9 DECEMBER 2009 NEW ZEALAND GAZETTE, No. 182 4381

Impairment of Property, Plant and Equipment and Intangible Assets

Assets that have a finite useful life are reviewed for indicators of impairment at each balance date. When there is an indicator of impairment the asset’s recoverable amount is estimated. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs to sell and value in use. If an asset’s carrying amount exceeds its recoverable amount, the asset is impaired and the carrying amount is written down to the recoverable amount. For revalued assets the impairment loss is recognised against the revaluation reserve for that class of asset. Where that results in a debit balance in the revaluation reserve, the balance is recognised in the profit and loss statement. For assets not carried at a revalued amount, the total impairment loss is recognised in the profit and loss statement.

The reversal of impairment loss on a revalued asset is credited to the revaluation reserve. However to the extent that an impairment loss for that class of asset was previously recognised in the profit and loss statement, a reversal of the impairment loss is also recognised in the profit and loss statement.

For assets not carried at a revalued amount, the reversal of an impairment loss is recognised in the profit and loss statement.

Financial Instruments

Financial instruments that potentially subject the Group to credit risk are cash and bank balances, debtors and investments. The Group is exposed to interest rate risk through the issuance of debt instruments. The Group is not subject to currency risk. Financial instruments are recognised in the balance sheet. Revenues and expenses in relation to financial instruments are recognised in the profit and loss statement. Unless covered by a separate policy, all financial instruments are shown at their fair value.

Financial Assets

Financial assets are initially recognised at fair value plus transaction costs, unless they are carried at fair value through profit or loss in which case the transaction costs are recognised in the profit and loss statement. Purchases and sales of financial assets are recognised on trade-date, the date at which the Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.

The Group classifies its financial assets into the following categories: loans, receivables and fair value through equity. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after balance date, which are included in non-current assets. The Group’s loans and receivables comprise cash and cash equivalents, debtors and other receivables and term deposits.

Financial assets at fair value through equity are those that are designated as fair value through equity or are not classified in any of the other categories above. They are included in non-current assets unless management intends to dispose of the investment within 12 months of balance date. The Group’s financial assets at fair value through equity comprise investments in quoted and unquoted shares.

After initial recognition these investments are measured at their fair value, with gains and losses recognised directly in equity except for impairment losses, which are recognised in the profit and loss statement.

The Group includes in this category investments that it intends to hold long term but which may be realised before maturity, and shareholdings that it holds for strategic purposes. On derecognition the cumulative gain or loss previously recognised in equity is recognised in the profit and loss statement.

The fair value of financial instruments trade in active markets is based on quoted market prices at the balance sheet date. The quoted market price used for financial assets held is the current bid price.

Financial Liabilities

Financial liabilities (creditors, income in advance, loans, bonds and deposits) are initially recognised at fair value. These are subsequently recognised at amortised cost.

Impairment of Financial Assets

At each balance date the Group assesses whether there is any objective evidence that a financial asset or group of financial assets is impaired. Any impairment losses are recognised in the profit and loss statement.

Impairment of a receivable is established when there is objective evidence that the Group will not be able to collect amounts due according to the original terms. Significant financial difficulties of the debtor, probability that the debtor will enter into bankruptcy, and default in payments are considered indicators that the asset is impaired. For debtors and other receivables, the carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the profit and loss statement. When the receivable is considered uncollectible, it is written off against the allowance account. Overdue receivables that have been renegotiated are reclassified as current (ie not passed due). For term deposits, impairment losses are recognised directly against the instrument’s carrying value.

Borrowings

Borrowings are initially recognised at their fair value net of transaction costs incurred. After initial recognition, all borrowings are measured at amortised cost using the effective interest method. Borrowings are classified as non-current liabilities due to the expectation that they will not be repaid in the next twelve months.

Borrowing costs are recognised as an expense in the period in which they are incurred.