PPE carried at valuation, policy, IFRS 13 para 93 fair value hierarchy and disclosure of unobservable inputs

Auckland International Airport Limited – Annual report – 30 June 2018

Industry: transport

  1. Summary of significant accounting policies (extract)

(a) Basis of preparation (extract)

Measurement base (extract)

The financial statements have been prepared on a historical cost basis, except for investment properties, land, buildings and services, runway, taxiways and aprons, infrastructural assets and derivative financial instruments, which have been measured at fair value.

(f) Property, plant and equipment

Properties held for airport operations purposes are classified as property, plant and equipment.

Property, plant and equipment are initially recognised at cost.

Vehicles, plant and equipment are carried at cost less accumulated depreciation and impairment losses.

Land, buildings and services, runway, taxiways and aprons and infrastructural assets are carried at fair value, as determined by an independent registered valuer, less accumulated depreciation and any impairment losses recognised after the date of any revaluation. Land, buildings and services, runway, taxiways and aprons and infrastructural assets acquired or constructed after the date of the latest revaluation are carried at cost, which approximates fair value. Revaluations are carried out with sufficient regularity to ensure that the carrying amount does not differ materially from fair value at the balance date.

Revaluations

Revaluation increases are recognised in other comprehensive income and accumulated as a separate component of equity in the property, plant and equipment revaluation reserve, except to the extent that they reverse a revaluation decrease of the same asset previously recognised in the income statement, in which case the increase is recognised in the income statement.

Revaluation decreases are recognised in the income statement, except to the extent that they offset a previous revaluation increase for the same asset, in which case the decrease is recognised in other comprehensive income and accumulated as a separate component of equity in the property, plant and equipment revaluation reserve.

Accumulated depreciation as at the revaluation date is eliminated against the gross carrying amounts of the assets and the net amounts are restated to the revalued amounts of the assets.

Depreciation

Depreciation is calculated on a straight-line basis to allocate the cost or revalued amount of an asset, less any residual value, over its estimated useful life.

The estimated useful lives of property, plant and equipment are as follows:

Land (including reclaimed land)                                Indefinite

Buildings and services                                                  5 – 50 years

Infrastructural assets                                                    5 – 80 years

Runway, taxiways and aprons                                     12 – 40 years

Vehicles, plant and equipment                                     3 – 10 years

  1. Significant accounting judgements, estimates and assumptions (extract)

(b) Carrying value of property, plant and equipment

Judgement is required to determine whether the fair value of land, buildings and services, runway, taxiways and aprons and infrastructural assets has changed materially from the last revaluation. The determination of fair value at the time of the revaluation requires estimates and assumptions based on market conditions at that time. Changes to estimates, assumptions or market conditions subsequent to a revaluation will result in changes to the fair value of property, plant and equipment.

Remaining useful lives and residual values are estimated based on management’s judgement, previous experience and guidance from registered valuers. Changes in those estimates affect the carrying value and the depreciation expense in the income statement.

The carrying value of property, plant and equipment and the valuation methodologies and assumptions are disclosed in note 11(c).

(c) Movements in the carrying value of property, plant and equipment

When revaluations are carried out by independent valuers, the valuer determines a value for individual assets. This may involve allocations to individual assets from projects and allocations to individual assets within a class of assets. The allocations to individual assets may be different to the allocations performed at the time a project was completed or different to the allocations to the individual asset made at the previous asset revaluation. These differences at an asset level may be material and can impact the income statement.

  1. Property, plant and equipment

(a) Reconciliation of carrying amounts at the beginning and end of the year

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Additions for the year ended 30 June 2018 include capitalised interest of $7.6 million (2017: $7.9 million).

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(b) Carrying amounts of land, buildings and services, infrastructure, runway, taxiways and aprons if measured at historical cost less accumulated depreciation

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(c) Revaluation of land, buildings and services, infrastructure, runway, taxiways and aprons

At the end of each reporting period, the group makes an assessment of whether the carrying amounts differ materially from fair value and whether a revaluation is required. The assessment considers movements in the capital goods price index since the previous valuation and changes in valuations of investment property as an indicator of property, plant and equipment.

Valuations are completed in accordance with the company’s asset valuation handbook, which is prepared in accordance with financial reporting and valuation standards. Management reviews the key inputs, assesses valuation movements and holds discussions with the valuers as part of the process. Discussions about the valuation processes and results are held between the group’s management and the Board.

The group revalued land assets at 30 June 2018. Land assets were independently valued by Savills Limited (Savills), Jones Lang LaSalle Ltd (JLL), CB Richard Ellis Limited (CBRE) and Aon Risk Solutions (AON).

At 30 June 2018, the assessment is that there is no material change compared with carryng value in the fair value of infrastructure, buildings and services and runway, taxiways and aprons. Infrastructure assets were independently revalued by Beca Projects NZ Limited (Beca) as at 30 June 2016. Buildings and services and runway, taxiways and aprons were independently revalued by Opus as at 30 June 2015.

Fair value measurement

The valuers use different approaches for valuing different asset groups. Where the fair value of an asset is able to be determined by reference to market-based evidence, such as sales of comparable assets, the fair value is determined using this information. Where fair value of the asset is not able to be reliably determined using market-based evidence, discounted cash flows or optimised depreciated replacement cost is used to determine fair value. Assets acquired or constructed after the date of the latest revaluation are carried at cost, which approximates fair value.

The group’s land, buildings and services, infrastructure, runway, taxiways and aprons are all categorised as Level 3 in the fair value hierarchy as described in note 18.3. During the year, there were no transfers between the levels of the fair value hierarchy.

The table below summarises the valuation approach and the principal assumptions used in establishing the fair values.

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The valuation inputs for land are from the 2018 valuation and the prior year comparatives are from the 2016 valuations. The valuation inputs for infrastructure are from the 2016 valuation, and the valuation inputs for buildings and services and runway, taxiways and aprons are from the 2015 valuation.

Description of different valuation approaches

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The table below summarises each registered valuer’s valuation of property, plant and equipment

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1 Land was revalued at 30 June 2018. This class was previously revalued at 30 June 2016.

2 At 30 June 2018, the assessment is that there is no material change in the fair value of buildings and services and runway, taxiways and aprons compared with carrying value. Those classes were last revalued at 30 June 2015.

3 At 30 June 2018, the assessment is that there is no material change in the fair value of infrastructure assets compared with carrying value. This class was last revalued at 30 June 2016.

The following table shows the impact on the fair value due to a change in a significant unobservable input.

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