194

NEW ZEALAND GAZETTE, No. 9

17 JANUARY 2005

Land and buildings, and distribution system assets, are revalued by independent registered valuers on a three-yearly basis. Valuations will be undertaken more regularly if necessary to ensure no individual item of property, plant and equipment within a class is included at a valuation that is not materially different from its fair value.

Additions between revaluations are recorded at cost.

(v) Depreciation
Depreciation is charged on a straight line basis so as to write off the cost or valuation of the fixed assets to their estimated residual value over their expected economic lives. The estimated economic lives are as follows:-

• Distribution system:
  • Lines/transformers/substations 45-70 years
  • Distribution switchgear 35-55 years
  • Meters/communication/SCADA 5-15 years
• Buildings
  • structural 50 years
  • electrical and mechanical 20 years
  • other 10 years
• Motor vehicles 5-10 years
• Plant and equipment 3-20 years

(vi) Inventories
Inventories and work-in-progress are stated at the lower of cost and net realisable value. The cost of inventories is principally determined on a weighted average basis. The cost of work-in-progress includes materials, and a portion of direct labour and production overhead appropriate to the stage of completion attained.

(vii) Accounts Receivable
Accounts Receivable are stated at estimated realisable value after providing against debts where collection is doubtful.

(viii) Work in Progress
The value of work in progress is determined using the percentage of completion method. Profits are recognised only when the outcome of the contract can be reliably estimated. Foreseeable losses on a contract are recognised in the Statement of Financial Performance immediately.

(ix) Taxation
The taxation charge against the profit for the year is the estimated liability in respect of that profit after allowance for permanent differences and timing differences not expected to reverse in future periods. This is the partial basis for the calculation of deferred taxation. The Company follows the liability method of accounting for deferred taxation. Future taxation benefits attributable to losses carried forward, or timing differences, are recognised in the financial statements only where there is virtual certainty of realisation.

(x) Research and Development Costs
Research and development costs are normally expensed in the period incurred except that development costs are deferred where future benefits are expected to exceed these costs. Deferred development costs are amortised over future periods on a basis related to expected future revenue.

(xi) Financial Instruments
The Line Company is party to financial instrument arrangements as part of everyday operations. These instruments include bank accounts, accounts receivable, creditors, and short term deposits. Revenues and expenses in relation to all financial instruments are recognised in the Statement of Financial Performance. All financial instruments are recognised in the Statement of Financial Position.

Northpower has limited its exposure to credit risk in respect of its investments by only investing in institutions with a high credit rating, and limiting the proportion that can be invested in any one institution. Northpower believes this policy reduces the risk of any loss which could arise from its investing activities.