NEW ZEALAND GAZETTE

28 NOVEMBER 3999

Electricity Corporation of New Zealand Limited

Notes to the Financial Statements

Debt

Debt as at 1 February 1996 is stated at fair value. All subsequent debt is stated at cost, less unamortised discounts, premiums and prepaid interest which are amortised to interest expense or interest income on a yield to maturity basis over the period of the borrowing. Borrowing costs such as origination, commitment and transaction fees are deferred and amortised to interest expense over the borrowing period.

Fixed assets

The value of fixed assets on hand at 1 February 1996 was adjusted to fair value. All subsequent additions to these assets are stated at cost.

The cost of fixed assets purchased subsequent to 1 February 1996 equals the consideration given to acquire the assets plus other directly attributable costs incurred in bringing the assets to the location and condition necessary for their intended service.

The cost of assets constructed by ECNZ subsequent to 1 February 1996, including capital work in progress, includes the cost of all materials used in construction, direct labour on the project, financing costs that are directly attributable to the project and an appropriate proportion of variable and fixed overheads. Costs cease to be capitalised as soon as the asset is ready for productive use. They do not include any inefficiency costs. Financing costs are capitalised at ECNZ's weighted average interest rate.

Leased assets

ECNZ leases certain plant, equipment, land and buildings.

Leases under which ECNZ assumes substantially all the risks and rewards incidental to ownership have been classified as finance leases and are capitalised. The asset and corresponding liability are recorded at the inception of the lease at the fair value of the leased asset, at amounts equivalent to the discounted present value of minimum lease payments, including residual values.

Finance charges are apportioned over the terms of the respective leases using the actuarial method.

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, whichever is shorter.

Capitalised leased assets are depreciated over the shorter of their estimated useful lives or the lease term.

Operating lease payments represent 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.

Depreciation

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

• Freehold buildings 1.7%
• Generation plant 2.5%
• Other plant and equipment 17.9%

Inventories

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

Accounts receivable

Accounts receivable are stated at estimated realisable value, after providing for debts where collection is doubtful.

Taxation

The taxation charge against the profit for the year is the estimated liability in respect of that profit, after allowance for permanent differences.

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 ECNZ.