illustrative financial statements signpost ltd 2011
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Signpost Limited is a best practice annual
report example on how to prepare your fnancial
statements in accordance with the rameworkor dierential reporting or entities applying
NZ GAAP (FRS /SSAP )
IllustrativeFinancial
Statements
Signpost
Limited 2011
kpmg.co.nz
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2
Our aim is that these model financial statements that apply New Zealand GAAP
(FRSs/SSAPs) deals with all presentation issues in as realistic a situation as
practicable. It reflects some of the reporting and disclosure issues that you face in
reporting your own progress and operations to stakeholders.Simon Lee
KPMG National Technical Director
Accounting Advisory Services
Content of publication
BACKGROUND INFORMATIONIntroducing Signpost Limited 2011
Do you qualify for differential reporting?
Framework for differential reporting - Flowchart
Differential reporting exemptions
MODEL FOR DIFFERENTIAL REPORTING
Signpost Limited Annual Report 2011
APPENDICES
KPMG CONTACTS
The information contained in this model annual report is of a general nature and is not intended to address thespecific circumstances of any particular individual or entity. This model generally provides for the minimumdisclosure requirements, but in certain areas additional items are disclosed where their disclosure is necessary
to explain the performance of the entity and relevant to the understanding of the readers. The publication shouldbe used as a guide rather than a definitive statement and must be used in conjunction with the relevant
legislation and financial reporting standards. The information contained in this publication should not be used orrelied upon as a substitute for detailed advice or as a basis for formulating business decisions. The names ofpeople and companies in this model annual report are fictitious. Any resemblance to any person or business is
unintended and purely coincidental.
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Introducing Signpost Limited 2011
About this publication
The purpose of this publication is to assist you in preparing financial statements in accordance with the
Framework for Differential Reporting under NZ GAAP (FRSs/SSAPs). It illustrates one possible format for
financial statements based on a fictitious company, Signpost Limited.
In addition to being a useful tool for companies, we believe that this publication will be a valuable reference in
the preparation of financial statements for many other organisations that fall outside the scope of the Financial
Reporting Act (FRA). Our aim is that these model financial statements apply New Zealands reporting
requirements in as realistic a situation as practicable to assist you in reporting your own position and operations
to stakeholders.
History of financial reporting for small and medium-sized entities (SMEs)
Differential Reporting has been around since 1994 when it was introduced to reduce the burden of disclosureson smaller entities without public accountability. On 19 December 2002 the Accounting Standards Review Board
(ASRB) announced that New Zealand entities would adopt international standards for financial periods beginningon or after 1 January 2007. Entities were allowed to early adopt, implementing New Zealand equivalents to
International Financial Reporting standards (NZ IFRS) from as early as balance dates beginning on or after 1
January 2005. This led to a staggered adoption of NZ IFRS. In responding to this the FRSB, as an interim
measure, issued a Framework for Differential Reporting Entities applying the NZ IFRS regime.
Since these decisions were made there has been extensive debate regarding the financial reporting
requirements for certain small entities. In response, the Government announced that it would commence a
review of financial reporting requirements applicable to small and medium-sized companies. One possible
outcome of this review is the removal of the legislative requirement for small and medium-sized companies and
entities to prepare GAAP-compliant financial reports.
In light of these developments the ASRB decided that certain companies could continue to apply the existing
approved New Zealand Financial Reporting Standards (FRSs) and Statements of Standard Accounting Practice
(SSAPs) and did not have to adopt NZ IFRS for reporting periods beginning on or after 1 January 2007, until
further notice.
During September 2007 the ASRB issued Release 9, Delay of the Mandatory Adoption of New Zealand
equivalents to International Financial Reporting Standards for Certain Small Entities that establishes the criteria
for deferral of adoption (refer Appendix 4). The key point is that certain legislative requirements may subject an
entity to the requirements of the Financial Reporting Act 1993 (FRA) as a reporting entity. Unless the entity is an
exempt company or a company that meets the criteria specified in ASRB Release 9, the entity is not exempt,
and will be required to adopt NZ IFRS.
For other types of entities that are not subject to the FRA, the Financial Reporting Standards Board (FRSB) has
amended the New Zealand Preface to allow some of these entities to choose to delay adopting NZ IFRS. This
means that certain entities such as partnerships, trusts, charities, clubs and societies that are required or choose
to prepare general purpose financial reports will also be able to delay adoption of NZ IFRS.
In July 2009, the International Accounting Standards Board (IASB) issued the IFRS for SMEs, which is a self-
contained standard designed to meet the needs and capabilities of small and medium-sized entities (SMEs).Compared with full IFRSs (and many national GAAPs), the IFRS for SMEs is less complex. New Zealand has not
decided on the adoption of the IFRS for SMEs bat this point.
On 30 September 2009, the Ministry of Economic Development (MED) and the ASRB issued proposals that will
potentially change the statutory financial reporting requirements in New Zealand. These proposals cover all types
of entities large and small, listed and unlisted, business enterprises, public sector entities, charities and other
not-for-profit organisations and are set out two discussion documents:
The MED Discussion Document, The Statutory Framework for Financial Reporting sets out proposals in
relation to which entities should be required to prepare financial statements. The ASRB Discussion Document,
The Proposed Application of Accounting and Assurance Standards Under the Proposed New Statutory
Framework for Financial Reporting sets out the proposals for the accounting and audit requirements for an
entity that is required to prepare financial statements. At the time of writing, a number of the significant
proposals have yet to be concluded on.
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Financial reporting requirements
The obligation for entities to prepare financial statements is generally set out under statutes, case law anddocuments such as constitutions, trust deeds and rules under which an entity was established. These sources
also identify the specific requirements of those obligations. Most entities are required by law to prepare
accounts. Having established that the entity has an obligation to prepare financial statements, the entity
determines if it has an obligation to prepare general purpose financial statements that comply with GAAP.
Appendix 4 has a discussion on general purpose and special purpose financial statements, and the appropriate
accounting standards to consider in order to comply with GAAP.
Generally Accepted Accounting Practice (GAAP)
Generally Accepted Accounting Practice (GAAP) is the term used to describe the basis for preparing general
purpose financial statements. The term includes both the broad concepts and principles to be used inpreparing general purpose financial statements and the specific rules, practices and procedures to be used
when reporting on particular transactions and events. The key aspect of GAAP is compliance with appropriate
financial reporting standards.
From a legal perspective GAAP means compliance with all financial reporting standards applicable to the
entity. The standards constituting GAAP are either NZ IFRS or, if an entity can defer adoption of NZ IFRS,the Financial Reporting Standards (FRS) and Statement of Standard Accounting Practice (SSAP). For ease
of reference we refer to these latter standards as FRSs/SSAPs.
Where the existing FRSs/SSAPs do not address a specific issue, the Explanatory Forward to General
Purpose Financial Reporting provides guidance with respect to other sources of authoritative support for
all entities in the preparation of general purpose financial reports.
Ultimately, it is a matter for professional judgement in the circumstances of the entity as to which sources of
authoritative support should be considered, and how conflicts between sources of authoritative support should be resolved, in determining GAAP. In saying this, it is now generally expected that entities should
consider NZ IFRS in the first instance when FRS/SSAPs do not provide guidance given that these standardsare approved accounting standards in New Zealand.
Keeping up to dateThe content of this publication reflects accounting practice at the time of writing, but accounting practice is
continually evolving. It is therefore necessary for preparers of financial statements, to keep abreast of
accounting developments and their impact on financial statements. This publication should be used in
conjunction with the underlying legislation and financial reporting standards, particularly where a specific
disclosure area is not covered or where there is uncertainty regarding interpretation.
To keep up to date with financial reporting developments you can visit our website:www.kpmg.co.nz.
Entities adopting NZ IFRS that qualify for differential reporting should refer to the Illustrative Financial
Statements ClearCut Limited 2009, which has been prepared in accordance with the Framework for
Differential Reporting for entities applying NZ IFRS.
If you require guidance on preparing and presenting financial statements complying with full reportingrequirements you should refer to KPMGs model annual report Diverse Group Limited, which includes an
Appendix on Preparing for the Conversion to NZ IFRS.
