Online version of the 2013-14 Department of Health Annual Report

Note 20: Administered - Fair Value Measurements

Notes to and Forming Part of the Financial Statements

Page last updated: 31 October 2014

Note 20A: Fair value measurements

The following tables provide an analysis of assets and liabilities that are measured at fair value. The different levels of the fair value hierarchy are defined below.

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at measurement date.
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3: Unobservable inputs for the asset or liability.

Fair value measurements at the end of the reporting period by hierarchy for assets and liabilities in 2014
   
Fair value measurements at the end of the reporting period using
Fair value
$'000
Level 1 inputs
$'000
Level 2 inputs
$'000
Level 3 inputs
$'000
Financial assets
Other investments
524,830
-
-
524,830
Total financial assets
524,830
-
-
524,830
 
Non-financial assets
Land
1,895
-
605
1,290
Buildings
23,536
705
22,831
Total non-financial assets
25,431
-
1,310
24,121
 
Total fair value measurements of assets in the administered schedule of assets and liabilities
550,261
-
1,310
548,951

Fair value measurements - highest and best use differs from current use for non-financial assets (NFAs)

The highest and best use of all non-financial assets is the same as their current use.

Note 20B: Valuation technique and inputs for Level 2 and Level 3 fair value measurements
Level 2 and 3 fair value measurements - valuation technique and the inputs used for assets and liabilities in 2014
 
Category 
Fair value
$'000
Valuation technique(s)1
Inputs used
Range (weighted average)2
Financial assets
Other investments
Level 3
524,830
Net assets
Net assets position of each entity
(5%) - 5%
Non-financial assets
Land
Level 2
605
Market approach (price per square metre)
Adjusted market transactions
Land
Level 3
1,290
Market approach (price per square metre)
Adjusted market transactions
(10%) - 10%
Buildings
Level 2
705
Market approach
Adjusted market transactions
Buildings
Level 3
22,831
Depreciated Replacement Cost (DRC)
Replacement cost for a new asset, consumed economic benefit / obsolescence of the asset
4.0% - 1.5% (1.61%) per annum rate of obsolescence
  1. No change in valuation technique occurred during the period.
  2. Significant unobservable inputs only. Not applicable for assets or liabilities in the Level 2 category.
Recurring and non-recurring level 3 fair value measurements - valuation process
Land and Buildings - general

The Department engages an independent valuer to undertake valuations of Administered land and buildings. The Department tests the procedures of the valuation model as an internal management review at least once every 12 months, with a formal revaluation undertaken once every three years. If a particular asset class experiences significant and volatile changes in fair value (i.e. where indicators suggest that the value of the class has changed materially since the previous reporting period), that class is subject to specific valuation in the reporting period, where practical, regardless of the timing of the last specific valuation.

The Department procured services of the Australian Valuation Solutions Pty Ltd (AVS) to undertake a valuation of Administered land and buildings as at 30 June 2014. AVS provided written assurance to the Department that the valuation models developed are in compliance with AASB 13.

Land and buildings - Adjusted market transactions

The Department controls land and buildings assets situated in Latrobe, Tasmania. Reference was made to available sales evidence together with other relevant information related to local economic and property market conditions. Market transactions for the main hospital site and ancillary car parks (CP zoned) had been scarce, and the valuer has used significant professional judgement in determining the fair value measurements.

Buildings - Consumed economic benefit / Obsolescence of asset

Mersey Community Hospital is an asset that is held to provide health-related services to the Northern Region of Tasmania. Assets of this nature are not transacted with by market participants with sufficient frequency or transparency to develop objective opinions of value from observable market evidence. Therefore, value has been measured utilising the cost (Depreciated Replacement Cost or DRC) approach. Under the DRC approach the estimated cost to replace the asset is calculated and then adjusted to take into account its consumed economic benefit / asset obsolescence. Consumed economic benefit / asset obsolescence has been determined based on professional judgement regarding physical, economic and external obsolescence factors relevant to the asset under consideration.

The weighted average is determined by assessing the fair value measurement as a proportion of the total fair value for the class against the total useful life of each asset.

Other investments - Net assets

The value of investments is estimated annually on the basis of net asset position of each entity, as obtained from management accounts.

Recurring Level 3 fair value measurements - sensitivity of inputs
Land and Buildings - Adjusted market transactions

Significant unobservable inputs used in the fair value measurement of the Department's land and buildings assets relate to the adopted price per square metre. A significant increase / (decrease) in this input would result in a significantly higher / (lower) fair value measurement.

Buildings - Consumed economic benefit / Obsolescence of asset

Significant unobservable inputs used in the fair value measurement of the Department's buildings assets relate to the consumed economic benefit / asset obsolescence. A significant increase / (decrease) in this input would result in a significantly lower / (higher) fair value measurement.

Other investments - Net assets

Significant unobservable inputs used in the fair value measurement of other investments relate to the assets and liabilities reported in the management accounts of each entity. A significant increase / (decrease) in this input would result in a significantly lower / (higher) fair value measurement.

Note 20C: Reconciliation for recurring level 3 fair value measurements
Recurring Level 3 fair value measurements - reconciliation for assets
 
Financial assets
Non-financial assets
Other investments
2014
$'000
Total
2014
$'000
Land and buildings
2014
$'000
Total
2014
$'000
Opening balance
193,606
193,606
19,288
19,288
Total gains recognised in other comprehensive income1
339,990
339,990
4,101
4,101
Total losses recognised in other comprehensive income2
(8,766)
(8,766)
-
-
Total gains recognised in net cost of services3
-
-
1,538
1,538
Total losses recognised in net cost of services4
-
-
(806)
(806)
Closing balance
524,830
524,830
24,121
24,121
 
Changes in unrealised gains/(losses) recognised in net cost of services for assets held at the end of the reporting period
-
-
-
-
  1. For other investments, the gains are the result of AAO changes on 18 September 2013 and therefore are not presented in the Administered Schedule of Comprehensive Income. Refer Note 11: Restructuring for further detail. For land and buildings the gains are a result of an asset revaluation as at 30 June 2014 and represent the portion of the revaluation increase taken to the Administered Revaluation Reserve.
  2. These losses are the result of revaluation of the investments as at 30 June 2014 taken to the Administered Investments Reserve.
  3. These gains are a result of an asset revaluation as at 30 June 2014 and represent the portion of the revaluation increase taken to the Administered Schedule of Comprehensive Income under other revenue to reverse the effect of the previous revaluation decrease as at 30 June 2011 (Note 19D).
  4. These losses are presented in the Administered Schedule of Comprehensive Income under depreciation and amortisation (Note 18E).