4 OCTOBER

NEW ZEALAND GAZETTE

3331

MARLBOROUGH LINES LIMITED

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 MARCH 1999

1. STATEMENT OF ACCOUNTING POLICIES

These financial statements have been prepared in accordance with and for the sole purpose of the requirements of regulation 6 of Electricity (Information Disclosure) Regulations 1999. These accounts are not comparable with the consolidated financial statements prepared and published with the Company’s Annual Report.

Contracting, maintenance and construction, and metering with their associated revenue and costs have been separated out of these Financial Statements in accordance with the Electricity (Information Disclosure) Regulations 1999. These and other business activities are required to function separately and produce commercial rates of return and will continue to be a core part of Marlborough Lines activities.

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

The financial statements comprise separate statements of financial performance and financial position for Network Operations.

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:

1.6 EMPLOYEE ENTITLEMENTS

Employee entitlements to salaries and wages, annual and long service leave and other benefits are recognised when they accrue to employees. Allowance is made for the present value of future staff retirement gratuity benefits. The calculations provide also for the probability of the employees completing the appropriate period of service.

1.7 FINANCIAL INSTRUMENTS

Financial assets carried in the statement of financial position include cash and bank balances, receivables, trade creditors and borrowing’s. These instruments are generally carried at their estimated fair value. For example receivables are carried net of estimated doubtful debts.

2. OPERATING SURPLUS BEFORE TAXATION

2.1 The operating surplus before taxation has been determined after:

Crediting as revenue:

• Interest Income | (2,570) | (31,066) |
• Property Rentals | 142,700 | 126,023 |
• Surplus on Disposal of Fixed Assets | 10,194 | 5,735 |

Charging as expense:

• Audit Fees Paid to Principal Auditor | 48,648 | 39,935 |
• Directors Fees | 96,951 | 90,000 |
• Depreciation | 1,161,802 | 1,332,196 |
• Interest on Term Debt | 18,081 | 231,715 |
• Donations/(Educational Grants) | 17,337 | 17,472 |
• Rental Expense on Operating Leases | 25,201 | 18,374 |

2.2 Revenue in 1999 reflects $2.2m discounts paid to line consumers in March 1999.