Statement of Accounting Policies (xvi) Borrowings Council has a legal obligation to provide ongoing maintenance and monitoring All loans and borrowings are initially recognised at cost, being the fair value of services at the Blenheim landfill site after closure. To provide for these the consideration received net of issue costs associated with the borrowing. estimated costs of aftercare, a charge is made each year based on the net After initial recognition, these loans and borrowings are subsequently present value of the after care cost which it is estimated will be incurred measured at amortised cost using the effective interest rate method which following the closure of the landfill. allocates the cost through the expected life of the loan or borrowing. Amortised cost is calculated taking into account any issue costs, and any discount or Financial guarantee contracts premium on drawdown. A financial guarantee contract is a contract that requires MDC to make specified payments to reimburse the holder of the contract for a loss it incurs Bank loans are classified as current liabilities (either advances or current because a specified debtor fails to make payment when due. portion of term debt) unless MDC has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Financial guarantee contracts are initially recognised at fair value, even if a payment under the guarantee is not considered probable. If a financial (xvii) Employee Entitlements guarantee contract was issued in a stand-alone arms-length transaction to an Provision is made in respect of the MDC’s liability for retiring gratuity unrelated party, its fair value at inception is equal to the consideration received. allowances, annual and long service leave, and sick leave. When no consideration is received, a liability is recognised based on the probability that the Council will be required to reimburse a holder for a loss The retiring gratuity liability and long service leave liability are assessed on an incurred discounted to present value. The portion of the guarantee that actuarial basis using current rates of pay taking into account years of service, remains unrecognised, prior to discounting to fair value, is disclosed as a years to entitlement and the likelihood staff will reach the point of entitlement. contingent liability. These estimated amounts are discounted to their present value using an Financial guarantees are subsequently measured at the higher of: interpolated 10 year government bond rate. Liabilities for accumulating short-term compensated absences (eg; annual and • the present value of the estimated amount to settle the guarantee sick leave) are measured as the additional amount of unused entitlement obligation if it is probable that there will be an outflow to settle the accumulated at the balance sheet date. guarantee; and • the amount initially recognised less, when appropriate, cumulative Sick leave, annual leave, vested long service leave and non-vested long amortisation as revenue. However, if it is probable that expenditure will service leave and retirement gratuities expected to be settled within 12 months be required to settle a guarantee, then the provision for the guarantee is of balance date, are classified as a current liability. All other employee measured at the present value of the future expenditure. entitlements are classified as a non-current liability. (xx) Equity (xviii) Superannuation Schemes Equity is the community’s interest in MDC and is measured as the difference Defined contribution schemes between total assets and total liabilities. Public equity is disaggregated and Obligations for contributions to defined contribution superannuation schemes classified into a number of reserves to enable clearer identification of the are expensed. special uses that MDC intends to make of its accumulated profits. These components of equity are: (xix) Provisions Accumulated Funds. • Provisions are recognised when MDC has a present obligation as a result of a past event, a reliable estimate can be made for the amount of the obligation • Ordinary Revenues. and it is probable that MDC will be required to settle that obligation. Provisions are measured at management’s best estimate of the expenditure required to • Property Revaluation Reserves. settle the obligation at balance date and are discounted to present value where Restricted Reserves. the effect is material. • 2018-2028 Long Term Plan Page 246