Annual report financial statements - Meridian Energy

Notes to the Financial Statements FOR THE YEAR ENDED 30 JUNE 2011
Significant Accounting Policies
The following significant accounting
policies have been adopted in the
preparation and presentation of the
financial report:
Basis of Consolidation
Subsidiaries
Subsidiaries are those entities controlled
directly or indirectly by the Company.
Control is achieved where the Company
has the power to govern the financial and
operating policies of an entity so as to
obtain benefits from its activity.
The purchase method is used to account
for the acquisition of subsidiaries by the
Company. The results of subsidiaries
acquired or disposed of during the year
are included in the consolidated income
statement from the effective date of
acquisition or up to the effective date
of disposal, as appropriate.
Where necessary, adjustments are made
to the financial statements of subsidiaries
to bring their accounting policies in
line with those used by other members
of the Group. All material intra-group
transactions, balances, income and
expenses are eliminated on consolidation.
Business combinations that occurred prior
to the date of transition to NZ IFRS have
not been re-stated retrospectively.
Common Control
Amalgamation Transactions
Under a business combination where
entities under common control are
amalgamated, the carrying values of
the assets and liabilities of the entities
are combined, with any gain or loss on
amalgamation recognised in equity.
Operating Segments
Operating segments are reported
in a manner consistent with internal
reporting provided to the chief operating
decision-maker. The chief operating
decision maker, who is responsible for
allocating resources and assessing
performance of the operating segments,
has been identified as the Chief Executive.
Joint Ventures
Joint venture arrangements that involve
the establishment of a separate entity
in which each venturer has an interest
where it has entitlement to a share of the
outcome (profit/loss) of the activities of
the joint venture and which are subject to
joint control (unanimous decision-making)
by the venturers are referred to as jointly
controlled entities. Meridian reports its
interest in jointly controlled entities using
the equity method of accounting.
Under the equity method, investments
in joint ventures are carried in the
consolidated Statement of Financial
Position at cost as adjusted for
post-acquisition changes in the
Company’s share of the net assets
of the joint venture, less any impairment
in the value of individual investments.
Losses of a joint venture in excess of the
Company’s interest in that joint venture
(which includes any long-term interests
that, in substance, form part of the
Company’s net investment in the joint
venture) are not recognised unless there
is a legal or constructive obligation
incurred by Meridian on behalf of the
joint venture.
Jointly Controlled Assets
Where Meridian has an interest in a jointly
controlled asset Meridian recognises its
share using the proportionate consolidation
method. Under this method Meridian
recognises its share of the jointly controlled
asset according to the nature of the asset,
any liabilities incurred with respect of the
joint venture and any income or expenses
from its share of the joint venture or
incurred in respect of the joint venture.
Foreign Currency
Transactions denominated in a foreign
currency are converted at the exchange
rate at the date of the transaction.
Foreign currency monetary assets
and liabilities at reporting date are
translated at the exchange rate
prevailing at reporting date.
Assets and liabilities of overseas entities,
whose functional currency is other than
NZD, are translated at the closing rate
at balance date. The revenues and
expenses of these entities are translated
at rates approximating the exchange
rates at the dates of the transactions.
Exchange differences arising on the
translation of the financial statements
of these entities are recorded in the
foreign currency translation reserve.
Such translation differences are recognised
in the income statement in the period in
which the foreign operation is disposed of.
Property, Plant and Equipment
Meridian’s generation structures and
plant assets (including land and buildings)
are stated in the Statement of Financial
Position at their revalued amounts,
being the fair value at the date of
revaluation, less any subsequent
accumulated depreciation and subsequent
impairment losses. Revaluations are
performed by an independent valuer with
sufficient regularity to ensure that the
carrying amount does not differ materially
from that which would be determined using
fair values at the balance date.
As disclosed in Note 19, the fair value of
generation assets was determined using
an income approach. In using the income
approach, consideration was given to
application of either net present value
of expected future cash flows or
capitalisation of earnings approach,
whichever was more appropriate.
Any revaluation increase arising on the
revaluation is credited to the revaluation
reserve, except to the extent that it
reverses a revaluation decrease for the
same asset previously recognised in
the income statement, in which case
the increase is credited to the income
statement to the extent of the decrease
previously charged. A decrease in carrying
amount arising on the revaluation is
charged to the income statement to the
extent it exceeds the balance, if any,
held in the revaluation reserve relating
to a previous revaluation of that asset.
Accumulated depreciation at revaluation
date is eliminated against the gross
carrying amount so that the carrying
amount after revaluation equals the
revalued amount.
Subsequent additions to generation
structures and plant assets are recorded
at cost, which is considered fair value,
including costs directly attributable to
bringing the asset to the location and
condition necessary for its intended
service. The cost of assets constructed
includes all expenditure directly related
to specific contracts including financing
costs where appropriate.
Financing costs for qualifying assets
are capitalised at the average cost of
borrowing. Costs cease to be capitalised
as soon as the asset is ready for use.
All other property, plant and equipment
are stated at cost less accumulated
depreciation and any accumulated
impairment losses.
The gain or loss arising on the disposal
or retirement of an item of property,
plant and equipment is determined
as the difference between the sales
proceeds and the carrying amount of the
asset and is recognised in the income
statement. Any balance attributable to
the disposed asset in the asset revaluation
reserve is transferred to retained earnings.
MERIDIAN ENERGY LIMITED
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