TORRES STRAIT REGIONAL AUTHORITY
Notes to and forming part of the financial statements for the period ended 30 June 2014
Note 16: Financial Instruments
| 2014 $'000 | 2013 $'000 | |
| Note 16A: Categories of Financial Instruments | ||
| Financial Assets | ||
| Held-to-maturity | ||
| Term deposits | 37,394 | 36,800 |
| Total held-to-maturity | 37,394 | 36,800 |
| Loans and receivables | ||
| Cash and cash equivalents | 2,711 | 1,476 |
| Trade and other receivables | 204 | 1,170 |
| Loans receivable | 5,250 | 5,204 |
| Total loans and receivables | 8,165 | 7,850 |
| Total financial assets | 45,559 | 44,650 |
| Financial Liabilities | ||
| Financial liabilities measured at amortised cost | ||
| Trade creditors | 4,247 | 5,491 |
| Grant liabilities | 288 | 1,828 |
| Total financial liabilities measured at amortised cost | 4,535 | 7,319 |
| Total financial liabilities | 4,535 | 7,319 |
TSRA holds a portfolio of concessional loans that are provided for business development and home ownership programs.
| The values of these loans as at 30 June 2014 are as follows: | ||
| Concessional loans - nominal value | 5,831 | 5,761 |
| Less: unexpired discount | (469) | (442) |
| Less: impairment allowance | (112) | (115) |
| Concessional loans - carrying value | 5,250 | 5,204 |
| Note 16B: Net Gains or Losses on Financial Assets | ||
| Held-to-maturity | ||
| Interest revenue | 1,778 | 2,003 |
| Net gains on held-to-maturity | 1,778 | 2,003 |
| Loans and receivables | ||
| Interest revenue (see note 4B) | 352 | 369 |
| Impairment (see note 4E) | 5 | 48 |
| Reversal of losses from remeasuring loans and receivables (see note 4E) | 60 | 96 |
| Write down of loans to Net Present Value (see note 3E) | (135) | (132) |
| Receivables Goods and services - external parties provided for as impaired (see note 3F) | (1) | (77) |
| Net gain on loans and receivables | 281 | 304 |
| Net gain on financial assets | 2,059 | 2,307 |
The net income from financial assets not at fair value from profit or loss is $2,059,000 (2013: $2,307,000)
Note 16C: Net Gains or Losses on Financial Liabilities
There are no gains or losses on financial liabilities for the year ending 30 June 2014 (2013: $Nil)
TORRES STRAIT REGIONAL AUTHORITY
Notes to and forming part of the financial statements for the period ended 30 June 2014
Note 16D: Fair Value of Financial Instruments
The carrying amount of financial instruments matches their fair value in 2013-14 as in 2012-13.
Note 16E: Credit risk
TSRA was exposed to minimal credit risk as the majority of loans and receivables and all held-to-maturity financial instruments are cash or high quality trade receivables. TSRA also holds a portfolio of concessional loans that are provided for business development and home ownership programs. The maximum exposure to credit risk is the risk that arises from potential default of a trade debtor or a concessional loan holder. This amount is equal to the total amount of trade and loan receivables (2014: $5,454,000 and 2013: $6,374,000)
In relation to the housing loans, TSRA holds mortgages as sole mortgagor over the houses for which the loans are provided. TSRA receives market advice from a qualified valuer or market expert on the value of a property prior to the loan being approved. In relation to Business Funding Scheme loans, from 2007-08 TSRA has required that inexperienced business owner(s) successfully complete an approved business course and submit a business plan prior to the loan being approved. These policies mitigate against credit risk for the TSRA's loans portfolio.
TSRA has assessed the risk of the default on payment and has allocated $111,529 in 2014 (2013: $179,945) to an allowance for impairment. Security underpinning this impairment includes a 5 bedroom house, which was independently valued in November 2013 at an estimated total value of $555,000.
