28 NOVEMBER 2005 NEW ZEALAND GAZETTE, No. 197 4949

Vector Limited & Subsidiaries

Gas Distribution Activities

Statement of Accounting Policies (continued)

For the year ended 30 June 2005

i) Property, plant and equipment (continued)

Estimated recoverable amount is the greater of the estimated amount from the future use of the property, plant and equipment and its ultimate disposal, and its net market value. Annual impairment reviews are undertaken for all property, plant and equipment.

Assets acquired as part of a business acquisition are recognised at fair value calculated at the effective date of acquisition in accordance with the Gas (Information Disclosure) Regulations 1997.

j) Depreciation

Depreciation of property, plant and equipment, other than freehold land, is calculated on a straight line basis so as to expense the cost of the property, plant and equipment, or revalued amount, less any expected residual value of the property, plant and equipment to the statement of financial performance over its useful economic life.

| Buildings | 40 - 100 years |
| Distribution systems | 15 - 100 years |
| Motor vehicles and mobile equipment | 3 - 20 years |
| Other plant and equipment | 5 - 20 years |

k) Leased property, plant and equipment

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 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 expensed to the statement of financial performance in equal instalments over the lease term.

Leasehold improvements

The cost of improvements to leasehold property are capitalised and depreciated over the unexpired period of the lease or the estimated useful life of the improvements, whichever is the shorter.

l) Provisions

Employees entitlements

Employee entitlements to salaries and wages, annual leave, long-term leave and other benefits are recognised when they accrue to employees.

Onerous contracts

Where the benefits expected to be derived from a contract are lower than the unavoidable costs of meeting the obligation under the contract, a provision is recognised. The provision is stated at the present value of the future net cash outflows expected to be incurred in respect of the contract. Subsequent to initial recognition, the provision is expensed to the statement of financial performance, over the life of the contract as the services are delivered.

Other provisions

A provision for claims is recognised as a liability where a constructive or legal obligation exists to settle items in the foreseeable future. A provision is recognised where the likelihood of a resultant liability is considered more probable than not. Where the likelihood of a resultant liability is more than remote but insufficient to warrant a provision, such events are disclosed as contingent liabilities.

m) Financial instruments

Derivative financial instruments are used within predetermined policies and limits in order to manage the 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.

The Vector group does not engage in speculative transactions or hold derivative financial instruments for trading purposes.