28 NOVEMBER 2008

NEW ZEALAND GAZETTE, No. 186

4865

TRANSPOWER NEW ZEALAND LIMITED LINES BUSINESS

customers. A significant stream of revenue that is received up-front but deferred over the service period is certain "new investment agreements".

New investment agreements are agreements between the Transpower Lines Business and customers regarding the building of certain customer required grid connection assets. New investment agreement revenue is recognised over the contract period.

Due to the service periods, in relation to above items, being greater than one year, revenue is shown on a yield to maturity basis gross of an inferred interest expense.

Certain money relating to the operation of the electricity market, specifically non-Transpower related ancillary services and losses and constraint payments, is "passed-through" and is therefore not recorded in the income statement. This pass-through occurs when the Transpower Lines Business does not carry out the service and it is deemed to act only as a collection agent.

d) Goods and Services Tax (GST)
The income statement and the cash flow statement are prepared so that all components are stated exclusive of GST. All items in the balance sheet are stated exclusive of GST with the exception of receivables and payables, which include GST.

e) Accounts Receivable
Accounts receivable are recorded initially at fair value and subsequently measured at amortised cost using the effective interest rate method, less any provision for doubtful debts.

f) Inventories
Stocks of materials are recorded at the lower of cost and net realisable value after due consideration for excess and obsolete items. Cost is determined on a weighted average basis.

g) Investments

Regular way financial asset purchases
All regular way financial asset purchases are accounted for on settlement date and not trade date.

Available for sale
Fonterra shares are designated as available for sale. This is because the shares are not held for trading, have no maturity date, are not quoted in an active market, and have no fixed or determinable payments.

Fair value is based on the annual price published by Fonterra, which is based on an independent valuation.

Fair value through profit or loss
Investments (excluding Fonterra shares and derivatives) are designated as fair value through profit or loss on the basis of preventing an “accounting mismatch”. The Transpower Lines Business’s net debt and derivatives are managed as one integrated portfolio; therefore, measuring derivatives and net debt on different bases would create a recognition inconsistency or accounting mismatch.

Fair values of quoted investments are based on prices current at balance date. If the market for a financial asset is not active, fair value is established by using valuation techniques including recent arm’s length transactions, reference to similar instruments, discounted cash flow analysis and option pricing models. Where the fair value of equity instruments cannot be reliably determined, the investments are recorded at historical cost.

h) Other Financial Assets at Fair Value through Profit or Loss
Other assets at fair value through profit or loss are derivatives. Derivatives are designated as held for trading unless they are designated as hedging instruments in a hedging relationship.