The on-line versions are regularly updated for the latest developments. If you require any assistance with
financial reporting or transitioning to NZ IFRS, please call your KPMG contact or email KPMG's Accounting
Advisory Services ondpp@kpmg.co.nz.
http://www.kpmg.co.nz/http://www.kpmg.co.nz/http://www.kpmg.co.nz/mailto:dpp@kpmg.co.nzmailto:dpp@kpmg.co.nzmailto:dpp@kpmg.co.nzmailto:dpp@kpmg.co.nzhttp://www.kpmg.co.nz/ -
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The Signpost story
Signpost Limited (Signpost) is a reporting entity as defined in the FRA and qualifies under ASRB Release 9 to
defer adoption of NZ IFRS. Signpost has decided to produce financial statements that have been prepared in
accordance with NZ GAAP, applying FRSs and SSAPs. Signpost is a privately owned company registeredunder the Companies Act 1993 and operates as a sign post manufacturer based in Hamilton.
In focusing on the preparation of these financial statements, we have recognised that primary stakeholders(e.g. shareholders and banks) like to receive clear and concise information. With this in mind we have
assumed that Signpost is taking advantage of most of the differential reporting exemptions available to it.
Additional disclosures may be included to provide useful information to the users of financial statements and
to follow best practice established by that specific industry.
Abbreviations
The following abbreviations are used in these model financial statements:
ASRB Accounting Standards Review Board
C93 Companies Act 1993FRA Financial Reporting Act 1993
FRS Financial Reporting Standards
GAAP Generally Accepted Accounting Practice
IAS International Accounting Standards
IASB International Accounting Standards Board
IFRS International Financial Reporting Standards
MED Ministry of Economic Development
NZ IAS New Zealand equivalents to International Accounting Standards
NZ IFRS New Zealand equivalents to International Financial Reporting Standards
NZ IFRIC New Zealand equivalents to International Financial Reporting Interpretations
Committee
NZ SIC New Zealand equivalents to Standing Interpretations Committee
SSAP Statement of Standard Accounting Practice
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Do you qualify for differential reporting?
The Financial Reporting Standards Board (FRSB) issued a Framework for Differential Reporting in 1994
(Framework). This has been amended over the years, most recently in 2005 when the size criteria were
increased. The Framework allows a reporting entity to be exempted from specific requirements of FRSs/SSAPs.The basic principle of differential reporting is that compliance with FRSs/ SSAPs should be required only whenthe benefit exceeds the costs of compliance with the standards.
Do you meet the requirements?
An entity qualifies for differential reporting exemptions if it does not have public accountability and either all of its
owners are members of its governing body at balance date (non-separation criterion) or the entity is not large
(size criterion) as defined by the Framework.
What makes an entity publicly accountable?
An entity has public accountability if it was an issuer, as defined in the FRA at any time during the current or
preceding reporting period. An entity is also publicly accountable if it has the coercive power to tax, rate or levyto obtain public funds.
For example, a golf club that charges its members a fee does not have coercive power. It is the member's
decision to become a member of the golf club and they would not have to pay the fee if they chose to leave the
golf club. On the other hand, City Council rates and Government taxes are charged irrespective to usage and
services offered by such entities and they are therefore publicly accountable.
When an entity's parent or ultimate controlling entity has the coercive power to tax, rate or levy to obtain public
funds, the entity is not permitted to use a lack of separation between the owners and the governing body as a
basis for qualifying for differential reporting exemptions. Such entities may qualify for differential reporting
exemptions only on the basis of size. This is because it may not be appropriate that entities such as localauthority trading enterprises, crown entities, state-owned enterprises and government departments should be
permitted to use the lack of separation criteria as the public have a beneficial interest in the entities and in many
cases, the public indirectly provides funds to such entities through taxes, rates or levies.
However, an entity does not have public accountability solely because it receives public funds from another
entity that has the coercive power to tax, rate or levy to obtain public funds. For example, a museum that
receives a government grant is not public accountable. A group is not considered to be publicly accountable
solely by reasonof a subsidiary or associate being publicly accountable. However, when the parent of the groupis an issuer, the entire group is an issuer and is deemed to be publicly accountable.
How is it possible to identify that owners are also governors?
Where every owner is also a member of the governing body, the owners are assumed to have access to anyinformation they require and the separation test is passed.
Where the owner is not a natural person, e.g. the owner is a trust or company, and has appointed arepresentative to the governing body of the entity, that representative is considered to be the owner for the
purposes of the Framework. For example, if the holding company appoints a director to the board of itssubsidiary then there is no separation between the owner and the governing body. In the example of a wholly
owned subsidiary, the directors appointed by the holding company are considered to be the owners of thesubsidiary.
The true owners of trusts are the beneficiaries. Therefore, in order for the non-separation criterion to be met,the beneficiaries should also be trustees. The settler of a trust will sometimes have the right to appoint the
trustees; therefore the settler will also meet the definition of an owner and should be on the governing body.
This means that in most cases the trust will not satisfy the 'non-separation' criterion. A trust will generally only
qualify for differential reporting exemptions if it is not publicly accountable and is small. This non-separation
test is applied at balance date.
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How is the size criterion applied?
An entity is classified as 'small' if it does not exceed any two of the following three size thresholds:
Total revenue of $20 million; Total assets of $10 million; and 50 employees.The size criterion must be met for two consecutive balance dates (or one if it is the entity's first balance date).
Where the reporting entity is a group, the size criterion is applied to the group comprising the parent and all its
subsidiaries.
In trying to assess whether an entity meets the size criterion, the Framework provides guidance as to how the
three size thresholds should be calculated:
Total revenue is the annualized gross income, which includes both revenue and gains, reported in theentity's statement of financial performance for the current period;
Total assets include all assets, including intangible assets, recorded in the entity's balance sheet at theend of the current reporting period;
Total employees comprise the number of full-time equivalent persons in the paid employment of theentity, calculated on an annual basis.
Disclosure
If an entity qualifies for differential reporting, it is required to disclose an accounting policy stating how it meets
the Framework criteria and the differential reporting exemptions that it has adopted.
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Framework for differential reporting - Flowchart
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Differential reporting exemptions
The following is a listing of New Zealand financial reporting standards as well as the measurement, recognition
and disclosure exemptions available within the Framework for Differential Reporting.
Full exemption
FRS-10 Statement of Cash Flows
SSAP-23 Financial Reporting for Segments
FRS-31 Disclosure of Information about Financial Instruments
FRS-41Disclosing the impact of adopting New Zealand Equivalents to International Financial
reporting Standards (applicable to issuers only)
No exemption
FRS-1 Disclosure of Accounting Policies
FRS-2 Presentation of Financial Reports
(except requirements relating to statement of cash flows if applicable)
FRS-5 Events after Balance Date
SSAP-6 Materiality in Financial Statements
FRS-7 Extraordinary Items and Fundamental Errors
FRS-20 Accounting for Shares Issued Under a Dividend Election Plan
SSAP-25 Accounting for Interest in Joint Ventures and Partnerships
FRS-26 Accounting for Defeasance of Debt
FRS-27 Right of Set-off
FRS-32 Financial Reporting by Superannuation Schemes
FRS-33 Disclosure of Information by Financial Institutions
FRS-34 Life Insurance Business
FRS-35 Financial Reporting of Insurance Activities
FRS-36 Accounting for Acquisitions Resulting in Combinations of Entities or Operations
FRS-37 Consolidating Investments in Subsidiaries
FRS-38 Accounting for Investments in Associates
FRS-39 Summary Financial Reports
FRS-40Transitional Arrangements for the Early Adoption of the New Zealand equivalent to IAS 19
Employee Benefits
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Partial exemption
FRS-3 Accounting for Property, Plant and Equipment
The same rates of depreciation can be used for financial reporting as for income tax
purposes, except when assets have been revalued. The entity is not required to capitaliseborrowing costs and where this exemption is taken the entity must expense all borrowing
costs as incurred. Specific exemptions in disclosure are denoted with an asterisk in the
standard.
FRS-4 Accounting for Inventories
There is no requirements to sub-classify inventory into categories such as raw materials,
work-in-progress and finished goods.
