5 OCTOBER

NEW ZEALAND GAZETTE

MARLBOROUGH ELECTRIC LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 MARCH 1998

1. STATEMENT OF ACCOUNTING POLICIES

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 statements of financial performance and financial position for Network Operations, the Generation Business and Energy/Trading Other.

There are also additional activities of the company that are not required to be reported under the regulations.

1.1 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.

1.2 INCOME TAX

Income tax expense recognises the current obligations and all amounts arising from differences between the accounting results and assessable income for the period. This is the liability method applied on a comprehensive basis.

1.3 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.

1.4 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.

1.5 FIXED ASSETS AND DEPRECIATION

All fixed assets are recorded at cost. The cost of assets constructed by the company includes all materials used in construction, direct labour and direct overheads. Capital contributions are credited against the cost of the reticulation assets. Where commitments arise offshore for capital purchases the exchange rates are fixed forward to minimise foreign currency risk. All costs and exchange variations are included in the capitalised cost of the asset.

Depreciation rates used are in accord with the determinations issued from time to time by the Inland Revenue Department. These rates are as follows:

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 %-25 % on diminishing value

Other Assets:

• Buildings (concrete) 1 % on cost price
• Buildings (wooden) 2 %-3.6 % on cost price
• Reticulation system (global) 5 % on cost price
• Reticulation system (from 1.4.87) 5 %-18 % on diminishing value
• Substation equipment 7.5 %-39.6 % on diminishing value
• Metering equipment 10 %-14.4 % on diminishing value
• Plant 10 %-62.5 % on diminishing value
• Motor vehicles, office, communications 20 %-25 % on diminishing value

1.6 RESEARCH AND INVESTIGATION EXPENDITURE

Research and investigation costs are charged to expense in the year in which they are incurred. Development expenditure is capitalised to the extent that future benefits are expected to accrue.