10 JUNE 2004

NEW ZEALAND GAZETTE, No. 68

1611

In the 2003-04 income year – 30 June 2004

The gross income or expenditure under the discounted bond has been calculated in previous income years according to Determination G9A. The corporate has already recognised gross income of $1,398,812 in the 30 June 2003 income year. However, the corporate has elected to adopt this from the 2003-04 income year. The expected NZD net amount to be spread under this must, therefore, be determined at the end of the 2003-04 income year. The following table summarises the actual payments from 1 September 2002 to the end of the 2003-04 income year and the expected NZD payments for the remaining term of the financial arrangement. These expected NZD payments were calculated on the basis of the forward rates at 30 June 2004 out to the relevant dates. For the sake of simplicity, these forward rates are assumed to be the same, in this example, as those measured at the time of contract. In practice, however, the forward rates measured at the time of contract are rarely the same as the forward rates measured at a later date.

At the end of the 2003-04 income year, the expected NZD net amount in relation to the discounted bond is NZD $8,743,386, representing an annual yield of approximately 12%. The expected NZD net amount is spread over the term of the financial arrangement in a way consistent with Determination G3.

The transitional adjustment in the 2003-04 income year is:

a – b – c + d

where:

a is the sum of all amounts that would have been income from the time the financial arrangement was entered into until the end of the 2003-04 income year

= 845,427 + 849,980 + 855,170 + 861,071 × 121/184
= $3,116,825

b is the sum of all amounts that would have been expenditure from the time the financial arrangement was entered into until the end of the 2003-04 income year

= 0

c is the sum of all income in respect of the financial arrangement since it was acquired until the end of the previous income year

= $1,398,812

d is the sum of all expenditure in respect of the financial arrangement since it was acquired until the end of the previous income year

= 0.

The net amount of NZD $1,718,013 is gross income in the 2003-04 income year.

The income or expenditure in relation to the discounted bond in subsequent income years will be calculated as in Example A. The expected component of the gross income or expenditure is determined as summarised in the table above while the unexpected component is calculated as in Example A.

Example C: Multi-currency loan facility with early repayment

A corporate borrower has a multi-currency loan facility that allows funds to be drawn down in any of three currencies—US Dollars (USD), Sterling (GBP) and Deutschemarks (DM). The total initial amount of the loan is USD $100,000,000 and may be taken in any combination of the three currencies. The term of the loan facility is 10 years and any tranche may be repaid at any time by payment of the principal outstanding. The mixture of currencies can be changed at each 6-monthly interest payment date. Interest is payable in the currency of the principal amount at rates depending on the currency as shown below. The loan is initially drawn down on 1 October 2004 in the configuration below. Interest is payable 6-monthly in arrears on 1 February and 1 August. The corporate borrower has a 31 March balance date. Its base currency is NZD.