We are pleased to present to you the City of Melbourne’s annual report for 2012–13



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Financial report

Comprehensive income statement 126

Balance sheet 127

Statement of changes in equity 128

Statement of cash flows 129


Notes to and forming part of the Financial Report


Note 1 Significant accounting policies 130

Note 2 Operating result attributable to functions/activities 139


Revenues


Note 3 Revenues 141

Expenses


Note 4 Expenses 143

Assets


Note 5 Trade and other receivables 145

Note 6 Inventories 146

Note 7 Other assets 146

Note 8 Other financial assets 146

Note 9 Property, plant, equipment & infrastructure 147

Note 10 Intangible assets 153

Note 11 Investment property 156

Liabilities


Note 12 Trade and other payables 157

Note 13 Employee benefits 157

Note 14 Provisions 157
Equity

Note 15 Reserves 158


Other Disclosures

Note 16 Gain/(Loss) on sale of fixed assets 159

Note 17 Cash flow information 160

Note 18 Leases and commitments 161

Note 19 Contingent liabilities 162

Note 20 Defined benefits superannuation funds 163

Note 21 Related party transactions 166

Note 22 Financial instruments 168

Note 23 Financial ratios 175

Note 24 Business combinations 176

Note 25 Events occurring after balance date 176


Signed statement 177

Auditor-General’s Report on the Financial Report 178


Comprehensive income statement
for the year ended 30 June 2013




The comprehensive income statement should be read in conjunction with the accompanying notes to the Financial Report.




Balance sheet
as at 30 June 2013




The balance sheet should be read in conjunction with the accompanying notes to the Financial Report.

Statement of changes in equity
for the year ended 30 June 2013




The statement of changes in equity (Consolidated) should be read in conjunction with the accompanying notes to the Financial Report.




The statement of changes in equity (Council) should be read in conjunction with the accompanying notes to the Financial Report.


Statement of cash flows
for the year ended 30 June 2013




The statement of cash flows should be read in conjunction with the accompanying notes to the Financial Report.

Notes to the financial statements

for the year ended 30 June 2013


Note 1. Significant accounting policies
These financial statements are for the entity the Melbourne City Council (the "Council") and controlled entities. The Council is a body corporate, domiciled in Australia, constituted pursuant to the Local Government Act 1989 (Vic) to provide for the peace and good government of its municipal district. The Town Hall is located at 90-120 Swanston Street, Melbourne Victoria 3000.
The purpose of the Council is to:


  • promote the social, economic and environmental viability and sustainability of the municipal district

  • manage resources efficiently and effectively.

The Council's external auditors, advisers and bankers are:




  • external Auditor – Victorian Auditor-General's Office

  • internal Auditor – Deloitte Touché Tohmatsu

  • solicitors – Hunt & Hunt, Ashurst, Maddocks

  • bankers – Westpac Banking Corporation.

The Council's website is: www.melbourne.vic.gov.au.


The consolidated financial statements of the Council as at and for the year ended 30 June 2013 comprise the Council and its subsidiaries and the Council's interest in associated and jointly-controlled entities.
The significant policies adopted in the preparation of this Financial Report are:

(a) Basis of preparation

These financial statements are general purpose financial statements which were prepared in accordance with Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board and the Local Government Act 1989 (Vic), including the requirements of the Local Government (Finance and Reporting) Regulations (Vic) 2004. The Melbourne City Council and Sustainable Melbourne Fund are not-for-profit entities and CityWide Service Solutions Pty Ltd and its subsidiaries and Queen Victoria Market Pty Ltd are for-profit entities for the purpose of preparing the financial statements.

The financial statements were prepared on an accrual basis and on the historical cost basis except for the following:


  • investment property is measured at fair value

  • land and buildings are measured at fair value.


The functional and presentation currency of the Council and consolidated entity is Australian dollars.

(b) Principles of consolidation

The consolidated results in this Financial Report include all funds through which the Council controls resources to carry on its functions. In the process of reporting on the Council as a consolidated unit, all intra and inter entity balances and transactions were eliminated.

In the Council's financial statements, investments in subsidiaries are carried at cost.

CityWide Service Solutions Pty Ltd and its subsidiaries and the Queen Victoria Market Pty Ltd are wholly-owned subsidiaries of the Council incorporated in Australia and are included in the consolidated Financial Report.

The Sustainable Melbourne Fund Trust is wholly controlled trust of the Council and is included in the consolidated Financial Report.
Council has deregistered its interest in Melbourne Wholesale Fish Market Pty Ltd in February 2013.
MAP’s Group Pty Ltd (Trading as Procurement Australia) is not consolidated as Council does not have a controlling interest.
(c) Business combinations

Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value which is calculated as the sum of the acquisition-date fair values of assets transferred to the Consolidated Entity, liabilities incurred by the Consolidated Entity to the former owners and the equity instruments issued by the Consolidated Entity in exchange for control of the acquiree.

Acquisition-related costs are recognised in profit or loss as incurred.

