevel 3 techniques
Asset classes   
Land Market Cost
Buildings Market Cost
Infrastructure  Cost
Plant and equipment  Cost
Computer hardware  Cost
Transport equipment  Cost

There were no changes in valuation techniques from 2017-18 to 2018-19.

Territory Property Consultants Pty Ltd provided valuations for the land, buildings and infrastructure assets.

Level 2 fair values of land and buildings were based on active market comparison approach which seeks to determine the current value of an asset by referencing to recent comparable transactions involving sale of similar assets.

Level 3 fair values of land were assessed having regard to the highest and best use of the land. Level 3 fair values of specialised buildings and infrastructure were determined by computing their current replacement costs because an active market does not exist for such facilities. The current replacement cost was based on a combination of internal records of the historical cost of the facilities, adjusted for contemporary technology and construction approaches. Significant judgement was also used in assessing the remaining service potential of the facilities, given local environmental conditions, projected usage, and records of the current condition of the facilities.

c) Additional information for level 3 fair value measurements

i) Reconciliation of recurring level 3 fair value measurements of non financial assets

2018-19 Land
$000
Buildings
$000
Infrastructure
$000
Plant and Equipment
$000
Computer Hardware
$000
Transport Equipment
$000
Total
$000
Fair value as at 1 July 2018 18,001 53,097 3,303 2,625 81 837 77,944
Additions 0 919 299 1,413 56 196 2,883
Disposals 0 0 0 (7) 0 0 (7)
Transfers from level 2 0 0 0 0 0 0 0
Transfers to level 2 0 0 0 0 0 0 0
Depreciation/Amortisation 0 (2,795) (455) (567) (34) (170) (4,021)
Gains/losses recognised in net surplus/deficit 0 0 0 0 0 0 0
Gains/losses recognised in other comprehensive income 0 0 0 0 0 0 0
Fair value as at 30 June 2019 18,001 51,221 3,147 3,464 103 863 76,799
2017-18 Land
$000
Buildings
$000
Infrastructure
$000
Plant and Equipment
$000
Computer Hardware
$000
Transport Equipment
$000
Total
$000
Fair value as at 1 July 2017 18,001 49,920 3,696 2,871 11 890 75,389
Additions 0 2,279 50 308 99 82 2,818
Disposals 0 0 0 0 0 0 0
Transfers from level 2 0 0 0 0 0 0 0
Transfers to level 2 0 0 0 0 0 0 0
Depreciation/amortisation 0 (2,925) (443) (554) (29) (135) (4,086)
Gains/losses recognised in net surplus/deficit 0 0 0 0 0 0 0
Gains/losses recognised in other comprehensive income 0 3,823 0 0 0 0 3,823
Fair value as at 30 June 2018 18,001 53,097 3,303 2,625 81 837 77,944

ii) Sensitivity analysis

Unobservable inputs used in computing the fair value of buildings include the historical cost and the consumed economic benefit of each building. Given the large number of department’s buildings, it is not practical to compute a relevant summary measure for the unobservable inputs. In respect of sensitivity of fair value to changes in input value, a higher historical cost results in a higher fair value and greater consumption of economic benefit lowers fair value.


ANNUAL REPORT 2018-19 - DEPARTMENT OF PRIMARY INDUSTRY AND RESOURCES


Last updated: 23 October 2019

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