3 AUGUST 2006

NEW ZEALAND GAZETTE, No. 91

2741

Notes to the Consolidated Financial Statements for the Year Ended 31 March 2006

Basis of Preparation

The Community Trust of Otago was incorporated as a charitable trust in accordance with the provisions of the Community Trusts Act 1999.

These are the consolidated financial statements of The Community Trust of Otago and its wholly owned subsidiaries: The Community Trust Amateur Sports Co Limited, The Community Trust District Improvement Company Limited and Fillmor House Limited.

The financial statements have been prepared to comply with the Financial Reporting Act 1993 and comprise consolidated statements of the following: Financial performance, movement in trust funds, financial position, cashflows, as well as notes to these financial statements.

The financial statements are prepared on the basis of historical cost, except for the revaluation of managed funds.

Specific Accounting Policies

Income

Income from managed funds includes both realised and unrealised income and is recorded gross of fund management expenses.

Interest is recognised on an accrual basis.

Foreign Currencies

All amounts denominated in foreign currencies are converted to New Zealand dollars at balance date. All realised and unrealised gains and losses are recognised in the statement of financial performance.

Taxation

With effect from 1 April 2004, community trusts, including The Community Trust of Otago, became exempt from income tax pursuant to section CW of the Income Tax Act 2004.

Fillmor House Limited is the only subsidiary liable for income tax. Income tax is recognised on the surplus available for distribution before taxation, adjusting for differences between taxable and accounting income. Future tax benefits are not recognised unless realisation of the asset is virtually certain.

Fixed Assets

Fixed assets are recorded at cost less accumulated depreciation.

Depreciation

Depreciation has been charged to the financial statement using rates which will write off the cost of assets less their estimated residual value over their estimated economic lives. The depreciation rates used are:

Buildings 4% diminishing value

Office furniture and equipment 12-48% diminishing value

Donations Payable

Donations payable represents donations approved by the trustees but unpaid as at balance date.

Receivables

Receivables are stated at estimated realisable value after providing against debts where collection is doubtful. Bad debts are written off during the period in which they are identified.

GST

Subsidiaries of The Community Trust of Otago, Fillmor House Limited and The Community Trust District Improvement Company Limited are registered for GST. Accordingly, their financial performance and financial position have been consolidated within the accounts on a GST exclusive basis. Subject to the above, the trust is not registered for GST purposes and the financial statements have been prepared on a GST inclusive basis.

Basis of Consolidation

The Community Trust of Otago, Fillmor House Limited, The Community Trust District Improvement Company Limited and The Community Trust Amateur Sports Company Limited have been consolidated using the purchase method of consolidation.

Investments

Investments are valued at period end market value. All realised and unrealised gains and losses are recognised in the statement of financial performance.

Hedging Instruments

The trust, through its fund managers, enters into hedging instruments such as forward exchange contracts. These are converted to the New Zealand dollar rate at balance date with all realised and unrealised gains and losses being recognised in the statement of financial performance as income from managed funds.

Statement of Cashflows

Cash comprises cash at bank and call deposits but does not include cash or deposits held by the fund managers.

Financial Instruments

All assets and liabilities of the trust with the exception of fixed assets are financial instruments and are recognised in the statement of financial position. All financial instruments are recorded at market value or fair value or are not materially different from market value or fair value.

Fund managers utilise financial instruments with off balance sheet risk to reduce exposure to fluctuations in foreign currency exchange rates. Forward exchange contracts are entered into to hedge foreign currency transactions. These are converted to the New Zealand dollar rate at balance date with all realised and unrealised gains and losses being recognised in the statement of financial performance.