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the acquisition date, except that:


  • deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and measured in accordance with AASB 112 ‘Income Taxes’ and AASB 119 ‘Employee Benefits’ respectively

  • assets (or disposal groups) that are classified as held for sale in accordance with AASB 5 ‘Noncurrent Assets Held for Sale and Discontinued Operations’ are measured in accordance with that Standard.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed.


Where the consideration transferred by the Consolidated Entity in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.

The subsequent accounting for changes in the fair value of contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or liability is remeasured at subsequent reporting dates in accordance with AASB 139 “Financial Instruments: Recognition and Measurement”, or AASB 137 ‘Provisions, Contingent Liabilities and Contingent Assets’, as appropriate, with the corresponding gain or loss being recognised in profit or loss.


(d) Taxation

The Council is exempt from the payment of income tax and capital gains tax. Payments for Fringe Benefits Tax and Goods and Services Tax (GST) are made in accordance with the relevant legislation. Payments for payroll tax are only made by the trading entities controlled by the Council.

The wholly-owned subsidiaries are subject to the Council’s tax equivalent policy. Where the subsidiary is exempt from certain taxes it pays an equivalent of the tax to Council.

Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense.

Cash flows are presented in the cash flow statement on a gross basis, except for the GST component of investing and financing activities, which are shown in the operating activities.

(e) Fees, fines, charges, rates, grants, and other contributions

Fees and charges are recognised as revenue when services are provided or the cash is received, whichever occurs first. Fines are recognised as revenue when the penalty is imposed.

Rates, grants, and other contributions are recognised as revenues when the Council obtains control over the related assets. Control over assets acquired from rates is obtained at the commencement of the rating period or, where earlier, upon receipt of the rates. Control over granted assets is normally obtained upon their receipt or upon prior written notification that a grant is secured.

Where contributions recognised as revenues during the financial year were obtained on the condition that they be expended in a particular manner or used over a particular year, and those conditions were undischarged as at the reporting date, the nature of any amounts pertaining to those undischarged conditions are disclosed in Note 3(e). That note also discloses the amount of contributions recognised as revenues in previous financial years, which were expended in respect of the Council’s operations during the current financial year.

Tax equivalents and dividends from subsidiaries are recognised as income when received or amounts were declared at the respective subsidiary company’s board meeting.

Finance income is recognised when it is earned and includes interest on investments, interest on rates and bad debt recoveries

Sales and recoveries are recognised when received and included merchandise sales, sale of publications and sundry sales not elsewhere included.

Revenue arising from service contracts is recognised by reference to the stage of completion of the contract, unless the outcome of the contract cannot be reliably estimated. The stage of completion is determined by reference to the proportion that costs incurred to date bear to the estimated total costs of the contract. Administrative overheads are not included in the costs of the contract for this purpose. Where the outcome of a contract cannot be reliably estimated, contract costs are recognised as an expense as incurred, and where it is probable that the costs will be recovered, revenue is recognised to the extent of costs incurred.

(f) Intangibles

(i) Goodwill

Where an entity or operation is acquired, the identifiable net assets acquired are measured at fair value. Fair value is defined in note 1(l)(ii). The excess of the fair value of the cost of acquisition over the fair value of the identifiable net assets acquired is brought to account as goodwill. Goodwill is not amortised, but tested for impairment annually.

(ii) Software

Software, that is not an integral part of the related hardware, is classified as intangibles, recorded at cost and amortised on a straight line basis over a 5-year period.





Goodwill

Software

Useful lives

Indefinite

Finite

Method used

Not depreciated or revalued

5 years – straight line

Internally generated / acquired

Acquired

Acquired

Impairment test / recoverable amount test

Reviewed annually for indication of impairment

Amortised method reviewed at each financial year-end; reviewed annually for indication of impairment


(g) Employee benefits

  1. Wages, salaries, annual and long service leave

Liabilities for employees’ entitlements to wages and salaries, annual leave, and other employee benefits which are expected to be paid or settled within 12 months of balance date are accrued at nominal amounts calculated on the basis of 2012–13 wage and salary rates and payroll based on costs in accordance with AASB 119 ‘Employee Benefits’.

Liabilities for other employee benefits which are not expected to be paid or settled within 12 months of balance date are accrued as per AASB 119 at the present values of future amounts expected to be paid based on 3.75 per cent per annum projected weighted average increase in wage and salary rates and payroll based on costs over an average period of five years. Present values are calculated using the government guaranteed securities rates with similar maturity terms.


For employee entitlements, long service leave entitlements for employees with over seven years of service and all annual leave entitlements are classified as current. Long service leave entitlements for employees with less than 7 years of service is classified as non-current. Long service leave expected to be taken in the next 12 months is recorded at nominal value and long service leave not expected to be taken over the next 12 months is recorded at present value.


  1. Superannuation – defined contribution plans

A defined benefit contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognised as an employee benefits expenses in profit or loss in the periods during which the services are rendered by employees.

