Notes to the financial statements

1.1 Basis of preparation

These annual financial statements represent the audited general‑purpose financial statements for the department for the year ended 30 June 2022. The purpose of the report is to provide users with information about the department’s stewardship of resources entrusted to it.

These financial statements are in Australian dollars. The historical cost convention is used, unless a different measurement basis is specifically disclosed in the note associated with the item measured on a different basis.

The accrual basis of accounting has been applied in the preparation of these financial statements, whereby assets, liabilities, equity, income and expenses are recognised in the reporting period to which they relate, regardless of when cash is received or paid.

Consistent with the requirements of the Australian Accounting Standards Board (AASB) 1004 Contributions, contributions by owners (that is, contributed capital and its repayment) are treated as equity transactions and, therefore, do not form part of the income and expenses of the department.

Additions to net assets that have been designated as contributions by owners are recognised as contributed capital. Other transfers that are in the nature of contributions to or distributions by owners have also been designated as contributions by owners.

Transfers of net assets arising from administrative restructurings are treated as distributions to or contributions by owners. Transfers of net liabilities arising from administrative restructurings are treated as distributions to owners.

Judgements, estimates and assumptions are required to be made about financial information being presented. The significant judgements made in the preparation of these financial statements are disclosed in the notes, where amounts affected by those judgements are disclosed. Estimates and associated assumptions are based on professional judgements derived from historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

Revisions to accounting estimates are recognised in the period in which the estimate is revised and in future periods that are affected by the revision. Judgements and assumptions made by management in the application of Australian Accounting Standards (AAS) that have significant effects on the financial statements and estimates are disclosed in the notes under the heading: ‘Significant judgement or estimates’.

Reporting entity

The department is a government department of the State of Victoria, established pursuant to an order made by the Premier under the Public Administration Act 2004.

Its principal address is:

Department of Education and Training
2 Treasury Place
Melbourne VIC 3002

The department is an administrative agency acting on behalf of the Crown.

These financial statements cover the department as an individual reporting entity and include all its controlled activities.

A description of the nature of the department’s operations and its principal activities is included in the Report of Operations, which does not form part of these financial statements.

The financial statements exclude bodies in the department’s portfolio that are not controlled by the department, and therefore are not consolidated. Bodies and activities that are administered are also not controlled and not consolidated. In preparing consolidated financial statements for the department, all material transactions and balances between consolidated entities are eliminated.

The financial statements include all transactions of the department and of the Victorian Government’s primary and secondary schools. All transactions between the department and these schools have been eliminated as required by AAS. Transactions with non‑government schools are not eliminated.

Compliance information

These general‑purpose financial statements have been prepared in accordance with the FM Act and applicable AAS, which include interpretations issued by the AASB. In particular, they are presented in a manner consistent with the requirements of the AASB 1049 Whole of Government and General Government Sector Financial Reporting.

Where appropriate, those AAS paragraphs applicable to not-for-profit entities have been applied.

Accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported.

These annual financial statements were authorised for issue by the secretary of the department on 5 September 2022.

Scope and presentation of financial statements

Comprehensive operating statement

The comprehensive operating statement comprises:

• net result from transactions (also termed net operating balance)
• other economic flows included in net result
• other economic flows—other comprehensive income.

The sum of the former 2 represents the net result, which is equivalent to profit or loss derived in accordance with AAS.

Other economic flows are changes arising from market re-measurements. They include:

• gains and losses from disposals of non-financial assets
• revaluations and impairments of non-financial physical and intangible assets
• fair value changes of financial instruments
• gains and losses from revaluation of long service leave liability.

This classification is consistent with the whole‑of‑government reporting format and is allowed under AASB 101 Presentation of Financial Statements.

Balance sheet

Assets and liabilities are presented in liquidity order, with assets aggregated into financial assets and non-financial assets.

Statement of changes in equity

The statement of changes in equity presents reconciliations of each non-owner and owner equity opening balance at the beginning of the reporting period to the closing balance at the end of the reporting period. It also shows separately changes due to amounts recognised in the ‘Comprehensive result’ and amounts related to ‘Transactions with owner in its capacity as owner’.

Cash flow statement

Cash flows are classified according to whether or not they arise from operating, investing or financing activities. This classification is consistent with requirements under AASB 107 Statement of Cash Flows.

Proceeds from/payments for investments represent flows of schools’ term deposits with a maturity of 3 months or more.

Rounding of amounts

Amounts in the financial statements have been rounded to the nearest million, unless otherwise stated. Figures in the financial statements may not equate due to rounding (Note 9.11—style conventions).

Accounting for Goods and Services Tax (GST)

Income, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case, the GST payable is recognised as part of the cost of acquisition of the asset or as part of the expense.

Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the balance sheet.

Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities, which are recoverable from, or payable to, the taxation authority, are presented as operating cash flow.

Commitments and contingent assets and liabilities are also stated inclusive of GST.

Objectives and funding

The department leads the delivery of education and development services to children, young people and adults, both directly through government schools and indirectly through the regulation and funding of early childhood services, non-government schools and training programs.

The department implements Victorian Government policy on early childhood services, school education and training, and higher education services. The department manages Victorian government schools and drives improvement in primary and secondary government education.

The department provides support and advisory services to the Minister for Education, the Minister for Training and Skills and the Minister for Higher Education, as well as a number of statutory bodies.

The department is predominantly funded by accrual‑based parliamentary appropriations for the provision of outputs that are further described in Note 4.

2.1 Summary of revenue and income that fund the delivery of our services

Revenue and income from transactions

Revenue and income that fund delivery of the department’s services are accounted for consistently with the requirements of the relevant accounting standards disclosed in the following notes.

2.2 Appropriations

Once annual parliamentary appropriations are applied by the Treasurer, they become controlled by the department and recognised as income when applied to the purposes defined under the Appropriations Act. All amounts of income over which the department does not have control are disclosed as administered income (see Note 4.2).

Output appropriations

Income from the outputs that the department provides to the government is recognised, when those outputs have been delivered and the relevant minister has certified delivery of those outputs, in accordance with specified performance criteria.

Special appropriations

Under section 5.6.8 of the Education and Training Reform Act 2006, income related to volunteer workers’ compensation is recognised when the amount appropriated for that purpose is due and payable by the department.

Under Section 10 of the FM Act, Commonwealth national partnerships funding is recognised as income, when the amount appropriated for that purpose has been incurred by the department.

Under Section 33 of the FM Act, funds sourced from prior-year output or depreciation‑equivalent surpluses are recognised, when the amount appropriated for that purpose has been incurred by the department.

