18 FEBRUARY 2008 NEW ZEALAND GAZETTE, No. 27 595

The cost of assets constructed by the Company includes all materials used in construction, direct labour and direct overheads. Where commitments arise offshore for capital purchases, the exchange rates are fixed forward to minimise foreign currency risk and the fixed forward rate is used to measure the transaction.
Plant property and equipment is depreciated in order to write off the cost less any estimated residual value over the expected economic lives. Depreciation rates are as follows:

• Buildings - Straight line over 40 to 70 years
• Reticulation System - Straight line over 15 to 70 years
• Plant Equipment and Motor Vehicles - Diminishing value basis over 2 to 20 years

1.7 Research and Investigation and Development Expenditure

Research and investigation costs are charged to expense in the year in which they are incurred. Development expenditure is capitalised to the extent that future benefits are expected to accrue.

1.8 Employee Entitlements

Employee entitlements to salaries and wages, annual and long service leave and other benefits are recognised when they accrue to employees. Allowance is made for the present value of future staff retirement gratuity benefits. The calculations provide also for the probability of the employees completing the appropriate period of service.

1.9 Financial Instruments

Financial instruments carried in the statement of financial position include cash and bank balances, receivables and trade creditors. These instruments are generally carried at their estimated fair value, for example receivables are carried net of estimated doubtful receivables. The Company may also on occasions enter into foreign currency forward exchange contracts, in order to reduce exposure to fluctuations in foreign currency values in respect of equipment sourced offshore. Also from time to time the Company will enter into interest rate swaps to mitigate interest rate risk in relation to the term debt facility. An indicative value (gain or loss) is provided in the notes to the financial statements on the basis of the current value of these instruments at year end.

1.10 Foreign Currency Transactions

Transactions denominated in foreign currencies are translated into the reporting currency using the exchange rate in effect at the transaction date.
Monetary items receivable or payable in a foreign currency, other than those resulting from short term transactions covered by forward exchange contracts, are translated at balance date at the closing rate. For transactions covered by short term forward exchange contracts, the rates specified in those contracts are used as the basis for measuring and reporting the transaction.
Exchange differences on foreign currency balances are recognised in the Statement of Financial Performance.

1.11 Statement of Cash Flows

The Statement of Cash Flows is prepared on a consistent basis with the Statement of Financial Position (GST exclusive).
The following are the definitions of the terms used in the Statement of Cash Flows.
a.) Cash is considered to be cash on hand and current accounts, at banks net of bank overdrafts.
b.) Investing activities are those activities relating to the acquisition holding and disposal of property, plant and equipment and of investments. Investments can include securities not falling within the definition of cash.
c.) Financing activities are those activities which result in changes in the size and composition of the capital structure of the Group. This includes both equity and debt not falling within the definition of cash. Dividends paid are included in financing activities.
d.) Operating activities include all transactions and other events that are not investing or financing activities.

1.12 Comparative Amounts

To ensure consistency with the current year, comparative figures have been reclassified where appropriate.

1.13 Changes in Accounting Policies

All accounting policies have been applied on a basis consistent with previous year.