NEW ZEALAND GAZETTE

15 SEPTEMBER

2961

BAY OF PLENTY ELECTRICITY LIMITED

Financial Statements for the purposes of Electricity (Information Disclosure) Regulations 1994

Notes to the Financial Statements

for the 12 months ended 31 March 1997

ix) Taxation
The liability method of accounting for deferred taxation has been applied.

The taxation charge against the surplus for the year is the estimated liability in respect of that surplus after allowance for all permanent differences and timing differences not expected to reverse in the foreseeable future. This is the partial basis for the calculation of deferred taxation.

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 will be realised or any losses utilised.

x) Financial Instruments
Financial instruments with off-balance sheet risk, have been entered into for the primary purpose of reducing exposure to fluctuations in foreign exchange rates and interest rates. While 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 hedged.

Financial instruments entered into with no underlying exposure are accounted for on a mark to market basis.

xi) 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 recovered.

xii) Foreign Currency
Foreign currency transactions are recorded at exchange rates in effect at the date of settlement, except where forward contracts have been taken out to cover future commitments. Where forward contracts have been taken out, the transaction is translated at the rate contained in the contract.

C. Changes in Accounting Policies

The previous year was the first year that any assets had been recorded at valuation rather than cost. The effect of this change in accounting policy is to increase Network and Generation fixed assets and shareholder reserves by $9,650,055 and nil respectively ($40,112,323 and $53,549,641 respectively in 1996) and increase the depreciation charge by $1,366,924 (1996 nil). The useful lives of the revalued assets have been adjusted to lives estimated by registered engineers. The effect of this change in estimate is to decrease the depreciation charge on Network assets by $202,192 (1996 nil).

The Company does not recognise the deferred taxation liability relating to the possible future realisation of the revalued assets at valuation as it is believed that these timing differences will not reverse in the foreseeable future. The cumulative timing differences not recognised are $12,017,234 ($10,388,514 1996) for network assets and $19,387,740 ($17,854,190 1996) for generation assets. The tax effect of the timing differences not recognised is $3,965,687 ($3,428,210 1996) for network and $6,397,954 ($5,891,883 1996) for generation.

There have been no other material changes in accounting policies. All policies have been applied on a basis consistent with those used in previous years.