3680 NEW ZEALAND GAZETTE No. 125

Foreign monetary assets and liabilities arising from trading transactions are valued at closing rates as at balance date. Gains and losses due to currency fluctuations on these items are included in the Statement of Financial Performance up to settlement date.

Exchange differences and associated costs on hedging transactions undertaken to establish the price of a particular purchase, are deferred and are included in the measurement of the purchase transaction as at transaction date.

(k) Differential Reporting

Trans Power has applied differential reporting exemptions on a partial basis in preparing these financial statements. The Group qualifies under the Framework for Differential Reporting as it has neither public accountability, nor a distinction be made between the governing body and controlling company, Electricity Corporation of New Zealand Limited. Trans Power has taken advantage of the exemptions applying to FRS 10 Statement of Cash Flows, FRS 31 Disclosure of Information about Financial Instruments, SSAP 22 Related Party Disclosures and SSAP 18 Accounting for Leases and Hire Purchase Contracts.

Changes in Accounting Policies

There have been no changes in accounting policies and, with the exception of infrastructure accounting (see Note 1(e)), all policies have been applied on bases consistent with those used in previous years.

Infrastructure accounting has been adopted, effective from 1 April 1993, with respect to transmission line assets. Under infrastructure accounting, the network of transmission lines is regarded as a single asset.

The introduction of infrastructure accounting is regarded as a change in the application of the accounting policy to depreciate fixed assets. As a result of the asset definition for the infrastructure asset being set at the level of the network of transmission lines, together with the maintenance practices with respect to the network, depreciation is immaterial and is not charged.

The effect of infrastructure accounting is, therefore, that depreciation charges are disregarded as being immaterial, however, in its place expenditure on replacement and refurbishment is charged to the Statement of Financial Performance, rather than being capitalised to the Statement of Financial Position. Any shortfall between the level of expenditure actually incurred and the estimated long run average cost of maintaining the service potential of the infrastructure asset is charged to the Statement of Financial Performance as a loss of service potential and is included under maintenance costs. The impact, of such a shortfall in actual expenditure, upon the carrying value of the asset in the Statement of Financial Position is to reduce the carrying value via a loss of service potential provision.

The Directors believe that this is a more appropriate treatment of the network of components included in the infrastructure asset and more accurately reflects the maintenance practices applied to the transmission line network.

Because the long run average cost of maintaining the service potential of the infrastructure asset approximates the depreciation chargeable under a conventional depreciation approach, the financial effect of this change in application of accounting policy is considered to be nil in the current year and nil in future years. Within Operating Expenses (Note 4), the impact of infrastructure accounting is to lower the level of the depreciation charge by approximately $40 million per annum and to increase the level of maintenance expense by a similar amount.

2. RELATED PARTIES

Trans Power New Zealand Limited is a wholly owned subsidiary of ECNZ. The ultimate shareholder of ECNZ is the Crown.

Trans Power has entered into certain transactions with ECNZ and fellow subsidiaries (Power Securities Limited, Powermark Limited, DesignPower New Zealand Limited), and 100% owned subsidiaries. Details of the subsidiaries are disclosed in Note 9.

The Group earns revenue from ECNZ for transmission services, and incurs charges from fellow subsidiaries for maintenance functions they carry out. Charges are also incurred for administration services and accommodation provided by ECNZ. All Group debt is provided by ECNZ.

The Group also undertakes many transactions with other State Owned Enterprises and Government Departments. These transactions which are conducted on a commercial basis are not considered to fall within the intended scope of Statement of Standard Accounting Practice (SSAP) 22—Related Parties and accordingly no disclosures have been made.

3. REVENUE

4. OPERATING EXPENSES

5. NET FINANCE COSTS

All funding is managed by ECNZ. Interest is capitalised on capital work in progress in accordance with the accounting policy as outlined in Note 1 (d).