Part 3: Residential Tenancies Trust Account - Notes to the financial statements for the year ended 30 June 2008

Note 1: Statement of accounting policies for the year ended 30 june 2008

Reporting entity

The Department of Building and Housing manages the Residential Tenancies Trust Account pursuant to the Public Finance Act 1989 and the Residential Tenancies Act 1986. The Department took over direct management of the Residential Tenancies Trust Account on 18 August 1992.

All interest arising from any investment in the Residential Tenancies Trust Account belongs to the Crown and is treated as other revenue to the Department of Building and Housing.

Investments are held in approved securities under the Public Finance Act 1989. The Department of Building and Housing pays costs associated with the management of the Residential Tenancies Trust Account as departmental expenses.

Basis of preparation

The financial statements of the Residential Tenancies Trust Account have been prepared in accordance with the requirements of the Public Finance Act 1989, which includes the requirement to comply with New Zealand generally accepted accounting practices (NZ GAAP).

These financial statements have been prepared in accordance with, and comply with, NZ IFRS as appropriate for public benefit entities. This is the first set of financial statements prepared using NZ IFRS.

The accounting policies set out below have been applied consistently to all periods presented in these financial statements and in preparing an opening NZ IFRS statement of financial position as at 1 July 2006 for the purpose of the transition to NZ IFRS.

The financial statements have been prepared on a historical cost basis.

The financial statements are presented in New Zealand dollars and all values are rounded to the nearest thousand dollars ($'000). The functional currency of the Residential Tenancies Trust Account is New Zealand dollars.

Revenue

The Trust derives revenue from interest on investments. Interest on investments is accrued on a monthly basis.

Receivables

Receivables are stated at estimated realisable value.

Investments

Investments are not generally traded but held to maturity. Investments in government stock and bonds are valued at cost with premiums and discounts on investments accounted for on a yield-to-maturity basis. Investments in bank deposits are valued at cost.

Financial instruments

The Residential Tenancies Trust Account is party to financial instruments as part of its normal operations. These financial instruments include accounts payable and receivable, cash, deposits and investments. Revenue and expenditure in relation to all financial instruments is recognised in the statement of financial performance.

Except for those items covered by a separate accounting policy, all financial instruments are shown at estimated fair value.

Taxation

The Residential Tenancies Trust Account is exempt from income tax in terms of the Income Tax Act 2004. Accordingly, no charge for income tax has been provided for.

Critical accounting estimates and assumptions

In preparing these financial statements estimates and assumptions have been made concerning the future. These estimates and assumptions may differ from the subsequent actual results. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Changes in accounting policies

There have been no changes in accounting policies. All policies have been applied on a basis consistent with the previous year.

Note 2: Investments by Ccunterparty

Investments are undertaken in line with the Department's investment strategy. Investments were held with the following counterparties as at 30 June (investment values at book value).

Actual 2007 $000		Actual 2008 $000
	Current
31,200	Westpac	32,200
46,450	ANZ/National Bank	80,450
33,001	BNZ	25,500
52,800	ASB	42,800
163,451	Total current	180,950
	Non-current
24,000	Westpac	24,000
14,200	ANZ/National Bank	12,700
23,500	BNZ	20,500
5,000	ASB	19,000
66,700	Total non-current	76,200
230,151	Total investments by counterparty	257,150
	Weighted average interest rates
7.68%	Short-term deposits	8.77%
8.58%	Term deposits	8.83%

Note 3: Book value of investments

Actual 2007 $000		Actual 2008 $000
228,150	Bank deposits	257,150
2,001	Bank bonds	-
230,151	Total book value of investments	257,150

Note 4: Financial instruments

Financial instruments that are potentially subject to credit risk principally consist of cash on hand, bank balances, accounts receivable, short-term deposits and investments.

Credit risk

The maximum exposures to credit risk at balance date are:

Actual 2007$000		Actual 2008 $000
7,773	Cash held	9,250
11,425	Accounts receivable	14,212
230,151	Investments	257,150
249,349	Total	280,612

There are no major concentrations of credit risk for accounts receivable.

Currency risk

The Residential Tenancies Trust Account has no currency risk, given that any financial instruments it deals with are in New Zealand dollars.

Interest rate risk

The Residential Tenancies Trust Account has no interest rate risk, as all investments are held to maturity. Deposits are held with authorised New Zealand banks.

Fair value

The fair value of all financial instruments is equivalent to the carrying amount disclosed in the statement of financial position. The fair value of bank bonds is nil (2007: $2.039 million).

Note 5: Reconciliation of operating surplus to net cash flows from operating activities

Actual 2007 $000		Actual 2008 $000
-	Operating surplus	-
	Add/(less) movements in working capital
(5,327)	(Increase) in interest receivable	(2,787)
5,077	Increase in interest payable	1,804
(250)	Net cash flows from operating activities	(983)

Note 6: Commitments and contingencies

The Residential Tenancies Trust Account has no commitments or contingent liabilities at balance date (2007: nil).

Note 7: Events after the balance sheet date

No events have occurred between the balance date and date of signing these financial statements that materially affect the financial statements.

Note 8: Capital management

The Residential Tenancies Trust Account's capital is its bondholders' funds and is represented by net assets.

Note 9: Explanation of transition to NZ IFRS

There has been nil adjustment to the Residential Tenancies Trust Account on transition to NZ IFRS.