2 NOVEMBER 2012 NEW ZEALAND GAZETTE, No. 132 3799

Loans and receivables

Cash and cash equivalents and trade and other receivables (excluding prepayments) are recorded at amortised cost using the effective interest rate method, less any impairment.

g) Financial liabilities

Financial liabilities are recognised when the Division becomes party to the contractual provisions of the instrument.

The Division derecognises financial liabilities when and only when the Division’s obligations are discharged, cancelled or expire.

Financial liabilities are classified as either financial liabilities at fair value through profit or loss or other financial liabilities.

Financial liabilities at fair value through profit or loss

Other financial liabilities relate to derivatives held at year end. All derivative liabilities are measured at fair value through profit or loss, except for derivatives that are designated effective cash flow hedges. Effective cash flow hedges are measured at fair value with the movement on these liabilities recorded within other comprehensive income in the Comprehensive Income Statement. Refer to (c) for the accounting policy on derivative financial instruments.

Other financial liabilities

Trade and other payables, other current liabilities that are financial instruments (unclaimed monies) and borrowings are initially measured at fair value, net of transaction costs. They are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective interest basis.

h) Impairment

At each reporting date, the Division reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Division estimates the recoverable amount of the cash-generating unit to which the asset belongs. A cash-generating unit is the smallest Division of assets for which there are separately identified cash flows.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised in the profit or loss component of the Comprehensive Income Statement immediately, unless the relevant asset is carried at fair value, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised in the profit or loss component of the Comprehensive Income Statement immediately, unless the relevant asset is carried at fair value, in which case the reversal of the impairment loss is treated as a revaluation increase.