Wairoa Power Limited - Lines Business

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1997

1. STATEMENT OF ACCOUNTING POLICIES

Reporting Entity

The Financial Statements are those of the Line Business of Wairoa Power Limited. The period reported is 1 April 1996 to 31 March 1997.

These Financial Statements are prepared in accordance with Regulations 6(2) and 6(3) of the Electricity (Information Disclosure) Regulations 1994. The Financial Statements have not been prepared for the purpose of the Financial Reporting Act 1993, or the Energy Companies Act 1992.

Principal Activities

The Line Business operates a line business activity, as defined by regulation 2 of the Electricity (Information Disclosure) Regulations 1994, in the Wairoa District.

Measurement Base

The accounting principles recognised as appropriate for the measurement and reporting of earnings and financial position on a historical cost basis are followed by the Company, with the exception that certain assets have been revalued.

Methodology of Separation of Business

Wairoa Power Limited has complied with the methodology set out in the Electricity Disclosure Guidelines as issued by the Ministry of Commerce dated 23 June 1994, except for:

• Costs and revenues associated with line contracting services have been excluded from the line business to comply with the Electricity (Information Disclosure) Regulations 1994 which conflict with the guidelines.
• Disconnection fees are included as revenue to the line business.
• Costs incurred for billing services are included as line business costs.
• Meter reading costs have been split evenly between the line business and other businesses.

Specific Accounting Policies

The following specific accounting policies which materially affect the measurement of financial performance and financial position have been applied:

a) Fixed Assets

The Company has four classes of fixed assets:

• Freehold Land
• Freehold Buildings
• Distribution Lines
• Other Plant & Equipment

All fixed assets are initially recorded at cost.

Wairoa Power Limited - Lines Business

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1997 continued

a) Fixed Assets (Continued)

Freehold land and buildings are subsequently revalued on a cyclical basis with no individual asset being included at a valuation undertaken more than three years previously. Valuations are at net current value as determined by an independent valuer.

b) Depreciation

Depreciation is provided on a straight line basis on all tangible assets other than freehold land, (except for motor vehicles, plant and equipment), at rates calculated to allocate the assets’ cost or valuation less estimated residual value over their estimated useful lives.

Motor vehicles, plant and equipment are depreciated on a diminishing basis over their expected economic lives.

Major depreciation periods are:

• Freehold Buildings ... 50 years
• Distribution Lines ... 25 years
• Other Plant & Equipment ... 8-10 years

c) Investments

Investments are stated at the lower of cost or net realisable value.

d) Receivables

Receivables are stated at estimated realisable value after providing against debts where collection is doubtful.

e) Income Tax

The income tax expense charged to the statement of financial performance includes both the current year’s provision and the income tax effects of timing differences calculated using the liability method.

Tax effect accounting has been applied on a comprehensive basis to all timing differences. A debit balance in the deferred tax account arising from timing differences or income tax benefits from income tax losses, is only recognised if there is virtual certainty of realisation.

f) Inventories

Inventories are stated at the lower of cost, determined on weighted average cost and net realisable value.

Changes in Accounting Policies

There have been no changes in accounting policies. All policies have been applied on bases consistent with those used in previous years.