2.3 Summary of compliance with annual parliamentary and special appropriations

2.3.1. (a) Summary of compliance with annual parliamentary appropriations

The following table discloses the details of the various parliamentary appropriations received by the department for the year. In accordance with accrual output-based management procedures, ‘provision for outputs’ and ‘additions to net assets’ are disclosed as ‘controlled activities’ of the department.

Summary of compliance with annual parliamentary appropriations

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2.3.1 (b) Annotated income agreements appropriations

The department is permitted under section 29 of the FM Act to have certain income annotated to the annual appropriation. The income that forms part of a section 29 agreement is recognised by the department, and the receipts are paid into the consolidation fund as an administered item. At the point income is recognised, section 29 provides for an equivalent amount to be added to the annual appropriation.

The following is a listing of the FM Act section 29 annotated income agreements approved by the Treasurer.

2.3.2 Summary of compliance with special appropriations

 

2.4 Income from transactions

2.4.1 Grants

Grants recognised under AASB 1058

The department has determined that the grant income included in the table above under AASB 1058 has been earned under arrangements that are either not enforceable and/or linked to sufficiently specific performance obligations.

Income from grants without any sufficiently specific performance obligations, or that are not enforceable, is recognised when the department has an unconditional right to receive cash, which usually coincides with receipt of cash. On initial recognition of the asset, the department recognises any related contributions by owners, increases in liabilities, decreases in assets, and revenue (‘related amounts’), in accordance with other AAS.

Related amounts may take the form of:

• contributions by owners, in accordance with AASB 1004
• revenue or a contract liability arising from a contract with a customer, in accordance with AASB 15
• a lease liability, in accordance with AASB 16
• a financial instrument, in accordance with AASB 9
• a provision, in accordance with AASB 137 Provisions, Contingent Liabilities and Contingent Assets.

Capital grants income for the construction of the capital works program is recognised when the department reaches settlement on land sites or is progressively recognised as the new school or upgrade is constructed, as this is the time when the department satisfies its obligations under the grant transfer.

Grants recognised under AASB 15

Income from grants that are enforceable and with sufficiently specific performance obligations are accounted for as revenue from contracts with customers under AASB 15. Revenue will be recognised when the department satisfies the performance obligation by providing the agreed services to stakeholders. This is recognised based on the consideration specified in the funding agreement, and to the extent that it is highly probable a significant reversal of the revenue will not occur. The funding payments are normally received in advance or shortly after the relevant obligation is satisfied.

2.4.2 Sales of goods and services

The sale of goods and services included in the table above are transactions that the department has determined to be classified as revenue from contracts with customers, in accordance with AASB 15.

Performance obligations and revenue recognition policies

Revenue is measured based on the consideration specified in the contract with the customer. The department recognises revenue when it transfers control of a good or service to the customer, for example, when, or as, the performance obligations for the sale of goods and services to the customer are satisfied.

Revenue from:

• sale of goods is recognised when goods are delivered and have been accepted. For schools, these cover trading operations such as canteens, bookshops, stationery and uniform sales
• rendering of services is recognised at a point in time when the performance obligation is satisfied when the service is completed, and over time, when the customer simultaneously receives and consumes the service as it is provided. For schools, these cover activities such as music lessons, camps, sports and excursions and out‑of‑school hours care.

Consideration received in advance of recognising the associated revenue from the customer is recorded as a contract liability (Note 6.3.3). Where the performance obligations are satisfied but not yet billed, a contract asset is recorded.

2.4.3 Other income

Other income is recognised upon the receipt of the funds or resources by the department and/or the school. In the case of the school, this is processed in accordance with controls established by the school’s council.

Introduction

This section provides an account of the expenses incurred by the department in delivering services and outputs. In Note 2, the funds that enable the provision of services were disclosed. In this note, the costs associated with provision of services are recorded. Note 4 discloses disaggregated information in relation to the income and expenses by output.

3.1 Expenses incurred in delivery of services

Expenses are recognised as they are incurred and are reported in the financial year to which they relate.

3.1.1 (a) Employee benefits in the comprehensive operating statement

Employee expenses include all costs related to employment, such as salaries and wages, superannuation, fringe benefits and payroll taxes, leave entitlements, termination payments and WorkCover premiums.

The amount recognised in the comprehensive operating statement in relation to superannuation is the employer contributions for members of both defined‑benefit and defined contribution superannuation plans that are paid or payable during the reporting period. The department does not recognise any defined‑benefit liabilities, because it has no legal or constructive obligation to pay future benefits relating to its employees. Instead, DTF discloses in its annual financial statements the net defined‑benefit cost related to the members of these plans as an administered liability (on behalf of the state as the sponsoring employer).

Termination benefits are payable when employment is terminated before normal retirement date, or when an employee accepts an offer of benefits in exchange for the termination of employment. Termination benefits are recognised when the department is demonstrably committed to terminating the employment of current employees, according to a detailed formal plan, without possibility of withdrawal or providing termination benefits as a result of an offer made to encourage voluntary redundancy.

3.1.1 (b) Employee benefits – in the balance sheet

Provision is made for benefits accruing to employees in respect of annual leave and long service leave for services rendered to the reporting date and recorded as an expense during the period the services are delivered.

Reconciliation of movements in on-cost provisions

Wages and salaries, annual leave and sick leave

Liabilities for salaries and wages (including non-monetary benefits, annual leave and on-costs) are recognised as part of the employee benefit provision as current liabilities, because the department does not have an unconditional right to defer settlement of these liabilities.

The liability for salaries and wages are recognised in the balance sheet at remuneration rates, which are current at the reporting date. These liabilities are measured at present value, as the department does not expect to wholly settle them within 12 months.

The annual leave liability is classified as a current liability and measured at the undiscounted amount expected to be paid, as the department does not have an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.

No provision has been made for sick leave, as all sick leave is non-vesting, and it is not considered probable that the average sick leave taken in the future will be greater than the future benefits accrued. As sick leave is non-vesting, an expense is recognised in the comprehensive operating statement as it is taken.

Long service leave

Unconditional long service leave is disclosed as a current liability, even where the department does not expect to settle the liability within 12 months. This is because the department does not have the unconditional right to defer the settlement of the entitlement should an employee take leave within 12 months. The components of this current long service leave liability are measured at present value.

Conditional long service leave is disclosed as a non-current liability. There is an unconditional right to defer the settlement of the entitlement until the employee has completed the requisite years of service. This non-current long service leave liability is measured at present value.

Any gain or loss following revaluation of the present value of long service leave liability measured at present value is recognised as a transaction, except to the extent that a gain or loss arises due to changes in bond interest rates, for which it is then recognised as an ‘other economic flow’ in the net result.

On-costs related to employee expenses

On-costs (such as payroll tax, workers’ compensation and superannuation) are not employee benefits. They are disclosed separately as a component of the provision for employee benefits when the employment to which they relate has occurred.

