Defence's Balance Sheet
The Balance Sheet sets out Defence's assets, liabilities and equity as at 30 June 2006. Its purpose is to provide a snapshot of the long-term sustainability of the organisation.
Net assets were $887.8m higher than the Additional Estimates forecast of $50,821.2m. This included an increase in assets of $1,253.1m offset by an increase in liabilities of $365.3m. After setting aside movements relating to the transfer of assets under construction back to Defence and the subsequent reduction in the pre-payment to the DMO which are offsetting, the major variations included land and buildings assets ($198.8m), inventory ($282.9m), assets held for sale ($325.1m) and infrastructure, plant and equipment assets ($604.3m). The increase in liabilities related mainly to an increase in the restoration, decontamination and decommissioning provision.
Table 1.4 provides details and an explanation of the variations follow.
Explanation of Variations
Defence's net asset position at 30 June 2006 was $51,709.0m, which was $887.8m higher than the forecast closing position at Additional Estimates. The variation in Defence's net asset position of $887.8m resulted from an increase in assets of $1,253.1m and an increase in liabilities of $365.3m.
Total Assets (+$1,253.1m)
Assets were higher by $1,253.1m. The elements in this were:
- Cash at Bank (–$125.0m)—lower than expected cash at bank was due to a decision not to report the balance of the FMS account as it is recognised as a prepayment by DMO.
- Appropriation Receivables (–$133.3m)—the lower than anticipated Appropriation Receivable reflects additional draw-downs for FMS payments made in June 2006.
- Other Receivables (–$43.5m)—these were lower than expected due mainly to the timing associated with GST refunds from the Australian Taxation Office.
- Land and Buildings (+$198.8m)—The increase
was due to:
- the revaluation of land and buildings across the estate, as well as recognising the impact of impairment to these assets flowing from AIFRS (+$405.7m);
- the restatement of the 1 July 2005 opening balances from Australian Generally Accepted Accounting Principles (AGAAP) to AIFRS (+$243.0m);
- higher than planned additions of building facilities, due primarily to work completed in the major capital facilities program, including at RAAF Amberley, RAAF Williamtown and the Special Operations Working Accommodation project at Holsworthy (+$145.4m);
- reclassification of assets (including Blocks K and H of the Victoria Barracks in Melbourne) from Heritage and Cultural assets to buildings throughout the financial year (+$38.8m);
- lower than planned property disposal receipts due to delays in the sale of a number of properties including Schofields, NSW (–$17.5m);
- higher than anticipated depreciation expense as a result of revaluations made to building facilities, as well as impacts from AIFRS related adjustments (–$98.7m);
- increased write downs, including buildings under construction after a review by independent valuers (–$190.3m); and
- the classification of assets which are planned to be sold during the coming year, to be presented separately under AIFRS as assets held for sale (–$327.2m).
- Assets held for sale (+$325.1m)—under AIFRS, assets which are planned to be sold during the coming year are required to be presented separately under this category. This balance represents the cost of assets to be disposed of in 2006–07.
- Specialist Military Equipment (+$8,626.8m) —the
higher than planned balance is mainly due to:
- the decision to transfer assets under construction from the DMO to Defence's books was taken after publication of the Portfolio Additional Estimates Statements 2005–06 (+$8,314.2m);
- higher than expected purchase of specialist military equipment of $158.6m, including:
- for the early progression of the C-17 heavy Airlift project;
- the capitalisation of the acquisition service fee and some repairable items; and
- the reclassification of some additions, including as Inventory Purchase on roll-out from AUC to better reflect certain aspects of the major Capital Equipment Program.
- the restatement of the 1 July 2005 opening balances from AGAAP to AIFRS (+$148.8m);
- higher than anticipated assets recognised for the first time due to continued stock-taking activities (+$129.7m);
- lower than planned depreciation expense due to increased reclassification of SME as other types of non-financial assets and higher than anticipated impairment of SME (+$69.5m);
- the reclassification of specialist military equipment assets into other assets such as plant and equipment assets on roll-out of major projects as assets are fully componentised (–$45.6m); and
- increased impairment of specialist military equipment assets, partly reflecting the impact of AIFRS adjustments (–$148.4m).
- Infrastructure Plant & Equipment (+$604.3m)—the
higher than planned balance was due to a number of factors, including:
- the restatement of the 1 July 2005 opening balances from AGAAP to AIFRS, as well as incorporating opening balance adjustments relating to the DMO (+$270.4m);
- higher than anticipated infrastructure, plant and equipment asset additions, the bulk of the additions relating to the transfer of commercial motor vehicles from the DMO to Defence's books (+$217.3m);
- the outcome of the revaluation of Defence's infrastructure, plant and equipment assets, as well as recognising the impairment to those assets under AIFRS (+$216.3m);
- the reclassification of assets that were incorrectly classified, predominantly as buildings, and have since been transferred into plant and equipment assets (+$19.4m);
- net variation in assets recognised for the first time and other movements, including assets which are planned to be sold during the coming year, to be presented separately under AIFRS as assets held for sale (+$1.1m);
- disposals of current year commercial vehicles that were transferred into Defence's accounts from the DMO on 1 July 2005, as well as disposals of miscellaneous assets from Intelligence and Security Group (–$59.5m); and
- higher than anticipated depreciation expense as a result of revaluations to infrastructure, plant and equipment assets, as well as reflecting the increased depreciation expense from the transfer of commercial motor vehicle assets into Defence (–$60.7m).
