Accounts receivable and other debtors transactions are considered to be exchange transactions. Debtor Crown transactions are considered to be non-exchange transactions.
Allowance for credit losses
Debtors and receivables are recorded at their face value, less an allowance for credit losses. Inland Revenue applies the simplified expected credit loss model of recognising lifetime expected credit losses for receivables.
In measuring credit losses, receivables have been assessed on a collective basis as they possess shared credit risk characteristics. They have been grouped based on the days past due.
Short-term receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include the debtor being in liquidation.
|
Actual 2020 ($000) |
Actual 2021 ($000) |
Unaudited budget 2021 ($000) |
|
|---|---|---|---|
| Current assets - exchange transactions | |||
| Debtors | |||
| $7,708 | Accounts receivable | $6,419 | $4,622 |
| $(593) | Less allowance for credit losses | $(488) | $(500) |
| $536 | Other debtors | $390 | – |
| $7,651 | Net debtors | $6,321 | $4,122 |
| $9,322 | Prepayments | $10,346 | $5,000 |
| $16,973 | Total current assets - exchange transactions | $16,667 | $9,122 |
| Non-current assets - exchange transactions | |||
| $563 | Prepayments | $317 | $2,000 |
| $563 | Total non-current assets - exchange transactions | $317 | $2,000 |
| $17,536 | Total debtors and prepayments - exchange transactions | $16,984 | $11,122 |
Explanation of major variances against budget
Debtors and prepayments were $5.862 million higher than budget due to the timing of collection on an inter-government agency receivable and the additional prepayment of some maintenance contracts in the transformation programme.
The expected credit loss rates for accounts receivable are based on the payment profile of receivables over the previous periods and the corresponding historical credit losses experienced for that period. The historical loss rates are adjusted for current and forward-looking economic factors, including COVID-19, that might affect the recoverability of receivables.
There have been no changes during the reporting period in the estimation techniques or significant assumptions used in measuring the expected credit loss allowance.
The allowance for credit losses at 30 June 2021 and 30 June 2020 was determined as follows.
| Expected credit loss rate |
Gross carrying amount ($000) |
Lifetime expected credit loss ($000) |
||
|---|---|---|---|---|
| 2021 | ||||
| Not past due | – | $1,904 | – | |
| Past due 1 to 30 days | 0.65% | $1,501 | $10 | |
| Past due 31 to 60 days | 0.35% | $1,490 | $5 | |
| Past due 61 to 90 days | 35.04% | $8 | $3 | |
| Past due > 90 days | 31.04% | $1,516 | $470 | |
|
Total
|
7.61% | $6,419 | $488 | |
| 2020 | ||||
| Not past due | – | $2,507 | – | |
| Past due 1 to 30 days | 0.06% | $1,553 | $1 | |
| Past due 31 to 60 days | 0.12% | $1,620 | $2 | |
| Past due 61 to 90 days | 2.04% | $98 | $2 | |
| Past due > 90 days | 30.50% | $1,930 | $588 | |
| Total | 7.69% | $7,708 | $593 | |
Movements in the allowance for credit losses are as follows.
|
Actual 2020 ($000) |
Actual 2021 ($000) |
|
|---|---|---|
| $125 | Opening balance as at 1 July | $593 |
| $480 | Additional provisions made during the year | $13 |
| $(12) | Receivables written off during the year | $(118) |
| $593 | Closing balance as at 30 June | $488 |
Sensitivity analysis
The following table shows the effect of changes in the lifetime expected credit loss assumption.
|
2020 ($000) |
2021 ($000) |
|
|---|---|---|
| $(154) | Impact of a 2% increase on the lifetime expected credit loss assumption | $(128) |
| $154 | Impact of a 2% decrease on the lifetime expected credit loss assumption | $128 |