28 NOVEMBER
NEW ZEALAND GAZETTE
3679

this is not clearly identifiable, the Group’s weighted average cost of capital is used.

Capital expenditure is defined as all expenditure incurred on the creation of a new asset, and any expenditure which results in a significant improvement in the operating capacity of an existing asset.

Revenue expenditure is defined as all expenditure which restores an asset to its original condition and all expenditure incurred in maintaining and operating the assets of the Group.

Assets constructed for the Group are commissioned and transferred from capital work in progress to fixed assets as each facility or operating unit within a facility becomes operational and available for use.

(e) Infrastructure Asset

The infrastructure asset comprises a network of individual asset components.

The Company prepares, annually, an Asset Management Plan which documents the philosophies, standards and practices, whereby the operating capability of the transmission assets is maintained, enhanced and developed.

Operating capability refers to the output or service capacity of a fixed asset and is determined by reference to attributes such as physical output capacity, associated operating costs, and quality of output. These attributes are assessed at a point in time.

The Asset Management Plan also provides indicative levels of asset management expenditure required to preserve the operating capability of the transmission line assets which comprise the infrastructure asset.

These asset management practices result in the extremely long lived infrastructure asset with minimal decline in book values. Having regard to the life and residual values of the infrastructure asset, the Directors consider that the depreciation of the asset is immaterial. Accordingly no depreciation is charged on the infrastructure asset. Where, in the opinion of the Directors, technological change compromises this view of the economic life of certain assets or components of the infrastructure, those assets are excluded from the infrastructure and depreciated over their estimated remaining economic lives.

Expenditure on the infrastructure asset which increases the operating capability of, or which enhances or develops, the Grid will be capitalised.

Expenditure incurred to maintain the operating capability of the infrastructure asset in accordance with the Asset Management Plan is charged as infrastructure maintenance in the Statement of Financial Performance.

If, in any year, the level of infrastructure expenditure is insufficient to preserve the service potential of the infrastructure asset, the net book value of the infrastructure asset is reduced and the profit and loss charged with the amount of this shortfall. Service potential refers to the ability of an asset to provide a satisfactory level of operating capability over a period of time. Expenditure in subsequent years to redress this shortfall is regarded as backlog maintenance and the net book value of the infrastructure asset is increased. Backlog maintenance is expenditure required to bring the infrastructure asset to the requisite level of service potential.

(f) Depreciation

Depreciation of non infrastructure fixed assets is calculated using the straight line method to allocate historical cost over the useful life of the assets, after due allowance for expected residual value. The remaining useful lives of assets are reviewed periodically and where necessary are adjusted. The annual depreciation rates shown below are calculated on a weighted average basis for each classification of asset.

1994
Freehold buildings 4.6 percent
Substations 4.2 percent
HVDC link 3.5 percent
HVDC leased asset 3.6 percent
Communications 12.4 percent
Minor assets 15.9 percent

(g) Leased Assets

The Group leases certain plant, equipment, land and buildings.

Finance leases, which effectively transfer to the entity substantially all of the risks and benefits incident to ownership of the leased item, are capitalised at the lower of the fair value of the asset and the present value of the minimum lease payments. The leased assets and corresponding liabilities are disclosed separately and the leased assets are depreciated over their economic lives.

Operating lease payments, where the lessors effectively retain substantially all the risks and benefits of ownership of the leased items, are included in the determination of the operating profit in equal instalments over the lease term.

Leasehold improvements are depreciated over the shorter of the unexpired period of the lease or the estimated useful life of the improvements.

(h) Principles of Consolidation

The consolidated financial statements are prepared from the audited accounts of the Parent Company, and its subsidiaries, as at 30 June 1994, using the purchase method. All significant transactions between Group companies are eliminated on consolidation.

(i) Taxation

For taxation purposes Trans Power and its subsidiaries are grouped with the Electricity Corporation of New Zealand Limited.

The partial basis of the liability method of accounting for deferred taxation is used.

The taxation charge against the profit for the year is the estimated liability in respect of that profit after allowance for permanent differences and timing differences, to the extent the timing differences are not, on a cumulative basis, expected to reverse in the foreseeable future.

Future taxation benefits attributable to losses carried forward are recognised in the financial statements only where there is virtual certainty that the benefit of the losses will be utilised.

(j) Foreign Currencies

Unhedged foreign currency transactions are translated at the exchange rate ruling at the transaction date or at a rate approximating this rate.