The measurement of employee benefits on-costs mirrors the employee benefit provisions to which they relate, and therefore they are measured at present value, as the department does not expect to wholly settle within 12 months.

3.1.1 (c) Superannuation contributions

Employees of the department are entitled to receive superannuation benefits. The department contributes to both defined‑benefit and defined‑contribution plans. The defined‑benefit plans provide benefits based on years of service and final average salary.

 

There are no contributions outstanding as at 30 June 2022 and 30 June 2021.

3.1.2 Grants and other payments

Transactions in which the department provides goods, services, assets (or extinguishes a liability) or labour to another party, where there is no expectation that the amount will be repaid in equal value, are categorised as ‘Grant expenses’. Grants can either be operating or capital in nature.

Grants can be paid as general‑purpose grants, which are not subject to conditions regarding their use. Alternatively, they may be paid as specific‑purpose grants, which are paid for a particular purpose and/or have conditions attached regarding their use.

Grants (other than contributions to owners) are recognised as an expense in the reporting period in which they are paid or payable. They include transactions such as grants and other transfer payments made to state-owned agencies, local government, non-government schools, and community groups. Grants can take the form of money, assets, goods, services or forgiveness of liabilities.

3.1.3 Capital asset charge

A capital asset charge (CAC) was a charge levied on the budgeted written-down value of controlled non-current physical assets in a department’s balance sheet. In previous years, CAC had been used to demonstrate the opportunity cost of utilising government assets.

It should be noted that the CAC policy was discontinued in 2021–22 and also reflected in the 2021–22 Budget. While the inclusion of CAC was previously reflected in output cost, it did not reflect a net distribution of funds from the department, because the department was funded from the budget for its CAC expense, and the department always then immediately paid the same amount back into the consolidated fund.

3.1.4 Other operating expenses

Other operating expenses include cost of goods sold and day-to-day running costs, including school requisites and maintenance costs, incurred in the normal operations of the department. These items are recognised as an expense in the reporting period in which they are incurred.

The following lease payments are recognised on a straight-line basis:

• short-term leases – leases with a term shorter than 12 months
• low‑value leases – leases with the underlying asset’s fair value (when new, regardless of the age of the asset being leased) is no more than $10,000.

Variable lease payments that are not included in the measurement of the lease liability (for example, variable lease payments that do not depend on an index or a rate and which are not, in substance, fixed), such as those based on performance or usage of the underlying asset, are recognised in the comprehensive operating statement (except for payments that have been included in the carrying amount of another asset) in the period in which the event or condition that triggers those payments occurs.

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Introduction

The department is predominantly funded by accrual‑based parliamentary appropriations for the provision of outputs. This section provides a description of the departmental outputs performed during the year ended 30 June 2022, along with the objectives of those outputs.

This section disaggregates income that enables the delivery of services (described in Note 2) by the output, and records the allocation of expenses incurred (described in Note 3) also by outputs.

It also provides information on items administered in connection with these outputs, which do not form part of the controlled balances of the department.

Judgement is required in allocating income and expenditure to specific outputs. For the period under review, there were no amounts unallocated.

The distinction between controlled and administered items is drawn, based on whether the department has the ability to deploy the resources in question for its own benefit (controlled items) or whether it does so on behalf of the state (administered).

The department remains accountable for transactions involving administered items, but it does not recognise these items in its financial statements.

4.1 Department output

4.1.1 Descriptions and objectives

Departmental outputs achieved during the year ended 30 June 2022, and the objectives of these outputs, are summarised below

Strategy, review and regulation

This output develops, plans and monitors strategic policy settings across all stages of learning. It also includes intergovernmental negotiations, as well as research, data and performance evaluations. This output also supports regulation that ensures quality education and training is delivered.

Early childhood development

This output involves the provision of kindergarten and children’s services. These services include the monitoring of education and care services, and specialist services to improve access to kindergartens and disadvantaged children. This output group provides early intervention and parenting support. It also includes a range of services and support for children with a developmental delay or disability and their families.

School education

The school education output group consists of 2 outputs:

1. the school education—primary output provides services to develop essential skills and learning experiences to engage young minds in the primary sector
2. the school education—secondary output consolidates literacy and numeracy competencies, including creative and critical thinking, as well as physical, social, emotional and intellectual development in adolescence. It also provides education services, as well as varied pathways to further study.

School education–primary

The school education–primary output services are designed to develop essential skills and learning experiences to engage young minds and improve the quality of learning of students in Prep to Year 6 in government and non-government schools.

School education–secondary

This output involves provision of education and support services designed to improve student learning, development and wellbeing in Years 7 to 12 in government and non-government schools. These seek to consolidate literacy and numeracy competencies, including creative and critical thinking, as well as physical, social, emotional and intellectual development in adolescence. It also covers the provision of cross-sectoral services to improve the pathways to further education, training and employment.

Training, higher education and workforce development

This output supports Victorians to gain the skills and capabilities essential for success in employment and further training or study. The department works with the TAFE and training sector to deliver quality training that strongly supports industry to meet the evolving needs of the economy, promotes equity and addresses disadvantage, with an emphasis on growth sectors of the economy. This output includes a number of functions. These are:

• training system design
• industry engagement and stakeholder information
• contracting and monitoring of quality and training services, including accredited and pre-accredited VET through to adult community education.

Support services delivery

This output primarily provides student welfare and support, student transport (excluding transport for special needs students) and health services.

Support for students with disabilities

This output covers programs and funding to support students with disabilities, as well as transport, welfare and support services for students with special needs.

4.1.2 (a) Departmental outputs: Controlled income and expenses for the year ended 30 June 2022

 

4.1.2 (b) Departmental outputs: Controlled income and expenses for the year ended 30 June 2021

Introduction

The department controls infrastructure that is utilised in fulfilling its objectives and conducting its activities. This infrastructure represents the resources that have been entrusted to the department to be utilised for delivery of those outputs.

Where the assets included in this section are carried at fair value, additional information is disclosed in Note 8.2, in connection with how those fair values were determined.

5.1.2 Reconciliation of movements in carrying amount of property, plant and equipment

Reconciliation of movements in carrying amount of property, plant and equipment

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5.2 Intangible assets

Intangible assets are initially recognised at cost. An intangible asset shall be recognised if it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity and the cost of the asset can be measured reliably.

When the recognition criteria in AASB 138 Intangible Assets are met, internally generated intangible assets are recognised and measured at cost, less accumulated amortisation and impairment. Subsequently, intangible assets with finite useful lives are carried at cost, less accumulated depreciation/amortisation and accumulated impairment losses. Amortisation begins when the asset is available for use, that is, when it is in the location and condition necessary for it to be capable of operating in the manner intended by management.

