4922

NEW ZEALAND GAZETTE, No. 170

12 DECEMBER 2006

The fair values of financial derivatives are determined by reference to the market quoted rates input into valuation models for interest and currency swaps, forwards and options. Changes in fair value of derivatives are recognised:

• For fair value hedges which are highly effective, the movements are recorded in the income statement alongside any changes in the fair value of the hedged items;
• For cash flow hedges that are determined to be highly effective to the extent the hedges are effective, the movements are recognised in equity with the ineffective portion recognised in the income statement; and for those that are ineffective the movements are recognised in the income statement;
• For hedges of net investments in foreign entities that are highly effective, the effective portion of the movements is recorded in equity (currency translation reserve) and the ineffective portion is recognised in the income statement.
• All other movements in the fair value of derivative financial instruments are recorded in the income statement.

Hedge accounting is discontinued prospectively when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. At that point in time, if the forecast transaction is still expected to occur, any cumulative gain or loss on the hedging instrument is recognised in equity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the income statement for the period.

k) Employee Entitlements

Provision is made for benefits accruing to employees in respect of wages and salaries, annual leave, long service leave and sick leave when it is probable that settlement will be required and they are capable of being measured reliably.

Provisions made in respect of employee benefits expected to be settled within 12 months, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement.

Provisions made in respect of employee benefits which are not expected to be settled within 12 months are measured as the present value of the estimated future cash outflows to be made by the consolidated entity in respect of services provided by employees up to reporting date.

l) Defined Superannuation Plans

For Defined Contribution Superannuation Plans, the Group recognises and expenses the obligation during the period they arise.

There are a small number of employees that are part of a state Defined Benefit Superannuation plan. The Group has no legal or constructive obligation to pay future benefits, the Crown guarantees these benefits, as a result the plans are accounted for as a defined contribution plan.

m) Impairment

Intangible assets that have indefinite useful lives are not subject to amortisation and are assessed for impairment at each reporting date. If the estimated recoverable amount of an asset is less than its carrying amount, the asset is written down to its estimated recoverable amount and an impairment loss is recognised in the statement of financial performance.

A cash generating unit is the lowest group of assets for which there are separately identified cash flows.