Chapter One - Overview > Financial Overview > page 6 of 16
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Financial Overview

Defence's Financial Position

Explanation of Major Variations

The variation in Defence's net asset position of +$1,604m resulted from an increase in assets of $1,401m and a decrease in liabilities of $202m.

Total Assets (+$1,401m)

Assets were $1,401m higher than the projected result, mainly due to:

  • Financial Assets (+$240m) - Defence's financial assets comprise its cash position, the appropriation receivable and other receivables. Overall, financial assets were $240m higher than the revised additional estimate primarily due to:
    • the cash balance being $167m higher than projected due to a higher than planned level of funds in the Foreign Military Sales bank account.
    • the appropriation receivable being $47m lower than forecast due to:
      • the finalisation of the transfer to the Department of Veterans' Affairs of the military compensation scheme (-$114m);
      • adjustment to the receivable for the correct accounting treatment of funds provided in 2004-05 to reimburse costs incurred in 2003-04 (-$66m);
      • revision to the draw downs of cash in relation to employee provision (+$16m);
      • funds not required in 2004-05 that will be returned to the Budget in 2005-06 under no-win/no-loss arrangements (+$56m); and
      • undrawn 2004-05 Appropriation relating to a number of purchases where deliveries have been delayed until 2005-06, for which cash is carried forward (+$61m).
    • an increase in other receivables (+$120m), mainly due to:
      • timing associated with GST refund from the Australian Taxation Office (+$78m);
      • other outstanding debtors for sales of goods and services, including sales of properties (+$35m); and
      • higher than anticipated receivable for fuel, reflecting the fuel exchange agreement including for exercise Talisman Sabre (+$7m).
  • Land and Buildings (+$1,139m) -The land and building balance was $1,139m higher than the revised additional estimate due mainly to:
    • the outcome of the revaluation of land and buildings across the entire estate (+$1,417m);
    • site visits by the Australian Valuation Office identified assets not previously recorded or capitalised as part of the comprehensive asset revaluation exercise. These assets have now been bought onto Defence's books (+$247m);
    • net variation in additions, disposals and depreciation (+$12m);
    • a 100 per cent revaluation of the Defence estate by the Australian Valuation Office identified a number of assets required to be written down, including at Holsworthy Barracks, RAAF bases Williamtown and Amberley and HMAS Albatross (-$77m);
    • the reclassification of some buildings as infrastructure, plant and equipment and Heritage and Cultural assets (-$204m); and
    • concurrent with the re-valuation of the Defence estate, Defence reviewed financial records of completed estate infrastructure projects (-$255m).
  • Specialist Military Equipment (-$222m) - The decrease of $222m can mainly be explained by increased write-downs, including assets under construction where the value of work completed was not in line with the accumulated costs incurred and lower than expected assets now recognised as Defence continues to improve its stocktaking activities. This was partially offset by the higher than planned expenditure on the capital program reflecting improved project management throughput by the Defence Materiel Organisation.
  • Infrastructure, Plant and Equipment (+$332m) - The increase was mainly due to:
    • a net revaluation of infrastructure, plant and equipment assets (+$419m);
    • the recognition for the first time of infrastructure, plant and equipment assets as a result of the comprehensive asset revaluation exercise and capitalisation of some assets that were previously expensed (+$166m);
    • higher than anticipated depreciation expense as a result of the revaluation of infrastructure, plant and equipment undertaken during the year (-$9m);
    • reclassification of certain assets into computer software (-$50m);
    • the 100 per cent revaluation of the Defence estate within identified a number of other infrastructure, plant and equipment to be written down, including at RAAF base Curtin, Holsworthy Barracks and HMAS Stirling (-$89m); and
    • lower than anticipated purchases of infrastructure, plant and equipment, off set in purchases of software and other intangibles (-$105m).
  • Intangibles (+$160m) - This variation mainly comprised:
    • the higher than planned purchases of intangibles including the ASLAV logistics management information system and SAP license fees (+$110m);
    • a reclassification of certain assets from specialist military equipment and infrastructure, plant and equipment, including an Assets Under Construction rollout of the High Frequency Modernisation project (+$82m);
    • write-down of intangibles including software previously capitalised (-$8m); and
    • higher than anticipated amortisation expense, due to higher purchases and reclassifications (-$24m)
  • Heritage and Cultural Assets (+$774m) - The increase was mainly due to the review and cataloguing of potential heritage and cultural items that is currently being undertaken which has resulted in:
    • the revaluation of heritage assets, including Navy Heritage Collections (+$564m);
    • the net impact of assets re-classification of certain buildings into heritage and cultural assets (+$187m); and
    • recognition of heritage and cultural assets for the first time (+$23m).
  • Inventory (-$1,132m) - The decrease in inventory holdings of $1,132m comprises:
    • the large scale inventory stocktake program, which identified significant write down of inventories ( $763m);
    • extensive review of inventory holdings to identify inventory that is unlikely to be used due to the planned phasing out of the prime platform resulted in considerable amounts of inventory being recognised as obsolete ( $716m);
    • additional inventory purchases associated with additional funds, provided by Government for sustainment and through life support, partially off-set by higher than expected consumption during the year (+$152m); and
    • Inventory recognised for the first time due to continued stocktake adjustments, and positive price adjustments to records (+$195m).
  • Other Non-Financial Assets (+$110m) - Other Non-Financial Assets were higher due to prepayments, including for the purchase of communications and information technology assets below the asset capitalisation threshold, and information technology infrastructure spectrum fees and charges.

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