3828 NEW ZEALAND GAZETTE No. 128

The cost of improvements to leasehold property is capitalised and amortised over the estimated useful life of the improvements, or over the unexpired portion of the lease, which- ever is shorter.

Capitalised leased assets are depreciated over their expected lives in accordance with rates established for other similar Corporation assets.

Operating lease payments are representative of the pattern of benefits derived from the leased assets and accordingly are charged to the statement of financial performance in the periods in which they are incurred.

(viii) Depreciation

Depreciation is charged on a straight line basis so as to write down the cost or valuation of the fixed assets to their estimated residual value over their expected useful lives. The annual depreciation rates shown below are calculated on a weighted average basis for each classification of asset.

Freewold buildings .......................................................................................................... 2.5%

Generation plant .......................................................................................................... 2.6%

Plant and equipment ................................................................................................. 13.1%

(ix) Inventories

Stocks, including fuels stock, are stated at the lower of cost and net realisable value. Cost is determined on a weighted average basis.

(x) Debtors

Debtors are stated at estimated realisable value after providing for debts where collection is doubtful.

(xi) Taxation

The Corporation follows the liability method of accounting for deferred taxation.

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 not expected to reverse in the foreseeable future. Deferred taxation resulting from timing differences is adjusted against profit for the year using the liability method and is accounted for on a comprehensive basis.

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

(xii) Research and development

Costs incurred on all research and development projects are written off as incurred, except that development costs are capitalised to the extent that such costs are expected, beyond any reasonable doubt, to be recoverable.

Where development costs are deferred they are amortised over future periods on a basis related to expected future benefits.

(xiii) Financial instruments

The Corporation has various financial instruments with off-balance sheet risk for the purpose of reducing its exposure to movements in foreign exchange rates and interest rates. While these financial instruments are subject to risk that market rates may change subsequent to acquisition, such changes would generally be offset by opposite effects on the items being hedged.

For interest rate swap agreements the differential to be paid or received is accrued as interest rates change and is recognised as a component of the interest expense over the life of the agreement.

Premiums paid on interest rate options and the net settlement on maturity of forward rate agreements, futures and options are amortised over the period of the underlying asset or liability protected by the instrument.