Costs incurred ,subsequent to initial acquisition, are capitalised when it is expected that additional future economic benefits will flow to the department.

Expenditure on research activities is recognised as an expense in the period in which it is incurred.

An internally generated intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, all of the following are demonstrated:

• the technical feasibility of completing the intangible asset so that it will be available for use or sale
• an intention to complete the intangible asset and use or sell it
• the ability to use or sell the intangible asset
• the intangible asset will generate probable future economic benefits
• the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset
• the ability to measure reliably the expenditure attributable to the intangible asset during its development.

Subsequent measurement

Intangible produced assets with finite useful lives are depreciated as an ‘expense from transactions’ on a straight‑line basis over their useful lives. Intangible assets have useful lives of between 3 and 10 years.

Impairment of intangible assets

Intangible assets with indefinite useful lives (and intangible assets not yet available for use) are tested annually for impairment and whenever there is an indication that the asset may be impaired. Intangible assets with finite useful lives are tested for impairment whenever an indication of impairment is identified. The policy in connection with testing for impairment is outlined in Note 5.1.1 Depreciation and amortisation.

As intangible assets are measured at cost, subsequent to its initial recognition, the impact of the COVID-19 pandemic does not apply.

5.3 Other financial assets

Amounts held by schools with a maturity of 3 months or more are disclosed as ‘Other financial assets’.

5.3.1 Ageing analysis of other financial assets

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Introduction

This section sets out those assets and liabilities that arose from the department’s operations.

6.1 Receivables

Receivables consist of:

• statutory receivables, which include amounts owing from the Victorian Government and GST input tax credits recoverable
• contractual receivables, which include mainly debtors in relation to goods and services, and loans to third parties.

Contractual receivables are classified as financial instruments and categorised as ‘financial assets at amortised costs’. They are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial measurement, they are measured at amortised cost using the effective interest method less any impairment.

Statutory receivables are recognised and measured similarly to contractual receivables. The department applies AASB 9 for initial measurement of the statutory receivables and as a result, statutory receivables are initially recognised at fair value plus any directly attributable transaction cost. Amounts recognised from the Victorian Government represent funding for all commitments incurred and are drawn from the consolidated fund as the commitments fall due.

Details about the department’s impairment policies and the calculation of the loss allowance are set out in Note 8.1 Financial instrument specific disclosures.

Contractual receivables at amortised cost

The department applies AASB 9’s simplified approach to all contractual receivables, in order to measure expected credit losses, using a lifetime expected loss allowance based on the assumptions about risk of default and expected loss rates. The department has grouped contractual receivables on shared credit risk characteristics and days past due, and selects the expected loss rate based on the department’s past history, as well as forward‑looking estimates at the end of the financial year. The increase in expected loss allowance takes into account the department’s assessment of its ability to collect its receivables when they fall due, given the continuing impact of the COVID-19 pandemic.

On this basis, the department determines the opening loss allowance on initial application date of AASB 9 and the closing loss allowance at the end of the financial year as follows.

 

Reconciliation of the movement in the loss allowance for contractual receivables is shown as follows.

 

6.1.1 Movement in the allowance for impairment losses of contractual receivables

AASB 9 requires that receivables are assessed for expected credit losses on a regular basis. Provision for impairment is recognised when there is objective evidence that the department will not be able to collect a receivable. Receivables are written off against the carrying amount when there is no reasonable expectation of recovery.

Bad debts considered as written off by mutual consent are classified as a transaction expense. Bad debts not written off, but included in the provision for doubtful debts, are classified as other economic flows in the net result.

6.2 Other non-financial assets

Other non-financial assets include prepayments, which represent payments in advance of receipt of goods or services or that part of expenditure made in one accounting period covering a term extending beyond that period, and land pending settlement.

Non-financial assets are treated as current and classified as held for sale if their carrying amount will be recovered through a sale transaction, rather than through continuing use.

This condition is regarded as met only when the:

• asset is available for immediate sale in the current condition
• sale is highly probable, the asset is actively marketed and the asset’s sale is expected to be completed within 12 months from the date of classification.

These non-financial physical assets, related liabilities and financial assets are measured at the lower of carrying amount and fair value less costs to sell, and are not subject to depreciation or amortisation.

6.3 Payables and other liabilities

Payables consist of:

• contractual payables, classified as financial instruments and measured at amortised cost. Accounts payable represent liabilities for goods and services provided to the department prior to the end of the financial year that are unpaid
• statutory payables, such as GST and fringe benefits tax, are recognised and measured similarly to contractual payables, but are not classified as financial instruments and not included in the category of financial liabilities at amortised cost, because they do not arise from a contract.

6.3.1 Ageing analysis of contractual payables

6.3.2 Deferred capital grant revenue

Grant consideration is received mainly from the Growth Areas Infrastructure Contribution Fund during the year, utilised for construction of new schools and school upgrades.

The department has recognised a previously deferred portion of the grant consideration as a liability for outstanding works in the current year. Grant revenue is recognised when the department reaches settlement on land sites, or is progressively recognised as the new school or upgrade is constructed, as this is the time when the department satisfies its obligations under the grant transfer (see Note 2.4.1 Grants).

6.3.3 Other liabilities

Contract liabilities relate to consideration received in advance from international students. This mainly reflects a timing difference, as annual school fees are generally collected at the beginning of the school year. The balance at 30 June mainly reflects education services expected to be delivered in the second half of the school calendar year.

The transaction price allocated to the remaining performance obligations relates to fees paid for future periods.

Contract liabilities

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Introduction

This section provides information on the sources of finance utilised by the department during its operations, along with interest expenses (the cost of borrowings) and other information related to financing activities of the department.

This section includes disclosures of balances that are financial instruments (such as borrowings and cash balances). Note 8.1 provides additional, specific financial instrument disclosures.

7.1 Borrowings

‘Borrowings’ refer to interest‑bearing liabilities mainly raised from leases and other interest‑bearing arrangements.

Borrowings are classified as financial instruments. All interest-bearing borrowings are initially recognised at the fair value of the consideration received, less directly attributable transaction costs. The measurement basis subsequent to initial recognition depends on whether the department has categorised its interest‑bearing liabilities as either ‘financial liabilities designated at fair value through profit or loss’, or financial liabilities at ‘amortised cost’. The classification depends on the nature and purpose of the interest‑bearing liabilities. The department determines the classification of its interest‑bearing liabilities at initial recognition.

7.1.1(a) Maturity analysis of borrowings

7.1.1(b) Interest expense

7.2 Leases

Information about leases for which the department is a lessee is presented below.

The department’s leasing activities

The department leases various properties, office and IT equipment, and motor vehicles. The lease contracts are typically for fixed periods of 1–10 years. The department does not have a contractual option to purchase the leased assets at the end of the lease term. Lease payments are renegotiated every 3 years to reflect market rentals.

