Annual Report 2010 - Christchurch City Council

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Statement of accounting policies (continued) Financial statements Annual Report Christchurch Otautahi 2010 p145. Notes to financial statements 1. Statement of accounting policies (continued) Derivative financial instruments The Council uses derivative financial instruments to hedge its exposure to interest rate and foreign exchange risks arising from operational, financing and investment activities. In accordance with the treasury policies of the respective group entities, the Council does not hold or issue derivative financial instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments. Derivative financial instruments are recognised initially at fair value. Subsequent to initial recognition, derivative financial instruments are stated at fair value. The gain or loss on re-measurement to fair value is recognised immediately in profit or loss. However, where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of the item being hedged (see Hedging policy). The fair value of interest rate swaps is the estimated amount that the group would receive or pay to terminate the swap at the balance sheet date, taking into account current interest rates and the current creditworthiness of the swap counterparties. The fair value of forward exchange contracts is their quoted market price at the balance sheet date, being the present value of the quoted forward price. Hedging Derivatives are first recognised at fair value on the date a contract is entered into and are subsequently remeasured to their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Council designates certain derivatives as either; (1) hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); or (2) hedges of highly probable forecast transactions (cash flow hedges). The Council documents the relationship between hedging instruments and hedged items at the inception of the transaction, as well as its risk management objective and strategy for undertaking various hedge transactions. The Council also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items. (i) Fair value hedge Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the profit and loss, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. (ii) Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in equity in the hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in the profit and loss. Amounts accumulated in equity are recycled through profit or loss in the periods when the hedged item will affect profit or loss (for instance when the forecast sale that is hedged takes place). However, when the forecast transaction that is hedged results in the recognition of a non financial asset (for example, inventory) or a non financial liability, the gains and losses previously deferred in equity are transferred from equity and included in the measurement of the initial cost or carrying amount of the asset or liability. When a hedging instrument expires or is sold or cancelled, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised through profit and loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the statement of comprehensive income. (iii) Derivatives that do not qualify for hedge accounting Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately in the profit and loss.
p146. Annual Report Christchurch Otautahi 2010 Financial statements Statement of accounting policies (continued) Notes to financial statements 1. Statement of accounting policies (continued) Property, plant and equipment The following assets (except for investment properties) are shown at fair value, based on periodic valuations by external independent valuers, less subsequent depreciation: • Land (other than land under roads) • Buildings • Electricity distribution network • Airport sealed surfaces • Infrastructure assets • Heritage assets • Works of art Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. Valuations are performed with sufficient regularity to ensure revalued assets are carried at a value that is not materially different from fair value. All other property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains/losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Council and the cost of the item can be measured reliably. All other repairs and maintenance are charged to profit and loss during the financial period in which they are incurred. Where the Council has elected to account for revaluations of property, plant and equipment on a class of asset basis, increases in the carrying amounts arising on revaluation of a class of assets are credited directly to equity under the heading revaluation reserve. However, the net revaluation increase shall be recognised in profit or loss to the extent it reverses a net revaluation decrease of the same class of assets previously recognised in profit or loss. Land is not depreciated. Depreciation on other assets is calculated using the straight line method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives. Assets to be depreciated include: Operational Assets: Buildings Office and computer equipment Mobile plant including vehicles Buses Sealed surfaces (other than roads) Container cranes Harbour structures Seawalls Telecommunications infrastructure Electricity distribution system Electricity load control equipment Leasehold land improvements Library books Vessels Resource consents and easements Infrastructure Assets: Formation Pavement sub-base Basecourse Footpaths and cycleways Surface Streetlights and signs Kerb, channel, sumps and berms Landscape/medians Drain pipes/culverts/retaining walls Bridges Bus shelters and furniture Water supply Water meters Stormwater Waterways Sewer Treatment plant Pump stations 1-100 yrs 1-10 yrs 2-30 yrs 17-26 yrs 9-100 yrs 30 yrs 3-50 yrs 100 yrs 12-50 yrs 60 yrs 60 yrs 5-100 yrs 3-8 yrs 5-25 yrs 5-10 yrs Not depreciated Not depreciated 40-120 yrs 20-80 yrs 1-25 yrs 15-40 yrs 80 yrs 8-80 yrs 20-100 yrs 70-100 yrs 15-30 yrs 55-130 yrs 20-25 yrs 20-150 yrs 15-120 yrs 50-150 yrs 15-100 yrs 10-100 yrs Restricted Assets: Planted areas Reserves – sealed areas Reserves – structures Historic buildings Art works Heritage assets 5-110 yrs 10-40 yrs 25-150 yrs 100 yrs 1000 yrs 1000 yrs
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Annual Report 2010 - Christchurch City Council

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