  1. Superannuation – defined benefits plans

A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Council's net obligation in respect of defined benefits pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. Any unrecognised past service costs and the fair value of any plan assets are deducted. The discount rate is the yield at the reporting date on Government bonds that have maturity dates approximating the terms of the Council's obligations.

The calculation is performed periodically by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Council, the recognised asset is limited to the total of any unrecognised past service costs and the present value of the economic benefits available in the form of any future refunds from the plan or reduction in future contributions to the plan. In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements that apply to any plan in the Council. An economic benefit is available to the Council if it is realisable during the life of the plan, or on settlement of the plan liabilities. When the benefits of a plan are improved, the portion of the increased benefit related to past service by employees is recognised in the profit or loss on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised immediately in profit or loss.

The Council recognises all actuarial gains and losses arising from defined benefits plans in other comprehensive income and all expenses relating to defined benefit plans in employee benefits expense in profit or loss.
The Council recognises gains and losses on the curtailment or settlement of a defined benefit plan when the curtailment or settlement occurs. The gain or loss on curtailment comprises any resulting change in the fair value of plan assets, change in the present value of defined benefit obligation and any related actuarial gains and losses and past service cost that had not previously been recognised.
However, where the Council participates in multi-employer defined benefits plans for which sufficient information is not available to use defined benefits accounting as set out above, it accounts for contributions to those plans as if they were defined contributions plans.
Details of these arrangements are set out in Note 20 “Defined benefits superannuation funds”.
(h) Depreciation

Depreciation measures the service potential of buildings, infrastructure assets, plant and equipment consumed during the year. Interest in trees, land and artworks are not depreciated as they are considered to have either unlimited useful lives or to be self-generating assets. Depreciation is recognised on a straight-line basis over the useful lives of the assets to the economic entity. Depreciation rates are reviewed each financial year. The depreciation periods for the major classes of assets are shown below represent the maximum useful life.







2012–13

2011–12

Buildings


50 years

50 years

Roads & laneways – seal

20 years

20 years

Roads & laneways – substructure

90 years

90 years

Heritage assets

100 years

100 years

Promenades and wharves

100 years

100 years

Footpaths

50 years

50 years

Kerb & channel

50 years

50 years

Bridges

94 years

94 years

Drains

185 years

185 years

Plant & equipment

20 years

20 years

Furniture & fittings

10 years

10 years

Irrigation systems

20 years


20 years

Parks & gardens infrastructure

50 years

50 years

Statues, sculptures & artworks

100 years

100 years

Other structures

50 years

50 years

Assets are depreciated from the date of acquisition or, in respect of internally constructed assets, from the time an asset is completed and held ready for use.
(i) Cash and cash equivalents

For purposes of the balance sheet, cash and cash equivalents includes short term deposits, bank bills, transferrable certificates of deposit and fixed interest securities which are readily convertible to cash on hand and are subject to an insignificant risk of changes in value, net of bank overdrafts. Short-term deposits are stated at cost. Fixed interest securities are valued at net fair value. Interest is recognised when earned.


(j) Receivables and payables

Trade and other receivables are initially recognised at fair value and subsequently at recoverable amount. They are classified as current assets except where the maturity is greater than 12 months after the reporting period date, in which case they are classified as non-current.


Trade and other payables are recognised for amounts to be paid in the future for goods and services received, whether or not billed. Trade and other payables are recognised initially at fair value and subsequently at amortised cost.

(k) Impairment of financial assets

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that loss event had a negative effect on the estimated future cash flows of that asset that can be reliably measured. Objective evidence that financial assets are impaired can include indications of significant financial difficulties, debtor bankruptcy, financial reorganisation or default in payment. In addition, for an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

All individually significant trade and other receivables are assessed for specific impairment. All individually significant receivables and those that are not individually significant are then assessed for impairment on a collective basis, by grouping those with similar risk characteristics. An impairment loss in respect of a financial asset measured at amortised costs is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset's original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against receivables. When a subsequent event (e.g. repayment) causes the amount of the impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. No allowance for impairment is made for rate debtors because the debts are collectable against the property.
(l) Property, plant, equipment and infrastructure

(i) Capital and recurrent expenditure

As a general rule, material expenditure incurred in the purchase or development of assets is capital expenditure. Expenditure necessarily incurred in either maintaining the operational capacity of the non-current asset or ensuring that the original life estimate of the asset is achieved, is considered maintenance expenditure and is treated as an expense as incurred. Items of a capital nature with a total value of less than $2000 are treated as an expense.

(ii) Acquisition

Acquisitions of assets are initially recorded at cost. Cost is determined as the fair value of the assets given as consideration plus costs incidental to their acquisition, including architectural and engineering fees and all other establishment costs.

The Council’s policy is to capitalise and depreciate individual capital expenditure over $2000.

Fair value means the amount for which an asset could be exchanged between a knowledgeable willing buyer and a knowledgeable willing seller in an arm’s length transaction.