The department leases office and IT equipment with contract terms of 1–3 years. These leases are short-term and/or leases of low-value items. The department has elected not to recognise right-of-use assets and lease liabilities for these leases.

At 30 June 2022, the department was committed to short-term and low-value leases and the total commitment at that date was $43 million (2021: $44 million).

Leases at significantly below-market terms and conditions

The department entered into numerous leases for the use of facilities to provide a wide range of educational and community services. These leases are typically long‑term arrangements for up to 35 years, with lease payments of $1 per annum if demanded. The leased premises are used by the department to primarily provide teaching of specialist programs, community use, such as church grounds, childcare and early learning centres, and playgrounds for out‑of‑school hours. These leases are a small portion of similar assets that the department uses for the purpose of providing educational and community services, and therefore do not have a significant impact on the department’s operation.

7.2.1 (a) Right-of-use assets

Right-of-use assets are presented in Note 5.1(a).

7.2.1 (b) Amounts recognised in the comprehensive operating statement

The following amounts relating to leases are recognised in the comprehensive operating statement.

7.2.1 (c) Amounts recognised in the cash flow statement

The following amounts relating to leases are recognised in the cash flow statement for the year ending 30 June 2022.

For any new contracts entered into, the department considers whether a contract is, or contains, a lease. A lease is defined as ‘a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration’. To apply this definition, the department assesses whether the contract meets 3 key evaluations of whether:

• the contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being identified at the time the asset is made available to the department, and for which the supplier does not have substantive substitution rights
• the department has the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use, considering its rights within the defined scope of the contract, and the department has the right to direct the use of the identified asset throughout the period of use
• the department has the right to take decisions in respect of ‘how and for what purpose’ the asset is used throughout the period of use.

This policy is applied to contracts entered into, or changed, on or after 1 July 2019. In October 2019, the department agreed to centralised accommodation management services with the DTF SSP. Following this agreement, the right-of-use asset and lease liability recognised for the accommodation leases at that date were de-recognised and transferred to SSP as a transfer through equity, in accordance with the requirements of FRD 119 Transfers through contributed capital. From November 2019, accommodation has been recognised as an expense (Note 3.1.4 Other operating expenses) and the commitment for the service payments recognised in Note 7.5 Commitments for expenditure.

Separation of lease and non-lease components

At inception, or on reassessment of a contract that contains a lease component, the department as a lessee identifies lease and non-lease components in the lease contract. Non-lease components are separately accounted for and the amounts are excluded from determining the lease liability and right-of-use asset amounts.

Recognition and measurement of leases as a lessee

Lease liability – initial measurement

The lease liability is initially measured at the present value of the lease payments unpaid at the commencement date, discounted using the interest rate implicit in the lease if that rate is readily determinable, or the department’s incremental borrowing rate.

Lease payments included in the measurement of the lease liability comprise:

• fixed payments (including in-substance fixed payments) less any lease incentive receivable
• variable payments based on an index or rate, initially measured using the index or rate as at the commencement date
• amounts expected to be payable under a residual value guarantee
• payments arising from purchase and termination options reasonably certain to be exercised.

Lease liability – subsequent measurement

Subsequent to initial measurement, the liability is reduced by payments made and increased by interest incurred. It is re‑measured to reflect any reassessment or modification, or if there are changes to in-substance fixed payments. When the lease liability is re‑measured, the corresponding adjustment is reflected in the right-of-use asset, or profit and loss if the right‑of‑use asset is reduced to zero.

The department, as a lessee, did not receive rent concessions for its leases during the COVID-19 pandemic, nor did the pandemic result in other factors that required the department to remeasure its lease liabilities. Accordingly, the department did not apply the practical expedient available under AASB 2020-4 Amendments to AAS – Covid-19‑Related Rent Concessions, which permits a lessee not to assess whether a rent concession meets the conditions of a lease modification that requires the remeasurement of the lease liability.

Short-term leases and leases of low‑value assets

The department has elected to account for short-term leases and leases of low‑value assets using the practical expedients. Instead of recognising a right‑of‑use asset and lease liability, the payments in relation to these are recognised as an expense in profit or loss on a straight‑line basis over the lease term.

Below‑market/peppercorn leases

Right-of-use assets under leases at significantly below-market terms and conditions that are entered into principally to enable the department to further its objectives, are initially and subsequently measured at cost.

These right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets.

Presentation of right-of-use assets and lease liabilities

The department presents right-of-use assets as ‘property plant equipment’, unless they meet the definition of an ‘investment property’, in which case, they are disclosed as ‘investment property’ in the balance sheet. Lease liabilities are presented as ‘borrowings’ in the balance sheet.

7.2.1 (d) Lease liabilities – Department as lessee

The department’s leases comprise PPP arrangements, properties and motor vehicles.

At the commencement of the lease term, leases are initially recognised as assets and liabilities at amounts equal to the fair value of the lease property or, if lower, the present value of the minimum lease payment, each determined at the inception of the lease. The lease asset is accounted for as a non-financial physical asset, and is depreciated over the shorter of the estimated useful life of the asset, or the term of the lease.

Minimum lease payments are apportioned between reduction of the outstanding lease liability and periodic finance expense, which is calculated using the interest rate implicit in the lease and charged directly to the comprehensive operating statement.

The department, as a lessee, did not receive rent concessions for its leases during the COVID-19 pandemic, nor was there evidence of other factors that required the department to re‑measure its lease liabilities.

PPP – Partnerships Victoria in schools

In December 2008, the State of Victoria entered into a 25-year agreement with Axiom Education Victoria Pty Ltd, under the Partnerships Victoria policy, for the financing, design, construction and maintenance of 11 schools. The schools were constructed on sites that were purchased by the department. At the end of the lease period, the department will continue to own all the assets.

All 11 schools have been open since 2011. The department has assumed responsibility for education provision, staffing, curriculum and teacher practice, and a commitment in regard to these assets is recognised as a lease with related lease assets.

In October 2015, the State of Victoria entered into a 25-year agreement with Learning Communities Victoria under the new schools PPP project. All 15 schools were delivered and opened over the 2017 and 2018 school years. Under the PPP model, Learning Communities Victoria is responsible for the finance, design, construction and maintenance of the new schools over the 25-year contract period. The department retains school ownership and responsibility for delivering educational services.

In October 2020, Learning Community Victoria refinanced a tranche of maturing debt ($303 million) used to finance the new school PPP project. The refinanced debt results in lower interest payments and matures in October 2028. The lower interest rate contributed to a reduction in the department’s quarterly lease payments totalling $43.5 million over the term of the refinancing period. The re-measurement of lease liabilities from the reduction in quarterly lease payments, together with a reduction in discount rate (from 5.3 to 4.5%), is reflected in Note 7.2.1(d).