SSAP-12 Accounting for Income Tax
The accounting policy adopted for income tax must be disclosed in all instances. This is one
of the few standards that allows an entity qualifying for differential reporting a choice with
regard to recognition and measurement. An entity may choose to adopt either the liability
method or the taxes payable method. The selection of either method has no impact on
which disclosure exemptions an entity chooses to elect. However, if an entity voluntarily
makes disclosures from which it is exempt, they must be in accordance with SSAP-12.FRS-13 Accounting or Research and Development Activities
All research and development costs can be recognised as an expense during the period in
which they were incurred.
FRS-14 Accounting or Construction Contracts
Profit on all construction contracts may be recognised on a completed contract method or a
percentage of completion method. If the percentage of completion is used, all the
recognition and measurement requirements must be completed with, but there is still a
choice regarding disclosure requirements of FRS-14. However, if an entity voluntarily
makes disclosures from which it is exempt, they must be in accordance with FRS-14.
FRS-15 Provisions, Contingent Liabilities and Contingent Assets
Entities are not required to disclose additional provisions made in the period, amounts used
during the period and the increase during the period in the discounted amount arising the
passage of time and the effect of any change in the discount rate.
SSAP-17 Accounting or Investment Properties and Properties Intended for Sale
Entities are not required to account for investment properties and properties intended for
sale according to SSAP-17, but have the option of using the principles embodies in SSAP-28
instead. However, this exemption is not available if investment property revaluations or
development margins are recognised.
SSAP-18 Accounting for Leases and Hire Purchase Contracts
Finance charges relating to finance leases do not have to be disclosed separately in the
statement of financial performance Entities are not required to comply with all disclosure
requirements except that they may disclose lease liabilities for finance leases and
aggregate commitments for non-cancelable operating leases by classifying them into
current and non-current amounts.
FRS-19 Accounting for Goods and Services Tax
There is a choice regarding the recognition of revenue and expense items inclusive or
exclusive of GST, provided that the method is applied consistently to all revenue and
expense items disclosed in the statement of accounting policies.
FRS-21 Accounting for the Effect of Changes in Foreign Currency Exchange Rates
The net exchange difference does not have to be separately disclosed in the statement of
financial performance. In addition, transactions measured in a foreign currency do not have
to be translated using the exchange rate that applied at the transaction date or a rate
approximating that rate. If this exemption is applied, transactions settled in the accounting
period must be translated at the settlement rate and transactions unsettled at balance date
must be translated at the closing rate.
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Partial exemption (continued)
SSAP-21 Accounting for the Effects of Changes in Foreign Currency Exchange Rates
The net exchange difference included in the statement of financial performance does not
have to be disclosed.
SSAP-22 Related Party DisclosuresThe identity of each related party, the nature of each relationship and the types of
transactions involved are only required to be disclosed if there have been material
transactions with related parties at any time during the reporting period.
FRS-24 Interim Financial Statements
Specific exemptions are denoted with an asterisk in the standard. In addition, differential
reporting exemptions available under specific financial reporting standards may be applied.
FRS-30Reporting Share Ownership Arrangements including Employee Share Ownership Plans
(ESOP)
Qualifying entities with one or more ESOP are exempt from disclosing abbreviated
statements of financial position and financial performance on each ESOP.
FRS-42 Prospective Financial Statements
Qualifying entities are not required to prepare a cash flow statement.
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Signpost Limited
Annual Report for the year ended 31 March 2011
14
Report contents Page No.
Compilation Report 15
Approval of Annual Report 17
Company Directory 18
Statement of Financial Performance 19
Statement of Movement in Equity 20
Balance Sheet 21
Statement of Accounting Policies 23
Notes to the Financial Statements 28
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Signpost Limited
Annual Report for the year ended 31 March 2011
15
Compilation Report
Report to the Directors of Signpost Limited
Scope
On the basis of information you provided we have compiled, in accordance with Service Engagement
Standard No. 2: Compilation of Financial Information, the annual report of Signpost Limited for the year ended
31 March 2011. This has been prepared in accordance with New Zealand generally accepted accounting
practice as described in the statement of accounting policies.
Responsibilities
You are solely responsible for the information contained in the annual report and have determined that New
Zealand generally accepted accounting practice is appropriate to meet your needs and for the purpose that
the financial statements were prepared. The annual report is prepared solely for your benefit. We do not
accept responsibility to any other person for the contents of the annual report.Disclaimer of liability
We have compiled the annual report of Signpost Limited for the year ended 31 March 2011 in accordance
with the limited procedures agreed in our letter of engagement dated 1 May 2010.
Our procedures use accounting expertise to undertake the compilation of the annual report from information
you provided. The compilation is limited primarily to the collecting, classifying and summarising of financial
information supplied by the client. Our procedures do not involve the verification or validation procedures. No
audit or review has been performed and accordingly no assurance is expressed. We have not attempted to
verify the accuracy or completeness of the information and therefore neither we nor any of our employees
accept any responsibility for the accuracy of the information from which the annual report has been prepared.
This annual report has been prepared at the request of and for the purpose of our client only and neither wenor any of our employees accept any responsibility on any ground whatsoever, including liability in
negligence, to any other person.
KPMG
Wellington
Dated: 15 June 2011
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Signpost Limited
Annual Report for the year ended 31 March 2011
16
Note Reference Explanatory note1 Companies Act
1993
Financial ReportingAct 1993
FRS 5 Events AfterBalance Date
Section 211(1)(k) of the Companies Act 1993 as well as Section 10(1)(b) of the Financial
Reporting Act 1993 requires the annual report to be signed and dated on behalf of theBoard by two Directors unless there is only one Director. Section 13(1)(b) of the FinancialReporting Act 1993 contains the same requirement in respect of the Group financial
statements.
Although many companies place these signatures at the bottom of the Statement ofFinancial Position, this is not a requirement of the Financial Reporting Act. This approvalmay be made anywhere in the annual report. Signing and dating the financial statementsimplies that the financial statements have been authorised for issue to meet therequirements of FRS 5, Events After Balance Date, paragraph 6.1.
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Signpost Limited
Annual Report for the year ended 31 March 2011
17
Approval of Annual Report
The Directors are pleased to present the annual reports including the financial statements of Signpost Limited
for the year ended 31 March 2011.
For and on behalf of the Board of Directors1
AB Smith CD Brown
AB Smith CD Brown
Director Director
15 June 2011 15 June 2011
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Signpost Limited
Annual Report for the year ended 31 March 2011
18
Company Directory2
As at 31 March 2011
Nature of Business Sign post manufacturer
Registered office Cobham Drive
Hamilton
Incorporation Number 99 0724 00
IRD Number 62-101-888
Directors AB Smith
CD Brown
Shareholders AB Smith 350,000
CD Brown 350,000
AB Smith, CD Brown and EF Weston jointly as
Trustees for ABC Family Trust50,000
Ordinary Shares 750,000
Accountant KPMGKPMG Centre
85 Alexandra Street
Hamilton
Bankers First Banking Corporation
Solicitors Grade A Associates
Note 2This information is provided for illustrative purposes only. There is no legislative requirement to include a company directory.