(iii) Construction work in progress

The cost of property, plant, equipment & infrastructure constructed by Melbourne City Council includes the cost of materials and direct labour and an appropriate proportion of overheads.

(iv) Leases

The Council does not currently use any finance lease arrangements. In respect of operating leases, where the lessor effectively retains substantially the entire risks and benefits incidental to ownership of the leased property, the payments are charged to expense over the lease term.

(v) Asset revaluation

Revaluation increments are credited directly to the asset revaluation reserve, except that, to the extent that an increment reverses a revaluation decrement in respect of that class of asset previously recognised as an expense, the increment is recognised as revenue.

Revaluation decrements are recognised immediately as expenses, except that, to the extent that an increment balance exists in the asset revaluation reserve in respect of the same class of assets, they are debited directly to the asset revaluation reserve. Revaluation increments and decrements are offset against one another within a class of non-current assets, but not otherwise.

(vi) Valuation

All land and buildings are valued at fair value, being market value assuming the highest and best use permitted by the relevant land use planning provisions or existing public use whichever is the greater.

Freehold land reserved for public open space is valued at a discount, being 20 per cent of market value.

All improvements on Crown Land are valued on the basis of fair value, being either market value or written down replacement cost for special purpose buildings, Note 9 “Property, plant, equipment and infrastructure”.

Infrastructure assets are valued at fair value, being replacement cost less accumulated depreciation.

(vii) Impairment

At each reporting date, the Council reviews the carrying value of its assets to determine whether there is any indication that these assets were impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and depreciated replacement cost, is compared to the assets carrying value. Any shortfall of the assets carrying value over its recoverable amount is expensed to the comprehensive income statement.


(m) Non-cash donations

Non-cash donations in excess of $2000 value are recognised as revenue.



(n) Rounding

Unless otherwise stated, amounts in the Financial Report are rounded to the nearest thousand dollars.



(o) Web site costs

Costs in relation to web sites controlled by the Council are charged as expenses in the period in which they are incurred unless they relate to the acquisition of an asset, in which case they are capitalised and amortised over their period of expected benefit.



(p) Allocation between current and non-current

With the exception of employee entitlements, the determination of whether an asset or liability is current or non-current, consideration is given to the time when each asset or liability is expected to be realised or paid. The asset or liability is classified as current if it is expected to be turned over within the next 12 months, being the Council’s operational cycle.


(q) Investment property

Investment property is held to generate long-term rental yields. All tenant leases are entered into at an arm’s length basis.

Investment property is carried at fair value, being market value assuming the highest and best use permitted by the relevant land use planning provisions or existing public use whichever is the greater. Any changes to fair value are recorded in the comprehensive income statement. Investment properties are not depreciated.

(r) Interest-bearing liabilities

All loans and borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised over the life of the instrument using the effective interest rate method. Borrowings are derecognised from the Balance Sheet when the obligation specified in the contract is discharged, cancelled or expires. The difference between the carrying amount of the borrowing derecognised and the consideration paid is recognised as other income or finance costs. Borrowings are classified as current liabilities unless unconditional right to defer settlement of the liability exists for at least 12 months after the reporting date.


(s) Restatement of prior year amounts
The Council has restated the prior year comparative amounts for Senior Officers Remuneration in Note 21(c) “Related Party Transactions”. The restatement reflects an increase in number of senior officers reported as a result of disclosing full salary package remuneration which eliminates timing issues of payments and staff that commence and terminate employment during the year.

The reported number of senior officers has increased to 109 in 2012 previously stated as 55. The total salary reported for senior officers has increased to $17.473 million in 2012 previously stated as $9.461 million.

The reported number of responsible persons has decreased to 10 in 2012 previously stated as 11. The total salary reported for responsible officers has decreased to $1.007 million in 2012 previously stated as $1.051 million.

(t) Income received in advance

A liability is recognised in respect of revenue that is reciprocal in nature to the extent that the requisite service has not been provided at balance date in relation to fee for services.



(u) Pending Accounting Standards

The following Australian Accounting Standards were issued or amended and were adopted where applicable to the Council.



(v) Critical accounting judgements and key sources of estimation uncertainty

In application of the Council's policies, Council is required to make judgements, estimates and assumptions about carrying values of certain assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period of the revision and future periods if the revision affects both current and future periods.

Information about critical assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are included in the following notes:

Note 9 – Property, plant & equipment and infrastructure (fair value measurement)

Note 10 – Intangible assets (goodwill impairment assessment)
Note 11 – Investment property (fair value measurement)
Note 20 – Defined benefits superannuation funds (measurement of plan assets and liabilities).


Note 2. Operating result attributable to functions / activities (consolidated)

(a) Revenues and expenses were attributed to the following functions.





(b) A brief description of the goal of each function is as follows:
City Planning & Infrastructure

Advises the Council on city planning for the sustainable development of Melbourne through research, policy development, program and infrastructure delivery and planning.


