Meridian Annual Report - Meridian Energy

83<
Meridian Energy Limited — Notes to the Financial Statements (continued)
To the extent that hedge accounting does not apply, there is potential for profit volatility resulting from the application of NZ IFRS.
The key impact of this change in accounting principle is to recognise fair value of financial instruments on the balance sheet classified accordingly as
assets or liabilities.
d) Deferred Tax
Under previous NZ GAAP income tax expense was calculated based on pre-tax accounting profits after adjustment for permanent differences. The tax
effect of timing differences, which occur when items were included or allowed for income tax purposes in a period different to that for accounting were
recognised at current taxation rates as deferred tax assets and deferred tax liabilities, as applicable.
Under NZ IAS 12: Income Taxes, deferred tax is determined using the balance sheet liability method in respect of temporary differences arising from
differences between the carrying amount of assets and liabilities in the financial statements and their corresponding tax bases.
The key impact of the balance sheet approach is the recording of an additional deferred tax liability on the fair value adjustments made in respect of
property, plant and equipment, financial instruments and intangibles carried at fair value.
e) Borrowings
Under previous NZ GAAP borrowings were stated at face value less unamortised discounts, premiums and prepaid interest. Costs directly attributable
to the issuance of debt were recorded as a prepaid asset and written off over the life of the related debt. Under NZ IFRS borrowings are recognised
initially at fair value, net of transaction costs. Borrowings not designated as hedged items are subsequently stated at amortised cost. Borrowings
designated as hedged items are stated including the gain or loss attributable to the hedged risk in accordance with NZ IAS 39: Financial Instruments.
The key impact of this change in accounting principle is to recognise borrowings including the gain or loss attributed to the hedged risk on the balance
sheet net of transaction costs.
f) Intangibles
NZ IAS 38: Intangible Assets requires computer software to be classified as an intangible asset when the software is not an integral part of the related
hardware. Under previous NZ GAAP Meridian classified software as equipment. The key impact of this change in accounting principle is to reclassify
software as an intangible asset.
In accordance with previous NZ GAAP goodwill is amortised on a straight-line basis over the period of expected benefit. Under NZ IFRS goodwill is no
longer amortised but tested for impairment at least annually or when indication of impairment exists.
The key impact of this change in accounting principle is to reverse previous amortisation and increase the carrying amount of goodwill.
g) Interest Income
Under previous NZ GAAP interest income was reported as part of operating revenue. Under NZIFRS, interest income has been reclassified from
operating revenue to net financing costs.
h) Gain/(Loss) on Sale of Property, Plant and Equipment
Under previous NZ GAAP gains and losses on sale of property, plant and equipment were reported as part of operating revenue and operating expenses
respectively. Under NZIFRS, these have been reclassified to be reported separately as net gain/(loss) on sale of property, plant and equipment.
i) Miscellaneous Charges
Under previous GAAP, some charges were offset against operating income and reported as part of operating income. This treatment has been
reconsidered under NZ IFRS and these charges are now reported as operating expense.