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Signpost Limited
Annual Report for the year ended 31 March 2011
19
Statement of Financial PerformanceReferences
FRS-2 5.2(a),
FRA s8(1)(b)
For the year ended 31 March 2011 FRS-2 5.17
Note 2011 2010
$ $
Sales revenue 1 1,827,643 1,798,204
Cost of goods sold 426,549 464,600
Total gross surplus 2 1,401,094 1,333,604
Expenses
Operating 3 579,361 600,893
Administration 4 142,708 145,900
Finance 5 109,134 102,762
Non-cash items 6 199,380 188,012
1,030,583 1,037,567
Net business surplus 370,511 296,037
Other income
Sundry income 7 63,253 41,314
Operating surplus before shareholders remuneration 433,764 337,351
Shareholders remuneration 26 127,000 90,000
Operating surplus before tax 306,764 247,351 FRS-2 6.7, 6.13(a)
Tax expense 8 96,631 47,209 FRS-2 6.12
Net surplus for the year 210,133 200,142 FRS-2 6.3
These statements are to be read in conjunction with notes to the financial statement and are subject to the compilation report on page 15 of this repor
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Signpost Limited
Annual Report for the year ended 31 March 2011
20
Statement of Movements in Equity ReferencesFRS-2 5.2(b), 7.2For the year ended 31 March 2011
FRS-2 5.17
Note 2011 2010
$ $
Net surplus for the year 210,133 200,142 FRS-2 7.3(a)(i)
Revaluation of assets 176,102 13,884FRS-2 7.3(a)(ii),
FRS-3 11.8(a)
Total recognised revenues and expenses 386,235 214,026 FRS-2 7.3(a)
Dividend declared 10 (50,000) (30,000) FRS-2 7.3(b)
Movements in equity for the year 336,235 184,026
Equity at beginning of year 1,107,155 923,129
Equity at end of year 10 1,443,390 1,107,155 FRS-2 7.2
These statements are to be read in conjunction with notes to the financial statement and are subject to the compilation report on page 15 of this repor
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Signpost Limited
Annual Report for the year ended 31 March 2011
21
Balance SheetReferences
FRS-2 5.2(c.), 8.1,
FRA S8(1)(a)
As at 31 March 2011FRS-2 5.17
Note 2011 2010
$ $
Equity 10 1,443,390 1,107,155FRS-2 8.5(a)(v),
FRS-9 8.17
Current assets FRS-2 8.5(a)(i)
Cash and bank balances 11 26,849 - FRS-9 8.2(c)
Accounts receivable 12 347,373 312,335 FRS-9 8.2(a)
Loan to director 13 12,000 12,000 FRS-9 8.2(a)(ii)
Inventories 14 201,108 218,049 FRS-4 5.29(b)(i)
Shareholders current accounts 20 299,299 463,700
Total current assets 886,629 1,006,084
Non-current assets FRS-2 8.5(a)(ii)
Property, plant and equipment 15 1,658,421 1,492,518
Goodwill 16 40,000 60,000 FRS-9 8.2(f)
Investments 17 545,839 478,819 FRS-9 8.2(b)
Loan to director 13 60,000 72,000 FRS-9 8.2(a)(ii)
Total non-current assets 2,304,260 2,103,337
Total assets 3,190,889 3,109,421
Current liabilities FRS-2 8.5(a)(iii)
Bank balances 11 - 17,764
Accounts payable 18 125,061 114,421 FRS-9 8.10(b)
GST payable 38,355 56,376
Dividends payable 10 50,000 30,000 FRS-9 8.10(d)
Current portion of finance lease liabilities 19 40,450 40,450
Shareholders current accounts 20 76,760 41,245
Tax payable 8 11,058 13,784
Current portion of loans 21 281,496 211,832
Provisions 22 14,417 -
Total current liabilities 637,597 525,872
Non-current liabilities FRS-2 8.5(a)(iv)Non-current portion of finance lease liabilities 19 39,285 79,735
Non-current portion of loans 21 1,027,365 1,396,659
Provisions 22 43,252 -
Total non-current liabilities 1,109,902 1,476,394
Total liabilities 1,747,499 2,002,266
Net assets 1,443,390 1,107,155
These statements are to be read in conjunction with the notes to the financial statements and subject to the compilation report on page 15 of this repo
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Signpost Limited
Annual Report for the year ended 31 March 2011
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Signpost Limited
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23
Statement of accounting policies
For the year ended 31 March 2011
Reference
FRS-1 5.1, 5.5(
Basis of preparation FRS-2 5.2(f), 5.1
Signpost Limited is a company domiciled in New Zealand and registered under the Companies Act 1993.
The Company is a reporting entity for the purposes of the Financial Reporting Act 1993 and its financial
statements comply with that Act.
The financial statements comprise statements of: financial performance; movements in equity; balance
sheet; accounting policies; as well as the notes to these statements.
The financial statements have been prepared in accordance with generally accepted accounting practice
in New Zealand. They comply with approved Financial Reporting Standards (FRSs) and Statements of
Standard Accounting Practice (SSAPs) as appropriate for entities that qualify for and apply differential
reporting concessions. The financial statements have been prepared on the basis of historical cost
except that land and buildings are stated at valuation.
FRS-1 5.5(
FRS-1 5.5(
Differential Reporting FRS-1 5.19(a),(b
In terms of the framework for differential reporting an entity is exempt from certain financial reporting
standards if it satisfies the criteria laid down in the framework; such an entity is called a qualifying entity.
The Company is an entity qualifying for differential reporting exemptions as it has no public accountability
and is not large in terms of the criteria set out in the Differential Reporting Framework. All available
differential reporting exemptions allowed under the framework for differential reporting have been
adopted, except for:
FRS 9 Information to be disclosed in the financial statements, where some additional disclosureshave been made.Receivables
Receivables are stated at estimated realisable value after providing against debts where collection is
doubtful. Bad debts are written off during the period in which they are identified.
Investment in shares
Non-current investments in unlisted shares are stated at the lower of cost and market value. Investments
in listed shares are stated at market value. Dividend income is recognised in the statement of financial
performance when received.
Inventories FRS-4 5.29(
Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated
selling price in the ordinary course of business, less the estimated costs of completion and selling
expenses. Cost is based on the first-in first-out principle and includes expenditure incurred in acquiring the
inventories and bringing them to their existing condition and location. In the case of manufactured
inventories and work-in-progress, cost includes an appropriate share of overheads based on normal
operating capacity.
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Note Reference Explanatory Note
1 FRS-3 11.6 When a class of property, plant and equipment is no longer revalued the fact that the class ofitems is no longer accounted for under modified historical cost and the basis upon which theclass is now accounted for, must be disclosed.
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25
Statement of accounting policies
For the year ended 31 March 2011
References
Property, plant and equipment FRS-3 5.3, 5.22, 5.35
Items of property, plant and equipment are stated at cost less accumulated depreciation and
impairment losses. Where an item of property, plant or equipment is disposed of, the gain or loss
recognised in the statement of financial performance is calculated as the difference between the sale
price and the carrying amount of the asset.
Land and buildings are stated at valuation as determined by an independent registered valuer. Land
and buildings are revalued at least every five years, and more frequently if necessary to ensure
carrying amounts are not materially different from fair value as at balance date. The basis of valuation
of the land and buildings is highest and best use.
Depreciation FRS-3 11.1(b)(c)
Depreciation is charged at the same rate as is allowed by the Income Tax Act 2004. The following
rates have been used: FRS-3 8.1
Fixtures, fittings and equipment 9% - 24% diminishing value FRS-3 2.2(a)
Office furniture 18% - 40% diminishing value
Leased motor vehicles 15% straight line
Leasehold improvements 6.6% - 18% straight line
Plant and machinery 11% - 18% diminishing value
Buildings 3% straight line
Land is not depreciated.
Leases
Leases or hire purchase contracts where the Company assumes substantially all the risks and rewards
of ownership are classified as finance leases. Assets acquired by way of finance lease are stated
initially at an amount equal to the lower of fair value and present value of the future minimum lease
payments, and are depreciated using the same rates for the applicable categories set out above.
Minimum lease payments are apportioned between interest expense and reduction of the outstanding
liability.The interest expense component of finance lease payments is recognised in the statement of
financial performance using the effective interest rate method.Other leases are classified as operating leases. Payments made under operating leases are
recognised in the statement of financial performance on a straight-line basis over the term of the
lease. Lease incentives are recognised in the statement of financial performance over the lease termas an integral part of the lease expense.
SSAP-18 5.1,5.2
SSAP-18 5.4
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Note Reference Explanatory Note
1 Some differential reporting entities may choose to report income taxes on a comprehensivebasis taking account of all timing differences. In these circumstances the following taxationpolicy should be included: "Income tax expense is recognised on the operating surplus before
taxation adjusted for permanent differences between taxable and accounting income. Deferredtax is calculated using the comprehensive basis under the liability method.
2 SSAP-12 5.14 This method involves recognising the tax effect of all timing differences between accountingand taxable income as a deferred tax asset or liability in the statement of financial position. Thefuture tax benefit or provision for deferred tax is stated at the income tax rates prevailing atbalance date. Future tax benefits are not recognised unless realisation of the asset is virtually
certain."
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Statement of accounting policies
For the year ended 31 March 2011
References
Goodwill
Goodwill arising on the acquisition of a business represents the excess of the purchase consideration
over the fairvalue of the identifiable net assets acquired. Goodwill is amortised to the statement offinancial performance on a straight line basis over the period during which benefits are expected to be
derived - a period of 5 years.Taxation
The income tax expense recognised in the statement of financial performance is the estimated
income tax payable in the current year, adjusted for any differences between the estimated and actual
income tax payable in prior years.SSAP-12 5.14(a)
Foreign currencies
Foreign currency transactions are translated to New Zealand Dollars (NZD) at the exchange rates ruling
at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at
the balance date are translated to NZD at the foreign exchange rate ruling at the date. Foreign
exchange differences arising on their translation are recognised in the statement of financial
performance.
