2276 NEW ZEALAND GAZETTE, No. 87 2 AUGUST 2007

Cash flow from financing activities—
Cash was applied to:

Donations paid from capital (294) (1,089)
Net cash used in financing activities (294) (1,089)

Net increase in cash and cash equivalents (561) 580
Cash and cash equivalents at beginning of the financial year 632 52
Cash and cash equivalents at the end of the financial year 71 632

The Waikato Community Trust Incorporated Notes to and Forming Part of the Consolidated Financial Statements for the Year Ended 31 March 2007

1. Statement of Accounting Policies

Basis of Reporting

The financial statements presented here are for the reporting entity The Waikato Community Trust Incorporated.
The financial statements have been prepared in accordance with the requirements of the New Zealand Institute of Chartered Accountants for the measurement and reporting of profit on a historical cost basis with the exception of investments which are recorded at market value. The reporting currency is in New Zealand dollars.

Specific Accounting Policies

The following specific accounting policies which materially affect the measurement of financial performance and the financial position have been applied:

(a) Reserves Policy

Set out below are the reserving policies. They were adopted by the trust in 1998 and have been amended following reviews in 2000, 2001, 2003, 2004 and 2005 to reflect investment performance.

Trust Funds

In order to prudently manage the financial affairs of the trust, the trustees have adopted the following policies for accounting for the trust’s capital and retained earnings.

• Capital

  Following the sale of the trust’s shares in Trust Bank New Zealand Limited in April 1996, the trustees agreed that the value of the trust at that time should be maintained for the benefit of current and future generations living in the Waikato region. For this purpose, the trustees agreed that $169,800,000 would be considered as the “initial capital” of the trust.

  The “initial capital value” is increased each year to show the “base capital value” which reflects growth due to inflation and regional growth. An amount was transferred from retained earnings in 1997 to increase the capital of the trust from its original amount of $21,316,622 to the “initial capital value” and to provide for growth during the 1997 year. Each year, an appropriate amount is transferred from income to allow for growth due to inflation and regional population growth. Transfers were not made in the 2003, 2004 and 2005 years due to insufficient returns on investments. Following a sufficient increase in investment performance, an appropriate amount has been added to base capital in 2006 for the 2003 to 2006 years.

• Investment Fluctuation Reserve

  The trustees have adopted an investment strategy with a targeted long-term annual rate of return of 6.8% (2006 – 6.8%) of the trust’s “base capital value”. Recognising that actual returns are likely to fluctuate from year to year, the trust holds the variation from the target in an investment fluctuation reserve. In years when investment returns are less than the target, an appropriate amount is transferred to income.

  At the trust’s current risk profile, the investment fluctuation reserve should have a lower limit of 9% (2006 – 9%) and an upper limit of 25% (2006 – 25%) of the “base capital value”. When the reserve falls below the lower limit, the level of expenditure and distributions are reviewed by the trust. If the reserve exceeds the upper limit, any further excess returns are transferred to the donation reserve.

• Donation Reserve

  The trust’s present donation policy is to distribute annually as donations 4.25% (2006 – 3.5%), subject to the investment fluctuation reserve policy, of the “base capital value”. The trustees recognise that for a number of reasons this might not always be achievable and that there will inevitably be fluctuations between the donations distributed and the actual target.

  The surplus or deficit after transfers to the capital and the investment fluctuation reserve is held in the donation reserve and represents the trust’s retained earnings or accumulated losses. It is the trust’s intention to apply the surplus in this fund to future donations or recover deficits from future income.

(b) Property, Plant and Equipment

All property, plant and equipment has been recorded at cost price less accumulated depreciation.

(c) Depreciation

Depreciation of property, plant and equipment, other than land, art and artefacts, is calculated using taxation rates so as to allocate the cost of the assets over their useful lives. The following rates are used:

• Office equipment and furniture: 12.0-48.0% Diminishing value
• Motor vehicles: 31.2% Diminishing value
• Buildings: 4.0-31.2% Diminishing value

(d) Donations

Donations made are included in the statement of financial performance when approved by the trustees.