19 JANUARY 2005 NEW ZEALAND GAZETTE, No. 18

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1.7 Research and Investigation Expenditure

Research and investigation costs are charged to expense in the year in which they are incurred. Development expenditure is capitalised to the extent that future benefits are expected to accrue.

1.8 Employee Entitlements

Employee entitlements to salaries and wages, annual and long service leave and other benefits are recognised when they accrue to employees. Allowance is made for the present value of future staff retirement gratuity benefits. The calculations provide also for the probability of the employees completing the appropriate period of service.

1.9 Financial Instruments

Financial instruments carried in the statement of financial position include cash and bank balances, receivables and trade creditors. These instruments are generally carried at their estimated fair value. For example receivables are carried net of estimated doubtful receivables. The Company may also on occasions enter into foreign currency forward exchange contracts, in order to reduce exposure to fluctuations in foreign currency values in respect of equipment sourced offshore.

1.10 Foreign Currency Transactions

Transactions denominated in foreign currencies are translated into the reporting currency using the exchange rate in effect at the transaction date. Monetary items receivable or payable in a foreign currency, other than those resulting from short term transactions covered by forward exchange contracts, are translated at balance date at the closing rate. For transactions covered by short term forward exchange contracts, the rates specified in those contracts are used as the basis for measuring and reporting the transaction. Exchange differences on foreign currency balances are recognised in the Statement of Financial Performance.

1.11 Changes in Accounting Policies

In accord with the requirements of the Institute of Chartered Accountants of New Zealand's Financial Reporting Standard FRS-3 Marlborough Lines Limited revalued its network system assets on the basis of Depreciated Replacement Cost (DRC) as at 1 April 2003. Land and buildings were revalued to net current value as at 1 April 2003 as determined by a registered valuer as part of the same revaluation exercise. Network system assets were previously valued at historic cost less accumulated depreciation. Land and buildings were previously valued at historic cost with the exception of a small number of buildings previously revalued in 1985. Depreciation rates on buildings and network system assets have been adjusted to recognise expected economic life of the revalued asset.

Marlborough Lines Limited has also in this year's financial statements included distribution assets vested from consumers. The fair value of these assets together with capital contributions received has been credited to the statement of Financial Performance. The value of vested assets and capital contributions credited is $2.14m (2003 $280,378 Capital Contributions)

All other policies have been applied on a basis consistent with previous years.

Requirement 14 states that "information (if any) relating to financial and efficiency performance measures ... in respect of the previous 3 financial years ... must be adjusted so as to be consistent with accounting policies applied in the current financial year". Marlborough Lines Limited is not able to comply with this requirement as the value of vested assets (excluding Capital Contributions) was not captured for previous years.

2. OPERATING REVENUE