FRS-21 7.1(a)FRS-21 5.3(a)FRS-21 5.4(a)
Goods and services tax FRS-19 2.2
All amounts are shown exclusive of Goods and Services Tax (GST), except for receivables and
payables which are shown inclusive of GST.
Onerous contracts FRS-15 10.4
Where the benefits expected to be derived from a contract are lower than the unavoidable costs of
meeting the Company's obligation under the contract, a provision is recognised. The provision is
stated at the present value of the future net cash outflows expected to be incurred in respect of the
contract.
Dividends
Provisions for dividends are recognised in the period that they are authorised and approved.FRS-5 5.5
Changes in accounting policy FRS-1 5.5(d),5.11
The accounting policies adopted are consistent with those of the previous year. 5.12,5.14
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Notes to the financial statements References2011 2010
Note $ $
1 Operating revenue
Sales revenue Traffic signage 1,343,024 1,416,687 FRS-9 6.7
Sales revenue Commercial signage 484,619 381,517 FRS-9 6.7
Total sales revenue 1,827,643 1,798,204
Sundry income 7 63,253 41,314 FRS-9 6.7
1,890,896 1,839,518 FRS-9 6.6
2 Gross surplus
Traffic signage
Sales revenue 1,343,024 1,416,687
Cost of goods sold
Opening stock 165,354 155,599
Purchases 286,954 375,698
452,308 531,297
Less Closing stock 135,982 165,354
316,326 365,943
Gross surplus - Traffic signage 1,026,698 1,050,744
Commercial signage
Sales revenue 484,619 381,517
Cost of goods sold
Opening stock 52,695 38,763
Purchases 122,654 112,589
175,349 151,352
Less Closing stock 65,126 52,695
110,223 98,657
Gross surplus Commercial signage 374,396 282,860
Total gross surplus 1,401,094 1,333,604
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Signpost Limited
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Notes to the financial statements References
2011 2010
$ $
3 Operating expenses
Accident compensation 4,709 7,578
Accommodation 6,089 5,434
Advertising 2,423 3,486
Consultancy 29,115 11,408
Consumables 53,618 65,309
Contract services 124,235 127,445
Electricity 2,382 2,273
Low value assets 1,626 531
Motor vehicle expenses 5,310 4,305
Motor vehicle lease 16,975 16,974
Repairs and maintenance 9,234 11,286
Salaries and wages 314,106 327,656
Travel 9,539 17,208
579,361 600,893
4 Administration expenses
Accounting 4,843 6,738
Audit fees 2,500 2,500
Bank charges 945 1,172
Body corporate fees 4,713 6,284
Conference 115 1,466
Directors fees 60,000 50,000
Entertainment - deductible 940 788
Entertainment - non-deductible 1,057 887
Fringe Benefit Tax 1,499 1,558
General expenses 1,318 1,375
GST on fringe benefits 265 340
Insurance 21,766 25,630
Legal - deductible 187 3,340
Printing and stationery 2,074 542
Postage and freight 2,747 2,009
Rent 17,911 17,559
Staff training 2,451 4,984
Telecommunications 17,377 18,728
142,708 145,900
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30
Notes to the financial statements References2011 2010
$ $
5 Finance expenses
Interest secured bank loan 91,469 81,426
Interest finance lease 6,997 9,828 SSAP-18.4.37(e)
Interest other 10,668 11,508
109,134 102,762
6 Non-cash items Note
Depreciation property, plant and equipment 15 175,877 174,512
Impairment - property plant and equipment 15 3,200 -
Loss on disposal of fixed assets 303 -
Depreciation recovered - (6,500)
Amortisation of goodwill 16 20,000 20,000
199,380 188,012
7 Sundry income
Realised gain on foreign exchange 10,000 6,500
Gain on disposal of fixed assets - 10,000
Miscellaneous income 272 116
Dividends received 4,977 5,039
Interest received 48,004 19,659
63,253 41,314
8 Tax
Operating surplus before tax 306,764 247,351
Imputation credits received 2,451 1,660
309,215 249,011
Adjustments for permanent differences
Impairment of goodwill 20,000 20,000
Capital gain on disposal of fixed assets - (10,000)
Entertainment - non-deductible 1,057 887
Losses brought forward - (97,000)
Taxable income 330,272 162,898
Income tax 99,082 48,869
Imputation credits claimed (2,451) (1,660)
Tax expense 96,631 47,209
Resident withholding tax paid (20,573) (8,425)
Provisional tax paid (65,000) (25,000)
Income tax payable 11,058 13,784
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31
Notes to the financial statements References
2011 2010
$ $
9 Imputation credits
Balance at beginning of year 61,942 15,983
Terminal tax paid 13,784 19,874
Provisional tax paid 65,000 25,000
Resident withholding tax paid 20,573 8,425
Imputation credits attached to dividends received 2,451 1,660
101,808 54,959
Tax refunded (1,277) -
Imputation credits attached to dividends paid (15,000) (9,000)
Balance at end of year 147,473 61,942
The closing balance represents imputation credits available to be attached to any future
dividend distributions from the Companys reserves, subject to certain shareholder continuity
provisions. This account is not reflected in the Companys financial statements.
10 Equity
Paid in capital 750,000 750,000
Retained earnings 503,404 343,271
Asset revaluation reserve 189,986 13,8841,443,390 1,107,155
The Company has 750,000 fully paid shares on issue (2010: 750,000). All shares have equal
voting rights and upon winding up rank equally with regard to the Companys residual assets.
Movement in retained earnings
Balance at beginning of year 343,271 173,129
Net surplus for the year 210,133 200,142
Dividends declared (50,000) (30,000)
Balance at end of year 503,404 343,271
Asset revaluation reserve
Property, plant & equipment 150,000 -
Shares in listed company 39,986 13,884
189,986 13,884
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Notes to the financial statements References
2011 2010
$ $
11 Cash and cash bank balances
First Banking Corporation Ready Money Account 26,849 -
First Banking Corporation Cheque Account - (17,764)
26,849 (17,764)
The bank overdraft is unsecured. Interest in incurred at 9.45% per annum up to $30,000 and
at 18.76% thereafter.
12 Accounts receivable
Trade receivables 336,490 299,520
Prepayments 10,883 12,815
347,373 312,335
13 Loan to directorFRS-9 8.2(a)(ii)
AB Smith 72,000 84,000
Current portion 12,000 12,000
Non-current portion 60,000 72,000
72,000 84,000
The loan to Director, AB Smith, bears interest of 8 per cent per annum and is repayable in
monthly installments of $1,000. The loan is secured by a first mortgage registered over ABSmiths residence. FRS-9 8.6
14 Inventories
Stock on hand 175,982 195,354
Work in progress 25,126 22,695
201,108 218,049
Certain inventory items are subject to retention of title clauses.FRS-4 5.29(d)
FRS-9 8.8
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Notes to the financial statements References
15 Property, plant and equipmentFRS-3 11.3(a)(c.)(d)
2011 CostDepn
Charge
Impairment
losses
Acc Dep &
Impairment
Carrying
value
$ $ $ $ $
Land (at revaluation) 340,000 - - - 340,000 FRS-9 8.2(d)
Buildings (at revaluation) 410,000 9,891 - - 410,000 FRS-9 8.2(e)
Plant and machinery 1,034,000 118,610 - 378,750 655,250 FRS-3 11.3(a)
Plant and machinery (not in
use)21,500 3,225 3,200 6,425 15,075 FRS-3 11.3(b)(i)
Plant and machinery (WIP) 69,058 - - - 69,058 FRS-3 11.3(b)(ii)
Leasehold improvements 40,153 6,023 - 18,069 22,084 FRS-3 11.3(a)
Motor vehicles (leased) 151,850 22,778 - 68,333 83,517 SSAP-18 5.15(a)Fixtures, fittings and
equipment77,304 9,470 - 27,587 49,717 FRS-3 11.3(a)
Office furniture 40,000 5,880 - 26,280 13,720 FRS-3 11.3(a)
Total as at 31 March 2011 2,183,865 175,877 3,200 525,444 1,658,421
2010 CostDepn
Charge
Impairment
losses
Acc Dep &
Impairment
Carrying
value
$ $ $ $ $
Land (at revaluation) 310,000 - - - 310,000 FRS-9 8.2(d)
Buildings (at revaluation) 329,700 9,891 - 19,782 309,918 FRS-9 8.2(e)
Plant and machinery 934,500 119,149 - 259,324 675,176 FRS-3 11.3(a)
Plant and machinery (not in
use)- - - - -
Plant and machinery (WIP) - - - - -
Leasehold improvements 40,153 6,023 - 12,046 28,107 FRS-3 11.3(a)
Motor vehicles (leased) 151,850 22,778 - 45,555 106,295 SSAP-18 5.15(a)
Fixtures, fittings and
equipment61,539 8,271 - 18,177 43,422 FRS-3 11.3(a)
Office furniture 40,000 8,400 - 20,400 19,600 FRS-3 11.3(a)
Total as at 31 March 2010 1,867,742 174,512 - 375,284 1,492,518
Due to damage to a new item of plant and machinery, which is now not currently in use, an
impairment loss of $3,200 has been recognised in the statement of financial performance towrite down the carrying value of the asset.