7.3 Cash flow information and balances

Cash and deposits comprise cash on hand and cash at bank, deposits at call and those highly liquid investments with an original maturity of 3 months or less, which are held for the purpose of meeting short-term cash commitments rather than for investment purposes, and which are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value.

Amounts held by schools at the end of the financial year disclosed as ‘Cash and deposits’ include bank accounts and short-term deposits with a maturity of less than 3 months.

Due to the State of Victoria’s investment policy and government funding arrangements, the department generally does not hold a large cash reserve in its bank accounts. The departmental operating bank accounts hold funds on behalf of trusts and for working accounts (Note 7.4 Trust account balances).

Cash received by the department from the generation of income is generally paid into the state’s bank account, known as the public account. Similarly, any departmental expenditure, including those payments for goods and services to its suppliers and creditors, are made via the public account. The process is such that the public account remits to the department the cash required to cover its transactions. This remittance by the public account occurs upon the electronic transfer of funds and the presentation of cheques by the department’s suppliers or creditors.

7.3.1 Reconciliation of net result for the period to cash flow from operating activities

7.4 Trust account balances

The following is a listing of trust account balances relating to trust accounts controlled and/or administered by the department:

Trust accounts are used as the legal mechanism to record and access monies for specific, clearly identified purposes, and are not funded by state appropriation unless approved by DTF or provided by specific alignment. The State Treasury Trust Fund operates by virtue of Section 19 of the FM Act.

In 2021, 2 controlled trusts accounts were opened by the department to manage:

• School capital contributions from government schools to fund increases in the size of their capital works program, over and above the original scope of state funded capital projects
• School Sports Victoria – funds received from both government and non-government schools and sponsors to support the running of an extensive school sport program for primary and secondary students across Victoria.

The department has responsibility for transactions and balances relating to trust funds on behalf of third parties external to the Victorian Government. Funds managed on behalf of third parties are not recognised in these financial statements as they are managed on a fiduciary and custodial basis, and are therefore not controlled by the department.

7.5 Commitments for expenditure

Commitments for future expenditure include operating and capital commitments arising from contracts. These commitments are recorded below at their nominal value and inclusive of GST. Where it is considered appropriate and provides additional relevant information to users, the net present values of significant individual projects are stated. These future expenditures cease to be disclosed as commitments once the related liabilities are recognised in the balance sheet.

7.5.1 Total commitments payable

7.5.2 PPP commitments

The department sometimes enters into arrangements with private sector participants, to design and construct or upgrade an asset used to provide public services. These arrangements are typically complex and usually include the provision of operational and maintenance services for a specified period of time. These arrangements are often referred to as either PPPs or service concession arrangements, where the PPPs meet the definition of a service concession asset under AASB 1059 Service Concession Arrangements: Grantors.

The department’s PPPs are not a service concession arrangement as defined in AASB 1059. AASB 1059 applies to an arrangement where an operator provides public services using a service concession asset. As the department is the provider of the public education service (not the operator), AASB 1059 does not apply. The department’s PPPs involve paying the operator over the period of the arrangement, subject to specified performance criteria being met. At the date of commitment to the principal provisions of the arrangement, these estimated periodic payments are allocated between a component related to the design and construction or upgrading of the asset and components related to the ongoing operation and maintenance of the asset. The former component is accounted for as a lease payment. The remaining components are accounted for as commitments for operating costs, which are expensed in the comprehensive operating statement as they are incurred.

Commissioned PPPs

Partnership Victoria in schools

The department entered into a 25-year PPP arrangement through the Partnerships Victoria Project. The portions of the payments that relate to the right to use the assets are accounted for as leases and are disclosed in Note 7.2.1.

The department pays a base charge for delivery of contracted services (subject to the performance criteria set out in the agreement). The contract is amended to provide for additional services, such as an extension to the facilities, which are at the department’s discretion. The nominal amounts for the operating and maintenance commitment below represent the charges payable under the agreement at the end of the reporting period.

New schools PPP

In October 2015, the State of Victoria entered into a 25-year agreement with Learning Communities Victoria under the new schools PPP project. Fifteen schools were delivered and opened over the 2017 and 2018 school years. Under the PPP model, Learning Communities Victoria is responsible for the finance, design, construction and maintenance of the new schools over a 25-year period. The department retains school ownership and responsibility for delivering educational services.

The total commitments for PPPs are as follows.

7.5.3 Commitments other than PPPs

Capital commitments

These are commitments for the acquisition of buildings, plant and equipment contracted for at the reporting date, but not recognised as liabilities.

Other expenditure commitments

Other commitments include agreements entered into for provision of financial information technology and human resource services to the department, and grants to non-government schools and TAFEs.

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Introduction

The department is exposed to risk from its activities and outside factors. In addition, it is often necessary to make judgements and estimates associated with recognition and measurement of items in the financial statements.

This section sets out financial instrument specific information (including exposures to financial risks), as well as those items that are contingent in nature or require a higher level of judgement to be applied.

8.1 Financial instrument specific disclosures

Financial instruments arise out of contractual agreements that give rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Due to the nature of the department’s activities, certain financial assets and financial liabilities arise under statute rather than a contract. Such assets and liabilities do not meet the definition of financial instruments in AASB 132 Financial Instruments: Presentation.

Guarantees issued by the Treasurer on behalf of the department are financial instruments because, although authorised under statute, the terms and conditions for each financial guarantee may vary and are subject to an agreement.

Categories of financial instruments under AASB 9

Financial assets at amortised cost

Financial assets are measured at amortised cost if both the following criteria are met and the assets are not designated as fair value through net result:

• the assets are held by the department to collect contractual cash flows
• the assets’ contractual terms give rise to cash flows that are solely payments of principal and interest.

These assets are initially recognised at fair value, plus any directly attributable transaction costs. Subsequent to initial measurement, receivables are measured at amortised cost using the effective interest method, less any impairment.

This category includes:

• cash and deposits
• receivables (excluding statutory receivables)
• term deposits with maturity greater than 3 months.

Financial liabilities at amortised cost

Financial instrument liabilities are initially recognised on the date they are originated. They are initially measured at fair value, plus any directly attributable transaction costs.

Subsequent to initial recognition, these financial instruments are measured at amortised cost, with any difference between the initial recognised amount and the redemption value being recognised in profit and loss over the period of the interest-bearing liability, using the effective interest rate method.

This category includes:

• payables (excluding statutory payables)
• borrowings (including lease liabilities).

The following table represents classifications of financial assets and liabilities under AASB 9.

