Changes to Financial Reporting
Last year, Farmlands Co-operative adopted the NZ IFRS 15 and 9 financial reporting standards.
Our adoption of these standards continues for the 2019/20 year plus adoption of the new leases standard, NZ IFRS 16.
NZ IFRS 16 Leases
NZ IFRS 16 is a new standard that governs accounting for leases. It replaces the previous standard, NZ IAS 17 and takes effect for annual periods beginning on or after 1st January 2019. The new standard governs the recognition, measurement, presentation and disclosure of liabilities and rights to occupy in respect of operating leases.
For the 2020 financial year and onwards, operating and finance leases are now combined on financial
statements whereas previously future committed operating lease liabilities were not recorded on the balance sheet. This holistic view allows anyone viewing our financial documents to assess the cumulative effect of all leases on each of our balance sheet, cash flow and income statement.
Farmlands has substantial operating leases in the form of its store network, vehicle fleet and fuel distribution assets.
To apply the new standards correctly, Farmlands has considered whether a lease contract will be extended or terminated. We have then applied the standard using the modified retrospective approach, which recognises any prior period impact as an adjustment to equity as at 1st July 2019, and further does not require any restatement of comparatives for the 2019 reporting period under its transition provisions. Accordingly, NZ IFRS 16 is wholly incorporated into this year’s financial accounts.
For year end (30th June 2020), new right of use assets of $68m and associated lease liabilities of $75m have been recognised in the financial statements. The difference of $4.5m (after tax) has been reflected in retained earnings.