2011 2010
$ $
Amount by which land and buildings have been revalued above
historical cost:
Land 30,000 -
FRS-3 11.4(a)
Buildings 120,000 -
Land and buildings were valued on 31 March 2011 by Mr Cloud, a valuer registered with the
New Zealand Institute of Valuers, at $750,000. The valuations placed on land and buildings
were based on highest and best use.
FRS-3 11.4(c)(d)(e)
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Notes to the financial statements References2011 2010
$ $
16 Goodwill
Goodwill at cost 100,000 100,000
Accumulated amortisation at beginning of year (40,000) (20,000)
Balance at beginning of year 60,000 80,000
Amortisation expense - current year (20,000) (20,000)
Balance at end of year 40,000 60,000
17 Other investments FRS-9 8.2(b)(v)
Shares in listed company (at valuation) Quantity
Slee Group Limited 10,000 124,360 79,156
Gibbs Holdings New Zealand Limited 8,800 60,019 38,203
184,379 117,359
Shares in unlisted companies (at cost)
Rowe (NZ) Management Limited 195,500 251,220 251,220
Limbo Transport Company Limited 120,128 110,240 110,240
361,460 361,460
545,839 478,819
18 Accounts payable
Trade creditors 96,021 86,451 FRS-9 8.10(a)
Other payables 29,040 27,970
125,061 114,421
Included in trade creditors is an amount of $5,174 ($US4,139) (2010: $6,406 ($US4,804))
which is unhedged. FRS-21 7.1(e)(i)
19 Finance lease liabilities
ABC Finance Motor vehicles
Total minimum lease payments 90,898 145,424
Less future lease finance charges (11,163) (25,239)
Net finance lease liability 79,735 120,185 SSAP-18 4.36
Classified as follows:
Current portion 40,450 40,450
Non-current portion 39,285 79,735
79,735 120,185
The motor vehicles obtained through the finance lease serves as security over this liability. FRS-9 8.13
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35
Notes to the financial statements References
2011 2010
$ $
20 Shareholders current accounts
A B Smith
Balance at beginning of year (463,700) (357,148)
Funds introduced 76,805 -
Directors salary remuneration 107,000 80,000
Directors fees 30,000 25,000
(249,895) (252,148)
Less outgoings
Drawings 20,033 121,366
Cash distributions 5,173 68,704
Donations 3,982 550
Interest payable on current account 20,216 20,932
49,404 211,552
Balance at end of year (299,299) (463,700)
C D Brown
Balance at beginning of year 17,646 6,821
Funds introduced 26,529 -
Directors salary remuneration 20,000 10,000
Directors fees 30,000 25,000
94,175 41,821
Less outgoings
Drawings 20,348 24,175
20,348 24,175
Balance at end of year 73,827 17,646
ABC Family Trust
Balance at beginning of year 23,599 -
Funds introduced 8,749 35,249
32,348 35,249
Less outgoings
Cash distribution 29,415 11,650
29,415 11,650
Balance at end of year 2,933 23,599
Total shareholders' current accounts (222,539) (422,455)
Classified as follows:
Current assets (299,299) (463,700)
Current liabilities 76,760 41,245
(222,539) (422,455)
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36
Notes to the financial statements References
2011 2010
$ $
21 Loans
Loan from director
CD Brown 324,000 350,000
Current portion 174,000 100,000
Non-current portion 150,000 250,000
324,000 350,000 FRS-9 8.10(b)(iii)
The loan from Director, CD Brown, has an interest rate charge of 3% per annum and is
repayable by 31 August 2013.Secured bank loanCurrent portion 107,496 111,832
Non-current portion 877,365 1,146,659
984,861 1,258,491 FRS-9 8.10(e)
The secured bank loan is secured by a floating charge over the assets of the Company and
interest is incurred at 7.45% per annum. The maturity date of the loan is 30 November 2018.FRS-9 8.13
Total current portion 281,496 211,832
Total non-current portion 1,027,365 1,396,659
1,308,861 1,608,491
22 Provisions
Balance at the beginning of the year - - FRS-15 11.1
Balance at the end of the year 57,669 - FRS-15 11.1
Current 14,417 -
Non-current 43,252 -
57,669 -
When the Company commenced trading on 1 February 2006, it entered into a 7-year non-
cancellable operating lease over premises in Factory Street. As a result of extensive growth,the business has relocated to new premises during the year. The premises in Factory Street
have been sublet, but due to market conditions the rental income achieved is much lower
than the rental expense being incurred. The net obligation under the lease agreements has
been provided for. The liability will be incurred over the next 4 years.
FRS-15 11.2(a)
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Notes to the financial statements References
2011 2010
$ $23 Operating lease commitments
SSAP-18 5.17
Lease commitments under non-cancellable
operating leases are as follows:
Current portion 4,760 4,500
Non-current portion 29,988 33,615
34,748 38,115
24 Capital commitmentsFRS-9 8.16
The Company has committed to and contracted for $288,000 (2010:$100,000) of future
capital expenditure which has not been accounted for in the financial statements.
25 ContingenciesFRS-15 11.3
Litigation is in process against the Company by a competitor disputing the validity of a sales
contract with a customer. The competitor is seeking damages of $50,000. The Directors are
of the opinion that the Company can successfully defend the claim.
26 Related partiesSSAP-22 5.1(a),(b)
The Company made a loan to one of the Directors, AB Smith, and received a loan from the
other Director, CD Brown. The details of these loans are disclosed in notes 13 and 21.
Remuneration of $127,000 (2010: $90,000) has been paid to the shareholders as employees
of the Company. Directors fees total $60,000 (2010: $50,000)
Transactions with shareholders through the shareholders current accounts are disclosed in
note 20.
The Company leases property from a trust of which CD Browns children are beneficiaries.
The operating lease was entered into on a commercial basis.
27 Subsequent eventsFRS-5 5.5,5.6,5.7(b)
Subsequent to balance date, on 25 May 2011, the Directors declared an additional dividend of
$37,500. In accordance with FRS-5 Events After Balance Date, the dividend has not been
recognised in the financial statements.
Subsequent to balance date market movements have resulted in a $3,000 drop in the market
value of shares held in the listed company. As the decrease in value is a non-adjustable event,the decrease in value has not been recognised in this year's financial statements.
FRS-5 5.3, 6.5(a)(b)
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Appendices Page No
Appendix 1: Statutory information 39
Appendix 2: Differential reporting accounting policies 40
Appendix 3: Supplementary schedules 41
Appendix 4: Financial reporting requirements 42
Appendix 5: ASRB Release 9 43
Appendix 6: Implementing NZ IFRSs 46
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Appendix 1 References
Statutory information1For the year ended 31 March 2011
Entries recorded in the Interests Register C93 S 211(1)(e)
Directors' salary remunerationAuthorised salary remuneration to Directors for the 2011 financial year was as follows:
AB Smith $107,000; CD Brown $20,000.Directors' indemnity and insuranceThe Company has insured its directors against liabilities to other parties (except to the Company
or a related party of the Company) that may arise from their positions as directors. The insurance
does not cover liabilities arising from criminal actions.