- Intangibles (–$18.3m)—computer software
and other intangible assets were lower than planned due to:
- higher than planned depreciation due to a generally higher asset base (–$48.8m);
- AIFRS related write-offs of some intangible assets where insufficient documentation was held to substantiate the original asset purchase (–$10.8m);
- the restatement of the 1 July 2005 opening balances from AGAAP to AIFRS, as well as incorporating opening balance adjustments relating to the DMO (–$3.2m); and
- higher than planned computer software purchases including software associated with accounting, reporting, and military capability, and other additions to the asset base resulting from reclassifications (+$44.5m).
- Heritage and Cultural (–$76.9m)—the
lower than expected balance was due mainly to:
- the outcome of the revaluation exercise as well as recognising the impairment of those assets under AIFRS (–$73.7m);
- the reclassification of Blocks K and H of the Victoria Barracks in Melbourne from heritage and cultural assets into building assets (–$19.6m);
- heritage and cultural assets recognised for the first time throughout the financial year (+$0.7m);
- the restatement of the 1 July 2005 opening balances from AGAAP to AIFRS (+$15.6m).
- Inventory (+$282.9m)—the higher than planned
balance was due to a number of factors, including:
- restatement of the 1 July 2005 opening balances from AGAAP to AIFRS. This includes writing back the opening balances for Explosive Ordnance and the provision for excess Inventory relating to General Stores Inventory items into the balance sheet (+$259.4);
- inventory recognised for the first time due to continued stocktake adjustments and positive price adjustments to records (+$152.4m);
- net increase in inventory, reflecting increases in operational and reserve stocks funded under project JP2085 Explosive Ordnance Reserve Stocks, the impact of inflationary increases on General Stores Inventory items, and an increase in the value of fuel holdings caused by the increase in fuel prices (+$147.1m); and
- increased write-down of inventory after stock-taking and adjustments made to bring inventory to its current replacement costs. This included idetifying obsolete inventory (–$276.0m).
- Prepayments (–$8,387.7m) the variation is
due mainly to:
- the decision to transfer assets under construction from the DMO to Defence's books was taken after publication of the Portfolio Additional Estimates Statements 2005–06 (–$8,314.2m); and
- Lower than planned non-capital prepayments (–$73.5m).
Total Liabilities (+$365.3m)
Total liabilities were $365.3m higher than planned due to:
- Supplier and other payables (+$138.5m)—the higher than budgeted supplier payables were mainly due to a higher volume of invoices and accrued expenses processed towards the latter part of the year.
- Leases (+$79.8m)—the reclassification of the contract agreement with Australian Defence Industries for the Benalla Facility as a finance lease (+$149.2m), offset by the buy-out from the DHA of on-base housing annuities (–$69.4m).
- Employee provisions (+$5.7m)—the higher than planned employee provisions is mainly due to an adjustment to the leave liability to more accurately reflect the Department's annual leave and long service leave balances, and other variations including the higher incidence of leave taken by military staff during the year.
- Asbestos related disease exposure (–$390.1)— reduction in Defence's books following the enactment of the Asbestos-Related Claims (Management of Commonwealth Liabilities) Act 2005 on 19 October 2005, which transferred asbestos related liabilities from Defence to Comcare (–$390.1m).
- Restoration, decontamination and decommissioning (+$558.1m)—increases in the provision for land decontamination and restoration provisions for building and specialist military equipment assets following the adoption of AIFRS (+$558.1m).
- Other provisions (–$26.5m)—reduction in other provisions including of a potential liability to meet the cost of certain potential common law claims which might emerge in the Voyager/Melbourne cases.
Equity (+$887.8m)
The difference in total equity of $887.8m is comprised of the following:
Contributed equity (+$296.9m)—the increase in contributed equity is due mainly to the net impact of the transfer of assets between Defence and the DMO during the year and the transfer of the Asbestos Related Diseases Exposure provision from Defence to Comcare.
Reserves (+$547.0m)—this mainly reflects the revaluation activity of Non Financial Assets that have been undertaken during the financial year.
Retained surpluses (+$44.0m)—the variance is due to a combination of differences in the opening balance and the operating result for the financial year, as well as recognising prior period corrections.
Note:
- Appropriation Receivable represents undrawn appropriations from the Commonwealth as at 30 June 2006.
Trends in Defence Assets and Liabilities
Chart 1.3 shows the actual movement of major categories of assets since 2001–02. Over this period, assets have increased by $5,069m to $55,022m.
Chart 1.4 shows the actual movement of major categories of liability since 2001–02. Over this period, liabilities have decreased by $1,051m from $4,364m to $3,313m, reflecting in part the transfer of the military compensation liability to the Department of Veterans' Affairs from 2004–05.
Defence's net worth has increased over the period since 2001–02 by $6.1 billion from $45.6 billion to $51.7 billion as shown in Table 1.5.
Chart 1.3: Historical Trends in Defence's Assets
Chart 1.4: Historical Trends in Defence's Liabilities