Community Development

Provides a range of services, specific programs and recreation services for residents and visitors, contributing to building strong local communities that are inclusive and supportive. This, with the delivery of cultural programs and the management of the City’s cultural infrastructure, enhances the Council’s reputation as a safe, attractive, liveable and accessible city. The Division is also responsible for providing a direct customer liaison, information and advocacy service and driving the organisation's approach to the delivery of high quality customer service.


City Design

Responsible on behalf of the Council for providing urban design policy, advice, design, project management and management of parks and reserves.


City Business

Provides leadership in events management, communications and marketing, promoting tourism within the city and providing guidance to business and international interaction.


Chief Executive

To ensure a well-managed and leading organisation through the delivery of effective and accountable governance and business processes.

 

Corporate Business

To provide a range of quality support functions to the Council. This assists the Council in providing the highest standard of services to the city.
Subsidiaries include the following entities:
CityWide Service Solutions Pty Ltd and its controlled entities Sterling Group Services Pty Ltd and AWD Earthmoving Pty Ltd.

To meet the contract service needs of local government, other governments, and private and public sector corporations by providing a comprehensive range of quality, physical services at competitive rates.
Queen Victoria Market Pty Ltd

To ensure the market maintains and enhances an industry reputation as Australia’s foremost leading market, whilst meeting world’s best practice standards.
Sustainable Melbourne Fund Trust

The Sustainable Melbourne Fund (SMF) is a self-sustaining fund set up by the Council which invests funds in projects with environmental benefits to the city. The projects may extend beyond the boundaries of the Council to the broader state of Victoria, reflecting the position of Melbourne as the capital city of Victoria.

These entities support the Council in providing services to the community.


Significant Interests:

The Council has a majority ownership of the MAPS Group Ltd (Trading as Procurement Australia) through its holdings, however due to the structure of the company the Council does not have a majority of voting rights.

The Council and the Victorian Government have a 50 per cent shareholding in Regent Management Company Pty Ltd. The Company was incorporated to oversee the reconstruction of the Regent Theatre, operate as landlord of the Regent Theatre and to enter into a refurbishment agreement for the restoration and lease of the theatre.


Notes to the financial statements
for the year ended 30 June 2013


Note 3. Revenues

(a) Rates



The Council uses ‘net annual value’ as the basis of valuation of all properties within the municipal district. The net annual value of a property approximates the annual net rental for a commercial property and 5 per cent of the capital improved value for a residential property.

The date of the general valuation of land for rating purposes within the municipal district was 1 January 2012 and the valuation first applied to the rating period commencing 1 July 2012. The valuation for rating purposes is performed on a two-year cycle.

(b) Grants and other contributions were received in respect of the following:



Notes to the financial statements
for the year ended 30 June 2013

Note 3. Revenues (continued)

(b) Grants and other contributions continued:



(c) Parking Fees





(d) Finance Income





Notes to the financial statements
for the year ended 30 June 2013

Note 3. Revenues (continued)


(e) Conditions over contributions




Note 4. Expenses



Notes to the financial statements
for the year ended 30 June 2013

Note 4. Expenses (continued)





Notes to the financial statements
for the year ended 30 June 2013

Note 5. Trade and other receivables





Notes to the financial statements
for the year ended 30 June 2013

Note 6. Inventories





Note 7. Other Assets


Note 8. Other financial assets


Notes to the financial statements
for the year ended 30 June 2013

Note 9. Property, plant, equipment and infrastructure




Notes to the financial statements
for the year ended 30 June 2013


Note 9. Property, plant, equipment and infrastructure (continued)


The basis of valuation is included under Note 1(l) in the Financial Report and were conducted as follows:


(i) Valuations of Council land and buildings were determined by David Slicer (Senior Valuer) Melbourne City Council.

All land and buildings are valued at fair value, being market value assuming the highest and best use permitted by the relevant land use planning provisions or existing public use whichever is the greater.

Freehold land reserved for public open space is valued at a discount, being 20 per cent of market value.

All improvements on Crown Land are valued on the basis of fair value, being either market value or written down replacement cost for special purpose buildings.


(ii) Valuations of Infrastructure Assets (Roads & Laneways, Footpaths, Kerb & Channel, Bridges and Drains) were determined by Michael Norton (Principal Engineer) Melbourne City Council.

Infrastructure assets and park assets are valued at fair value being replacement cost less accumulated depreciation, taking into account the asset condition and their remaining lives.


(iii) Valuation of Parks and Gardens Infrastructure were determined by Eugene Stackpole (Asset Management Officer) and David Slicer (Senior Valuer) Melbourne City Council. Irrigation was valued in the 2011/12 financial year.

(iv) Valuations of trees were determined by Ian Shears (Manager Urban Landscapes) Melbourne City Council.

Trees are valued at replacement cost which is arrived at from current on ground costs, current tree prices, tree planting works and maintenance through the establishment period of the tree.

