27 AUGUST NEW ZEALAND GAZETTE 3261

2.5 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (continued)

Fixed assets

All fixed assets are initially recorded at cost. The cost of assets constructed by UnitedNetworks includes the cost of all material used in construction, direct labour on the project and financing costs that are directly attributable to the project. Costs cease to be capitalised as soon as the asset is ready for use.

The System Fixed Assets have been revalued as at 31 March 2001. The methodology adopts a three-step process. Firstly, an asset based valuation – the Optimised Depreciated Replacement Cost (ODRC) value is determined. Secondly, the Economic Value (EV) is established through a process of sustainability checking. Finally, the Optimised Deprival Value (ODV) – is determined as the minimum of the ODRC and the EV. The company engaged independent valuers to undertake the ODV valuation, which appears in the statement of financial position and the notes thereto.

Financial Instruments

The company has financial instruments with off-balance sheet risk for the primary purpose of reducing its exposure to fluctuations in interest rates and foreign exchange rates.

Financial instruments entered into as hedges of an underlying exposure are accounted for on the same basis as the underlying exposure. Accordingly, hedge gains and losses are included in the Statement of Financial Performance when the gains or losses arising on the related physical exposures are recognised in the Statement of Financial Performance.

Foreign Currencies

Transactions in foreign currencies are translated at the New Zealand rate of exchange ruling at the date of transaction. At balance date foreign monetary assets and liabilities are translated at the closing rate, and exchange variations arising from these translations are included in the Statement of Financial Performance as operating items.

Operating leases

Operating lease payments, where the lessors effectively retain substantially all the risks and benefits of ownership of the leased items, are included in the determination of the operating surplus in equal installments over the lease term.

Finance leases

Finance leases, which effectively transfer to the lessee substantially all of the risks and benefits incident to ownership of the leased item, are capitalised at the present value of the minimum lease payments. Income for assets leased out under finance lease arrangements is recognised on the basis of the net investment outstanding as at balance date.

Depreciation

Depreciation of fixed assets, other than freehold land, has been charged at rates calculated to allocate on a straight-line basis the assets’ cost or valuation, less estimated residual value, over their estimated useful lives as follows:

(i) Freehold buildings 50 – 100 years
(ii) Reticulation system 15 – 70 years
(iii) Plant, vehicles and equipment 2 – 10 years

Goodwill

Goodwill on acquisition of businesses is amortised on a straight line basis over the period of expected benefit or 20 years, whichever is the lesser.

Identifiable intangibles

Identifiable intangibles arising from acquisition of reticulation assets is amortised on a straight line basis over the period of expected benefit, which has been assessed as 40 years.

Accounts receivable

Accounts receivable are stated at their estimated net realisable value.