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

Note 5: Fair Value Measurements

Notes to and Forming Part of the Financial Statements

Page last updated: 17 July 2019

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.

Note 5A: Fair Value Measurements
Fair value measurements at the end of the reporting period by hierarchy for assets and liabilities in 2014
 
Fair value
$'000
Level 1
inputs
$'000
Level 2
inputs
$'000
Level 3
inputs
$'000
Non-financial assets
Land and buildings
2,847
-
-
2,847
Property, plant and equipment
5,475
-
1,981
3,494
Total non-financial assets
8,322
-
1,981
6,341
 
All fair value measurements reflect recurring valuations.  
 
Financial assets not measured at fair value in the statement of financial position
Goods and services receivable
4,521
-
4,521
-
Total assets not measured at fair value in the statement of financial position
4,521
-
4,521
-
 
Liabilities not measured at fair value in the statement of financial position
Suppliers payable
(4,298)
(4,298)
-
-
Total liabilities not measured at fair value in the statement of financial position
(4,298)
(4,298)
-
-

The TGA did not measure any assets or liabilities at fair value on a non-recurring basis as at 30 June 2014. The TGA's assets are held for operational purposes and are not held for the purposes of deriving a profit. The current use of the assets are considered the highest and best use.

Note 5B: Level 1 and 2 Transfers for Recurring Fair Value Measurements

There have been no transfers between levels of the heirarchy during the financial year.

Note 5C: 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 in 2014
 
Category (Level 2 or Level 3)
Fair value  $'000
Valuation technique(s) 1
Inputs used 2
Range (weighted average)
Non-financial assets
Land and buildings
3
2,847
Depreciated replacement cost (DRC)
Replacement cost new
N/A
Consumed economic benefit/Obsolescence of assets
50% - 4.3% (9.7%) per annum
Property, plant and equipment
2
1,981
Market approach
Adjusted market transactions
N/A
Property, plant and equipment
3
3,494
Depreciated replacement cost (DRC)
Replacement cost new
N/A
 
Consumed economic benefit/Obsolescence of assets
25% - 3.7% (13.6%) per annum
 
Financial assets not measured at fair value in the statement of financial position
Goods and services receivable
2
4,521
Assessment of default risk
Review of individual debts
N/A

1 There have been no changes to valuation techniques.
2 Significant unobservable inputs only. Not applicable for assets or liabilites in the level 2 category.

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

Recurring and non-recurring Level 3 fair value measurements - valuation processes

The TGA procured the services of the Australian Valuation Office (AVO) to undertake a comprehensive valuation of all non-financial assets as at 30 June 2012. The TGA tests the procedures of the valuation model at least once every 12 months. 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 TGA has engaged Australian Valuation Solutions (AVS) to provide written assurance that the models developed comply with AASB 13 Fair Value Measurement. There is no change in the valuation technique since the prior year.

Significant unobservable (level 3) inputs utilised by the TGA are derived and evaluated as follows:

Leasehold improvements - consumed economic benefit/obsolescence of assets
The leasehold improvements at the TGA's main facility at Symonston have been constructed to allow the TGA to undertake assessment and monitoring activities of therapeutic goods available in Australia. These assets do not transact with enough frequency or transparency to develop objective opinions of value from observable market evidence and have 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.

Property, plant and equipment - consumed economic benefit/obsolescence of assets
Around 10% of the TGA's property, plant and equipment (PPE) assets are specialised in nature and do not transact with enough frequency or transparency to develop objective opinions of value from observable market evidence and have 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.

Recurring level 3 fair value measurements - sensitivity of inputs
The significant unobservable inputs used in the fair value measurement of the TGA'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 5D: Reconciliation for Recurring Level 3 Fair Value Measurements
Recurring Level 3 fair value measurements - reconciliation for non-financial assets 2014
 
Land and buildings
$'000
Property, plant and
equipment
$'000
Total
$'000
Opening balance 1
3,633
3,641
7,274
Depreciation
(1,362)
(693)
(2,055)
Purchases
576
546
1,122
Closing balance
2,847
3,494
6,341

1 Opening balance as determined in accordance with AASB 13 Fair Value Measurement.

There have been no transfers between levels of the hierarchy during the year.
The TGA's policy for determining when transfers between levels are deemed to have occurred can be found in Note 1.

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