The above valuations were completed as at 30 June 2013 for Council. Valuations for 30 June 2013 are at fair value. Unless otherwise stated the carrying value of each class of asset measured at fair value at balance date materially reflects their fair value at that date.

Notes to the financial statements
for the year ended 30 June 2013


Note 9. Property, plant, equipment and infrastructure (continued)


Notes to the financial statements
for the year ended 30 June 2013


Note 9. Property, plant, equipment and infrastructure (continued)





Notes to the financial statements
for the year ended 30 June 2013


Note 9. Property, plant, equipment and infrastructure (continued)


Notes to the financial statements
for the year ended 30 June 2013


Note 9. Property, plant, equipment and infrastructure (continued)





Notes to the financial statements
for the year ended 30 June 2013

Note 10. Intangible assets





Notes to the financial statements
for the year ended 30 June 2013

Note 10. Intangible assets (continued)






Notes to the financial statements
for the year ended 30 June 2013

Note 10. Intangible assets (continued)



Notes to the financial statements
for the year ended 30 June 2013

Note 11. Investment property








Notes to the financial statements
for the year ended 30 June 2013

Note 12. Trade and other payables

Note 13. Employee benefits




Note 14. Provisions

Notes to the financial statements
for the year ended 30 June 2013

Note 15. Reserves








Notes to the financial statements
for the year ended 30 June 2013

Note 15. Reserves (continued)

Note 16. Gain/(Loss) on sale of fixed assets



Notes to the financial statements
for the year ended 30 June 2013

Note 17. Cash flow information











Notes to the financial statements
for the year ended 30 June 2013

Note 18. Leases and commitments









Notes to the financial statements
for the year ended 30 June 2013

Note 19. Contingent liabilities

The Council and the Victorian Government have indemnified, in equal shares, Regent Management Company Pty Ltd against any liability, loss or expense incurred or suffered by the Company. Over the financial year, no calls on this indemnity were made.

The Council and the Port of Melbourne Corporation hold differing views on the statutory valuations of the Port of Melbourne land holdings. As a result, there is a potential rate adjustment that may be necessary upon settlement of the matter. The Council’s exposure from the valuation objection is unable to be reliably estimated given uncertainty as at 30 June 2013.


Notes to the financial statements
for the year ended 30 June 2013


Note 20. Defined benefits superannuation funds





Notes to the financial statements
for the year ended 30 June 2013

Note 20. Defined benefits superannuation funds (continued)








Notes to the financial statements
for the year ended 30 June 2013

Note 20. Superannuation (continued)

Melbourne City Council Superannuation Sub Plan (CMSSP) members

A separate plan is operated for Council defined benefit members. The CMSSP was closed to new members on 23 December 1993.

The CMSSP is a multi-employer sponsored plan. As the Fund's assets and liabilities are pooled and are not allocated by employer, the Actuary is unable to reliably allocate benefit liabilities, assets and costs between employers. As provided under Paragraph 32 (b) of AASB 119, the Council does not use the defined benefit accounting for these contributions, but as the majority of the members of the fund are employees of the Council group, the surplus or deficit of the fund is recorded in accordance to AASB119 at the consolidated level for reporting purposes. Member profiles will be reviewed periodically to determine if and when reporting at the individual entity level became appropriate.



The Council makes employer contributions to the defined benefits category of the Fund at rates determined by the Fund’s Trustee on advice of the actuary. On the basis of the results of the most recent update of the full actuarial investigation conducted by the Fund’s actuary as at 31 December 2011, the Trustee has determined that the funding arrangements were adequate for the expected CMSSP liabilities and the Council makes the following contributions:


  • Increasing contributions to 13 per cent of salary for active defined benefit members, including 1 per cent for salary continuance cover, effective 1 July 2012;

  • A single lump sum contribution of $6.02 million payable at 31 December 2012

  • Top up payments for existing members equal to the difference between the Benefit Payment and the Vested Benefit Ratio amount, plus contributions tax, invoiced quarterly in arrears.

The actuarial investigation concluded that although the Net Market Value of Assets was in deficit of Accrued Benefits at 31 December 2011, based on the assumptions adopted, there was a shortfall for when the funding of future benefits was also considered. A liability of $6.02m was paid on 31 December 2012 as the Council’s share of the scheme’s liabilities, being the difference between the present value of employees’ accrued benefits and the net market value of the scheme’s assets at balance date. The Actuary will undertake the next actuarial investigation commencing at 31 December 2014 to ascertain if additional contributions are required.


