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

Note 6: Fair Value Measurements

Notes to and Forming Part of the Financial Statements

Page last updated: 17 July 2019

Note 6A: 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
Non-financial assets
Leasehold Improvements
45,738
-
2
45,736
Property, plant and equipment
14,802
-
8,076
6,726
Total non-financial assets
60,540
-
8,078
52,462
 
Total fair value measurements of assets in the statement of financial position
60,540
-
8,078
52,462

1There is no non-financial assets measured at fair value on a non-recurring basis as at 30 June 2014.

Fair value measurements - highest and best use

The Department's assets are held for operational purposes and not held for the purposes of deriving a profit. The current use of the assets is considered the highest and best use.

Note 6B: 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)
Inputs used
Range (weighted average)
Non-financial assets
Leasehold Improvements
Level 2
2
Market Approach
Adjusted market transactions
Leasehold Improvements
Level 3
45,736
Depreciated Replacement Cost (DRC)
Replacement cost new (price per square metre)
Consumed economic benefit Obsolescence of asset per annum
50.0% - 4.3% (7.3%)
Property, plant and equipment
Level 2
8,076
Market Approach
Adjusted market transactions
Property, plant and equipment
Level 3
6,726
Depreciated Replacement Cost (DRC)
Replacement cost new
Consumed economic benefit
Obsolescence of asset per annum
25.0% - 3.7% (13.8%)
  1. There has been no changes to valuation techniques.
  2. Significant unobservable inputs only. Not applicable for assets or liabilities in the Level 2 category.
  3. The Range (weighted average) only relates to assets revalued in 2013-14.

There were no significant inter-relationships between unobservable inputs that materially affect fair value.

Recurring and non-recurring level 3 fair value measurements - valuation process

The Department procured the service of the Australian Valuation Solutions (AVS) to undertake a comprehensive valuation of all non-financial assets at 30 June 2014. 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 practicable, regardless of the timing of the last specific valuation. The AVS also provided written assurance that the models developed comply with AASB 13.

There is no change in the valuation technique since 30 June 2013.

Significant level 3 inputs utilised by the entity are derived and evaluated as follows:

Leasehold improvements & property, plant and equipment - Consumed economic benefit / Obsolescence of asset

The Department controls some property, plant and equipment assets which are specialised in nature such as laboratory equipment and do not transact with enough frequency or transparency to develop objective opinions of value from observable market evidence and have been measured some 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.

Recurring Level 3 fair value measurements - sensitivity of inputs

Leasehold improvements & property, plant and equipment - Consumed economic benefit / Obsolescence of asset

The significant unobservable inputs used in the fair value measurement of the Department’s leasehold improvements and property, plant and equipment asset classes 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.

Note 6C: Reconciliation for recurring level 3 fair value measurements
Recurring Level 3 fair value measurements - reconciliation for assets
 
Non-financial assets
Leasehold improvements
2014
$'000
Property, plant and equipment
2014
$'000
Total
2014
$'000
Opening balance1
67,992
4,301
72,293
Total gains/(losses) recognised in net cost of services2
(13,790)
(938)
(14,728)
Purchases
576
546
1,122
Transfers/operations including restructuring3
(9,042)
2,817
(6,225)
Closing balance
45,736
6,726
52,462
 
Changes in unrealised gains/(losses) recognised
-
-
-
  1. Opening balance as determined in accordance with AASB 13.
  2. These losses are presented in the Statement of Comprehensive Income under depreciation and amortisation expenses.
  3. Transfers as a result of AAO changes on 18 September 2013. Further details can be found in Note 11: Restructuring.
  4. There have been no transfers between levels of the hierarchy during the year.

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