8.1.1 Financial instruments – Net holding gain/(loss) on financial instruments by category

Amounts disclosed in this table exclude holding gains and losses related to statutory financial assets and liabilities.

The net holding gains or losses disclosed above are determined as follows:

• for cash and cash equivalents, financial assets at amortised cost and debt instruments that are classified as financial assets at fair value through other comprehensive income, the net gain or loss is calculated by taking the movement in the fair value of the asset, the interest income, plus or minus foreign exchange gains or losses arising from revaluation of the financial assets, and minus any impairment recognised in the net result
• for financial liabilities measured at amortised cost, the net gain or loss is calculated by taking the interest expense, plus or minus foreign exchange gains or losses arising from the revaluation of financial liabilities measured at amortised cost
• for financial asset and liabilities that are mandatorily measured at or designated at fair value through net result, the net gain or loss is calculated by taking the movement in the fair value of the financial asset or liability.

Impairment of financial assets under AASB 9

Subject to AASB 9, impairment assessment includes the department’s contractual receivables.

Although not a financial asset, contract assets recognised as applying AASB 15 are also subject to impairment, although it is immaterial.

8.1.2 Financial risk management objectives and policies

As a whole, the department’s financial risk management program seeks to manage these risks and the associated volatility of its financial performance.

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement, and the basis on which income and expenses are recognised, with respect to each class of financial asset and financial liabilities above, are disclosed in Note 8.3.1 to the financial statements.

The main purpose in holding financial instruments is to prudentially manage the department’s financial risks within the government policy parameters.

The department’s main financial risks include credit risk, liquidity risk, interest rate risk, foreign currency risk and equity price risk. The department manages these financial risks, in accordance with its financial risk management policy.

The department uses different methods to measure and manage the different risks to which it is exposed. Primary responsibility for the identification and management of financial risks rests with the Accountable Officer of the department.

8.2 Contingent assets and liabilities

Contingent assets and contingent liabilities are not recognised in the balance sheet, but are disclosed and, if quantifiable, are measured at nominal value.

Contingent assets and liabilities are presented inclusive of GST receivable or payable respectively.

8.2.1 Contingent assets

Contingent assets are possible assets that arise from past events, whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.

These are classified as either quantifiable, where the potential economic benefit is known, or non-quantifiable.

The department had no contingent assets as at 30 June 2022.

8.2.2 Contingent liabilities

Contingent liabilities are:

• possible obligations that arise from past events, whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity
• present obligations that arise from past events but are not recognised because:
  • it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligations
  • the amount of the obligations cannot be measured with sufficient reliability.

Contingent liabilities are also classified as either quantifiable or non-quantifiable.

Quantifiable contingent liabilities

Non-quantifiable contingent liabilities

The department has several non-quantifiable contingent liabilities arising from indemnities provided by it, as follows:

• Volunteer school workers and volunteer student workers: The Education and Training Reform Act provides a specific indemnity for personal injuries or death (and at the discretion of the minister, for property damage) suffered by volunteer school workers and volunteer student workers arising out of, or in the course of engaging in, school work or community work respectively.
• Teaching service and public service employees: If a departmental employee is named as a defendant in a civil proceeding (for example, a personal injury, discrimination or employment claim), any costs and damages will generally be paid by the department, provided the employee was not under the influence of illicit drugs or alcohol, or engaging in a criminal offence, and the behaviour was not outrageous and was related to their employment.
• Board members: The Education and Training Reform Act requires the state to indemnify a member of a Merit Protection Board or a Disciplinary Appeals Board for anything done or omitted to be done in good faith in the exercise of a power or the discharge of their statutory duties.
• School councils: The Education and Training Reform Act requires the department to indemnify individual members of school councils for any legal liability, whether in contract, negligence or defamation, if they acted in good faith and in the exercise of their powers or functions. The department may decide to indemnify school councils (which are separate entities from the department), in claims of common law negligence, employment disputes and other civil claims, for the cost of settlement and/or legal representation. The department will take into account the impact of payment upon the school’s educational program and any insurance cover for the school council, and will likely indemnify if the department is satisfied that:
  • the school council acted in good faith and according to issued guidelines and directions
  • the school council has insufficient funds to pay the claim.
• TAFEs: The department issued letters of comfort to support 4 TAFEs financially until 30 April 2023, to ensure their financial statements have been prepared on a going concern basis, which assumes these TAFEs will be able to realise their assets and discharge their liabilities in the normal course of business for the foreseeable future. TAFEs that received letters of comfort are Box Hill, Melbourne Poly, TAFE Gippsland and William Angliss Institute.

8.3 Fair value determination

Significant judgement: Fair value measurements of assets and liabilities

Fair value determination requires judgement and the use of assumptions. This section discloses the most significant assumptions used in determining fair values. Changes to assumptions could have a material impact on the results and financial position of the Department.

This section sets out information on how the department determines fair value for financial reporting purposes. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The assets and liabilities that are carried at fair value include land, buildings, infrastructure, plant and equipment.

In addition, the fair value of other assets and liabilities which are carried at amortised cost, also need to be determined for disclosure purposes.

The department determines the policies and procedures for determining fair values for both financial and non-financial assets and liabilities as required.

Fair value hierarchy

In determining fair values, a number of inputs are used. To increase consistency and comparability in the financial statements, these inputs are categorised into 3 levels, also known as the fair value hierarchy. The levels are:

• Level 1 – quoted (unadjusted) market prices in active markets for identical assets or liabilities
• Level 2 – valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
• Level 3 – valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

The department determines whether transfers have occurred between levels in the hierarchy by reassessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

The VGV, the department’s independent valuation agency, monitors changes in the fair value of each asset and liability through relevant data sources to determine whether revaluation is required.

How this section is structured

For those assets and liabilities for which fair values are determined, the disclosures provided include:

•  the carrying amount and the fair value (which would be the same for those assets measured at fair value)
• which level of the fair value hierarchy was used to determine the fair value:
  • in respect of those assets and liabilities subject to fair value determination using Level 3 inputs
  • a reconciliation of the movements in fair values from the beginning of the year to the end
  • details of significant unobservable inputs used in the fair value determination.

This section is divided between disclosures in connection with fair value determination for financial instruments (Note 8.2.1) and non-financial physical assets (Note 8.2.2).

8.3.1 Fair value determination of financial assets and liabilities

The fair values and net fair values of financial assets and financial liabilities are determined as follows:

• Level 1– the fair value of financial assets and financial liabilities with standard terms and conditions, and traded in active liquid markets, are determined with reference to quoted market prices.
• Level 2 – the fair value is determined using inputs, other than the quoted price, that are observable for the financial asset or liability, either directly or indirectly.
• Level 3 – the fair value is determined in accordance with generally accepted pricing models, based on discounted cash flow analysis using unobservable market inputs.

