29 NOVEMBER 2004 NEW ZEALAND GAZETTE, No. 155 3827

2.3 STATEMENT OF ACCOUNTING POLICIES continued

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 item of property, plant and equipment is less than its carrying amount, the item of property, plant and equipment 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 property, plant and equipment’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 cost of the property, plant and equipment, or the revalued amounts, to their residual values over their estimated useful lives as follows:

| Buildings | 50 – 100 years |
| Distribution systems | 15 – 100 years |
| Motor vehicles and mobile equipment | 3 – 20 years |
| Computer and telecommunication equipment | 3 – 40 years |
| Other plant and equipment | 5 – 20 years |

Accounts receivable

Receivables are stated at estimated realisable value after providing against debts where collection is doubtful.

Income tax

The income tax expense recognised for the period is based on the operating surplus or deficit before taxation adjusted for permanent differences between accounting and tax rules.

The impact of all timing differences between accounting and taxable income is recognised as a deferred tax liability or asset. This is the comprehensive basis for the calculation of deferred tax under the liability method.

A deferred tax asset, or the effect of losses carried forward that exceed the deferred tax liability, is recognised in the financial statements only where there is the virtual certainty that the benefit of the timing differences, or losses, will be utilised.

Goods and Service 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.

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 is depreciated on the same basis as equivalent owned property, plant and 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 net surplus or deficit in equal instalments over the lease term.

Leasehold Improvements

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.