TransactionsThe Company rents a property from a trust of which CD Browns children are beneficiaries. The
rental for 2011 was $17,911 and increases two percent per annum.
Loans to and from DirectorsThe Company made a loan to AB Smith, which is secured by a mortgage over her residential
property. The loan is repayable by 28 February 2016. The Company also received loans from CD
Brown repayable by 31 August 2013.
Directors' Fees C93 S211(1)(f),(i)
The directors' fees remuneration for the 2011 financial year was as follows:
AB Smith $30,000; CD Brown $30,000.Executive Employees' Remuneration C93 S211(1)(g)
One employee received remuneration in $100,000 to $109,000 bracket during the current year.
Donations C93 S211(1)(h)
The Company donated $3,982 to various charitable organisations during the year.
Auditors' Remuneration C93 S211(1)(j)
The following amounts were payable to the auditors of the Company KPMG during the year:--
Audit Fees $2,500 Other services $3,972
Note 1In preparing the annual report of Signpost Limited it has been assumed that a unanimous shareholderresolution was passed in accordance with section 211(3) of the Companies Act 1993. This allows an entity togain an exemption from paragraphs (a) and (e) to (j) of section 211(1) of this Act. The above is an example of the
disclosure requirements required by section 211, assuming the section 211(3) resolution has not been passed.
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Appendix 2
Differential reporting accounting policies
FRS-1 requires entities qualifying for differential reporting to disclose an accounting policy that states the following:
the criteria that establishes the entity as a qualifying entity for differential reporting; either:
the entity has taken advantage of all differential reporting exemptions; financial reporting standards where the entity base not take advantage of differential reporting
exemptions; or
financial reporting standards where differential reporting exemptions have been applied.In complying with the requirements of FRS-1, we also recommend that the entity briefly explains what differential
reporting is. The following are alternatives to note (A) of the accounting policies adopted by Signpost Limited
regarding the criteria for qualifying for differential reporting exemptions under the Framework for Differential
Reporting.
Accounting policies - Differential Reporting
Alternative 1
The Company is a qualifying entity by virtue of the fact that it has no public accountability and is small as defined
by the Framework for Differential Reporting.
All available differential reporting exemptions allowed under the Framework for Differential Reporting have been
adopted except for (state the FRS or SSAP for which the differential reporting exemption has not been taken).
Alternative 2
The Company is a qualifying entity by virtue of the fact that is has no public accountability and is small as defined
by the Framework for Differential Reporting. Differential reporting exemptions have been applied in relation to:
FRS-4 Accounting for Inventories FRS-10 Statement of Cash Flows SSAP-12 Accounting for Income Tax SSAP-22 Related Party Transactions
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Appendix 3
Supplementary schedules
The following supplementary schedules can accompany a set of financial statements and may represent useful
financial information for stakeholders and other user of the financial statements.
Statement of Sources and Application of Cash Statement of Property, Plant & EquipmentHowever, they are not specifically required by any of the financial reporting standards and are not necessarily
attached as an integral part of a usual set of financial statements. The content and format of these
supplementary schedules can vary between reporting entities and therefore sample statements have not been
included in this publication.
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Appendix 4
Financial reporting requirements
General purpose financial statements are financial statements provided to meet the information needs of external
users who are unable to require, or contract for, the preparation of special reports to meet their specific informationneeds. It is generally accepted that general purpose financial statements are prepared and presented in accordance
with GAAP.
Special purpose financial statements are tailored to meet the specific information needs of a particular person, group
of people or organisation. Such users can specify the accounting policies to be applied, the format of the financial
statements and other material to be included in a special purpose financial report. If an entity has no obligation to
present general purpose financial statements in accordance with GAAP, and all the members of the entity are in
agreement, it may be appropriate to prepare special purpose financial statements. There is no requirement for special
purpose financial statements to comply with GAAP. Rather, any special purpose financial statements should specify
the accounting policies applied in preparing the financial statements.
All companies must prepare financial statements that meet the requirements of the Financial Reporting Act 1993.
Unless they qualify as an exempt company, companies are required to prepare financial statements in accordance with
GAAP, as defined by the Act (FRA, section 3). FRA, Section 12 requires an exempt company to prepare financial
statements that are in the form prescribed by the Governor-General by Order of Council.
Other entities may not be governed by legislation that specifies that the financial statements must be prepared in
accordance with GAAP. In this situation, the entities should consider whether there are any relevant requirements in
their founding documents e.g. the constitution. If the constitution is silent, the entities will need to decide whether to
prepare GAAP compliant financial statements. The requirement to prepare general purpose financial reports and
adherence to GAAP is a question to be answered on a case by case basis.
The reporting entities that have to comply with GAAP need to consider the standards that are generally developed by
the New Zealand Institute of Chartered Accountants and approved by the ASRB. These standards are either:
the New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) ; or if an entity can defer adoption of NZ IFRS, the Financial Reporting Standards (FRS) and Statement of Standard
Accounting Practice (SSAP) that were developed pre-2003.
The flowchart below describes the possible financial reporting requirements.
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Appendix 5
ASRB Release 9
ISSUED SEPTEMBER 2007
Delay of the Mandatory Adoption of New Zealand Equivalents to InternationalFinancial Reporting Standards for Certain Small Entities
Issued by the Accounting Standards Review Board
INTRODUCTION
1 In December 2002, the Accounting Standards Review Board (the Board) announced that it had decided that New Zealandentities would be required to apply International Financial Reporting Standards (IFRSs), issued by the International
Accounting Standards Board (IASB), for periods commencing on or after 1 January 2007. Early adoption is permitted for
periods commencing on or after 1 January 2005. Many countries around the world, including Australia and the European
Union, have also adopted IFRSs or are in the process of doing so.
2 Since that announcement, the Board has reviewed and approved the New Zealand equivalents to IFRSs (NZ IFRSs),developed by the Financial Reporting Standards Board (FRSB) of the New Zealand Institute of Chartered Accountants, in
accordance with procedures outlined in ASRB Release 8 The Role of the Accounting Standards Review Board and the
Nature of Approved Financial Reporting Standards.
3 To date in New Zealand, NZ IFRSs have largely been adopted by large issuers, subsidiaries of overseas companiescomplying with IFRSs and the public sector. Generally, small entities have yet to begin the process of adopting NZ IFRSs.
In the meantime, the applicability of IFRSs to small entities has been the subject of significant debate: internationally, with
the IASBs publication of an Exposure Draft of a Proposed IFRS for Small and Medium-sized Entities; in Australia, with
revisions to the financial reporting regime for small proprietary companies; and in New Zealand, with the extensive
consultation meetings recently conducted by the FRSB on financial reporting by small and medium-sized entities.
4 In addition, in September 2007, the Minister of Commerce advised the ASRB and FRSB that a government review of the
financial reporting requirements applying to small and medium-sized companies under the Financial Reporting Act 1993will commence in mid-2010.
5 As a consequence, the Board has decided that the mandatory adoption of NZ IFRSs should be delayed for certain smallentities that meet specified criteria. The purpose of the Release is to announce the Boards decision and to further explain
the reasons for that decision.
REVIEW OF THE REPORTING REQUIREMENTS FOR SMALL AND MEDIUM-SIZED COMPANIES
6 The Financial Reporting Act 1993 (the Act) requires companies, other than exempt companies, to prepare financialstatements that comply with generally accepted accounting practice (GAAP). To comply with GAAP, as defined by the Act,
those financial statements must comply with applicable financial reporting standards.
7 As noted in paragraph 4 above, the Minister of Commerce has advised the ASRB and FRSB that a review of the financial
reporting requirements applying to small and medium-sized companies under the Act will be commencing in mid-2010.
8 One issue that this review may well consider is whether New Zealand should adopt a similar financial reporting regime ascurrently exists in Australia for small and medium-sized companies. Under the Australian Corporations Act 2001, small
proprietary companies are not required to prepare financial statements, unless directed to do so.1 Recently, the size
thresholds to qualify as a small proprietary company were substantially increased.2
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9 One possible outcome of the review could be that many small and medium-sized companies would no longer have alegislative requirement to prepare GAAP-compliant financial statements. This possibility calls into question whether these
companies should be required to adopt NZ IFRSs now. Of particular concern are those companies that currently prepare
GAAP-compliant financial statements solely because of the legislative requirement to do so. If that requirement were to
be removed in a few years time, the costs of changing from existing financial reporting standards to NZ IFRSs now are
likely to outweigh the benefits.