The CMSSP Fund’s liability was determined in the 31 December 2011 actuarial investigation pursuant to the requirements of the Australian Accounting Standard AAS 25 as follows:




31-Dec-2011

$ Millions



Net Market Value of Assets

52.4




Accrued Benefits (per accounting standards)

54.5




Difference between Assets and Accrued Benefits

(2.1)




Vested Benefits

59.6




Vested benefits index . 88%
The total amount of superannuation contributions paid by the Council (inclusive of its wholly-owned subsidiaries Citywide Service Solutions Pty Ltd, Queen Victoria Market Pty Ltd and Melbourne Wholesale Fish Market Pty Ltd) during the year was $15.31m (2012: $14.76m).
The Council has an ongoing obligation to share in the future experience of the Local Authorities Superannuation Fund Defined Benefits Plan and the Melbourne City Council Superannuation Sub-Plan. Favourable or unfavourable variations may arise should the experience of the Funds differ from the assumptions made by the Funds’ actuary in estimating the Funds’ accrued benefit liability.
CityWide Service Solutions Pty Ltd contributes in respect of its employees to the following sub-plans of the Local Authorities Superannuation Fund:

  • The Melbourne City Council sub-plan,
  • The Defined Benefits plan, and


  • The Accumulation plan.

Notes to the financial statements
for the year ended 30 June 2013


Note 21. Related party transactions



Notes to the financial statements
for the year ended 30 June 2013

Note 21. Related party transactions (continued)



  1. Retirement benefits

No retirement benefits were paid by the Council in connection with the retirement of Responsible Persons during the financial year or in the previous financial year.


  1. Other transactions

Other related party transactions requiring disclosure this financial year were considered and there are no matters to report. There were no matters to report in the previous financial year.


  1. Wholly-owned group

The Council is the ultimate parent entity in the wholly-owned group. Transactions with the controlled entities, Citywide Service Solutions Pty Ltd and its subsidiaries, Queen Victoria Market Pty Ltd, Melbourne Wholesale Fish Markets Pty Ltd and Sustainable Melbourne Fund Trust during the year are included in sub-sections (g) – (j) below.

All subsidiaries are established and are resident in Australia.




  1. Transactions with Citywide Service Solutions Pty Ltd

Transactions with the Citywide Service Solutions Pty Ltd during the financial year were based on a contract for the provision of services comprising property rental, contract sales and the payment of charges (tax equivalents) which includes income tax and payroll tax.


Intercompany revenue and expenditure

Revenue received from Citywide amounted to $403,000 (2012: $398,000) during the financial year.

Expenditure to Citywide amounted to $64,426,000 (2012: $58,931,000) during the financial year.

Income Tax and Payroll Tax Equivalent, and Dividend $9,097,000 (2012: $9,186,000) during the financial year.






  1. Transactions with Queen Victoria Market Pty Ltd

Transactions with the Queen Victoria Market Pty Ltd during the financial year were based on a contract for the provision of services comprising a Licence fee, IT charges and in accordance with the Tax Equivalent Policy, the payment of charges (tax equivalents) which includes income tax.
Intercompany revenue and expenditure

Revenue received from Queen Victoria Market amounted to $4,740,000 (2012: $4,743,000) during the financial year.

Tax Equivalent and Dividend $970,000 (2012: $1,368,000) during the financial year.


  1. Transactions Melbourne Wholesale Fish Market Pty Ltd

Transactions with the Melbourne Wholesale Fish Market relate to deregistration of this entity.
Intercompany revenue and expenditure

Tax Equivalent and Dividend $4,766,000 (2012: $39,000) during the financial year.





  1. Transactions with Sustainable Melbourne Fund

The Council has provided the Sustainable Melbourne Fund with grant revenue $63,000.



Notes to the financial statements
for the year ended 30 June 2013

Note 22. Financial instruments

Accounting policy, terms and conditions



Notes to the financial statements
for the year ended 30 June 2013

Note 22. Financial instruments (continued)

(a) Interest rate risk

(i) The consolidated entity's exposure to interest rate risk, repricing maturities and effective weighted average interest rates on financial instruments at balance date is set out below:



Notes to the financial statements
for the year ended 30 June 2013

Note 22. Financial instruments (continued)
(ii) The Council’s exposure to interest rate risk, repricing maturities and effective weighted average interest rates on financial instruments at balance date is set out below:





Notes to the financial statements
for the year ended 30 June 2013

Note 22. Financial instruments (continued)
(b) Reconciliation of net financial assets to net assets



(c) Net fair values

The carrying amounts of all financial assets and liabilities are a reasonable approximation of their fair value due to the short-term to their maturity.


Notes to the financial statements
for the year ended 30 June 2013

Note 22. Financial instruments (continued)
(d) Credit risk exposures

The credit risk on financial assets of the economic entity which were recognised in the Balance Sheet is generally the carrying amount, net of any provisions for doubtful debts.


(e) Risks and mitigation

The risks associated with Council’s main financial instruments and Council’s policies for minimising these risks are detailed below.


Market risk

Market risk is the risk that the fair value or future cash flows of our financial instruments will fluctuate because of changes in market prices. The Council's exposures to market risk are primarily through interest rate risk with only insignificant exposure to other price risks and no exposure to foreign currency risk. Components of market risk to which we are exposed are discussed below.


