MARLBOROUGH ELECTRIC LIMITED

FINANCIAL STATEMENTS PREPARED IN ACCORD WITH THE ELECTRICITY (INFORMATION DISCLOSURE) REGULATIONS 1994

NOTES TO FINANCIAL STATEMENTS

for the year ended 31 March 1996

1. STATEMENT OF ACCOUNTING POLICIES
   These financial statements are for the reporting entity Marlborough Electric Limited, a public company registered under the Companies Act 1955 and established pursuant to the Energy Companies Act 1992.

These financial statements have been prepared in accordance with the requirements of Regulation 6 of Electricity (Information Disclosure) Regulations 1994.

The financial statements have been prepared on the basis of historical cost with the exception of certain items for which specific accounting policies are identified.

The financial statements comprise separate profit and loss statements and balance sheets for the Monopoly Business (Network operator), the Generation Business and the Competitive Business (Energy Trading, Appliance Trading and Contracting).

(a) GOODS AND SERVICES TAX (GST)
The statement of financial performance has been prepared so that all components are stated exclusive of GST. All items in the statement of financial position are stated net of GST with the exception of receivables and payables which include GST invoiced.

(b) INCOME TAX
The taxation charge is the estimated liability payable in respect of the accounting profit for the year adjusted for non assessable income and non deductible costs and including any adjustment in respect of prior years. Deferred taxation is not recognised as the timing differences are not expected to reverse within the foreseeable future. This is the partial basis of accounting for deferred taxation.

(c) RECEIVABLES
Receivables are stated at the amount they are expected to realise. An estimate for doubtful debts is made and bad debts are written off during the year in which they are identified.

(d) INVENTORIES
Inventories are valued on the basis of the lower of cost and net realisable value. Cost is determined on the basis of weighted average of purchase costs. Due allowance is made for damaged and obsolete inventory. Work in progress comprises the cost of direct materials and labour together with chargeable overheads.

(e) FIXED ASSETS AND DEPRECIATION
The cost of purchased fixed assets is the consideration given to acquire the asset and any other directly attributable costs incurred in bringing the asset into service.

The cost of assets constructed by the Company includes all materials used in construction, direct labour and a proportion of related overheads.

Decisions relating to the expensing or capitalising of reticulation expenditure are made in accordance with the rules provided by the Inland Revenue Department. Expenditure incurred on existing reticulation assets is capitalised to the extent that the system is enhanced. Full depreciation accounting is used.

Capital contributions are credited against the value of the reticulation assets.

Depreciation rates used are:

• Generation system:
  • Powerhouses and buildings 1% on cost price
  • Dams, headworks etc 1% on cost price
  • Transmission lines 5% on diminishing value
  • Generating equipment and plant 10% on diminishing value
• Other assets:
  • Buildings (concrete) 1% on cost price
  • Buildings (wooden) 2% on cost price
  • Reticulation system (global) 5% on cost price
  • Reticulation system (from 1.4.87) 5% on diminishing value
  • Substation equipment 7.5% on diminishing value
  • Metering equipment 10% on diminishing value
  • Plant 10% on diminishing value
  • Motor Vehicles, office, communications 20% on diminishing value

NEW ZEALAND GAZETTE
No. 97