10 Therefore, the Board decided that the mandatory adoption of NZ IFRSs should be delayed for certain small companies thatmeet specified criteria.
ASRB DECISION
11 The Board has decided that companies, which satisfy allof the following criteria, are permitted to continue to apply theexisting approved New Zealand Financial Reporting Standards (FRSs) and, therefore, are not required to apply NZ IFRSs
for periods beginning on or after 1 January 2007, until further notice:
(a) The company is not an issuer, as defined by the Act, in either the current or preceding accounting period;
(b) The company is not required by section 19 of the Act to file its financial statements with the Registrar of Companies3;
and
(c) The company is not large, as defined by section 19A4 of the Act.
12 Companies that are required to prepare financial statements in accordance with GAAP and that meet the above criteriawill continue to have a choice between two sets of standards, the existing FRSs or NZ IFRSs.
ANNOUNCEMENT OF APPLICATION DATE OF NZ IFRSs
13 When the government review is completed, it will be established which, if any, of the companies affected by the abovedecision will continue to have a legislative requirement to prepare financial statements that comply with GAAP. At that
time, the Board intends to determine the date upon which any such companies will be required to adopt NZ IFRSs.
Furthermore, the Board intends that there will be a minimum of one year between the date of the announcement of that
decision and the earliest mandatory date of transition to NZ IFRSs.
14 However, the Boards intentions set out in paragraph 13 are subject to the government review being completed within areasonable period of time. The existing Financial Reporting Standards are not being maintained and, therefore, there may
become a point when continuing to apply those standards is no longer appropriate.
EFFECT ON OTHER TYPES OF ENTITIES
15 The Board is responsible for reviewing and, if it thinks fit, approving financial reporting standards submitted to it forapplication to the financial statements of entities subject to the Act. These entities include issuers, companies, local
authorities, crown entities, state sector bodies and any other entity that is required by another enactment to comply with
the Act as if it were a reporting entity. For entities subject to the Act, the delay of the mandatory adoption of NZ IFRSs
applies only to companies that meet the criteria in paragraph 11. Hence, all entities subject to the Act, other than exempt
companies and companies that meet the criteria in paragraph 11, will be required to adopt NZ IFRSs for periods beginning
on or after 1 January 2007.
16 In addition to entities subject to the Act, there also are many other types of entities that are not subject to the Act.Examples include sole traders, partnerships, trusts, charities, clubs, societies and associations. Some of these other types
of entities may be required to (e.g. by requirements established in their founding documents or in contractual
arrangements with third parties), or choose to, prepare general purpose financial statements in accordance with GAAP.
17 Although the Board has no statutory mandate over these entities, the Board is conscious that its decisions affect theseentities, through its role in approving financial reporting standards. The Board is aware also that the Ministry of Economic
Development (MED) is considering the financial reporting regime for charities. It is not yet known what the outcome of
this work will be, nor when any legislative change in the financial reporting requirements for charities would come into
effect. However, one possible outcome of this work is that, as with companies, some small charities that currently
prepare GAAP-compliant financial statements may no longer need to do so in a few years time. If that were to occur, it
calls into question the benefits of adopting NZ IFRSs now. Therefore, the Board supports the proposals of the FRSB to
extend the delay of the mandatory adoption of NZ IFRSs to other small entities, as explained below.
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18 The New Zealand Preface, issued by the FRSB, explains the meaning of GAAP for entities that are not subject to the Actand that prepare general purpose financial statements. The Board understands that, as a consequence of the Boards
decision to delay the mandatory adoption of NZ IFRSs for some companies, the FRSB has decided that the mandatory
adoption of NZ IFRSs also will be delayed for some other entities that are not subject to the Act and that prepare general
purpose financial statements. Specifically, the FRSB has decided that this delay will apply to entities that are not publicly
accountable and are not large, as defined in the Framework for Differential Reporting. The Board understands that the
New Zealand Prefacewill be amended to reflect the decisions of the Board and the FRSB.
Warwick E. Hunt
Chairman
Accounting Standards Review Board
September 2007
Notes1) Such a company may be directed to prepare financial statements by shareholders with at least five percent of the
votes (under section 293 of the Corporations Act 2001) or by the Australian Securities and Investments Commission
(under section 294).
2) A proprietary company is a small proprietary company for a financial year if it satisfies at least two of the following
thresholds:
the consolidated gross operating revenue for the financial year of the company and the entities it controls (if any)is less than A$25 million; the value of the consolidated gross assets at the end of the financial year of the company and the entities it
controls (if any) is less than A$12.5 million;
the company and the entities it controls (if any) have fewer than 50 employees at the end of the financial year.3) In general, section 19 of the Act requires a company to file its financial statements if it is:
an overseas company or a subsidiary of an overseas company; or large and 25% of its voting power is held by overseas shareholders (entities or individuals).
4) A company is defined as large if it meets any two of the following three size thresholds:
as at balance date, the total assets (including intangible assets) of the company and its subsidiaries (if any)exceeds $10 million;
the total turnover of the company and its subsidiaries (if any) exceeds $20 million; as at balance date, the company and its subsidiaries (if any) have 50 or more full-time equivalent employees.
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Appendix 6
Implementing NZ IFRS'sImplementing NZ IFRSs Preparation and planning makes it easy!
When you first report under NZ IFRSs, your financial report must comply with it fully (or as applicable under theDifferential Reporting Framework). Generally this will include:
Two statements of comprehensive income covering the current and comparative periods Two statements of cash flows (if required) covering the current and comparative periods Three statements of financial position covering:
The end of the current period The end of the comparative period The start of the comparative period
Entities are advised to conduct a detailed review to understand the impact that the adoption of NZ IFRSs may have on
their financial statements, reportable results, and on the current financial systems and processes used.
Non financial impacts that entities must consider on implementing NZ IFRSs
In general entities have to comply with new standards, and increased disclosures under the NZ IFRS regime, additional
related party disclosures are required under NZ IAS 24, and new standards such as Revenue (NZ IAS 18), IntangibleAssets (NZ IAS 38), Impairment of Assets (NZ IAS 36), and Financial Instruments (NZ IAS 32 and NZ IAS 39) to name a
few, need to be adhered to. Besides impacts on financial statements, entities must also consider non-financial impacts
to their business operations, for example:
Impact on systems
Disclosure of cost of sales, and expenses by either function or nature of expenses is now required, entities may have
to change the manner in which various expenses are classified and captured by financial systems so that appropriate
disclosures can be made in accordance with NZ IFRSs. In addition most New Zealand entities are well acquainted
with foreign currency and hedging products, such as forward contracts, interest and currency swaps. Entities may
need to use new tools or update their current financial system capability in order to track, account for, and recognise
fair value changes for these products.
Managerial bonuses and other remunerative options
Entities need to consider the impact of implementing NZ IFRSs to performance based bonus schemes, as profits
presented under NZ IFRSs may be significantly different from those calculated under current FRSs/SSAPs. Moreoverliabilities for share-based options provided to employees needs recognition under NZ IFRS 2, this represents a
significant change as previously these were accounted for on a cash basis.
Impact on bank covenants
The implementation of NZ IFRSs may increase or decrease the value of assets and liabilities presented in the balance
sheet, entities need to consider if this impacts any existing bank covenants.
KPMG implementation tools and NZ IFRS specialists
KPMGs methodology and tools are based around a four-phased conversion process that covers raising awareness of
NZ IFRS within your organisation, assessing the likely impacts of NZ IFRS, and designing and implementing the
accounting systems, processes and communication changes needed to achieve successful conversion.
Our specialist Accounting Advisory Services team in New Zealand provides:
A framework and technology for working through a conversion to NZ IFRS thats already been proven. The benefit of access to the decisions made by others in your position in New Zealand and around the world. Access, right here in New Zealand, to specialist NZ IFRS project management skills, NZ IFRS technical expertise,
and NZ IFRS training skills.
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