Interest rate risk

Interest rate risk refers to the risk that the value of a financial instrument or cash flows associated with the instrument will fluctuate due to changes in market interest rates. Interest rate risk arises from interest bearing financial assets and liabilities that we use. Non derivative interest bearing assets are predominantly short term liquid assets. Our interest rate liability risk is limited to our subsidiary company’s Citywide Service Solutions Pty Ltd borrowings. Council has no direct borrowings.


Our subsidiary company Citywide Service Solutions Pty Ltd has a borrowing and overdraft facility which was arranged with a major Australian bank. Our subsidiary company manages the interest rate risk by:

- ensuring access to diverse sources of funding

- an ongoing review or borrowing levels

- having a limit imposed on the maximum borrowing amount allowed by Council.

Investment of surplus funds is made with approved financial institutions under the Local Government Act 1989 (Vic). We manage interest rate risk by adopting an investment policy that ensures:

- conformity with State and Federal regulations and standards

- adequate safety

- appropriate liquidity

- diversification by credit rating, financial institution and investment product

- monitoring of return on investment

- benchmarking of returns and comparison with budget.

Maturity will be staggered to provide for interest rate variations and to minimise interest rate risk.

Credit risk

Credit risk is the risk that a contracting entity will not complete its obligations under a financial instrument and cause us to make a financial loss. We have exposure to credit risk on all financial assets included in our balance sheet. To help manage this risk:

- The Council has a policy for establishing credit limits for the entities we deal with

- The Council may require collateral where appropriate

- The Council only invests surplus funds with financial institutions which have a recognised credit rating specified in our Treasury policy.
Trade and other receivables consist of a large number of customers, spread across the consumer, business and government sectors. Credit risk associated with the Council's financial assets is minimal because the risk is spread across many debtors. Ongoing credit evaluation is performed on the financial condition of our customers and, where appropriate, an allowance for doubtful debts is raised. The aging of receivables is disclosed in Note 5 “Trade and other receivables”.
(f) Borrowings

With respect to borrowings at Citywide Service Solutions Pty Ltd the following should be noted. The bank overdraft facility is a secured facility. In February 2012 the Bill Acceptance and Discount Facility was increased. This facility is also a secured facility. There is a 1st ranking fixed and floating charge. The bank facilities may be drawn at any time and may be terminated by the bank subject to default under the loan agreement. Subject to the continuance of satisfactory covenant achievement, the bank facilities may be drawn at any time. The facilities expire on the 2 June 2017.



Notes to the financial statements
for the year ended 30 June 2013

Note 22. Financial instruments (continued)

The Council may also be subject to credit risk for transactions which are not included in the balance sheet, such as when we provide a guarantee for another party. Details of our contingent liabilities are disclosed in Note 19.

Liquidity risk

Liquidity risk includes the risk that, as a result of our operational liquidity requirements:

- The Council will not have sufficient funds to settle a transaction on the date

- The Council will be forced to sell financial assets at a value which is less than what they are worth

- The Council may be unable to settle or recover financial assets at all.
To help reduce these risks the Council:

- have a liquidity policy which targets a minimum and average level of cash and cash equivalents to be maintained

- have a liquidity portfolio structure that requires surplus funds to be invested within various bands of liquid instruments

- monitor budget to actual performance on a regular basis

- Council has no direct borrowings.
The Consolidated Entity’s exposure to liquidity risk is deemed insignificant given our high levels of cash and cash equivalents and Citywide Service Solutions Pty Ltd borrowings and our current assessment of risk.
The table below lists the contractual maturities for financial liabilities. These amounts represent undiscounted gross payments including both principal and interest amounts.

Notes to the financial statements
for the year ended 30 June 2013

Note 22. Financial instruments (continued)


(f) Sensitivity disclosure analysis




Notes to the financial statements
for the year ended 30 June 2013

Note 23. Financial ratios




Notes to the financial statements
for the year ended 30 June 2013

Note 23. Financial ratios (continued)
Definitions

To assess Council's ability to meet current commitments.

For every dollar of current liabilities, Council has $1.63 of current assets as at 30th June 2013.




a) Debt servicing costs

Includes interest and charges on loans, overdrafts and interest on payments for capital items purchased on vendor terms.







b) Debt redemption

Includes the principal component of repayments on loans and financial leases and capital items purchased on vendor terms.







c) Rate revenue

Includes revenue from general rates, municipal charges, special rates, special charges, service rates and service charges.

Total revenue

Total revenue as shown in the Comprehensive Income Statement.

d) Total realisable assets

Total indebtedness

Total current assets and total realisable non-current assets.

Total liabilities, both current and non-current, as shown in the Balance Sheet.




e) Current liabilities

Total current liabilities as shown in the Balance Sheet.

Current assets



Total current assets as shown in the Balance Sheet.




Note 24. Business combinations

Note 25. Events occurring after balance date

There are no events that have occurred after balance date that need to be reflected in the Financial Statements.


Signed statement





1 The final emissions figures for the 2012–13 financial year will be released at a later date as part of the National Carbon Offset Standard (NCOS) Carbon Neutral Program reporting.




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