The department considers that the carrying amount of financial instrument assets and liabilities recorded in the financial statements is a fair approximation of their fair values, because of the short-term nature of the financial instruments and the expectation that they will be paid in full by the end of the 2021–22 reporting period.

The department’s contractual financial assets and liabilities are measured at amortised cost. None of the classes of financial assets and liabilities are readily traded on organised markets in standardised form, hence the fair value disclosures are not required.

8.3.2 Fair value determination: non-financial physical assets

The VGV is the department’s independent valuation agency. The department, in conjunction with the VGV, monitors changes in the fair value of each asset through relevant data sources to determine whether revaluations are required. The recurring fair value measurements of non-financial physical assets, such as land and school buildings, are based on Level 3 unobservable inputs due to the nature and characteristics of the school assets. School land assets are specialised assets where there is little or no observable market evidence of the market-selling price as a CSO is applied to such assets.

Fair value measurement hierarchy for assets as at 30 June 2022

Fair value measurement hierarchy for assets as at 30 June 2021

Revaluations of non-financial physical assets

Non-financial physical assets are measured at fair value on a cyclical basis, in accordance with FRD 103 Non-financial Physical Assets, issued by the Assistant Treasurer. A full revaluation normally occurs every 5 years, based on the asset’s government purpose classification, but may occur more frequently if fair value assessments indicate material changes in values. VGV conducts scheduled revaluations every 5 years. Any interim revaluations are determined in accordance with the requirements of the FRD. Revaluation increases or decreases arise from differences between an asset’s carrying value and fair value.

In a non-revaluation year, land and buildings are measured at each reporting date by applying industry indices to the values, to ensure there has been no material movement. Where there has been a material movement (based on the entity’s materiality or 10% movement), the fair value is adjusted accordingly.

Net revaluation increases (where the carrying amount of a class of assets is increased as a result of a revaluation) are recognised in ‘other economic flows—other comprehensive income’ and accumulated in equity under the asset revaluation surplus. However, the net revaluation increase is recognised in the net result to the extent that it reverses a net revaluation decrease in respect of the same class of property, plant and equipment previously recognised as an expense (other economic flows) in the net result.

Net revaluation decrease is recognised in ‘other economic flows – other comprehensive income’ to the extent that a credit balance exists in the asset revaluation surplus in respect of the same class of property, plant and equipment. Otherwise, the net revaluation decreases are recognised immediately as other economic flows in the net result. The net revaluation decrease recognised in ‘other economic flows – other comprehensive income’ reduces the amount accumulated in equity under the asset revaluation surplus.

Revaluation increases and decreases relating to individual assets within a class of property, plant and equipment are offset against one another within that class but are not offset in respect of assets in different classes. The asset revaluation surplus is not transferred to accumulated funds on de-recognition of the relevant asset.

Land

Specialised land

The market approach is used for specialised land, although is adjusted for the CSO to reflect the specialised nature of the land being valued.

The CSO is an adjustment for the difference in value between unrestricted assets (such as freehold land) and assets held by the public sector, taking into account any legal, financial or physical restrictions imposed on the use or sale of the assets. As adjustments of CSO are considered as significant unobservable inputs, specialised land is classified as Level 3 assets.

Non-specialised land

Non-specialised land is valued using the market approach, whereby assets are compared to recent comparable assets or sales of comparable assets that are considered to have nominal value.

To the extent that non-specialised land does not contain significant, unobservable adjustments, these assets are classified as Level 2 under the market approach.

The VGV performed the valuation of the department’s specialised and non-specialised land as at 30 June 2018.

Buildings

Specialised buildings

The valuations are undertaken by the VGV in accordance with the department’s policies. School buildings are specialised assets that are restricted to primarily providing education services, with some ancillary community services also provided. As such, there is generally little or no observable market-based evidence for determining the fair value of such assets. Accordingly, school buildings and other improvements are valued under the CRC method, which represents the highest and best use under AASB 13 Fair Value Measurement.

The CRC method is the current replacement cost of an asset less where applicable, accumulated depreciation calculated on the basis of such cost to reflect age and the already consumed or expired future economic benefits of the asset. For the majority of the department’s specialised buildings, the CRC method is used, adjusting associated depreciation. Depreciation adjustments are considered as significant and unobservable inputs in nature. Therefore, these specialised buildings are classified as Level 3 fair value measurements.

Where assets acquired within 12 months of the relevant scheduled revaluation have not been revalued, the acquisition cost is deemed to be fair value.

An independent valuation of the department’s specialised buildings was performed, using the CRC method by the VGV. The effective date of the last independent valuation was 30 June 2018.

Heritage buildings

The valuations are undertaken by the VGV, in accordance with the department’s policies. School buildings are specialised assets that are restricted to primarily providing education services, with some ancillary community services also provided. As such, there is generally little or no observable market-based evidence for determining the fair value of such assets. Accordingly, school buildings and other improvements are valued under the CRC method, which represents the highest and best use under AASB 13 Fair Value Measurement.

The CRC method is the current replacement cost of an asset less, where applicable, accumulated depreciation calculated on the basis of such cost to reflect age and the already consumed or expired future economic benefits of the asset. For the majority of the department’s specialised buildings, the CRC method is used, adjusting associated depreciation. Depreciation adjustments are considered as significant and unobservable inputs in nature. Therefore, these heritage buildings are classified as Level 3 fair value measurements.

Where assets acquired within 12 months of the relevant scheduled revaluation have not been revalued, the acquisition cost is deemed to be fair value.

An independent valuation of the department’s specialised buildings was performed, using the CRC method by the VGV. The effective date of the last independent valuation was 30 June 2018.

Plant and equipment

Plant and equipment assets are measured at fair value (equating to cost), less accumulated depreciation and impairment.

The fair value of plant and equipment is normally determined by reference to the asset’s CRC. Existing depreciated historical cost is generally a reasonable approximation for current replacement cost, because of the short lives of the assets concerned.

Non-financial physical assets arising from leases

The initial cost for non-financial physical assets under a lease (Note 7.2.1) is measured at amounts equal to the fair value of the leased asset or, if lower, the present value of the minimum lease payments, each determined at the inception of the lease.

Certain assets are acquired under leases, which may form part of a service concession arrangement. See Note 7.5 in relation to such assets and arrangements.

Valuation of land and buildings

An assessment of land and buildings was conducted using indices calculated by the VGV for 2022, which resulted in revaluation increments for both land and buildings.

Refer to Note 9.5 Reserves for the quantum of the revaluation increment.

Reconciliation of Level 3 fair value 30 June 2022

Reconciliation of Level 3 fair value 30 June 2021

Description of significant unobservable inputs to Level 3 valuations