Department of Foreign Affairs and Trade
Notes to and Forming Part of the Financial Statements
Note 6: Fair Value Measurements
| Note 6A: Fair Value Measurements, Valuation Techniques and Inputs Used | |||||
| Fair value measurements at the end of the reporting period using | For Levels 2 and 3 fair value measurements | ||||
|---|---|---|---|---|---|
| 2015 | 2014 | Level | Valuation | ||
| $’000 | $’000 | (1, 2 or 3) | technique(s)1 | Inputs used2 | |
| Non-financial assets: | |||||
| Land: | |||||
| Commercial | 346,291 | 249,922 | 2 | Market approach | Adjusted market transactions ($ per square metre) |
| Commercial | 25,403 | 19,708 | 3 | Market approach | Adjusted market transactions ($ per square metre) |
| Residential | 447,969 | 360,039 | 2 | Market approach | Adjusted market transactions ($ per square metre) |
| Residential | 37,444 | 38,053 | 3 | Market approach | Adjusted market transactions ($ per square metre) |
| Mixed Use | 629,461 | 467,781 | 2 | Market approach | Adjusted market transactions ($ per square metre) |
| Mixed Use | 89,229 | 77,858 | 3 | Market approach | Adjusted market transactions ($ per square metre) |
| Buildings: | |||||
| Commercial | 45,493 | 44,512 | 2 | Market approach | Adjusted market transactions ($ per square metre) |
| Commercial | 158,694 | 134,005 | 2 | Income approach | Annual market rental ($ per square metre) |
| Capitalisation rate | |||||
| Commercial | 30,203 | 27,836 | 3 | Income approach | Annual market rental ($ per square metre) |
| Capitalisation rate | |||||
| Commercial | 25,557 | 21,013 | 3 | Depreciated replacement cost | Replacement cost new |
| Consumed economic benefit and obsolescence | |||||
| Residential | 150,666 | 125,241 | 2 | Market approach | Adjusted market transactions ($ per square metre) |
| Residential | 33,371 | 34,397 | 3 | Market approach | Adjusted market transactions ($ per square metre) |
| Residential | 4,370 | 6,599 | 3 | Depreciated replacement cost | Replacement cost new |
| Consumed economic benefit and obsolescence | |||||
| Mixed Use | 175,985 | 127,572 | 2 | Market approach | Adjusted market transactions ($ per square metre) |
| Mixed Use | 159,710 | 157,183 | 2 | Income approach | Annual market rental ($ per square metre) |
| Capitalisation rate | |||||
| Buildings: | |||||
| Mixed Use | 14,888 | 6,160 | 3 | Income approach | Annual market rental ($ per square metre) |
| Capitalisation rate | |||||
| Mixed Use | 36,712 | 32,027 | 3 | Depreciated replacement cost | Replacement cost new |
| Consumed economic benefit and obsolescence | |||||
| Leasehold improvements | 144,294 | 166,675 | 3 | Depreciated replacement cost | Replacement cost new |
| Consumed economic benefit and obsolescence | |||||
| Property, plant and equipment | 61,859 | 53,736 | 2 | Market approach | Adjusted market transactions |
| Property, plant and equipment | 8,488 | 12,716 | 3 | Market approach | Adjusted market transactions |
| Property, plant and equipment | 96,704 | 77,119 | 3 | Depreciated replacement cost | Replacement cost new |
| Consumed economic benefit and obsolescence | |||||
| Total non-financial assets | 2,722,791 | 2,240,152 | |||
| Total fair value measurements of assets in the statement of financial position | 2,722,791 | 2,240,152 | |||
| Assets not measured at fair value in the statement of financial position: | |||||
| Land: | |||||
| Residential | 362 | – | 2 | Market approach | Adjusted market transactions ($ per square metre) |
| Buildings: | |||||
| Residential | 309 | – | 2 | Market approach | Adjusted market transactions ($ per square metre) |
| Total non-financial assets | 671 | – | |||
| Total assets not measured at fair value in the statement of financial position | 671 | – | |||
DFAT’s policy for determining when transfers between levels are deemed to have occurred can be found in Note 1.11.
The department had a residential property that is no longer essential to operational requirements as at 30 June 2015 (2014: nil). The asset has been measured at fair value less cost to sell.
The total fair value measurement of the leasehold improvements at 30 June 2014 was adjusted upwards by $0.279m to account for capital assets previously recognised as work in progress. The total fair value measurement of the property, plant and equipment at 30 June 2014 was adjusted downward by $2.512m to account for work in progress assets previously recognised as capitalised assets.
Fair value measurements – highest and best use differs from current use for non-financial assets
The department’s assets are held for operational purposes. The current use of all controlled assets is considered their highest and best use.