Credit quality of financial instruments not past due or individually determined as impaired
| Not past due nor impaired 2014 $'000 | Not past due nor impaired 2013 $'000 | Past due or impaired 2014 $'000 | Past due or impaired 2013 $'000 | |
| Cash and cash equivalents | 2,711 | 1,476 | - | - |
| Receivables for goods and services | 197 | 1,084 | 7 | 151 |
| Loans receivable | 5,213 | 5,150 | 149 | 169 |
| Term Deposits | 37,394 | 36,800 | - | - |
| Total | 45,515 | 44,510 | 156 | 320 |
Ageing of financial assets that were past due but not impaired for 2014
| 0 to 30 days $'000 | 31 to 60 days $'000 | 61 to 90 days $'000 | 90+ days $'000 | Total $'000 | |
| Receivables for goods and services | 4 | - | 1 | 2 | 7 |
| Loans receivable | 8 | 7 | 5 | 17 | 37 |
| Total | 12 | 7 | 6 | 19 | 44 |
Ageing of financial assets that were past due but not impaired for 2013
| 0 to 30 days $'000 | 31 to 60 days $'000 | 61 to 90 days $'000 | 90+ days $'000 | Total $'000 | |
| Receivables for goods and services | 5 | - | 2 | 79 | 86 |
| Loans receivable | 13 | 7 | 6 | 28 | 54 |
| Total | 18 | 7 | 8 | 107 | 140 |
TORRES STRAIT REGIONAL AUTHORITY
Notes to and forming part of the financial statements for the period ended 30 June 2014
Note 16F: Liquidity Risk
TSRA's financial liabilities were trade creditors and accruals and grant liabilities. The exposure to liquidity risk was based on the notion that TSRA will encounter difficulty in meeting its obligations associated with financial liabilities. This was highly unlikely due to Government funding and mechanisms available to TSRA and internal policies and procedures put in place to ensure there were appropriate resources to meet its financial obligations.
Maturities for non-derivative financial liabilities in 2014
| On demand $'000 |
within 1 year $'000 |
between 1 to 2 years $'000 |
between 2 to 5 years $'000 |
more than 5 years $'000 |
Total $'000 | |
| Trade creditors and accruals | - | 4,247 | - | - | - | 4,247 |
| Grant liabilities | - | 288 | - | - | - | 288 |
| Total | - | 4,535 | - | - | - | 4,535 |
Maturities for non-derivative financial liabilities in 2013
| On demand $'000 | within 1 year $'000 | between 1 to 2 years $'000 | between 2 to 5 years $'000 | more than 5 years $'000 | Total $'000 | |
| Trade creditors and accruals | - | 5,491 | - | - | - | 5,491 |
| Grant liabilities | - | 1,828 | - | - | - | 1,828 |
| Total | - | 7,319 | - | - | - | 7,319 |
TSRA receives funding from its Portfolio Department. TSRA manages its budgeted funds to ensure it has adequate funds to meet payments as they fall due. In addition, the TSRA has policies in place to ensure timely payments are made when due and has no past experience of default.
The entity had no derivative financial liabilities in either 2014 or 2013.
TORRES STRAIT REGIONAL AUTHORITY
Notes to and forming part of the financial statements for the period ended 30 June 2014
Note 16G: Market Risk
TSRA holds basic financial instruments that did not expose TSRA to certain market risks such as 'currency risk' and 'other price risk'.
Interest Rate Risk
Interest rate risk refers to the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. TSRA is exposed to interest rate risk primarily from cash deposits and concessional loans.
Interest earned on cash at bank and term deposits after they mature may be effected by changes in market interest rates. The following table represents the effect to the statement of comprehensive income (and corresponding effect to the cash value in the balance sheet) when the current market interest rate is varied by 0.60%. 0.60% is anticipated to be a reasonable estimate of the maximum movement in market interest rates in financial year 2014-15.
Sensitivity Analysis of the risk that the TSRA is exposed to for 2014-15 with respect to cash at bank and term deposits
| Value $'000 | Effect on Statement of Comprehensive Income Income (Expense) $'000 | |
| Anticipated interest earned for 2014-15 financial year at current market interest rate | 1,376 | - |
| Increase of 0.60% in market interest rate | 1,617 | 241 |
| Decrease of 0.60% in market interest rate | 1,135 | (241) |
The value of concessional loans is derived by applying the amortised cost using the effective interest method. Because the loan portfolio is valued at net present value using market interest rates, movements in market interest rates will impact on the value of the loan portfolio and the income statement. The following table represents the effect to the income statement (and corresponding effect to the loan portfolio value in the balance sheet) when the current market interest rate is varied by 0.60%. 0.60% is anticipated to be a reasonable estimate of the maximum movement in market interest rates in financial year 2014-15.
Sensitivity Analysis of the risk that the TSRA is exposed to for 2014-15 with respect to concessional loans
| Value $'000 | Effect on Statement of Comprehensive Income Income (Expense) $'000 | |
| Anticipated interest earned for 2014-15 financial year at current market interest rate | 5,362 | - |
| Increase of 0.60% in market interest rate | 5,147 | (215) |
| Decrease of 0.60% in market interest rate | 5,593 | 231 |
Assets past due and impaired are represented by loans individually assessed to be at high risk of default.