4548

NEW ZEALAND GAZETTE

No. 163

2.3 STATEMENT OF ACCOUNTING POLICIES continued

Distribution systems and some land and buildings are revalued by independent experts on the basis of depreciated replacement cost, while land and buildings are valued by reference to market information. Valuations are performed based on highest and best use in accordance with New Zealand Financial Reporting Standard No. 3. If the estimated recoverable amount of an asset is less than its carrying amount, the asset is written down to its estimated recoverable amount and an impairment loss is recognised in the statement of financial performance. Estimated recoverable amount is the greater of the estimated amount from the asset’s future use and ultimate disposal, and its net market value.

Annual impairment reviews are undertaken for all property, plant and equipment not subject to revaluations.

Revaluations of distribution systems and distribution land and buildings are carried out at least every three years.

Depreciation

Depreciation of property, plant and equipment, other than freehold land, has been calculated so as to expense the assets cost, or the valuation, less estimated residual value, over their estimated useful lives as follows:

Freehold buildings 50–100 years (straight line)
Distribution systems 15–70 years (straight line)
Plant, vehicles and equipment 3–10 years (straight line)

Financial instruments

UnitedNetworks uses derivative financial instruments within predetermined policies and limits in order to reduce its exposure to fluctuations in foreign currency exchange rates and interest rates.

Derivative financial instruments that are designated as hedges of specific items are recognised on the same basis as the underlying hedged items.

UnitedNetworks does not engage in speculative transactions or hold derivative financial instruments for trading purposes.

Fees incurred in raising debt finance are capitalised and amortised over the term of the debt instrument.

Foreign currencies

Transactions in foreign currencies are translated at the New Zealand rate of exchange ruling at the date of the transaction. At balance date foreign monetary assets and liabilities not hedged by foreign currency derivative instruments are translated at the closing rate, and exchange variations arising from these translations are included in the statement of financial performance as operating items. Monetary assets and liabilities in foreign currencies hedged by foreign currency derivative instruments are translated at contract rates.

Leased assets

Finance leases

Property, plant and equipment under finance leases are recognised as non-current assets in the statement of financial position. Leased property, plant and equipment are recognised initially at the lower of the present value of the minimum lease payments or their fair value. A corresponding liability is established and each lease payment allocated between the liability and the interest expense. Leased property, plant and equipment are depreciated on the same basis as equivalent property, plant equipment.

Operating leases

Operating lease payments, where the lessors effectively retain substantially all the risks and benefits of ownership of the leased property, plant and equipment, are included in the determination of the surplus or deficit in equal instalments over the lease term. The cost of improvements to leasehold property are capitalised and amortised over the unexpired period of the lease or the estimated useful life of the improvements, whichever is the shorter.

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, subject to impairment review by the directors on an annual basis.