Recurring and non-recurring level 3 fair value measurements – valuation processes
The department revalued all land and building assets as part of the annual property portfolio valuation program as at 30 June 2015. Office equipment and artwork were also subject to valuation in the current financial year. All other assets were subject to an independent review as at 30 June 2014 to ensure all asset classes were held at fair value.
- There have been changes to the valuation techniques for assets in the property, plant and equipment class. In instances where sufficient observable inputs, such as market transactions of similar assets, were identified at 30 June 2015, the valuation technique was changed from a depreciated replacement cost approach to a market approach. In instances where sufficient observable market evidence was not identified at 30 June 2015, the valuation technique was changed from a market approach to a depreciated replacement cost approach (2014: nil changes).
- were no significant inter-relationships between unobservable inputs that materially affect fair value.
- The Level 3 inputs utilised by the department are derived and evaluated as follows:
Replacement Cost of New Assets/Contracted Prices: The department controls assets situated in locations where construction cost evidence is limited. Reference was made to available cost information and the Valuer has used significant professional judgement in determining the replacement cost for the asset under consideration.
Consumed Economic Benefits and/or Obsolescence of Assets: The Consumed economic benefit and/or asset obsolescence has been determined based on professional judgement regarding physical, economic and external obsolescence factors relevant to the assets under consideration.
Adjusted Market Transactions/Annual Market Rental/Sale Price Comparable/Capitalisation Rate: The department controls assets situated in locations where property markets experience few transactions. Reference was made to available sales evidence together with other relevant information related to local economic conditions, property market conditions and the asset under consideration. The Valuer has used significant professional judgement in determining the fair value measurements of these assets.
The future economic benefits of the department’s assets are not primarily dependent on their ability to generate cash flows. DFAT has not disclosed quantitative information about the significant unobservable inputs for the department’s assets.
| Note 6B: Reconciliation for recurring Level 3 fair value measurements | |||||
| Non-Financial assets | |||||
|---|---|---|---|---|---|
| Land | Buildings | Leasehold improve-ments | Property, plant and equipment | Total | |
| 2015 | 2015 | 2015 | 2015 | 2015 | |
| $’000 | $’000 | $’000 | $’000 | $’000 | |
| Opening balance – 1 July 2014 | 135,619 | 128,032 | 166,675 | 89,835 | 520,161 |
| Total gains/(losses) recognised in other comprehensive income1 | 26,531 | 12,381 | (54,233) | (30,010) | (45,331) |
| Reclassifications | – | – | 633 | (49) | 584 |
| Purchases | – | 8,599 | 33,231 | 40,462 | 82,292 |
| Sales | – | – | (2,012) | (642) | (2,654) |
| Transfers into Level 32,3 | – | 622 | – | 8,839 | 9,461 |
| Transfers out of Level 32,4 | (10,074) | (4,533) | – | (3,243) | (17,850) |
| Closing balance – 30 June 2015 | 152,076 | 145,101 | 144,294 | 105,192 | 546,663 |
| Changes in unrealised gains/(losses) recognised in net cost of services for assets held at the end of the reporting period5 | – | – | – | – | – |
| Non-Financial assets | |||||
| Land | Buildings | Leasehold improve-ments | Property, plant and equipment | Total | |
| 2014 | 2014 | 2014 | 2014 | 2014 | |
| $’000 | $’000 | $’000 | $’000 | $’000 | |
| Opening balance – 1 July 2013 | – | – | – | – | |
| Assets first assessed as Level 3 – 30 June 2014 | 135,619 | 128,032 | 166,675 | 89,835 | 520,161 |
| Closing balance – 30 June 2014 | 135,619 | 128,032 | 166,675 | 89,835 | 520,161 |
| Changes in unrealised gains/(losses) recognised in net cost of services for assets held at the end of the reporting period5 | – | – | – | – | – |
- These gains/(losses) are represented in the Schedule of Comprehensive Income and at Note 8A.
- The department’s policy for determining when transfers between levels are deemed to have occurred can be found in Note 1.11.
- A residential building in Nairobi was being renovated at 30 June 2015 and has been valued utilising significant professional judgement. The fair value measurement has been transferred into level 3. There have been transfers of property, plant and equipment asset fair value measurements into level 3 during the year due to a change in the valuation technique from a market approach to Depreciated Replacement Cost approach.
- The Colombo Chancery which was under construction at 30 June 2014 has been completed and valued without the use of significant unobservable inputs. The fair value measurements of the land and building assets have been transferred out of level 3. There have been transfers of property, plant and equipment asset fair value measurements out of level 3 during the year due to changes in the valuation technique from Depreciated Replacement Cost approach to a market approach. Fair value measurements have been determined without the use of significant unobservable inputs.
- There are no unrealised gains / (losses) for level 3 assets in the Schedule of Comprehensive Income as at 30 June 2015 (30 June 2014: Nil).