10 JUNE 2004

NEW ZEALAND GAZETTE, No. 68

1623

● the base currency value of the payment or receipt made in consideration of entering into the forward contract
= NZD $10,000;
● the base currency value of the non-base currency payment to be made under the contract valued at the forward rate
= NZD $1,689,475; and
● the base currency value of the non-base currency payment to be made under the contract valued at the contract rate
= NZD $1,667,416.

So, the expected NZD net amount from the forward contract is NZD $12,059 (i.e. the difference between the commitments
under the forward contract measured at the contract rate (NZD $1,667,416) and the commitments under the forward contract
measured at the forward rate (NZD $1,689,475) less the payment made to acquire the forward contract).

The payments in relation to the forward contract are summarised in the table below. The expected NZD net amount is spread
using the yield to maturity method recommended in Determination G3 and allocated to the income year on a daily basis
consistent with Determination G1A.

At the first balance date – 30 June 2005

Expected component = (61/365 × $4,852) = $811.

Unexpected component = 0.

The amount of $811 is gross income at the first balance date.

At the second balance date – 30 June 2006

Expected component = (61/365 × $7,207) + (304/365 × $4,852) = $1,204 + $4,041 = $5,245.

Unexpected component = 0.

The amount of $5,245 is gross income at the second balance date.

At the final balance date – 30 June 2007

In the 30 June 2007 income year, the base price adjustment given in section EH 47 of the Act is calculated by applying the
formula:

consideration – income + expenditure + amount remitted

where:

consideration is the consideration paid or payable to the company less the consideration paid or payable by the company
= 1,000,000/0.557 − 1,667,416 – 10,000
= 1,795,332 − 1,677,416
= NZD $117,916

income is all the amounts of gross income derived in previous income years
=0

expenditure is expenditure incurred in previous income years
= NZD $24,403

amount remitted is the amount of consideration remitted
= 0.

Therefore, the base price adjustment = $117,916 − $6,056 + 0 + 0 = $111,860 and since this is positive, the amount of NZD
$111,860 is gross income of the New Zealand corporate for the 30 June 2007 income year.

Example D: Purchaser of base currency (USD); contract rate is not equal to the market rate

Assuming that in the previous example, the corporate chooses USD as the base currency for the forward contract.

At the time the contract was entered into – 30 April 2005

Since the base currency is USD, the base currency payments expected at the commencement date is:

● the base currency value of the payment or receipt made in consideration of entering into the forward contract
= NZD $10,000 × 0.6149 = USD $6,149;

● the base currency value of the non-base currency payment to be made under the contract valued at the forward rate
= NZD $1,667,416 × 0.5919 = USD $986,944;

● the base currency value of the non-base currency payment to be made under the contract valued at the contract rate
= NZD $1,667,416 × 0.5997 = USD $1,000,000.

The expected base currency payments (summarised in column 4 of the table below) are converted into NZD using the relevant
forward rates. The expected NZD net amount of NZD $12,057 is then spread over the term of the forward contract using the
yield to maturity method recommended in Determination G3 and allocated to the income year on a daily basis consistent with
Determination G1A.